A stakeholder approach to responsiveness and accountability in non-profit organisations.

• Author: Barrett, Mark

Abstract

The importance of non-profit organisations as providers of social services has grown in many countries during the past 15 to 20 years as governments have contracted out direct social service provision. Arguments in favour of social service provision by the non-profit sector can be grouped into three categories: effectiveness, cost and responsiveness to community needs -- the last of which is the focus of this paper. If claims of greater responsiveness in non-profit organisations are valid, it might be expected that such responsiveness would be manifested in a high level of stakeholder awareness and engagement on the part of non-profit organisations. Stakeholder theory (developed in the for-profit sector) is used here in the case study of a small non-profit organisation, both to explore the issue of stakeholder awareness and engagement, and to test the applicability of stakeholder theory to the non-profit sector. Key findings of the study were:

* Stakeholder theory could be meaningfully applied to the non-profit organisation under study.

* The organisation had a strong sense of obligation to a number of groups it had identified as sharing its objectives, although the concept stakeholder was not used by the organisation.

* It was possible to assess the organisation's level of responsiveness to the various stakeholder groups and the factors that impinged on this level of responsiveness.

Implications for accountability in non-profit organisations are also addressed.

INTRODUCTION

This paper is concerned with responsiveness and accountability in non-profit organisations. Non-profit organisations deliver a wide range of services including sport, arts and culture, and social services. In particular, their importance in social service delivery has grown.

Forms of selective, individualised welfare assistance delivered through quasi-markets are a defining characteristic of the new welfare state model emerging in some countries such as Australia, New Zealand and the USA. (Considine 2000:292) Changes in our welfare systems have seen governments choosing to exit from direct service provision, contracting instead to a growing number of non-profit organisations. Some commentators explain this with reference to a change in the perceived role and purpose of government. Caragata (1998), a New Zealander writing on the topic, argues that:

The principle reason for [the] disillusionment with big government is that, if it grows beyond a certain point, the public sector reduces welfare rather than increases it. (p.279) Whether or not one agrees with Caragata's analysis, arguably a perception has developed that social services delivered by the non-profit sector are superior to services delivered by government. Arguments for non-governmental provision of social services can usefully be grouped into three categories: effectiveness, cost, and community-centredness or responsiveness, the last of which is the concern of this paper.

The key characteristics of [voluntary sector] agencies [are] innovation, advocacy, guardianship of voluntaristic, particularistic or sectarian values and service delivery, and ... involve[ment of] consumers in policy making. (Smith 1994:31) For simplicity, this paper uses the term "responsiveness" to characterise the set of values and beliefs that perceive non-profit organisations as more representative of community needs and aspirations than other forms of organisation.

It is not obvious how the non-profit organisational form per se should lead to more responsive services. Intuitively it seems likely that the responsiveness of non-profit organisations should be particular to the organisation in question. Factors such as how the organisation is governed and its attitude to community participation would seem to be crucial. Considine (2000) states that a vigorous non-government social services sector may contribute to greater innovation and greater responsiveness to the needs of groups with special needs. However, empirical evidence in this area is very sparse.

This paper does not attempt to address the general question as to whether non-profit organisations are more responsive to communities than other kinds of organisations. Rather it seeks to address how we would know whether an organisation is responsive. Building on stakeholder theory the paper argues that if non-profit organisations are responsive this ought to be manifested in how they manage relationships with their stakeholders. Before developing these ideas further, however, a brief introduction to stakeholder theory is presented below.

STAKEHOLDER THEORY

Freeman (1984) is widely credited as being the founder of stakeholder theory, although he points out that many of the key concepts go back to the 1960s. There are today a large number of respected writers on the topic, one of the better known being Max Clarkson. Clarkson (1995) defines stakeholders in the following way:

Stakeholders are persons or groups that have, or claim, ownership, rights, or interests in a corporation and its activities, past, present, or future. Such claimed rights or interests are the result of transactions with, or actions taken by, the corporation, and may be legal or moral, individual or collective. Stakeholders with similar interests, claims, or rights can be classified as belonging to the same group: employees, shareholders, customers and so on. (p. 106) Notable in this definition is Clarkson's view that stakeholder interests in a firm may be based on moral grounds as well as legal ones. Whether or not a particular stakeholder has legal rights, the firm may have obligations to them based on natural justice. It may also be good business practice to maintain good relationships with stakeholders. This issue is discussed later.

Clarkson's paper makes a distinction between stakeholder issues and social issues. While an organisation may have responsibilities to its stakeholders, wider social issues, in Clarkson's eyes, are more properly the business of government. Social issues can generally be recognised by the fact that government chooses to regulate for them. Building on this idea, Clarkson argues that it is more meaningful to discuss corporate responsiveness to stakeholders rather than corporate social responsibility.

So why should organisations be responsive to their stakeholders? Donaldson and Preston (1995) argue that there are two possible perspectives on this, the first being normative, the second instrumental. From a normative perspective, organisations should be responsive to their stakeholders because it is intrinsically desirable that they be so. Normatively based stakeholder theory is based on ethical principles. In some cases it takes the form of codes of ethics (see Samuels et al. 1996, Cadbury 1998, 1999).

The normative approach can be contrasted with the instrumental approach, which argues that it is good business for organisations to be responsive to their stakeholders. A useful statement of this approach can be found in McMillan and Downing (1999), who argue that the bulk of the value of modern companies is goodwill. Or, expressed another way, the value of a company is determined by the quality of its relationships.

Until recently there was little empirical evidence about the relationship between stakeholder relationships and the financial performance of companies. However, in the past two to three years a number of articles have been published which suggest that positive stakeholder relationships can contribute to improved financial performance -- Agle et al. (1999) and Waddock and Graves (1997a, 1997b) are three examples. Waddock and Graves explore whether responsiveness to stakeholders leads to improved company performance or whether the reverse applies -- i.e. companies with plentiful resources can afford to be more responsive to stakeholders. They found that both relationships apply, suggesting that the relationship between stakeholder relationships and company financial performance is complex. Waddock and Graves suggest that the relationship between firm financial performance and stakeholder relationships is mediated by a third factor, which is the quality of an organisation's management.

To summarise, from an instrumental stakeholder perspective, an organisation, whether it is for-profit or non-profit, public or private, can be seen as a network of individuals and groups who choose to cooperate for mutual benefit. The role of governance in organisations is to ensure...