Article: Friday, 17 June 2016
How can philanthropic organisations make sure their strategic decisions take account of donors’ and beneficiaries’ interests? To find out, PhD candidate Pushpika Vishwanathan from Rotterdam School of Management, Erasmus University (RSM) studied 34 Dutch philanthropic organisations. Her results and recommendations provide these organisations with guidance to improving their corporate governance policies and ensure all their stakeholders’ voices are heard. She defends her thesis on 23 June.
Philanthropic organisations are a special breed when it comes to corporate governance, says Vishwanathan. Their stakeholders differ from those of companies – and even from those of other, not-for-profit organisations, she notes. Yet policy recommendations for best practices in philanthropic organisations are often imported directly from corporate settings.
Typically, these guidelines and codes of conduct provide helpful pointers about what to disclose in annual reports, or how to guarantee boards’ independence and gender diversity. While they are useful, they do not address what makes stakeholder management in philanthropic organisations so challenging.
It’s shareholders who push organisations’ executive management to reduce financial risk and maximise return-on-investment (ROI), but philanthropic organisations are not owned by shareholders. Instead, they are financed by donors who want to see delivery of a service they consider to be important to society.
It’s challenging to translate the interests of donors into policy because they are not always communicative, visible or approachable by the philanthropic organisation, Vishwanathan found in her research. Donors might want to remain anonymous, they may have died, or there may be a large number of small donors who don’t want to be involved, or cannot be involved after donating.
Customers voting with their wallets can influence the management of for-profit organisations. But philanthropic organisations give away services and products to their ‘customers’, the beneficiaries, so the usual market mechanisms – such as sales figures – that can inform strategic decisions are non-existent.
Understanding what beneficiaries want can be complicated by language barriers between beneficiaries and management, the researcher found. Other complications include beneficiaries living in a different region, or unidentifiable individually by the philanthropic organisation. Some beneficiaries cannot communicate at all, as is the case with philanthropic organisations that protect nature or animals. The interests of these beneficiaries are at risk of becoming underrepresented when the organisation makes and evaluates strategic decisions.
After group discussions with members of philanthropic organisations, and studying their annual reports and websites, Vishwanathan found that philanthropic organisations vary in the extent to which they can involve their donors and beneficiaries in decision making and later, in evaluating those decisions.
Based on this varying degree of what she calls ‘involvability’ of donors and beneficiaries, Vishwanathan describes four different types of philanthropic organisations. For each of the four types, she advises actions for philanthropic organisations to take in order to restore the balance in corporate governance, and enable the voices of all of their stakeholders to be heard.
Vishwanathan calls organisations whose donors and beneficiaries have a low degree of involvability ‘free spirits’. They experience relatively little pressure from stakeholders, and as a result are at risk of losing sight of donors’ and beneficiaries’ interests. To restore the balance, these organisations can become more active in gathering information and actively research what their stakeholders want, Vishwanathan says.
Philanthropic organisations that are very donor-oriented she calls ‘gold minders’. These organisations risk letting opportunities for funding decide the organisational focus, thereby losing sight of beneficiary interests. This could lead to funding going to projects that do not serve the interests of the target group. Vishwanathan advises organisations like this to restore the power balance by expanding their donor base, or by separating the programme department from the fundraising department.
The governance decisions of ‘peace keepers’ are constantly challenged by highly involved donors and beneficiaries, which inevitably leads to long negotiations and compromises. To counter this and remain true to their chosen missions, these philanthropic organisations could centralise decision making in one place, instead of in multiple local offices. This reduces the involvement of their stakeholders.
Finally, ‘caregivers’ give their very vocal beneficiaries a big say in decision making but run the risk of starting projects that no donor would be interested in funding. Vishwanathan says caregivers could improve the involvement of donors by offering very detailed annual reports, and applying for good governance certification. At least, these practices keep donors better informed about the activities of the philanthropic organisation, she says.
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