Crisis, failure and recovery and the governance of public and nonprofit organizations: the effects of participation

Mordaunt, Jill; Cornforth, Chris and Otto, Shirley (2004). Crisis, failure and recovery and the governance of public and nonprofit organizations: the effects of participation. In: 6th International Society for Third Sector Research Conference,, 11-14 Jul 2004, Toronto, Canada.



Good governance is an area of increasing concern and interest in both the private and the public and nonprofit sectors. Over the last decade, in the wake of a series of major corporate scandals of which the likes of Enron and Worldcom are only two of the latest, there has been a growing concern to make board stewardship of public companies more effective. During this period in the UK there have been a string of major reports and reforms aimed at improving the self-regulation of companies by their boards (e.g. Cadbury, 1992; Greenbury, 1995; Hampel, 1998). The most recent (Higgs, 2002) proposes a number of changes to strengthen the role of non-executive directors in the interests of increased effectiveness and accountability. Similar concerns exist about the effectiveness of nonprofit boards. Successive British governments, in their attempts to modernize and improve the provision of services have put public and non-profit organizations under pressure to improve their effectiveness through the imposition of performance measures, quality checks and audits, and through reforms to governance structures. It has become the practice of the government to compose ‘league tables’ of performance and to publicize the performance of all. This has created new kinds of pressures for organizations and their governing bodies – being ‘named and shamed’. Schools for example if deemed to be failing will be put into what is known as ‘special measures’ where the threat of having a ‘superhead’ brought in to sort it out will hang over the governing body for up to two years. Similar procedures have now been introduced for ‘failing hospitals’. At the same time government has increasingly drawn the voluntary sector into the role of providing public services and there are moves towards greater quality checks and performance measurement for their work too. The recent UK central government Strategy Unit report (2002) Private Action, Public Benefit for example proposes more stringent requirements on larger charities (income over £1m) to complete a standard information return that will focus attention on the measurement of impact, achievement, stakeholder involvement, governance and trustee selection and abilities. But at the same time, running alongside this concern for increased effectiveness, is a concern on the part of government for wider public involvement and participation. Recruitment to many public bodies emphasizes the need for these to be representative of the communities or stakeholders they serve and in the voluntary and nonprofit sectors values of service user participation and involvement in governance are strongly held by many organizations. It seems to us that these concerns sit in tension with one another and may lead to particular challenges when problems arise in the organization. For example in one of our cases, a large disability charity, the organizational recovery process was rendered more complex by the concerns of members of the governing body about the impact of the changes on their children or themselves. (XXXXXXXXX 2002). In another case the lack of development of a board, composed of largely of local residents, contributed directly to the difficulties that arose, when an organization’s funding increased suddenly and dramatically in the wake of the urban regeneration agenda of a Regional Development Authority. This paper is one of a series exploring issues of crisis, failure and recovery in public and nonprofit organisations (XXXXX2002, XXXXXX 2002. XXXXX 2003). However, little is known about the dynamics of non-profit boards during crises, which is the main focus of this paper. We are interested in what happens in boards and other governing bodies when things go wrong. What do boards do that help or hinder organisational recovery? What are the dynamics of the process and what skills and competences do board members need to lead or assist the process of recovery? One issue that is under-researched is whether different types of boards experience different kinds of crises. One factor that differentiates nonprofit governance from corporate governance is the emphasis in many of the former of representativeness and on issues of social inclusion and diversity. How are these issues likely to impact on the way the board members approach their roles? What impact does the agenda of diversity and social inclusion have on board performance when serious problems arise? The paper is theoretical and exploratory in orientation. We will review the literature and use evidence from some pilot research interviews giving accounts of a variety of crises and failures in the public and nonprofit fields to build theory about what may be the challenges in achieving recovery for different types of boards, particularly those with an emphasis on community and service user participation. It aims to develop a theoretical framework for trying to understand how different types of non-profit boards react to crises and to generate a number of research questions to guide further research.

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