Conceptualizing and Researching Governance in Public and Non-Profit Organizations 9781781906583, 9781781906576

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CONCEPTUALIZING AND RESEARCHING GOVERNANCE IN PUBLIC AND NON-PROFIT ORGANIZATIONS

STUDIES IN PUBLIC AND NON-PROFIT GOVERNANCE Series Editors: Luca Gnan, Alessandro Hinna, Fabio Monteduro

STUDIES IN PUBLIC AND NON-PROFIT GOVERNANCE VOLUME 1

CONCEPTUALIZING AND RESEARCHING GOVERNANCE IN PUBLIC AND NON-PROFIT ORGANIZATIONS EDITED BY

LUCA GNAN Faculty of Economics, University of Rome ‘Tor Vergata’, Rome, Italy

ALESSANDRO HINNA Faculty of Economics, University of Rome ‘Tor Vergata’, Rome, Italy

FABIO MONTEDURO University of Rome ‘Tor Vergata’, Rome, Italy

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2013 Copyright r 2013 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78190-657-6 ISSN: 2051-6630 (Series)

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CONTENTS LIST OF CONTRIBUTORS

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INTRODUCTION Luca Gnan, Alessandro Hinna and Fabio Monteduro

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PART I: CONCEPTUALIZING AND RESEARCHING GOVERNANCE IN PUBLIC AND NON-PROFIT ORGANIZATIONS UNRAVELING THE CONCEPT OF PUBLIC GOVERNANCE: A LITERATURE REVIEW OF DIFFERENT TRADITIONS Denita Cepiku

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ORGANISATIONAL GOVERNANCE FEATURES, INNOVATION AND PERFORMANCE IN NON-PROFIT ORGANISATIONS: EXISTING EVIDENCE AND FUTURE RESEARCH DIRECTIONS Bram Verschuere and Eline Beddeleem

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LEADING ORGANISATIONAL CHANGES IN PUBLIC SECTOR BUILDING BLOCKS IN UNDERSTANDING BOARDS BEHAVIOUR Luca Gnan, Alessandro Hinna and Danila Scarozza

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COMMON AGENCY THEORY, CORPORATE GOVERNANCE, AND NOT-FOR-PROFIT ORGANIZATIONS Marco Romano

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PART II: EMPIRICAL STUDIES ON PUBLIC AND NON-PROFIT GOVERNANCE THE MOVEMENT BEYOND THE NEW PUBLIC MANAGEMENT: PUBLIC GOVERNANCE PRACTICES IN ITALIAN PUBLIC ORGANISATIONS Luca Gnan, Alessandro Hinna, Fabio Monteduro and Danila Scarozza GOVERNANCE AND VALUE CREATION IN GRANT-GIVING FOUNDATIONS Giacomo Boesso, Alessandro Hinna and Fabio Monteduro

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THE CODIFICATION OF NONPROFIT GOVERNANCE – A COMPARATIVE ANALYSIS OF SWISS AND GERMAN NONPROFIT GOVERNANCE CODES Georg von Schnurbein and Sabrina Sto¨ckli

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THE VOICE OF PATIENTS AND THE PUBLIC IN THE NATIONAL HEALTH SERVICE: ISSUES OF IMPLEMENTATION Gianluca Veronesi and Kevin Keasey

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CO-OPERATIVE GOVERNANCE OF PUBLIC–CITIZEN PARTNERSHIPS: TWO DIAMETRICAL PARTICIPATION MODES Richard Lang, Dietmar Roessl and Daniela Weismeier-Sammer

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LIST OF CONTRIBUTORS Eline Beddeleem

Faculty of Business and Public Administration, University College Ghent, Belgium

Giacomo Boesso

Department of Economics and Management, University of Padua, Padua, Italy

Denita Cepiku

Aggregate professor in Public management, Department of Business, Government and Philosophy, University of Rome ‘‘Tor Vergata’’ Visiting Professor, European Union Centre of Excellence, York University, Toronto

Luca Gnan

Faculty of Economics, University of Rome ‘‘Tor Vergata’’, Rome, Italy

Alessandro Hinna

Faculty of Economics, University of Rome ‘‘Tor Vergata’’, Rome, Italy

Kevin Keasey

The Centre for Advanced Studies in Finance (CASIF), Leeds University Business School, The University of Leeds, UK

Richard Lang

Research Institute for Co-operation and Co-operatives, Vienna University for Economics and Business, Vienna, Austria

Fabio Monteduro

Faculty of Economics, University of Rome ‘‘Tor Vergata’’, Rome, Italy

Dietmar Roessl

Research Institute for Co-operation and Co-operatives, Vienna University for Economics and Business, Vienna, Austria

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LIST OF CONTRIBUTORS

Marco Romano

Department of Economics and Business, University of Catania, Catania, Italy

Danila Scarozza

Faculty of Economics, University of Rome ‘‘Tor Vergata’’, Rome, Italy

Sabrina Sto¨ckli

Centre for Philanthropy Studies, University of Basel, Basel, Switzerland

Gianluca Veronesi

The Centre for Advanced Studies in Finance (CASIF), Leeds University Business School, The University of Leeds, Leeds, UK

Bram Verschuere

Faculty of Economics and Business Administration, Ghent University, Belgium

Georg von Schnurbein

Centre for Philanthropy Studies, University of Basel, Basel, Switzerland

Daniela WeismeierSammer

Research Institute for Co-operation and Co-operatives, Vienna University for Economics and Business, Vienna, Austria

INTRODUCTION Research on public and non-profit organizations has recently shifted towards the main body of research on governance of organizations and many public and non-profit scholars focused on that. Actually, public and non-profit organizations are important elements of the whole spectrum of organizations. But in the meanwhile, their study, within the governance research, has kept aside. Moreover, with the scope and the aim of the governance research, public and non-profit governance research fitted to this new environment, focusing on performance issues, as private organizations do. Anyway, since, from a policy point of view, public decision makers, managers and professionals have to deal with urgent issues (how to define a performing policy? How to design an effective governance system? How to measure the performance of my organization? How to build up effective decisional processes?), there is no more time for ambiguous efforts. In order to increase the relevance of the mainstream policy discourse, the policy research community worked to answer such questions in specific contexts. Therefore, even though with less general political interest, questions concerning how public and non-profit governance contribute to governmental outcomes become critical ones: Do the decisional processes behind public policies and programs influence their performance? Do governance mechanisms and roles matter and, if so, how? Are particular governance systems better than others for achieving certain objectives and, if so, for whom, when and where? Responses to these questions, which are the topic of this first volume of the Studies on Public and Non-Profit Governance series, allow scholars to investigate and to assess how it is possible to reproduce success (or prevent failure) at other times and under different circumstances. Moreover, such answers are of crucial importance to public decision makers, managers and professionals because they want to offer insights beyond the context of a specific situation. The contributors to this volume are members of an expanding network of researchers interested in questions of public governance and they relate with important European and non-European academic associations, such as EURAM, IRSPM, EGOS, EGPA and AOM. To promote rigorous research and the accumulation of knowledge about public and non-profit ix

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governance, we found useful to develop a shared understanding of the substantive dimensions of public and non-profit governance. In this chapter introduction, we locate their work within the field of public and non-profit governance and within a particular ‘logic of public and non-profit governance’ that has framed their individual contributions. The concept of public and non-profit governance is less well developed than the topic of corporate governance, a minor field of business school education and research. Public and non-profit governance is more difficult to investigate as it implies the consideration of normative and positive analyses of why and how to govern. Anyway, a larger and larger number of scholars, including the contributors of this volume, are striving for giving definition to this field through their work. Governance – whether public, non-profit or private – has been broadly defined as an exercise of authority, where authority refers to systems and mechanisms of accountability and control, on one side, and of strategy formulation and lobbying/networking, on the other. It includes formal systems, mechanisms, roles and informal norms and practices The topic of corporate governance is an extremely active field of research and scientific debate, and has been described as the design of systems and mechanisms that induces or compels management to internalize the interest of the different stakeholders. A similar definition may also be appropriate to public and non-profit governance, that is, systems and mechanisms to stimulate public managers to internalize stakeholder interests. Many scholars, however, identify a need to include a broader range of aspects in the concept of public and non-profit governance, including for example, stakeholder pluralism, public networks and legitimacy. Public and non-profit governance research is rising from streams of literature that encompass comparative, national and local research on the so-called new public management debate, as well as on international governance. Comparative analysis has been one of the most impressive approach on public and non-profit governance research. National and comparative investigations of public and non-profit governance, however, have mostly worried about identifying new measures, comparing these measures from different countries and assessing their impact on accountability, but have dedicated relatively few attempts to test from an empirical point of view the stated results or to identify causal relationships. Therefore, scholars do usually follow two main research strategies in the study of public and non-profit governance. The first strategy follows a historical, conceptual and institutional path. Findings and conclusions rest on systematic reviews and assessments of

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previous scientific contributions. The investigation of them exit into classification schemata in which reforms or their characteristics are linked with contextual and other environmental factors. This strategy often uses formal governance theories, such as agency theory, stewardship theory, resource dependence theory, stakeholder theory, upper-echelons theory and so on, and it aims to develop a consistent body of knowledge concerning what works and why for different public and non-profit governance models. This strategy, that relies on abstraction, suffers in terms of nuances, but it exploits transparency and possible reproduction. A stream of research that we can call conceptualizing and researching governance in public and non-profit organizations. The second research strategy tries to recognize best practices investigating case studies of actual governance problems, analysing official documents and other forms of field observations/data. The accumulation and the scrutiny of concrete cases and data intend to identify what is effective and what is not, transforming findings and conclusions into principles and indications for effective practices. Again, using governance theories to frame hypotheses that are falsifiable is a crucial feature of this behaviour: doing so it helps to verify suppositions and findings about public and nonprofit governance systems, mechanisms and roles. Some contributors to this volume are among a growing number of scholars who are generating such theory-based empirical work on public and non-profit governance. A stream of research that we can call empirical studies on public and non-profit governance. Accordingly, the present volume of the Studies on Public and Non-Profit Governance series proceeds in two sections. The first section is devoted to contributions following the first cited research strategy, conceptualizing and researching governance in public and non-profit organizations. The second section consists of works that follow the second cited research strategy, empirical studies on public and non-profit governance. The first section of the volume includes four chapters. In the first chapter, from a theoretical perspective and grounding her considerations on a literature review, both exploratory and synoptic, covering substantive and methodological material, Cepiku offers a contribution aimed at systemizing the building blocks of the concept of public governance. Different public governance research streams have been compared: the Anglo-Saxon one, the Dutch one, the German one, the Scandinavian one and the Italian one. She underlines differences, with respect to the contents or to the adopted research approaches, which exist between and within the investigated research streams. Nevertheless, she identifies

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some common elements too. Therefore, both differences and communalities are important in conceptualizing public governance. The clarification of the different nuances of the concept of public governance facilitates a more precise use in the policy and public management discourse. In the second chapter, Verschuere and Beddeleem explore recent research on governance features in non-profit organizations. They propose some directions and challenges for a research agenda. In particular, the authors support the existence in non-profit organizations of a relationship between governance and organizational performance, between governance and innovation, and between innovation and organizational performance. In the third chapter, starting from public and corporate governance literature, Gnan, Hinna and Scarozza aim to evidence the opportunity in exploring board of directors in public organizations, with a behavioural perspective. While boards are widely investigated in the private sector, the authors claim a lack of literature in the public sector. Starting from these premises, the chapter presents theoretical perspectives on governance research, and both some pioneer studies in public sector research and some of the major contribution in corporate governance studies. The authors introduce a new stream of research in the debate on the organizational level of governance in public sector. In the fourth chapter, Romano contributes to the theoretical understanding of how corporate governance affects organizational processes and outcomes in non-profit organizations. By adopting the common agency theoretical framework, the author investigates the relationships between stakeholders and the board of directors of non-profit organizations. The chapter evidences that co-operation is not only a good proposition held by the relevant actors towards the governance of non-profit organizations, but it also shapes the wealth maximization of the stakeholders of the organization. The second section of the volume includes five chapters, on recent trends of research on governance mechanisms, including contingency and behavioural studies on public and non-profit boards, studies on participative governance mechanisms such as stakeholder involvement and citizens’ participation and studies on governance codification. The empirical analysis of governance practices in Italian public organizations is the topic of the fifth chapter. Gnan, Hinna, Monteduro and Scarozza point out some interesting results from an empirical research conducted on Italian Local Public Utilities (LPUs). The authors argue that not all the tools taken from the private sector have the same potential to promote good governance. They make a general call for moving beyond

Introduction

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New Public Management approach, developing new mechanisms of coordination among institutional actors, public authorities and stakeholders. In the sixth chapter, the empirical analysis focuses on a particular type of non-profit organization: the foundations. Boesso, Hinna and Monteduro investigate whether effective governance plays a major role in driving foundations’ innovation and value creation processes. The analysis provides insights about the path that foundations follow to incorporate selected tailored methods and practices from the for-profit competitive arena to improve foundations’ output and non-profit grantees’ outcomes. In the seventh chapter, von Schnurbein and Sto¨ckli explore the codification of non-profit governance, performing a comparative analysis of Swiss and German non-profit governance codes. In contrast to the private sector, where each country develops its own code, the non-profit sector has not unified its initiatives on governance guidelines. This chapter searches the reasons behind this heterogeneity. In the eighth chapter, Veronesi and Keasey analyse the stakeholder involvement, applying Richard Matland’s ambiguity/conflict policy implementation model. The chapter investigates the impact of a number of policies introduced after 1997 in the English National Health Service that targeted final users and the local population in decision-making processes. The authors reveal that policies emphasizing the importance of contextspecific contingencies can be more effectively implemented when space for interpretation and discretion in selecting the appropriate means for involvement is given. In this way, the overall goal of health policies can be locally reshaped by allowing the adoption of flexible strategies within the implementation process. In the ninth chapter, Lang, Roessl and Weismeier-Sammer explore the issue of co-operative governance structures. The authors examine the impact of co-operative governance systems on citizen participation in public service provision. Using a multiple-case study approach, analysing and comparing five examples of co-operative public–citizen partnerships in Austria and Germany, the chapter shows that co-operatives are an effective tool to canalize citizens’ participation. Fortunately, research that can contribute to the development of the public and non-profit governance emerges from a range of disciplines, subfields and substantive issue areas. We believe that the likelihood that these contributions will fit together into broader, more generalizable framework will increase if public and non-profit governance scholars are able to locate their work within a schemata that shows how particular topics on policy

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design, organization, management and delivery of services are related to a multifaceted perspective on governance. This volume of the Studies on Public and Non-Profit Governance series has been built up with the aim of giving readers a picture of the current state of play and the most important emerging issues in public and non-profit governance. We intend that it will help scholars, but also public decision makers, managers and professionals to be better informed and to be more effective. The volume intends also to help the readers to understand what it means to become better citizens and, as such, to help to change the current practice of public and non-profit governance. On the whole, the contributions in this volume provide a diversified viewpoint on the impact of the emergence of governance for public and nonprofit organizations research priorities. They all emphasize the diverse approaches to the allocation of public resources using the governance systems available in each society. They also highlight the importance of public and non-profit governance in order to exploit a new concept of the public realm. Furthermore, it requires developing public sector governance ethics, professional standards and regime rules which foster and maintain organizational and inter-organizational co-operation. These challenges will represent elements of the public and non-profit governance research agenda in the future. Luca Gnan Alessandro Hinna Fabio Monteduro Editors

PART I CONCEPTUALIZING AND RESEARCHING GOVERNANCE IN PUBLIC AND NON-PROFIT ORGANIZATIONS

UNRAVELING THE CONCEPT OF PUBLIC GOVERNANCE: A LITERATURE REVIEW OF DIFFERENT TRADITIONS Denita Cepiku ABSTRACT Purpose – The ‘‘governance’’ term has gained ground both in the academic debate and in the political rhetoric. A growing use of the term is perceived to go hand-to-hand with a loss of conceptual accuracy. A theoretical reference able to provide a context for the development of empirical governance research is needed. The research aims at systemizing the literature developed around the governance term, identifying its building blocks; this would allow the term to become a reference point in the theory and practice of public administration. Design/methodology/approach – The chapter is of a theoretical nature and based on literature review, both exploratory and synoptic, covering substantive and methodological material. Findings – Different public governance research clusters have been compared: Anglo-Saxon, Dutch, German, Scandinavian, and Italian. Important differences, with reference to contents or related to research

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 3–32 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001005

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approaches in use, are found to exist between and within these clusters. Nonetheless, some common elements are included in the ‘‘public governance’’ concept. Research limitations/implications – Linguistic barriers make different literatures accessible at different degrees to the researcher, resulting in different depth of analysis. This limitation has in part been dealt with research assistance kindly provided by native language colleagues. Practical implications – The clarification of the different meanings of governance facilitates a more precise use in the policy and public management discourse. Having identified interdependencies between the different levels enables a better design of public management reforms. Originality/value – Original features of this chapter are the international comparison of different administrative traditions and the analysis of different disciplinary approaches. Keywords: Governance; public management; networks; administrative traditions; administrative history; disciplinary approaches

THE GROWING USE OF THE ‘‘GOVERNANCE’’ TERM IN PUBLIC SECTOR MODERNIZATION PROCESSES The term ‘‘governance’’ has old etymological origins identified by several authors with terms such as the Latin ‘‘gubernare’’ and the Greek ‘‘kybernaˆn’’ or ‘‘kubernetes,’’ which were referred to ancient skippers (Barrett, 2001, 2002; O’Grady, 2002; Rosenau, 2000). The word ‘‘kybernetes’’ was also used by Plato as the art of steering or governing (Schneider, 2002a). In modern times, governance has become something more than steering, a multidimensional concept, for which it is not easy to find a shared and widely accepted definition. This term has expanded and nowadays it is found in different fields such as with reference to private firms (corporate governance), public administrations (public governance), and international institutions and their policies and recommendations to member countries (global governance).1 Beyond context, the governance concept has been so expansively employed in the last 10 years that some authors point at an ‘‘industry’’ of

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the governance term.2 It has gained ground both in the academic debate and in the political and managerial rhetoric, often at the expense of the ‘‘government’’ term or as a fightback from new public management (NPM) ideas. Nonetheless, it is almost impossible to find in this rich literature an agreement on the building parts of this concept or a consensual definition.3 As a consequence, public governance remains an imprecise and blurred model. For some authors, the secret of its success is owed to this conceptual vagueness and to the interpretative flexibility (Schneider, 2002a). Pierre and Peters (2000), however, linked its popularity to its utility.4 Others, however, notice that its diffusion and growing use goes hand-in-hand with a loss of conceptual accuracy (Jachtenfuchs & Kohler-Koch, 2003).

RESEARCH AIMS AND METHODOLOGY This research addresses the above-mentioned call for a shared definition of public governance, and its building blocks, able to become a reference point for the theory and practice of public sector modernization. It recognizes the existence of linguistic barriers exacerbated by different cultural and scientific paths, which have developed around the governance term.5 These have complicated the consolidation of common methodological approaches for governance research. Nonetheless, the assumption on which this chapter is based is that common ground as well as main differences, which exist between different geographical research clusters, allows assembling a public governance model. The aim is to make a theoretical contribution, extending public governance theory, and to explore operational implications. The chapter is of a theoretical nature and based on literature review (Berkeley Thomas, 2004, pp. 72–76). The first step involved an exploratory review of international literature aimed at highlighting the different aspects of public governance covered, in terms of empirical or theoretical research and in terms of disciplines involved. The synoptic literature review followed covering both substantive and methodological material. The descriptive part of this review is summarized in paragraph 3, while the evaluative part is found in paragraph 4. Regarding literature sources, the field of research has first been restricted to include literature only referring to economical, political and social sciences. Most of the contributions analyzed are, however, characterized for adopting a multidisciplinary approach such as public management and public administration studies. A further restriction has limited the review to

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the literature referring the governance term to public administrations, leaving out for the moment corporate and global governance concepts.6 Three main sources of literature have been analyzed, including articles in specialized journals, monographies, and papers presented in the main research networks on public administration. The selection criteria were based on the disciplinary fields, as explained above. In the second stage of the selection of articles among the chosen journals, articles only referring to public governance have been explored. A further selection was based on the title of the article (including the governance term or related terms7) and on the author (previous researches on public governance). Since 1995, 120 specialized journals, of which 49 Italian, have been reviewed. Of these, only 28 made noteworthy contribution to the theoretical interpretative framework (see Table 1 for a list of these journals, number of articles in brackets). A second source of literature (monographies) has included books addressing the public governance issue or interrelated topics.8 As a third type of resource, researches presented in scientific workshops and conferences organized by the most influential international networks, such as the International Public Management Network (IPMN), the International Research Symposium on Public Management (IRSPM), the

Table 1.

Selected Literature: Journals.

Administration & Society (1) Australian Journal of Public Administration (1) Azienda Pubblica (3) Economy and Society (1) European Journal of Political Research (1) Governance (2) International Review of Administrative Sciences (2) International Social Science Journal (3) Journal of Public Administration Research and Theory (3) OECD Journal on Budgeting (2) Organization studies (1) Political Studies (1) Public Administration (10) Public Administration Review (3)

Public Management Review (1) Public Money & Management (1) Public Organization Review (1) Public Policy (1) Regional and federal studies (1) Review of International Political Economy (1) Review of Public Administration (1) Rivista Italiana di Ragioneria e di Economia Aziendale (1) Rivista italiana di scienza della politica (1) Scandinavian Political Studies (1) Social Sciences (1) Sociologia urbana e rurale (2) Teaching and Research Review (1) The Tocqueville Review (1) West European Politics (1)

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European Group of Public Administration (EGPA), on public governance have been considered. This source of documentation is particularly useful to gather important contributions on governance research which have still to find a collocation in scientific journals or become monographies. Finally, all the literature selected this way has been classified in different clusters – Anglo-Saxon, Dutch, German-speaking countries, Scandinavian, and Italian – representing different geographical and cultural similarities and analogous reforms paths. The analysis of the literature has been made in a broad way that acknowledges differences within the different clusters.

THE INTERNATIONAL LITERATURE ON PUBLIC GOVERNANCE Table 2 classifies the selected literature and gives evidence of the richness and multiplicity of the current international debate on public sector governance.9

The Anglo-Saxon Literature The Anglo-Saxon literature is one of the richest on public governance and many continental European researchers refer to it, although sometimes highlighting the limitations of its application in differing socio-political contexts. One of the most prominent authors is Rhodes (Rhodes, 1992, 1996, 1997, 1998, 2000), whose position on public governance can be summed up in three salient points.10 First, he considers governance as a concept wider than the government one, with the maxim ‘‘from government to governance’’ summarizing the transition from a unitary bureaucracy to a fragmented service delivery and policymaking context in which different actors (and not a dominant one) share responsibility.11 Second, governance is identified with the process of ‘‘hollowing out of the state’’ as a consequence of the delegation of power and functions upward to international institutions, downward to local and regional governments and horizontally to regulatory authorities and executive agencies and to private firms and nonprofit organizations through contracting out and public– private partnerships. Finally, the third distinctive characteristic of Rhodes’s definition of public governance (2000) refers to the central role played by networks, in which

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Table 2.

Selected Literature.

Anglo-Saxon literature

Barrett (2001, 2002); Bevir and Rhodes (2001, 2003); Bevir, Rhodes, and Weller (2003a, 2003b); Bovaird and Lo¨ffler (2001, 2002, 2003); Considine (2002); Considine and Lewis (1999, 2003); Finer (1970); Healey, and Robinson (1992); Hirst (2000); Hodges, Wright, and Keasey (1996); Jessop (1995, 1997, 1998); Kettl (1993, 2000a, 2000b, 2002); Leach and Percy-Smith (2001); Lord Nolan Committee (1997); Lynn (2003); Hill and Lynn (2003); Lynn and Heinrich (2000); Lynn, Heinrich, and Hill (2000, 2001); Pierre and Peters (1998; 2000); Rhodes (1992, 1996, 1997, 1998, 2000); Schick (2003); Stillman II (2003); Stoker (1998, 2000); Wanna and Weller (2003).

Dutch literature

Bekke, Kickert, and Kooiman (1995); Bundesregierung (1999); Jachtenfuchs and Kohler-Koch (2003); Kickert (1993a, 1993b, 1997a, 1997b, 2000, 2003, 2004); Kickert and Koppenjan (1997); Kooiman (1993, 1999, 2000, 2003); Kooiman and van Vliet (1993); Kooiman, van Vliet, and Jentoft (1999); Nelissen (2002); van Heffen, Kickert, and Thomassen (2000); Van Kersbergen and Van Waarden (2004).

German-speaking countries literature

Do¨hler and Jann (2002); Goetz (1993); Helms (2000); He´ritier (2002); Jann (1998, 2003); Johnson (1983); Ko¨nig (1993, 2000); Mayntz (1993, 1998, 1999, 2003); Reichard (2001); Reichard and Wegener (1998); Schedler (1998, 2003); Schneider (2002a, 2002b); Seibel (1992).

Scandinavian literature

Bjo¨rk and Johansson (1999, 2001); Bogason and Toonen (1998); Christensen (1995, 2003); Christiansen (1998); Christiansen and Jørgensen (2000); Edlund (2001); Elander (2002); Greve (1997); Jensen (1998); Jørgensen and Hansen (1995); Knudsen (1991, 1999); OECD (1993); Pedersen, Sørensen, and Vestergaard (1997).

Italian literature

Airoldi (1998); Airoldi, Amatori, and Invernizzi (1995); Borgonovi (2002); Cavalieri (2002); Cepiku and Meneguzzo (2004); Del Vecchio (2001); Meneguzzo (1990, 1995, 1997, 1999, 2004); Mussari (1990); Rebora (1999).

interdependent public and private organizations exchange different kinds of resources and share objectives. The causal link between the existence of networks on the one hand, and the hollowing of government and the futility of central steering on the other, is an issue which deserves further investigation. Bovaird and Lo¨ffler (2001, 2002) also documented an ‘‘emergence of the governance wave,’’ which they defined as ‘‘the way in which multiple

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stakeholders interact with each other in order to influence their quality of life’’ (Bovaird & Lo¨ffler, 2003). The authors compared it to the NPM paradigm, suggesting that ‘‘the purpose of public governance is not simply an inward-looking attempt to ensure good management, but rather a focus on those outcomes of public policy which are valued by external stakeholders.’’ Stoker (1998) proposed a model of public governance based on networks, in which, similar to Rhodes, self-organization and management and the combination of top-down with bottom-up approaches play a central role. According to Stoker, some new elements introduced by the governance model give rise to new dilemmas, mostly associated to accountability (Table 3). Lynn is another author whose research on public governance puts the accent on the fragmentation of the responsibility and capacity of satisfying public needs (Lynn, 2003; Lynn et al., 2001). In this setting, governance becomes a mixture of vertical and horizontal tools which enable the coordination and steering of different actors toward common goals. Governance includes the ‘‘regimes, laws, rules, judicial decisions and administrative practices that constrain, prescribe and enable the provision of publicly supported goals and services’’ (Lynn et al., 2001, p. 7). The governance model developed by these authors is a very broad one and ‘‘it is difficult to conceive of anything involving government, politics or administration that is not governance’’ (Frederickson, 2007, p. 8). The end product of a governance regime depends on environmental factors, client characteristics, core processes of organizations, structures, and managerial roles and actions. This analytical framework is considered to have ‘‘brought governance back to earth and oxygenated it’’ (Frederickson, 2007, p. 29).

Table 3.

Stoker’s Governance Model.

Features of Governance Refers to a complex set of institutions, beside public administration Identifies the blurring of boundaries and responsibilities for tackling social and economical issues Identifies the power dependence involved in collective action Is about autonomous self-governing networks Recognizes shared capacity of satisfying public needs which does not rest on the power of government to command or use its authority

New Dilemmas Legitimacy Accountability Principal – agent issues Accountability Accountability

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More recently, a literature review performed by Hill and Lynn (2003) uses a state-centric definition of governance and finds out that hierarchical governance is still the primary means of governing. Kettl (2000a, 2002) is another author whose position has several points in common with the previously analyzed literature. These include the ‘‘hollowed-out’’ view of the state and the proliferation of networks. The author admits that traditional, vertical and hierarchical relations coexist with new horizontal ones.12 Schick (2003) also associated to governance the idiom ‘‘governing without (national) government.’’ The nation-state has been weakened by ‘‘decentralisation, which has transferred resources and authority from the center to local governments; by free-standing agencies that have gained operational autonomy from the state to which they are nominally subservient; by global institutions, which have made inroads in some of the most vital functions of the state including criminal justice, national defense and economic policy; by NGOs that have become purveyors of public services and often have quasi-government status at international fora; by markets, increasingly used to provide public services’’ (Schick, 2003, pp. 94–95). Schick distinguishes between two categories of governance researchers: some see governance merely as a broader term; others view it as a substitute for the nation-state. Frederickson (2007) proposes a governance theory in three parts: (i) vertical and horizontal interorganizational cooperation; (ii) extension of the state by contracts or grants to third parties; and (iii) forms of nongovernmental policymaking and implementation. The author suggests that the application of governance to public administration would be improved by narrowing the scope of the subject and making a fundamental distinction between public administration as the internal day-to-day management of an agency on the one hand, and governance as the extended state on the other. Finally, Pierre (2000, pp. 3–4) identified governance with the capacity to coordinate and make coherent actions and behaviors of a multiplicity of actors – political institutions, private firms, civil society, international institutions, etc. – which pursue different goals.

The Dutch Literature The Dutch literature’s contribution to the study of public governance (besturen) is the most conceptually advanced and also more extensive

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than work undertaken elsewhere. It includes well-known authors such as Walter Kickert and Jan Kooiman and encompasses many years of research on this topic. Much of this work is underpinned by the socio-cybernetic systems theory and by Luhmann’s notion of auto-poietic systems (Sibeon, 1999, p. 13). In particular, the emphasis on the socio-cybernetic approach to governance, represented as an interactive process between many actors, none of which enjoys effective authority over the others, has played a dominant role (Pierre, 2000, p. 8). The consideration that government is invariably a weak actor in networks is considered as a reductionist tendency (Sibeon, 1999). Kickert (1993a, 1993b, 1997a, 1997b, 2000, 2003) considered public governance as the influence that public administration exercised on social processes inside complex networks composed of autonomous but interdependent actors, each of them following its own objectives and interests, which might, sometimes, diverge. In this context, public administration cannot employ its power in a unilateral way, though it can exercise an influence on the other actors.13 The following three features characterize this definition of governance (Kickert & Koppenjan, 1997): – Context, comprising the external environment, from which public management cannot be kept isolated (an outside-in approach); – Complexity, that is, the number and nature of the system’s elements and of the relations between them; – Governance, defined as the direct influence of networks in which a dominant actor does not exist. Lastly, Kickert (1997a) mad a distinction between the public governance and the Anglo-Saxon NPM model, market-oriented and instrumental, concluding that the first model is much more consistent with the European public management.14 Kooiman and van Vliet (1993) drew from emerging challenges such as internationalization, environment protection, new information, and communication technologies, the need for a new paradigm on public administration centered on governance capabilities. The two Dutch authors do not assume a critical position with regard to NPM, but identify governance with an outside-oriented approach. They distinguish three areas of analysis: micro (a single public administration), meso (a system of interrelated administrations), and macro (a socio-economical environment). In this multilevel framework, no actor plays an overriding role, although public administration is responsible for ensuring adequate performance levels.

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Governance corresponds to arrangements in which public and private actors aim at solving societal problems or creating societal opportunities and caring for societal institutions within which these governing activities take place (Kooiman, 1993, 2003). It differs from the government function, which consists in public administration activating and coordinating different actors, in order to tackle the environmental complexity, diversity, and dynamism (Kooiman, 1999, 2003).15 The most significant attribute of the model is its aptitude to coherently integrate traditional models of government with innovative approaches such as network management.

The German-Speaking Countries Literature The German literature is valuable in identifying some weaknesses of the current research on governance: – Different disciplinary approaches and the extensive application of the term pose a limit on research, which very often highlights what governance is not (government, nation-state, NPM, etc.), instead of explaining what it represents16; – There are hardly any researches on the failures of governance; – Only a small number of empirical studies address the wider issue of metagovernance (or meta-steering). The governance definitions by German-speaking researchers (see e.g., Mayntz, 2003)17 are focused on collaborative relationships and interinstitutional networks, through which participation in policymaking and implementation is made possible. Participation takes place through different forms ranging from the neo-corporative ones in Sweden, Austria, and Germany, to public-private networks in specific sectors, to social self-regulated organizations, with which public administration does not interfere. German literature can be considered as opposite to the Anglo-Saxon one. While the latter emphasizes the shift from government to governance, according to the former governance is not the triumph over the nation-state. Reichard (2001) recognized in governance a model of active state,18 synthesis of neo-liberal positions, and the welfare state, which integrates competitive dynamics, regulation, and values shared by civil society. Regarding Swiss literature, Schedler (2003) defined public governance as the structure and processes that ensure democratic decision making and a reliable public administration.

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The Scandinavian Literature The position taken by the Scandinavian authors rests in the middle between Anglo-Saxon and Dutch/German literature. Some authors, such as Bjo¨rk and Johansson (1999), emphasize public governance elements already traced by Anglo-Saxon authors (Peters, 1993; Rhodes, 1996, 1997). In relation to these two authors, governance is a macro-level theory and not normative.19 On these conceptual and methodological grounds, Bjo¨rk and Johansson (2001, p. 3) defined governance as a coordination mode of different actors, which can be investigated either from a structural point of view (hierarchy, market, and heterarchy), or focusing on processes (steering and adaptation). A different point of view is offered by Edlund (2001), critical with regard to the application of Anglo-Saxon governance theoretical frameworks in Scandinavian countries, such as Sweden. In this country, the author observes that collaborative relations between public administration and civil society are far from new, and cooperation with private firms is almost unavoidable considering the small dimension of the country. The author links governance closely to networks and partnerships, rising as a result of the shift from government to governance, but also as the research attention moves from institutions to processes. The Italian Literature The Italian literature on public administration and management has recently, with few exceptions, become interested in the governance theme. Meneguzzo (1995), one of the early authors researching the issue, defined governance as the structure of the social and political system, developed as a result of the interaction and intervention of different actors. The concept represents the public administration system’s relations, both horizontal and vertical. According to the author, compared with the NPM model, public governance is a different but not a conflicting concept. While NPM is focused on the functioning conditions of each public administration (micro perspective), public governance is much more interested with the capacity of managing and steering systems and networks of public and private actors and with the development of regulatory capacities. Meneguzzo observed an evolution in public management studies, both in terms of approach and in terms of contents, focusing on: – Interactions and relations among the actors at different levels of the political and social systems;

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– Steering and coordination of complex networks; – Outwards orientation. Subsequent studies (Meneguzzo, 1997, 2004) highlight the evolution of governance in the Italian public administration, with particular focus on the local and regional levels and on specific sectors such as economic development, healthcare, cultural, and heritage management. A mixed NPM– public governance approach is found to characterize the modernization of the Italian public sector. Public governance elements appear most evidently in local governments’ experiences.20 A micro perspective is adopted by Borgonovi (2002), investigating governance from the point of view of each public administration, which has to choose from the following alternatives: – According to a first model (government), decision-making authority is legitimized by formal institutional rules, it is commonly exercised through top-down tools and has compulsory effects; – A second model (governance) consists of formal and informal exercise of authority, with the aim of building consensus on specific decisions. Not compulsory requirements but incentives and conditions determine the behavior of the different actors. The transformation of the social and economical environment and of the institutional and political system implies that public administrations choose a governance model instead of a government model. Governance enables a better consideration of the diversity of interests, through policies and decisions representing shared solutions. Nonetheless, as stated by the author, the governance model may by adopted at the micro level (i.e., participatory organizational models); at the meso level (i.e., distributed public governance); at the macro level (i.e., in governing the relations between public, private, and nonprofit sector). Another Italian author (Rebora, 1999, p. 70) interpreted public governance pointing toward the reform processes of the last two decades. Finally, a relatively rich Italian literature applies corporate governance models and principles to public administrations.21

FINDINGS Literature review and analysis on public governance indicate the high complexity of the concept and give evidence of different approaches and

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definitions, influenced by many variables such as the disciplinary sector, the research aims, the geographical and cultural context of the researchers, administrative traditions, and reform trends. A Public Governance Common Theoretical Framework Although differences transpire more immediately, from a closer look many recurring similarities or common ground come to light. The European literature oftentimes links the governance concept with public administration reform, and thus with change. While these kinds of definitions have the advantage of being dynamic, they also tend to undervalue order, stability, and predictability which are likewise central to the governance concept (Frederickson, 2007). As Frederickson (2007) observed most elements of public governance such as networks, cooperation, partnerships, and contracting out were ‘‘forms of institutional adaptation in the face of increasing interdependence.’’ However, contrasting governance with traditional and managerial government stays at the heart of many definitions of public governance offered by international literature (Fig. 1). The first distinguishing element of the public governance model, described in Table 4, is its recognition as a concept wider than – or even substituting – government (Kooiman, Rhodes, Schick, Kooiman, van Vliet, Bjo¨rk, Johansson, Borgonovi, Pierre concur with this position).

Harmonious coexistence of vertical/formal relations with horizontal/informal relations

Government

New Public Management

Governance

• The emblematic micro perspective of NPM is integrated with meso and macro perspectives; • Cooperative relations instead of competition and contraposition between different actors. A focus on networks; • A re-interpretation of the politicians – managers dichotomy.

Fig. 1.

Conceptualizing Governance as an Enlargement of ‘‘Government’’ and NPM.

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Table 4.

Government versus Governance. Government

Definition

Formal decision-making authority legitimized by formal institutional rules

Actors

A small number of participants, mainly public

Focus

Organizational structures and institutions Closed systems, territorial limits to the exercise of authority, compulsory participation

Structures

Decisionmaking process Implementation tools

Governance Formal and informal exercise of authority with the aim of building consensus on specific decisions A high number of participating actors, public, private and civil society Processes, policies, and outcomes Open systems, functional division of authority, voluntary participation

Hierarchy

Networks and partnerships

Little consultation, no cooperation and involvement in policymaking and implementation Top-down tools. Mainly formal

Greater consultation, cooperation between actors in the definition and implementation of sectoral policies Often informal tools, creating conditions and incentives for the acceptance of formal decisions Consultation and collaborative relations, transparent and open public administration Enabling role of public administration Based on criteria and principles orienting autonomous decisions Not compulsory requirements but incentives and conditions determine the behavior of the different actors

Interaction modalities

Hierarchical authority, conflictual relations, secrecy Command and control, direct service delivery

Decisions

Rigid and specific

External implications of decisions

Compulsory effects, prohibitions, and obligations

Source: Elaborated considering Borgonovi (2002); Carmichael (2002); Cassese (2002); Leach and Percy-Smith (2001); Mela (2002); Sbragia (2002); Schwab and Ku¨bler (2001); Rosenau and Czempiel (1992).

While the government-governance comparison is very useful in highlighting the basic definition elements of public governance, the NPM-governance contraposition is found to be more frequently recurring in the literature reviewed, especially the one viewing governance as a result of the recent reform processes (Table 5). An oversimplified and dichotomous standpoint which

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Table 5.

New Public Management versus Public Governance. New Public Management

Public Governance

Perspective

Micro. The focus of research is on business management techniques and tools

Micro, meso, and macro perspectives are tackled. The focus is on public administration’s capacity to steer complex social networks

Main focus of modernisation efforts

Delivery structures Management focus Incentives for efficiency Flexibility/autonomy Client/customer focus Specialization Operational efficiency/ accountability Output focus Short-term focus Single-purpose agency Differentiated issues/programs

Governance arrangements Policy focus Incentives for effectiveness Joined-up, whole-of-government perspective Citizens focus Integration, coordination (horizontal, vertical) Macro-efficiency/impactaccountability Outcome focus Longer-term focus Multipurpose ministry Cross-cutting issues/programs

Relationships external to public administration

Public–private and public– public competition Fragmentation and disaggregation of the public administration system

Public–public and public–private partnerships

Relationships internal to public administration

Separation between the political and the administrative/ managerial level

A more realistic and complex interaction between politicians and administrators

Reference theories

Business management theories International literature

Political theories Mainly European literature

Sources: Elaborated from Meneguzzo (1995); OECD/PUMA (2003); Peters and Pierre (1998); Stoker (1998); Kickert (1997b); Bovaird and Loffler (2001); Jones, Schedler, and Mussari (2004); and Kooiman and van Vliet (1993).

paints a sharp either-or contrast between NPM and public governance has been criticized, among others, by Sibeon (1999, p. 9). This assumption should be reexamined both in terms of theory and in terms of practice, ‘‘a factor in relation to the latter being that there is evidence that the same personnel are involved in the management of intra and interorganizational relations’’ (Sibeon, 1999, p. 14).

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Therefore, some authors consider governance as a new model that enables an enrichment instead of an abandonment of the NPM paradigm. This enhancement includes ‘‘(a) an improved understanding of linkages between politics and administration; (b) the need for improved analysis of stakeholder positioning and preferences in formulating public policy and management execution strategy; (c) analysis to better define network relationships among stakeholders internal and external to government; (d) the necessity for addressing potential and real abridgements of public participation rights and basic principles of democracy; and (e) finding remedies to address the absence of government responsiveness to citizens in policy formation and execution’’ (Jones et al., 2004, p. xi).22 These authors view the governance movement as a response to a perceived absence of sufficient attention given to these five issue areas in the drive to devise and implement NPM over the past several decades. Furthermore, national specificities are better taken into account in the public governance model than in the NPM. This is perhaps the reason why the international comparison of public governance has proven more difficult (and is thus infrequent in literature) than the NPM comparison.23 This conceptualization of public governance as an evolution from traditional government and NPM has important research and operational implications, highlighted in the following paragraphs.

Research Implications Two different interpretations, empirical and theoretical, of public governance are often mixed up in international literature, although a descriptive connotation is found to prevail in the scientific debate. While some authors specify which kind they are using in their research, others do not make a clear distinction between the two, combining positive and normative considerations, transforming empirical information into values and vice versa. This is transformed in conceptual confusion and, most of all, hinders comparative research on public governance. The first research implication, therefore, recommends that the two interpretations of the term, though not contradictory, should be clearly distinguished (Fig. 2). This does not mean that academic research on governance should have no practical implications, nor that practice-oriented research should not be undertaken; but only the desirability of preserving a clear distinction between normative and analytical-descriptive theorizing (Sibeon, 1999).

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Traditional governance

New governance

Positive version Negative version (the capacity of social forces to (extols the virtues of governance as a way in which society shapes resist regulations and public policy, at both input and impositions from public administration) output stages) Empirical element (determining if a government is capable of governing)

Empirical element (the society has the capacity to resist public intervention)

Normative element (the desirability of an effective government)

Normative element (citizens may avoid incursions of authority and bureaucracy)

Fig. 2.

Empirical element (social groups function as the training ground for political participation) Normative element (the strength of society and social capital become key assets for public governance)

Interpretative Approaches to Governance. Source: Elaborated from Peters (2000, pp. 39–42).

On the one hand, there is the empirical manifestation of public administration adaptation to its external environment; on the other hand, there is a theoretical representation of coordination of social systems, with a focus on the role of public administration in the coordination process (Pierre, 2000, p. 3, 42). Second, the choice of investigating public governance by grouping literature in geographical categories has enabled the identification of the Anglo-Saxon pluralistic (no-state) tradition, in which clear-cut borders exist between public administration and other economic and social actors; the Germanic one, in which public administration and civil society are organically linked to each other; and the Scandinavian one, representing a mix of the two and characterized by dense networks of interest groups, a long history of consensus, and a decentralized and participative public administration. Third, public governance research should be able to integrate, not only different disciplinary approaches, but also different (micro, meso, and macro) perspectives, because all three contribute to the comprehension of public administration (Table 6). These levels of the social process are deemed to be relatively autonomous and if empirically significant linkages between them develop, this is a contingent outcome (Sibeon, 1999, p. 18).

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Table 6. Perspectives

Public Governance Perspectives.

Definition of Governance

Strategic Steering Role of Public Administration

Micro (each public administration)

Outward-oriented public management

Problem-solving and stakeholderinvolvement capacities

Meso (distributed public governance)

Distributed public governance is concerned with the protection of public interest in the increasingly wide variety of government organizational forms

This can be achieved externally, when authority is exercised by central organs of the state or other authorities which have responsibilities for control and supervision of public organizations; or internally, through the responsibility of the governing body and the top management of each public organization

Macro (state, market, and civil society)

Global governance determined by the relationship of public administration with external actors (namely private, for and not for profit, firms, civil society and international institutions)

The steering role is aimed at achieving an appropriate combination of public, private and civil society participation, at achieving the rule of law and safeguarding the constitutional allocation of power

Sources: Elaboration based on Borgonovi (2002); OECD/PUMA (2002); Meneguzzo (1995); Kooiman and van Vliet (1993); and Kettl (2000a).

Operational Implications Important operational implications originate from the theoretical framework drawn from the literature review and described above. The first conclusion refers to the role of public administration inside the networks with which public governance is often identified. Two different positions can be found in the literature. The first considers strategic steering and coordination of networks as a function that can be endorsed by every actor inside it (Dunsire, 1996; Kettl, 2002; Kickert, 1993a; Kooiman, 1993; Rhodes, 1996; Stoker, 1998).24 Public administration is, therefore, in an equal position with regard to the other actors of the network. According to the second viewpoint, only public administration has the legitimacy necessary to steer and coordinate networks (Agranoff & McGuire, 2001; Jessop, 1998; Mayntz, 1998; Peters & Pierre, 1998).25

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Service delivery area

Performance targets

Service standards Representation

Policy making area

Policy analysis and advice

Fig. 3.

Performance results

Ac

co

un

ta

bil

ity

Democracy area

n io at

tim gi Le

Expectations

Public management area

Policy decisions

Public Governance Areas of Reform. Source: European Commission (1999, p. 27).

Nonetheless, the two positions have important points in common, which make differences less drastic. On the one hand, authors who do not recognize a primary coordinating function to public administration do not deny that it plays, in practice, an important role. On the other hand, writers postulating the irreplaceable steering role of public administration, recognize the lack of adequate tools for achieving it, which means that the function remains unexercised. In conclusion, the question of where power lies is a matter of empirical enquiry, and not a matter of theoretical predetermination (Sibeon, 1999, p. 13). A second operational implication concerns the political–administrative linkages. While with NPM a revival of Weber’s clear separation between politicians and administrators has occurred, public governance calls for an alternative model which gives a more varied and realistic description of the relationship between politicians and administrators.26

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Finally, a third working implication refers to public sector modernization efforts. If public governance principles are fully adopted, policymakers responsible for reform strategies should take into account not only the management domain, but also all the areas in which public administrations play a significant role. As shown in Fig. 3, many linkages and interdependencies exist between the public management area and the areas of service delivery, policymaking, and democracy.

NOTES 1. The term emerges in these three contexts as a reaction to crises. The reference is to Enron, Tyco e Vivendi for private firms, to the stop of negotiations at the World Trade Organization (WTO), financial crises in 1997–1998 and again in 2007–2008, misadministration at the EU in 1999, for international institutions, etc. Similar legitimacy crises in the public sector are demonstrated by the results of several opinion pools on trust in government institutions (such as those of the World Economic Forum in 2002), corruption scandals, and unethical behavior (the Nolan and Neill committees in the UK are an example). Fiscal crises are also found to be related to the lack of trust in government (cf. Mussari, 1990, p. 34). Note that The Economist style guide considers governance to mean ‘‘[y] simply government, a word that serves the same purpose without any of the pretensions or pomposity of governance’’. Cf. http://www.economist.com/styleguide/g#node-21534258 2. Van Kersbergen and Van Waarden (2004) registered a growing number of articles (24, 510, and 603 in 1990, 1999, and 2000, respectively) and books sold in the Netherlands (23, 154, and 119 in 1990, 1999, and 2000, respectively), which include the term governance in their title. 3. Jan Kooiman (1993), for many years a researcher of governance, stated, ‘‘for a few years now, governance as a concept has been a catchword in many corners of the social science disciplines [y] apparently there is a need for such a concept, although we cannot deny that there has been some form of a bandwagon effect.’’ Also Bjo¨rk and Johansson (1999) acknowledged that ‘‘there are almost as many ideas of governance as there are researchers in the field.’’ Rhodes (1997) counted six different uses of the term, while a couple of years later Kooiman (1999) almost doubled this result, listing a dozen of different definitions. 4. ‘‘A key reason for the popularity of this concept is its capacity – unlike that of the narrower term ‘government’ – to cover the whole range of institutions and relationships involved in the process of governing.’’ According to Lynn et al.(2001), ‘‘because the term has strong intuitive appeal, precise definitions are seldom thought to be necessary by those who use it.’’ 5. Theoretical roots of governance have been identified by Stoker (1998) in institutional economics, international relations, organizational studies, development studies, political science, public administration, and Foucauldian-inspired theorists. More recently, Bevir and Krupicka (2011) have contrasted two types of

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governance theory: one formal and institutional and the other interpretive and historicist. 6. In this difficult choice, only publications referring corporate governance to the public sector have been taken into consideration. Global governance has been addressed by a second research, now in press, reviewing the main international institutions’ activities on governance. 7. Articles on issues such as network management, innovation, modernization, and reform processes in the public sector, governability, etc., have been reviewed. The focus has been on those studies explicitly concerned with governance. 8. See the previous note. 9. A widely accepted distinction on research approaches in the public sector has been introduced by Kickert (1997b, 2004), distinguishing between Anglo-Saxon and European managerialism. See also Meneguzzo (1990) for a content analysis at the international level, which links geographical context characteristics to research approaches employed by the scientific community. 10. It should be mentioned that Rhodes (1996) identified six uses of the governance term: the minimal state, corporate governance, NPM, good governance, socio-cybernetic system, and self-organizing networks. In particular, networks come up as a reaction to the shift from government to governance and include public administrations and private firms. They are autonomous and self-managed. 11. According to Rhodes, this process has been determined by elements such as privatization, marketization, business management techniques, regulation, decentralization, and political control. For other interpretations, see Schick (2003) and Pollitt and Bouckaert (2000). 12. This view is shared by other authors such as Kooiman (2003): ‘‘Whether the state is ‘withering away’, ‘hollowing out’, entzaubert (lost its magic) or even la fin de l’E`tat, remains more a point of view than anything else’’; and Pierre (2000, p. 3): ‘‘The emergence of governance should therefore not, prima facie, be taken as proof of the decline of the state but rather of the state‘s ability to adapt to external changes.’’ 13. Dunsire (1996) as Kickert (1993a) refers to Luhmann’s (1995) theory on social systems’ autopoiesis, focal point of the debate on the crises of state and on ‘‘Steuerungspessimismus.’’ According to Dunsire, ‘‘the better model is a polycentric (or centerless) network of distinct but overlapping policy communities, in each of which the state is but one group of corporate actors among many’’ (p. 300, op.cit.). The author considers social systems ‘‘unregulable from any centre if not altogether ungovernable’’ (p. 301, op.cit.). 14. ‘‘Public management is broader than the business-like interpretation of management and the internal running of the government’s business. Public management is more than business management, client orientation, and market competition. Public management is not merely a matter of effectiveness and efficiency, but it is also a matter of legality and legitimacy and of other value patterns than strictly business-like patterns. Public management is not only internal but also and primarily external management in a complex socio-political context’’. Cf. Kickert (1997a, p. 732). 15. The multidisciplinary model created by Kooiman suggests that the key facets of the new governance regimes are dynamism (speed of change), complexity, and diversity, and these lead in turn to more coordination, steering, and regulation rather

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than instrumental intervention. The model is based on political sciences, public administration/management, sociology, international relations, institutional economics, and natural sciences (systems’ theory). 16. See also Jessop stating that ‘‘governance theory tends to remain at the pretheoretical stage of critique: it is much clearer what the notion of governance is against than what it is for.’’ Cf. Jessop (1995, p. 318). 17. Mayntz (1999, pp. 3–5) offered a three-folded definition of governance (political, economical, and social) by identifying it with a style of government different from hierarchical control; the prevailing modality of actor coordination in economy; a form of social coordination. For the author, ‘‘the concept of governance has a distinctly normative flavour’’ (Mayntz, 2003, p. 6). 18. Gewa¨hrleistungmodel for Germany and Gewa¨hrleistungsstaat for Switzerland. See also Jann (2003) and, for Swiss literature, Schedler (1998). 19. In their words, ‘‘governance is not about values, therefore it cannot be normative. To us governance theory is based on empirical observations and does not have a hidden agenda driven by normative beliefs.’’ Cf. Bjo¨rk and Johansson (1999). 20. In Italy, networks for policymaking and program implementation are central to the participatory planning exercises conducted across different levels of government to design and implement more integrated and effective development policies (programmazione negoziata or planning in partnership according to the OECD language). Cf. Cepiku and Meneguzzo (2004) and IREF et al. (2003). 21. In Italy, a significant application has been made by Airoldi et al. (1995), Airoldi (1998), and Del Vecchio (2001). At the international level, corporate governance studies refer to the Cadbury Committee’s Report (1992), addressing American and British companies (i.e., highly dispersed shareholdings and an active stock market, professional management), which has been applied to public administrations by the Chartered Institute of Public Finance and Accountancy (CIPFA, 1995, p. 6), arguing for a more commercial style of government. See for other applications of corporate governance to the public sector in the UK: CIPFA (1995); Lord Nolan Committee (1997); in the USA: IFAC (2001); in the Netherlands: The Ministry of Finance (2000) and in Australia: the National Audit Office (1997). 22. The quality and capacity of internal management – main focus of NPM – remains a basic and necessary, although not sufficient, condition for any good governance model. 23. See also Hood (1998) on cultural analysis and public management. 24. ‘‘In principle, every actor who is active in the policy process can fulfil the role of manager,’’ cf. Kickert and Koppenjan (1997, p. 168). 25. Agranoff and McGuire (2001) defined ‘‘public management networks’’ as ‘‘multiorganizational arrangements [y] led or managed by government representatives.’’ 26. This has been identified as the dichotomy-duality model by Hansen and Ejersbo (2002, p. 734), who analyzed several empirical studies showing a more complex interaction between politicians and administrators. ‘‘Administrators are to a very large extent involved in the formulation of visions and objectives at the political level. Their involvement is not limited to choosing means but also involves ends. Likewise, politicians see a need to involve themselves directly with constituency cases and administration.’’ According to Svara (1998, p. 51), the dichotomy model should be viewed as an aberration of what stated by the founders of public

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administration. The interdependent relationship between elected officials and administrators leads to a model of complementarity rather than dichotomy. See also Mussari (1990, p. 116).

ACKNOWLEDGMENTS An early version of this research has been presented at the X IRSPM conference in Glasgow. I am thankful to Professor Riccardo Mussari, Professor Marco Meneguzzo, and Professor Laurence J. O’Toole for their comments and suggestions. Precious help was received from Christian Humborg, University of Potsdam, and Adrian Ritz, University of Bern, during the review of German and Swiss literature. Helpful comments from researchers at the Monash Governance Research Unit are acknowledged.

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ORGANISATIONAL GOVERNANCE FEATURES, INNOVATION AND PERFORMANCE IN NON-PROFIT ORGANISATIONS: EXISTING EVIDENCE AND FUTURE RESEARCH DIRECTIONS$ Bram Verschuere and Eline Beddeleem ABSTRACT As public service deliverers, funded by public money and performing tasks on behalf of government, many non-profit organisations (NPOs) are under pressure to increase their performance. More and more NPOs have to prove they work efficiently, effectively and in line with the overall mission. As a result, the challenges these organisations are confronted with put pressure on their management. For NPOs, innovation and performance are managerial key issues. Ultimately, the question is what the factors are that lead to innovation and/or improved organisational performance in NPOs, given their important role in public service $

This paper was presented at the EURAM 2010 conference, in Rome (track 8: Governance in public and non-profit organisations: systems, mechanisms and roles).

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 33–55 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001006

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delivery, often acting as agents of government. For academics, this creates an ambitious research agenda. With a risk to oversimplify the picture, we could summarise this agenda as consisting of some crucial descriptive and explanatory questions. Major descriptive research questions concern the level of innovative behaviour of NPOs, their performance, and their organisational governance characteristics. In terms of explanations, there is a possible relationship between organisational governance features and organisational performance, between organisational governance features and innovation, and between innovation and organisational performance. In this chapter, we discuss the recent academic research concerning these issues, and, secondly, based on the assessment of this literature, we will propose some directions and challenges for such a research agenda. Keywords: Nonprofit organisations; governance; innovation; performance

INTRODUCTION: A CALL FOR INNOVATION AND PERFORMANCE IN NON-PROFIT ORGANISATIONS As a result of increasing pressure on governments to improve the quality of public services, and to make the operations of government more efficient and effective, a wave of public management reforms has swept through many countries over the last two decades (Pollitt & Bouckaert, 2000). In an increasingly turbulent environment, the public sector is not immune from attempts to construct organisations that are innovative, responsive to client needs and market focused (Paulsen, 2006). According to Paulsen (2006), these changes not only transformed the public domain but also profoundly transformed non-profit organisations (NPOs) and their relationship with the state. As public service deliverers, funded by public money and performing tasks on behalf of government, NPOs are under pressure to increase their performance too: in those cases NPOs are considered a real part of the governmental apparatus, hence are subject to the same modernisationwaves as governmental agencies are. Also public expectations have changed. Citizens demand quality services, and do not longer rely on confidence in institutions, but more often control them (Anheier, 2005). More and more NPOs have to prove they work efficiently, effectively and in line with the overall mission, in order not to lose legitimacy in the eyes of their many stakeholders (Verschuere & Cantens, 2009).

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As a result, the challenges these organisations are confronted with put pressure on their management. Generally, we see that classical answers and strategies often do not offer a way out anymore. Osborne (1998, foreword) states, ‘Across the world there are increasing pressures on voluntary organizations to improve the quality and effectiveness of public services through innovation and change.’ Osborne (1998) even claims that the innovative capacity of voluntary organisations has become a touchstone for their role in providing public services. Monteduro et al. (2009) argue that ‘[y] the emergent expectations placed upon NPOs raise fundamental issues such as the capacity of those organizations to deliver, the accountability to the various constituencies that they serve and – last but not least – their capacity to work in an innovative way’ (Monteduro et al., 2009, p. 2). It is clear that, increasingly, NPOs perform their tasks and roles in a resultoriented way, often by introducing private sector managerial techniques (such as benchmarking, performance measurement and customer surveys). Dart (2004, p. 301) refers to this as ‘the business-like or results-focused management approach’. However, the implementation of ‘innovative’ management tools, initially developed in and for the commercial sector, in the public and non-profit sector is not an easy undertaking, and the effects of this implementation are sometimes difficult to identify. Increasingly, organisations ask themselves the question whether the use of these management tools leads to improved organisational performance, or simply, how to improve organisational performance. According to Paulsen (2006), innovations are often seen as means to gain a competitive advantage and, by doing so, to improve organisational performance. The rapidly changing environment also creates challenges for the governance of organisations. Members of the board and/or managers of NPOs are increasingly under pressure to innovate, to improve organisational performance, to survive in an environment of increased competition and dependency on state funding, to work together in complex networks and are increasingly made accountable for everything they do. On the top, they are still responsible for pursuing the overall mission of the organisation. Thus, ‘as the relevance and the expectations increase, the need for good governance and management in the social profit sector gets more and more important’ (de Steur et al., 2009, p. 3). These evolutions in the public and non-profit sectors, with innovation and performance as key issues, urge for answering some crucial questions. Ultimately, the question is what the factors are that lead to innovation and/ or improved organisational performance in NPOs, given their important role in public service delivery, often acting as agents of government. In order to answer that question, we have to deal with some derived questions, too.

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3

Organizational governance features

4b

Organizational performance

4a

2

4c

Innovation

Fig. 1.

Summary of a Research Agenda.

We firstly have to specify what organisational performance of NPOs is. Secondly, we have to specify what factors influence this performance. This is an ambitious research agenda that already is dealt with by an extant research community. With a risk to oversimplify the picture, we could summarise this agenda as in Fig. 1. The research agenda contains several descriptive and explanatory research questions, and focuses on three clusters of variables: innovation, governance and performance. Major descriptive research questions concern the level of innovative behaviour of NPOs (2), their performance (3) and their organisational governance characteristics (1). In addition, we can consider possible relationships between these clusters (explanatory research). First, there is a possible relationship between organisational governance features and organisational performance (4a). Second, there is a relationship between organisational governance features and innovation (4b). Thirdly, there might be a relationship between innovation and organisational performance (4c). In the remainder of this chapter, we will not present new research. Rather, we will discuss the recent academic research concerning these issues, and, secondly, based on the assessment of this literature, we will propose some directions and challenges for this research agenda.

GOVERNANCE, PERFORMANCE AND INNOVATION IN NPOS: A SUMMARY OF RECENT RESEARCH One aim of this chapter is to provide an overview of the academic literature that is available concerning the relationship between governance, performance and innovation in NPOs. Although we are aware of the abundant

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literature on these topics for commercial and public organisations, we explicitly focus here on governance, performance and innovation in the nonprofit sector.

Performance of NPOs As we stated in the introduction, NPOs are increasingly under pressure to prove their constituencies that they are achieving their missions and goals in an efficient and effective way, in order not to lose their legitimacy (Verschuere, 2009). This general tendency to stress organisational effectiveness and efficiency is linked to the so-called accountability movement, which made NPOs, and the people that run them, accountable to those they are created to serve, and those who provide the money to operate them (Murray, 2005). In a non-profit context, the increased attention to performance leads to all sorts of questions like what exactly are the results of NPOs, how can we measure organisational performance in NPOs, how can we compare good performing with poor performing NPOs, do NPOs have enough internal capacity to deal with this increased demand for performance, does the contemporary focus on performance endanger or strengthen the typical nonprofit values and how can organisations improve their performance. Academically, the growing interest for organisational performance in NPOs is apparent, through a large literature dealing with the conceptualisation and/or measurement of the concept (Bagnoli & Megali, 2011; Balduck & Buelens, 2008; Duque-Zuluaga & Schneider, 2006; Geurtsen et al., 2009; Heffron, 1989; Herman & Renz, 1998; Kaplan, 2001; LeRoy et al., 2007; Murray, 2005; Osborne & Tricker, 1995; Sowa et al., 2004; van Dooren, 2006; Verschuere, 2009). There seems to be a lack of objective performance standards, but different attempts have been made by academics and practitioners to describe what non-profit organisational performance is about. They all acknowledge that the concept is far from clear and consists of many components. In the profit sector, organisational efficiency is a frequently used indicator of organisational performance. The non-profit sector needs other indicators, in addition, to assess the overall organisational performance. Duque-Zuluago and Schneider (2006) state that there is no agreement on the specific performance dimensions that can be used to assess non-profit organisational performance, and argue that non-profit performance indicators should be wider than profit indicators, covering the very different values of NPOs and the goals NPOs are supposed to achieve. Duque-Zuluago and Schneider (2006, p. 12) make an attempt to describe

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what non-profit organisational performance is about. Based on a wide literature review, they define it as ‘A social construction that takes into account stakeholders’ expectations, organizational values and mission to define the base or criteria that will guide organizational assessment’. They advocate a multidimensional way of measuring performance, in order to cover the multiple goals of NPOs, and therefore distinguish between seven dimensions of non-profit organisational performance: beneficiary or recipient response, financial stability and resource acquisition, job satisfaction of volunteers and employees, responsiveness, long-term outcomes, programme outputs and intermediate outcomes and organisational efficiency (DuqueZuluaga & Schneider, 2006). In line with this multi-dimensional approach to performance, Heffron (1989) identified several organisational effectiveness criteria, for example, efficiency, employee satisfaction, employee motivation, quality of services, democratic character of services, customer satisfaction, effectiveness in achieving the organisational mission, stability of the organisation, flexibility of the organisation and legitimacy of the organisation. When we talk about the performance of NPOs, we must not forget the typical identity, values, or functions of NPOs. These organisations exist for several reasons, but they all share ‘civil society roles’. They have a role as value guardians, a role in service delivery, in advocacy and they are supposed to be the builders of social capital (Eikenberry & Kluver, 2004). One can consider the fulfilment of these typical non-profit roles as decisive performance indicators. In addition, the legitimacy of an NPO is also crucial to their further existence. NPOs must constantly prove their constituencies they deserve to exist. Authors like Vidal et al. (2006), for example, consider the question of legitimacy in the non-profit sector. They define legitimacy as ‘That particular status with which an organisation is imbued and perceived which grants it’s the right to exist and to do something within society’ (Vidal et al., 2006, p. 8). Their research (based on preliminary results from an online survey of 142 Catalan organisations) indicated some causes as to why organisations consider legitimacy an important issue: their mission to act in or influence society, the growth of social support, the survival of the entity, obtaining resources and the ability to exert influence in the political domain (Vidal et al., 2006).

Innovation Next to the descriptive question of what performance is, and how we can measure it, we also need to be considerate of the factors that determine the

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level of organisational performance. A lot of research has addressed the question whether innovation leads to improved organisational performance. Organisations are increasingly confronted with a need to innovate, in order to remain competitive. A number of factors would also compel service organisations to innovate (Paulsen, 2006). Ryan (1999) recognises this by stating that the changing environment will force NPOs to reconfigure their organisations. This changing environment implies also a transformed relationship with the state. In an environment where there is a change in the kind of state funding (e.g. from base funding to contract or programmebased funding), also accountability requirements may change in content and scope. For example, when confronted with increased programme-based funding, the organisation must, more and more, prove to be innovative in management (using management techniques to be creative for the supervisory authority) and produce innovative services or products (to deliver quality for the target group), in order to be eligible to the funding. Apparently, innovation is not the only way. For Osborne and Flynn (1997), innovation seems like a panacea for dealing with increasing environmental pressure. They claim that innovation has to be seen as one possible direction and that innovation is not normatively better than any other activity to engage in. It is simply one role. According to them, there is the assumption that innovations are good, but they can also generate negative effects. Another interesting finding of their research is that only one-third of the 196 voluntary and non-profit organisations in their survey had engaged in genuine innovative activity over the previous three years. These findings raise many questions. What exactly is innovation, do NPOs engage in innovative behaviour, which factors lead to innovation, and is innovation the road to success? The concept of innovation is, like performance itself, complex and multidimensional. One of the difficulties in reaching a consensus upon a definition is the sheer heterogeneity of studies on innovation (Osborne, 1998). Osborne and Flynn (1997) for example argue that innovation represents newness to the organisations concerned and that innovation is different from invention (invention is the creation of new knowledge while innovation is its application). Further, innovation is both a process and an outcome and finally, innovation involves discontinuous change (as opposed to gradual organisational development). As with definitions of innovation, the organisation studies literature is not short of typologies for classifying innovation (Osborne, 1998). Phills, Deiglmeier, and Miller (2008), for example, make the distinction between innovations and social innovations. According to them, a social innovation is ‘A novel solution to a social

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problem that is more effective, efficient, sustainable, or just than existing solutions and for which the value created accrues primarily to society as a whole rather than private individuals’ (Phills et al., 2008, p. 36). The last part of this definition is precisely the essence of the difference between innovations and social innovations, because (Phills et al., 2008, p. 39) ‘Many innovations tackle social problems or meet social needs, but only for social innovations is the distribution of financial and social value tilted toward society as a whole’.1 Another way to classify innovation can be a product-process way of classifying innovation. In this kind of typology, innovations can have an impact both upon the production process of an organisation and upon the existing markets and users of a product or service (Osborne, 1998). Han et al. (1998) distinguish between technical and administrative innovations. Technical innovations refer to innovations within products, services, production process technologies, etc. Administrative innovations are innovations on the level of organisational structures, administrative processes, etc.

Innovation and Performance The relationship between (managerial) innovations and performance has acquired a great deal of attention in non-profit and public sectors (Bezemer, Volberda, van den Bosch, & Jansen, 2006; Brown, 2010; Han et al., 1998; Hinz & Ingerfurth, 2011; Sarrico et al., 2011), given the increased pressure to perform and to innovate. Normative doctrines, such as the new public management (NPM), advocate the adoption of private managerial tools in order to increase the efficiency, effectiveness and quality of service delivery. Bezemer et al. (2006) found a direct positive correlation between strategic renewal of NPOs and their performance, based on a questionnaire and cases studies of Dutch NPOs. They conclude that NPOs have an interest in responding with strategic renewal on increasing turbulence in the environment. Hinz and Ingerfurth (2011) found a positive relationship between organisational entrepreneurship (measured as the degree of innovativeness, proactiveness and risk-taking) and organisational performance in the German hospital sector, across all ownership types. They concluded (based on a survey of 152 hospitals) that ‘searching for new and innovative ways of service provision and service improvement enhances overall hospital performance’ (Hinz & Ingerfurth, 2011, p. 17). Sarrico et al. (2011) examined the relationship between performance management practices in schools and school performance (based on in-depth

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case studies of a sample of Portuguese secondary schools). Regarding performance management practices, they investigated the self-evaluation process (how schools measure their performance, incorporate the results and use that information to improve their practices). Contrary to what they expected, they were not able to demonstrate a clear, positive relationship between the incorporation of performance management practices and superior organisational performance. A number of authors minimise the exclusively positive impact of innovation on performance, by stating that innovation is not the only way and may also be counterproductive (Osborne & Flynn, 1997). Many authors seem rather concerned about the consequences of this ‘managerialism’ in a service environment, mostly for what constitutes the typical character of this sector (Dolnicar et al., 2008; Eikenberry & Kluver, 2004; Evans et al., 2005; Guo, 2006; Lindgren, 2001; Mc Donald, 2007; Ryan, 1999). According to Eikenberry and Kluver (2004), the trend towards marketisation can, in addition to benefits, have long-term negative consequences for NPOs, because it has an impact on the ‘civil society roles’ of NPOs. Evans et al. (2005) claim that the evolution towards a market-based managerialism or business model affects the quality and typical character of non-profit service delivery. Mission accomplishment seems to be another important factor in the innovation issue. Dolnicar et al. (2008) found, based on in-depth interviews, focus groups and a questionnaire of Australian bushcare units, that the adoption of corporate/entrepreneurial practices can endanger the mission of the organisation. According to them, the challenge lies in managing the competition for grants, without sacrificing the mission (to balance mission and money). In the same vein, Lindgren (2001) looks at the introduction of management principles from private sectors (also referred to as ‘managerialism’ or ‘the New Public Management’) in public – and nonprofit sectors. Based on a specific case of the Swedish non-profit sector, this author indicates the possible pitfalls of the use of performance measures (the ‘performance management movement’) in non-profit organisations. The use of performance measures implies a culture that focuses strongly on the achievement of results. Such a culture consists of values that are borrowed from the world of business, but that are not readily integrated into the non-profit culture. According to Lindgren, there is a risk for goal displacement, because of conflict and tension between the meeting of nonprofit sector values and the market- and efficiency-oriented performance measures. The result of goal displacement is that the measures distort the direction of the programme, diverting attention away from what it should be doing.

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Governance and Performance In the literature, the relationships between certain organisational features in NPOs and (aspects of) organisational performance are also well documented. However, as Eisinger (2002) claims, there are a lot of organisational features from which their impact is assumed rather than examined. Organisational features are very diverse, ranging from the size of the organisational budget to working conditions for staff. Each organisation has its specific organisational characteristics, some consciously chosen, other historically grown or imposed, but we can assume they all have an impact on the functioning of an organisation. In this chapter, we limit ourselves to the impact of organisational governance features. In this respect, the organisational governance system may be an important determinant for performance. Substantial research effort has been devoted to the question of ‘governance’ in NPOs. The rapidly changing environment creates challenges for the governance of NPOs. Demands for better governance and greater accountability, both in the business world, government and the non-profit sector, have increased significantly in recent years (Anheier, 2005). First, diverse initiatives were taken in corporations to make the governance more effective and transparent (corporate governance). Following this debate, the concept of ‘social governance’ found its way to NPOs, because of the growing awareness that NPOs also need good governance. The key elements of social governance, according to Verschuere and Cantens (2009), are to ensure the legitimacy of the organisation, to take into account the different stakeholders of the organisation, to prevent conflicts between those stakeholders, to optimise the processes of decision making and to shape the relationship between management and board. One of the paradoxes of modern society, according to Anheier (2005), is that NPOs, business, and government have not become more prone to accountability and governance failures than in the past, but public expectations have changed to control over institutions rather than relying on confidence in them. Certainly in the service-providing non-profit sector, stakeholders expect value for money. Next to that, issues of power, authority and leadership, which are already among the most political and complex in any organisation, are even more demanding in non-profit organisations, due to the importance of value commitment. In the literature, the concept of governance is ambiguous. Several authors use the term to describe characteristics of the board, characteristics of management and characteristics of the relationship between them. The term governance comes from the world of business and refers to ‘the system by

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which organizations are directed and controlled’ (Anheier, 2005, p. 230). Cornforth (2010, p. 15) defines governance as ‘the structures, systems and processes concerned with ensuring the overall direction, control and accountability of an organization’. Governance involves the responsibility for organisational performance and direction and is primarily an organisational steering function, closely related to the notion of stewardship. In NPOs, it is useful to think of the board as the focal point of governance (the governing body of the organisation) and chief executive officer (CEO) as the focal point of management (Anheier, 2005). The research of de Steur et al. (2009) highlighted some important evolutions the board and managers of NPOs have been through. Their results are based on a qualitative research (interviews with managers, focus groups and onsite visits) in 100 NPOs in Flanders. The results of 2009 were compared with the results of a similar research, conducted in 2000. The authors noticed that leaders at the top of NPOs see themselves, at present, as ‘manager’ or as ‘entrepreneur’. Apparently, they no longer see themselves as ‘care provider’ (as observed in the research conducted in 2000), although most managers in the non-profit sector have a background as care provider. de Steur et al. (2009) also revealed that the sector has a need for high-potential managers: ‘Managers in the social profit sector need a huge variety of competencies [y] additionally a social profit manager must have a kind of social drive and idealism’ (de Steur et al., 2009, p. 8). When looking at the board of organisations, they found that, nowadays, ‘the composition of the board develops from paternalist members (e.g. congregations, churches) to members with a specific knowledge [y]’ (de Steur et al., 2009, p. 9). On the subject of governance features, Callen et al. (2003) claim that not much research is done into the relationship between non-profit governance and non-profit performance, compared with the great deal of empirical work that has been done trying to link corporate governance with corporate performance. Much prescriptive work is, for example, done on how boards of NPOs should operate, but literature about the actual impact of boards remains limited and exploratory. Greene (2007) suggested five conditions for a more effective service delivery by NPOs, including two governance features: the capacity to host a quality board of directors, executive director and staff, and a quality training programme for members of boards of directors. Callen et al. (2003) performed a study on the relationship between board composition (the proportion of major donors on the board) and organisational efficiency, based on financial data from a database of the NY State Department of Law and governance data from a mail survey of 473 US NPOs. In this study, organisational efficiency was measured by three metrics: the ratio

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of administrative expenses2 to total expenses (administrative expense efficiency), the ratio of fundraising expenses3 to total expenses (fundraising expense efficiency), and the ratio of programme expenses to total expenses (programme expense efficiency). Their results indicated that major donors monitor NPOs in a parallel fashion to the monitoring of for-profit organisations by large shareholders. Organisations with a larger proportion of major donors on the board are significantly more efficient than organisations with a smaller proportion (especially with respect to administrative expense efficiency and program expense efficiency). According to these authors, these results are consistent with a multiple constituency model, where ‘the donor constituency attempts to evaluate organizations on fiscal grounds by focusing on specific ratio indicators of organizational efficiency’ (Callen et al., 2003, p. 516). In addition, the results are consistent with an institutional theory model in which non-profit donors focus on efficiency ratios because of ‘the widely held beliefs by influential external observers that such ratios are in fact meaningful performance metrics in a nonprofit environment’ (Callen et al., 2003, p. 516). Callen et al. (2003) also found that, the larger the board, the less efficient the organisation is with respect to fundraising expenses. They concluded that, in the case of large boards, it is very likely that the organisation raises money from a wide public, implying the need for significant fundraising costs (Callen et al., 2003). A significant contribution on the relationship between financial features, organisational governance features and organisational performance, in the context of Belgian NPOs, was delivered by Vlassenroot et al. (2009). They found that, when strongly dependent on governmental funding, board members of NPOs will be focused on fundraising (because of the complexity of grant applications). As a consequence, board members’ involvement in the daily (financial) policy of the NPO will decrease, leading to an increased distance between board and management. Because of the external focus of board members, managers will achieve more internal decision-making power. Because managers are more short-term oriented than board of directors, managers will prefer spending while the board prefer saving, resulting in a deteriorating financial performance (a decreased degree of cash and cash equivalents).

Governance and Innovation Also the link between organisational governance features and innovation is frequently examined in NPOs. Literature shows some relationships between management or board practices and elements of innovation. Bezemer et al.

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(2006), for example, stated that pressure from management or board had a positive impact on the level of strategic renewal of NPOs (based on a questionnaire and case studies in Dutch NPOs): it is the responsibility of management or board to create circumstances under which renewal can be initiated. Also Osborne (1998) considered senior management commitment to innovation as a key factor to innovative organisations. Osborne and Flynn (1997) minimised the importance of individual action for innovation. Based on a literature review, a survey and case studies on voluntary and non-profit organisations in the UK, they discovered important differences between innovative and more traditional organisations. They stated that it is incorrect to stress the importance of individual action to activate the innovative capacity of organisations. Their presence would be a necessary, but not a sufficient condition. Monteduro et al. (2009) stated that the relationship between innovation and board’s characteristics has attracted less empirical investigation in the non-profit sector. They investigated relationships between characteristics of the board and innovative actions. Their empirical analyses highlighted a strong positive relation between the presence of business experts (directors who are active or retired executives in other organisations and directors who serve on other boards) on the board and innovation. Board demographics (board size and board gender diversity) appeared not to be significantly correlated with innovative actions. In general, this research pointed out that, for innovation, demographic variables (size and diversity) were not as relevant as the expertise and knowledge of board members (board members’ competencies).

DISCUSSION: A FUTURE RESEARCH AGENDA As shown above, there exists a large amount of literature concerning organisational governance features, innovative (managerial) behaviour, performance and possible interactions between those variables. Because of their increased importance in public service delivery, NPOs are now more frequently also becoming the target of research for public management scholars who focus on the performance of public service delivering private organisations like NPOs. Innovation and organisational performance seem to be two subjects that have acquired a greater deal of attention. Still, there appears to be, in both cases, little agreement about the exact meaning and measurement of the concepts. Also the relationship between the concepts is

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still open to debate, and increasingly, the question is also asked which organisational features lead to innovation and/or improved performance. Therefore, research should continuously adapt and evolve, in the light of knowledge that already exists. Building the research agenda needs to be considerate not only of what we know from previous research, but also of some empirical, methodological and conceptual issues.

Empirical-Methodological Issues As the summary of the literature has shown, there seems to be a dominance of Anglo-Saxon empirical evidence on the subject (although recently, also European scholars have started to empirically investigate NPO performance, innovation and governance). It is therefore a challenge to also collect more data on European (continental) NPOs. It is important to investigate these concepts in different contexts. First, because there are a number of crucial distinctions and patterns of institutional differentiation (legal systems of a country, historical roots, etc.) that have a distinctive influence on the design of this third sector in different societies (Salamon & Anheier, 1992). The social origins theory tries to explain these variations in size and composition of the non-profit sector cross-nationally, by identifying those social factors that will lead to the development of a sizeable, economically important non-profit sector as opposed to a smaller, less important sector (Anheier, 2005). Second, countries all over the world formulated different answers to challenges in their environment. Next to that, for doing empirical research (especially in a comparative sense), an important question is which organisations we exactly consider as non-profit organisations. A good starting point could be to rely on the structural/operational definition of the NPO sector provided by Salamon and Anheier, because this definition can be applied more or less in every country, irrespective of judicial features of NPOs in a specific country (Salamon & Anheier, 1992). According to this definition, the NPO sector consists of organisations that share five basic characteristics. First, NPOs are formal organisations, which means they are institutionalised to some extent (by having regular meetings, rules of procedures, some degree of organisational permanence, etc.). Second, these organisations are private and hence institutionally separate from government. Thirdly, they are nonprofit distributing (NPOs may accumulate profits in a given year, but those generated profits may not be returned to their owners and directors). Fourth, NPOs are self-governing, i.e. equipped to control their own

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activities and not controlled by outside entities (own internal procedures for governance, etc.). Finally, they are voluntary organisations in the sense that NPOs involve some meaningful degree of voluntary participation. Thirdly, we found that most research is case study based. Hence, we could argue that empirical research, especially in the European context, is in need of more large-N survey data. This would allow us for quantitative analyses concerning the interrelationship between performance, innovation and organisational governance. Also, surveying would provide us with basis descriptive data on a large number of NPOs. When applying the same definition of what an NPO is, large-N survey research could also be internationally comparative. Furthermore, survey research offers opportunities for comparing between NPOs in the same country or region, given the heterogeneity of this sector in terms of tasks, target groups and fields of activity.

Conceptual Issues Besides empirical and methodological issues, we have to strive for a conceptual clarity about major variables in our research: governance, innovation and performance. One problem is that there are nearly as many definitions as there are researches, as the literature summary showed. Another problem is that measuring these concepts empirically is not always neutral. Performance There are three broad and generic reasons why measuring or evaluating organisational results can be problematic (Murray, 2005). Firstly, there are technical problems in evaluating organisational performance. Some goals or objectives of an NPO are hard to measure because of their vagueness and ambiguity. How does one measure the goal of the community organisation that is ‘making our neighbourhood a better place to live’? It is very challenging, from a technical point of view, to develop valid and quantifiable measures to assess the extent to which such vaguely described goals are met by the organisation. Next to that, one can measure organisational performance but also the performance of organisational sub-units. This raises the question about how results obtained for the effectiveness of part of the organisation can be aggregated to the organisation as a whole. A similar problem arises when NPOs manage different programmes. One programme can be more effective than another, but how do we relate that

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observation to the organisational overall effectiveness? Finally, even when every stakeholder agrees on the desirable output and outcome of the organisation, there still are technical problems on how to measure these outputs and outcomes. This is the question to what extent the measures used really capture the goals they are intended to measure? For example, does an employment agency that is able to direct 90% of its unemployed clients to the labour-market, but is very selective in the type of client they help (e.g. only highly educated unemployed), really meets its goal of ‘reducing unemployment in the region’? A second problem in assessing the performance of NPOs is related to the nature of human beings (the people who assess and interpret organisational results). If the assessment shows good organisational effectiveness, people tend to take full credit for the good results, thereby neglecting the fact that good performance is the result of a combination of factors, and that personal contribution to the good result is only one factor. Ceteris paribus, in the case of poor results, people tend to avoid blame, and will want to explain poor performance as being beyond their own personal control. Murray (2005) has labelled this mind-set as ‘look good and avoid blame’. Next to that, the results of the evaluation of performance may also be interpreted subjectively (‘subjective interpretation of reality’). This is often the case when evaluation results need to be explained and interpreted, and occurs because there are many variables that cannot be controlled but still influence or moderate the presumed link between organisational (or personal) behaviour and eventual organisational performance. A third problem in measuring organisational performance has to do with the specific context of the non-profit organisation. The observation that organisational performance is a multi-faceted and heterogeneous concept also invokes some (potential) problems when one wants to measure NPO’s effectiveness and efficiency. Studying and measuring organisational effectiveness and efficiency in the context of NPOs is problematic for several reasons (Forbes, 1998). The distinctive nature of NPOs, characterised by the absence of a profit-motive and the aim of creating social-added value, prevents the use of measures of effectiveness that are commonly deployed for business (for-profit) organisations such as profit-ability or stock-market performance. Next to that, the fact that NPOs often have amorphous and heterogeneous goals, and often offer intangible services, makes quantitative measures of performance difficult. One can measure the number of clients that have consulted the social worker in the organisation during one week, but it is much harder to measure the quality of the conversation between social worker and client, and the effect of that consultation (did they

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eventually come up with a solution for the client’s problem?). Thirdly, the work of NPOs is often based on societal values about which consensus is often hard to find, implying that also consensus about the criterion to evaluate the organisation and its performance is often difficult to reach. It is clear that there exist several criteria for mapping the performances of NPOs (quality, responsiveness, effectiveness, efficiency, impact, etc.) and following the multiple constituency model from D’Aunno, in Schmid (2002), we acknowledge that different stakeholders will appreciate and use different criteria to assess the performance of an organisation. The result is that no single organisational effectiveness exists, but that in reality, stakeholders of the NPO (board, management, employees, volunteers, customers, funders, etc.) may all have different opinions on what effectiveness means, and on how effective an organisation is (Verschuere, 2009). Van Dooren (2006, p. 15) summarizes this very clearly, when he states, ‘Since performance implies a value judgment, it may only be performance in the eye of the beholder’. Organisational Governance Features From a conceptual point of view, the governance features of an organisation can be divided into three groups: (1) characteristics of the board, (2) characteristics of management and (3) characteristics of the relationship between board and management. A number of studies consider characteristics of the board (and committees in case they are present) as key determinants for other variables. According to Cornforth (2010), research on the third sector governance focused primarily on boards. These characteristics of the board can be concentrated around four themes: size (Callen et al., 2003; Verschuere & Cantens, 2009), focus (Callen et al., 2003; Vlassenroot et al., 2009), composition (Callen et al., 2003; Greene, 2007; Verschuere & Cantens, 2009; Vlassenroot et al., 2009) and the functioning of the board (Callen et al., 2003; Verschuere & Cantens, 2009). Characteristics of management are also analyzed in literature. Wood et al. (2000), for example, examined four organisational factors related to the management of NPOs: professional commitment, professional education, professional ethics of the senior management team and organisational entrepreneurship. Furthermore, we noticed how the degree of decisionmaking power of management (or managerial autonomy) can steer an organisation in a certain direction (Vlassenroot et al., 2009). While examining the innovative capacity of NPOs, Osborne (1998) stresses the importance of senior management commitment to innovation. Furthermore, he distinguishes three roles for management in innovation: how managers

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direct their organisation, make things happen (the kind of leadership style), the creation and the management of an organizational culture prepared to innovate and the presence of a product champion or hero innovator, who supports an innovation at its early stage of development, even when it does not seem to accord with the strategic direction of the organisation. The relationship between governance actors (management and the board) is also described in non-profit literature. Verschuere and Cantens (2009), for example, consider the shaping of the relationship between management and the board as one of the key elements of social governance and point at different theoretical models concerning possible relationships between the management and the board of NPOs. One of these models, the agency perspective, is also the framework around which the study of Vlassenroot et al. (2009) is constructed. They discovered agency problems in NPOs, arising from a growing distance between management and the board. Innovation Based on recent academic literature, we can argue that innovations conceptually may emerge on two levels in NPOs: innovations in management and innovations in service delivery. Paulsen (2006) states that, in the domain of public services, many countries responded to global challenges by instituting major public sector reforms. He looks at the impact of paradigms like NPM in a service environment. NPM has been associated with the introduction of market mechanisms in the public sector, including concepts such as entrepreneurialism, innovation and customer responsiveness in the delivery of public services (Paulsen, 2006). Many authors (Dart, 2004; Davis et al., 2011; de Steur et al., 2009; Dolnicar et al., 2008; Eikenberry & Kluver, 2004; Evans et al., 2005; Lindgren, 2001; Toepler, 2004) argue the fact that NPOs are forced to operate more market-oriented and thus adopted methods, techniques, approaches, tools and values of the market (also appointed as marketisation, corporatization or social entrepreneurship). According to Osborne (1998), the NPM-paradigm emphasises learning from the prevailing model of management within the profit sector. Within those managerial innovations, we can distinguish several groups: profiling tools (e.g. mission statements and strategic positioning), performance measurement tools (e.g. the balanced scorecard and quality standards), feedback instruments (e.g. customer surveys), network tools (e.g. collaboration and benchmarking), innovative structures and processes (e.g. business process reengineering), market-based financing mechanisms (e.g. users fees), etc. Chew (2006), for example, stresses the importance of strategic positioning in increasingly competitive and challenging environments (based on his experience in

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British charitable organisations). NPM also had an impact on the management of human resources (we notice an evolution towards performance contracting, ongoing evaluation, empowerment of employees, etc.) and brought significant changes in the area of financial management (e.g. an evolution towards a contract or programme-based financing). New developments in management, and NPM itself, have of course their impact on service delivery. Numerous innovations in service delivery occurred (demand driven care, inclusive care, participation of users, etc.). Organisations are also increasingly diversifying (new products/services, target groups, etc.). Concerning the latter, we refer again to a work of Osborne (1998), who mentions a typology of Abernathy et al., which allows different modes of innovation to be clarified. The x-axis is concerned with the impact of an organisational change upon the actual services that an agency produces (i.e. whether it involves the existing services of an agency or the creation of new ones). The y-axis is concerned with the relationship of an organisational change to the clients of a social services agency (i.e. whether it meets the needs of an existing client group of the organisation, or a new one). An interesting contribution to the subject of innovation in service delivery can be found in the work of Vranken and Hermans (2009, p. 91). They define ‘care innovation’ as ‘An initiative to provide different and innovative care as an answer to current and future challenges in care and society’. According to them, the innovative capacity of organisation must primarily benefit the users of services. They present a tool to map the innovative capacity of organisations and they support organisations with the initiation of innovation and change (Vranken & Hermans, 2009).

CONCLUSION In this chapter, we have examined extant literature around three major issues in the non-profit sector: governance, innovation and performance. We summarised a lot of research that is descriptive in nature (measuring levels of innovation and performance, describing governance practice), or is explanatory in nature (relationships between innovation, governance and performance). The richness of this research has enabled the academic’s and practitioner’s communities to accrue knowledge of the non-profit sector, but in the same run, it also poses challenges for future research. Firstly, there still seems to be a lack of common understanding of what governance, innovation and performance means, and how we can measure it empirically: every research seems to apply its own definitions. Therefore, and based on

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this literature review, we make an argument for conceptual clarity: acknowledging that performance, innovation and governance are variables that cover many different understandings. As such, future empirical research should take into account that concepts like performance and innovation are multidimensional and that, as a result, perceptions of what makes an organisation ‘performing well’ or ‘innovative’ may depend on the position of the stakeholder in case. Hence, research designs should be clear in defining what dimensions are under scrutiny, and for whom (which stakeholders of the organisation) this dimension of innovation and performance is important. Secondly, and related to the previous argument, the observed conceptual heterogeneity also poses empirical and methodological challenges: if we want to proceed to more comparative knowledge (international and/or sectoral), we need to have a common understanding, translated in a clear research design, on how we define not only ‘an NPO’, but also ‘performance’, ‘innovation’, and ‘governance’: do we look at boardfeatures, management-features or board-management relationships? Do we look at innovation in managerial practice, or innovation in service-delivery? Do we conceptualise and measure performance in a goal-oriented fashion (efficiency, effectiveness), or in a way that also acknowledges the particular values of non-profits (volunteering, building social capital, y)? Thirdly, we need more research that is not only comparative, but also makes use of large-N datasets. Most research to date, especially among European scholars, is case-study based. Gathering more large-N survey data will not only enable us to have a clearer descriptive picture of the heterogeneous NPO sector, but also allow to statistically analyse relationships between key variables: what makes NPOs innovate or perform better? As such the depth of case-study research could be complemented by the breadth of large-N survey research. In other words, large-N research that is comparative will allow us to test existing hypotheses, and to refine new hypotheses, in order to get a more generalised understanding of the determining factors and the outcomes of innovation, performance and governance systems in non-profit organisations.

NOTES 1. An excellent example of a social innovation is microfinance. Microfinance refers to ‘‘the provision of loans, savings, insurance, and other financial services to poor people who lack access to the conventional financial system’’ (Phills et al., 2008, p. 36). The bulk of the social and financial value, created by microfinance

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institutions, accrues to the poor and the public. It combats the widespread and intractable problem of poverty. 2. ‘‘Those expenses associated with the management and general activities of the organization including oversight, business management, general record keeping, budgeting, financing, and related administrative activities, and all management and administration except for direct conduct of program service or fundraising activities’’ (Callen et al., 2003, p. 504). 3. ‘‘Those expenses associated with the efforts to raise donated funds including salaries of fund-raisers, fundraising fees if fundraising is outsourced, fundraising dinners expenses, fundraising brochures, and telephone and direct mailing expenses associated with fundraising activities’’ (Callen et al., 2003, p. 504).

REFERENCES Anheier, H. (2005). Nonprofit organizations. Theory, management, policy. London: Routledge. Bagnoli, L., & Megali, C. (2011). Measuring performance in social enterprises. Nonprofit and Voluntary Sector Quarterly, 40, 149–165. Balduck, A. L., & Buelens, M. (2008). A two-level competing values framework to measuring nonprofit organizational effectiveness.Vlerick Leuven Gent. Bezemer, P. J., Volberda, H. W., van den Bosch, F., & Jansen, J. (2006). Strategische vernieuwing in nederlandse nonprofitorganisaties. Maandblad voor Accountancy en Bedrijfseconomie, 80, 190–197. Brown, L. (2010). Balancing risk and innovation to improve social work practice. The British Journal of Social Work, 40, 1211–1228. Callen, J. L., Klein, A., et al. (2003). Board composition, committees, and organizational efficiency: The case of nonprofits. Nonprofit and Voluntary Sector Quarterly, 32, 493–520. Chew, C. (2006). Positioning and its strategic relevance. Emerging themes from the experiences of British charitable organizations. Public Management Review, 8, 333–350. Cornforth, C. (2010). Challenges and Future Directions for Third Sector Governance Reseach. EURAM 2010 Conference. Rome, Italy. Dart, R. (2004). Being ‘‘Business-Like’’ in a nonprofit organization: A grounded and inductive typology. Nonprofit and Voluntary Sector Quarterly, 33, 290–310. Davis, J. A., Marino, L. D., et al. (2011). An examination of entrepreneurial orientation, environmental scanning, and market strategies of nonprofit and for-profit nursing home administrators. Nonprofit and Voluntary Sector Quarterly, 40, 197–211. De Steur, D., Heene, A., & Carels, B. (2009). Social entrepreneurship: Management development in East-Flanders, Belgium. Overview and Challenges. EROV Dolnicar, S., Irvine, H., & Lazarevski, K. (2008). Mission or money? Competitive challenges facing public sector nonprofit organisations in an institutionalised environment. International Journal of Nonprofit and Voluntary Sector Marketing, 13, 107–117. Duque-Zuluaga, L. C., & Schneider, U. (2006). Market orientation and organizational performance in the nonprofit context: Exploring both concepts and the relationships between them. Wien: Institute for Social Policy. Eikenberry, A. M., & Kluver, J. D. (2004). The marketization of the nonprofit sector: Civil society at risk? Public Administration Review, 64, 132–140.

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Eisinger, P. (2002). Organizational capacity and organizational effectiveness among street-level food assistance programs. Nonprofit and Voluntary Sector Quarterly, 31, 115–130. Evans, B., Richmond, T., & Shields, J. (2005). Structuring neoliberal governance: The nonprofit sector, emerging new modes of control and the marketisation of service delivery. Policy and Society, 24, 73–97. Forbes, D. (1998). Measuring the unmeasurable: Empirical studies of nonprofit organization effectiveness from 1977 to 1997. Nonprofit and Voluntary Sector Quarterly, 27, 183–201. Geurtsen, A., Sprenger, P., et al. (2009). Effectieve maatschappelijke ondernemingen. Dilemma’s bij het vaststellen van de effectiviteit van maatschappelijke ondernemingen. Bestuur en Toezicht Maatschappelijke Onderneming. Greene, I. (2007). The potential for government privatization to the nonprofit sector. The Public Sector Innovation Journal, 12, 11. Guo, B. (2006). Charity for profit? Exploring factors associated with the commercialization of human service nonprofits. Nonprofit and Voluntary Sector Quarterly, 35, 123–138. Han, J. K., Kim, N., & Srivastava, R. K. (1998). Market orientation and organizational performance: Is innovation a missing link? Journal of Marketing, 52, 30–46. Heffron, F. (1989). Organization Theory and Public Organizations: The political Connection. New Jersey: Prentice Hall. Herman, R. D., & Renz, D. O. (1998). Nonprofit organizational effectiveness: Contrasts between especially effective and less effective organizations. Nonprofit Management & Leadership, 9, 23–38. Hinz, V., & Ingerfurth, S. (2011). Does Ownership Matter Under Challenging Conditions? On the Relationship between Organizational Entrepreneurship and Performance in the Healtcare Sector. EIASM-workshop on the challenges of managing the third sector. Galway, Ireland. Kaplan, R. S. (2001). Strategic performance measurement and management in nonprofit organizations. Nonprofit Management & Leadership, 11, 353–370. LeRoy, S., Wood, K., et al. (2007). Non-Profit Performance Report. An Analysis of Management, Staff, Volunteers, and Board Effectiveness in the Non-Profit Sector. Canada, The Fraser Institute. Lindgren, L. (2001). The non-profit sector meets the performance-management movement. A programme-theory approach. Evaluation, 7, 285–303. Mc Donald, R. E. (2007). An investigation of innovation in nonprofit organizations: The role of organizational mission. Nonprofit and Voluntary Sector Quarterly, 36, 256–281. Monteduro, F., Hinna, A., et al. (2009). Do non-profit boards matter for innovation? An empirical analysis of grant-giving foundations. EGPA Conference 2009. Saint Julian’s, Malta. Murray, V. (2005). Evaluating the effectiveness of nonprofit organizations. In R. Herman & Associates (Eds.), The Jossey-Bass handbook of nonprofit leadership and management (pp. 345–370). San Francisco: Jossey-Bass. Osborne, S. P. (1998). Voluntary organizations and innovation in public services. London: Routledge. Osborne, S. P., & Flynn, N. (1997). Managing the innovative capacity of voluntary and nonprofit organizations in the provision of public services. Public Money & Management, 17, 31–39. Osborne, S. P., & Tricker, M. (1995). Researching non-profit organisational effectiveness: A comment on Herman and Heimovics. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 6, 85–92.

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Paulsen, N. (2006). New public management, innovation, and the non-profit domain: New forms of organizing and professional identity. In M. Veenswijk (Ed.), Organizing innovation: New approaches to cultural change and intervention in public sector organizations (pp. 15–28). Amsterdam: IOS Press. Phills, J. A., Deiglmeier, K., & Miller, D. (2008). Rediscovering social innovation. Stanford Social Innovation Review, 6(4), 34–43. Pollitt, C., & Bouckaert, G. (2000). Public management reform. A comparative analysis. Oxford: Oxford University Press. Ryan, W. P. (1999). The new landscape for nonprofits. Harvard Business Review, (January– February), 127–136. Salamon, L. M., & Anheier, H. K. (1992). In search of the non-profit sector. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 3(2), 125–151. Sarrico, C. S., Rosa, M. J., et al. (2011). School management practices and school achievement. IRSPM Conference. Dublin. Schmid, H. (2002). Relationships between organizational properties and organizational effectiveness in three types of nonprofit human service organizations. Public Personnel Management, 31, 377–395. Sowa, J. E., Coleman Selden, S., et al. (2004). No longer unmeasurable? A multidimensional integrated model of nonprofit organizational effectiveness. Nonprofit and Voluntary Sector Quarterly, 33, 711–728. Toepler, S. (2004). Conceptualizing nonprofit commercialism: A case study. Public Administration and Management: An Interactive Journal, 9, 1–19. van Dooren, W. (2006). Performance measurement in the flemish public sector: A supply and demand approach. faculteit sociale Wetenschappen. Leuven, K.U. Leuven: 364 blz. Verschuere, B. (2009). Effectiveness and efficiency. In H. Anheier & S. Toepler (Eds.), International encyclopedia of civil society. New York, NY: Springer. Verschuere, B., & Cantens, N. (2009). Social governance: Behoorlijk bestuur in de non-profit sector. School voor social profit management. Vidal, P., Guixe´, I., et al. (2006). How is legetimacy generated in NGO’s? A case study of Catalonia. ISTR Seventh International Conference. Vlassenroot, K., Christiaens, J., et al. (2009). The influence of government grants on the financial situation of not-for-profit organisations from an agency perspective. 12th CIGAR Conference, Modena. Vranken, R., & Hermans, K. (2009). Project zorginnovatie in welzijn. Leuven: Vlaams Welzijnsverbond. Wood, V. R., Bhuian, S., et al. (2000). Market orientation and organizational performance in not-for-profit hospitals. Journal of Business Research, 48, 213–226.

LEADING ORGANISATIONAL CHANGES IN PUBLIC SECTOR BUILDING BLOCKS IN UNDERSTANDING BOARDS BEHAVIOUR Luca Gnan, Alessandro Hinna and Danila Scarozza ABSTRACT Purpose – Starting from public and corporate governance literature, the chapter aims to evidence the opportunity in exploring board of directors in public organisations, where the focus is on a behavioural perspective. Design/methodology/approach – Presenting two levels of analysis: (a) the relationship between the board and ‘external’ stakeholders, and (b) the relationship between the board and managers, a framework is proposed evidencing which factors (variables, constructs and concepts) logically should be considered as part of the explanation of boards’ role in public organisations’ innovation. Findings – The chapter provides support for a board model in public governance, evidencing both the opportunity to assume a multi-paradigm perspective and the existing similarities and differences between boards

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 57–89 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001007

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in public and corporate governance approach. It is possible, for example, to empirically apply the framework both to different national context and to different levels of public organisations. Originality/value of chapter – The chapter presents theoretical perspectives on governance research, and both some pioneer studies in public sector research and some of the major contribution in corporate governance studies. All of them have been put together, introducing a new stream of research in the debate on the micro (organisational) level of governance in public sector. Keywords: Public governance; board; behaviour

INTRODUCTION After decades of immobility, in the light of the numerous legislative reforms which in the eighties were indispensable to meet the evolution of the social, economic and political context of modern society, now it is possible to affirm that the path undertaken by the public organisation was that of change (Doing & Graham, 1998). Actually public organisations asks for several types of innovations, such as product and service innovations, process innovations, positioning innovations (new contexts or users), strategic innovations (new goals or objectives for the organisation), governance innovations (new forms for citizens and stakeholders engagement) and rhetorical innovations (new language and new concepts) (Hartley, 2005). In order to be implemented, most of these innovations do not require just minor changes to existing services or processes (incremental innovations), but according to new public management (NPM) suggestions they need the introduction of new ways of making activities in terms of the organisational processes or service delivery (radical innovations), while public governance (PG) requests to adopt new workforce structures and new models of organisations, to transform the entire sector, to change relationships between organisations, to provide fundamental changes in organisational, social and cultural arrangements of the public sector (transformative innovations) (Mulgan & Albury, 2003). Moreover, the organisational changes induced by the innovations recommended by NPM and PG reforms affect the roles and the tasks expectations of public organisations’ governing bodies (Cornforth & Edwards, 1999; Farrell, 2005; Fields, 2007). In the NPM and PG debate, a variety of

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expectations extend public organisations’ governing bodies’ role on internal governance (coordination and interaction with managers), on external governance (public services and collective needs alignment) and on interinstitutional governance (coordination and integration between public organisations and other government institutions) (Cornforth, 2003). Nevertheless, governing bodies in public organisation remain a neglected area of research (Farrell, 2005; Hinna, De Nito, & Mangia, 2010; Hodges, Wright, & Keasey, 1996). Following NPM and PG suggestions, the international debate has focused primarily on identifying and describing the adoption by public sector organisation of modes of organisation usually related to the private sector, while less importance has been recognised to the adoption of governance models generally adopted by private organisations (Clatworthy, Mellet, & Peel, 2000), even though they present many similarities with them (Cornforth, 2003). Some pioneer studies focus on the board’s role definition in public organisation (i.e. Cornforth & Edwards, 1999), taking into account all the three main tasks performed by boards also in corporate governance literature (Zahra & Pearce, 1989; Zona & Zattoni, 2007), evidencing strategic tasks (i.e. Jørgensen, 1999), control tasks (i.e. Clatworthy, Mellett, & Peel, 2000; Considine, 2000; Hood, James, & Scott, 2000; Midttun & Kamfjord, 1999; Smith & Beazley, 2000) or networking tasks (Klijn & Skelcher, 2007; Lowndes & Wilson, 2003). In public sector literature, the dimensions influencing the governing bodies effectiveness are announced as relevant issues, but they remain not investigated (Hinna et al., 2010). Anyway, in private sector literature, there is a stream of research on board behavioural dimensions, exploring actors, decision-making processes, relationships and interactions inside and outside the boardroom (van Ees, Gabrielsson, & Huse, 2009, p. 19), as intermediate intervening factors and processes between board composition and firm-level performance. Public sector literature presents a few studies including behavioural dimension of governing bodies, looking at actors, processes, decisions making, relationships and interactions among the governing bodies’ members and between them and internal and external organisational actors (Huse, 2009). Moreover, very few contributions include changing power and roles among the coalition of internal and external actors (Bate, 2000; Jacobsen, 2006), even thought reforms suggested by NPM and PG scholars ask public organisations for sharing objectives and for developing a mutual knowledge of concerns, with a convergence of actions and trust among the different actors involved. Especially PG discourse stresses the values of

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inclusivity, equality of standing and power between the actors involved in the public decisional process (Fung, 2004). Moreover, changes requested by NPM and PG pose important questions not only on the bureaucratic re-configuration of public organisations but also on how they may perform their new tasks. The new model asks public organisations for more flexibility, efficiency and service quality, and it implies transformations on their characteristics, both on the political side (Mintzberg, 1979) and on the cultural one (Driscoll & Morris, 2001). Therefore, governing bodies should assume a mediating role between these external requests of change and the resistance arising within public organisations, creating the settings for radical or transformative innovations in public bureaucracies. This extended role asks for their participation both in the formulation phase and in the decisional processes on strategic change that may help public organisations to adapt themselves to important environmental shifts (Fields, 2007; Goodstein, Guatam, & Boeker, 1994). Following the distinction between macro (state or society), meso (networks) and micro (organisational) levels of governance (Jessop, 1995; Kooiman, Van Vliet, & Jentoft, 1999), the focus of the chapter is on the micro (organisational) level, exploring the behavioural dimensions of governing bodies for managing the organisational changes due to innovations clamed form NPM and PG reforms. Moving from major (and pioneer) contributions on board of directors in the public sector, the chapter poses some new issues in exploring boards of directors in public organisations and focuses on the governance of the relationships between both (a) (external) stakeholders and governing bodies members, and (b) governing bodies members and public organisation’s management team. According to a behavioural perspective on organisational governance studies (Huse, 2007), it develops the discussion on the interactions and dynamical power influence between the three groups in designing and implementing the organisational changes. According to most of the studies concerning governing bodies in public organisation (i.e. Bertelli, 2006; Clarence, 2002; Considine, 2000; Dierick, 2003; Egeberg, 1999; Hood et al., 2000; Hyndman & Eden, 2001; Kaufman, 2001; Mulgan & Albury, 2000; Siciliano, 2002; Smith, 2003; West & Durant, 2000), the chapter assumes ‘board’ as a common terminology to include the various governing bodies, nominated or elected politically, present in both central and local organisations. In public sector literature (Cuervo & Villalonga, 2000; Maitlis, 2004; Nestor, 2005), the term board is also adopted to indicate those bodies that have the responsibilities to frame the purpose of the state-owned enterprises and to agree on the strategy how it will be

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met. We consider public boards as the apex of the decisional control systems of public organisations, in which decision agents do not bear a major share of the wealth effects of their decisions and have the power to hire, fire and compensate the top-level decision managers and to ratify and monitor important decisions (Fama & Jensen, 1983). According to public governance literature (Dunn & Legge, 2002; Farrell, 2005), boards differ from top management teams as they are responsible for monitoring them, providing strategic leadership and policy direction. The chapter proceeds in four sections. Firstly, issues about leading organisation changes in the public sector are presented. In the second section, we present our theoretical background with major theoretical perspectives on organisation governance research, and both some of the major contributions in corporate governance studies and some pioneer studies in public sector research. In the third section, a conceptual framework is presented evidencing which factors (variables, constructs and concepts) logically should be considered as part of the explanation of boards’ role in public organisations’ innovation. Finally, we present a map of the conceptual landscape of the relation between boards’ behaviour and innovations in public organisations, signalling where we argue avenues for the study of board behaviours for public organisations’ innovations.

LEADING ORGANISATIONAL CHANGES IN PUBLIC SECTOR The NPM approach synthesises the reforms that fostered public organisations to a gradual abandon of their bureaucratic archetype towards those of private companies, without betraying their mission and their public nature. Spreading by stages and by different phases in various countries, NPM started a process of transplanting logics, principles and managerial techniques used in private firms into public organisations. An adaptation of private organisational models (Kelman, 2007) was required. Although discussions have arisen on the NPM nature (Agranoff & McGuire, 2001; Haque, 2007; Hood, 1998), its basic characteristics and its main principles may be found out in different public organisations. A possible synthesis of the instruments suggested by this NPM movement could be the following: privatisation, a growing emphasis on citizen as a client; decentralisation or downsizing, strategic management; creation of a competitive environment; measuring the results and evaluating the performance; use of mechanisms currently on the market (prevalently contracting-out and contracting-in);

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separation of politics and organisation; use of IT; pursuit of resources efficiency (Capano, 2003). On the one hand, the aim has been to re-structure public institutions both in terms of the individual organisational structures (e.g. downsizing) and in terms of the inter-organisational relationship (e.g. market mechanisms); on the other hand, the aim is to re-structure the internal mechanisms of each individual organisation (e.g. new methods of managing human resources and changes in the control systems). To be implemented, most of these innovations do not require just minor changes to existing services or processes, but according to NPM suggestions, they need the introduction of fundamentally new ways of doing things in terms of organisational processes or service delivery. Therefore, we may talk about an expected radical innovation in public organisation (Mulgan & Albury, 2003). In the second half of the 1990s, the second phase of reforms began within the PG theoretical stream (Bevir, Rhodes, & Weller, 2003; Kettl, 2000a, 2000b; Lynn, Heinrich, & Hill, 2000; Peters & Pierre, 1998). Following PG, innovations go beyond a mere managerial event, as they influence the relationships between public organisations and their stakeholders. Social and economical phenomena may be more efficiently managed with close interactions between public organisations and social actors, creating a favourable, encouraging environment. The passage from NPM to PG has therefore contributed to overcome the vision of modernisation that limits itself to the internal organisation of the entire sector and public organisations. Therefore, we may also talk about an expected transformative/systemic innovation (Mulgan & Albury, 2003), requiring fundamental changes in organisational, social and cultural arrangements (Kettl, 2002a). PG integrates and does not substitute NPM, evidencing the characteristics of a good governance practice (Leftwich, 1993). From a systemic perspective, PG asks for an internal and external balanced distribution of the economical power and the political one. From a political perspective, it looks for the recognition of the democratically authority. Finally, from an administrative perspective, it solicits the existence of an efficient bureaucratic apparatus with competencies to design and to implement public policies. Even if governance has become an important concept in the public sector debate, compared with the wider one on corporate governance in the private sector and with the literature on the macro (state or society) and meso (networks) levels of governance in the public sector (Corkery & Wettenhall, 1991), the organisational level of governance of public organisations, mainly related with governing bodies roles (Fields, 2007), remains a neglected area of research.

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On the contrary, this level of governance-dealing with the rights and responsibilities of an organisation’s board, its management, its shareholders and its stakeholders (Bonn & Fisher, 2005) is a crucial one in the NPM and PG discourse, which extends the board’s role in public organisation through new tasks expectations (Cornforth, 2003). These expectations regard both internal governance (coordination and interaction with managers), external governance (public services and collective needs alignment) and inter-institutional governance (integration and coordination between public organisations and other governmental institutions). The consequent role dimension, defined as ‘taking important decisions on strategic change that help the organisation adapt to important environmental changes’ (Goodstein et al., 1994, p. 242), asks for a new configuration of the relationships between stakeholders, the board and the organisation, evidencing important similarities between boards’ tasks expectations in the private sector and in the public sector.

THEORETICAL BACKGROUND Considerable effort has been made on studying the board’s roles in the private sector, presenting different theories such as agency theory (Eisenhardt, 1989; Fama, 1980; Jensen & Meckling, 1976), stewardship theory (Donaldson & Davis, 1991; Muth & Donaldson, 1998), resource dependence theory (Pfeffer & Salancik, 1974; Zahra & Pearce, 1989), managerial hegemony theory (Lorsch & Maciver, 1989), stakeholder theory (Donaldson & Preston, 1995; Freeman, 1984) and institutional theory (Meyer & Rowan, 1977). Respectively, each theory led to investigate specific different roles such as control, strategic, linking, support, coordination and maintenance (Hung, 1998). Zahra and Pearce (1989) stressed the importance of the control, strategy and service roles, which are related to different degrees in several theories. Starting from contingency and evolutionary perspectives, recent researches focused on the human side of governance (Forbes & Milliken, 1999; Gabriellsson & Huse, 2004; Huse, 2005; Samra-Fredericks, 2000; Westphal, 1999; Zona & Zattoni, 2007). Moving towards a behavioural theory of boards, they revealed a better understanding of ‘actors, processes, decisions making, relationships, and interactions inside and outside the boardroom’ (van Ees et al., 2009, p. 19), exploring intermediate intervening factors and processes between board composition and firm-level performance. This stream of research states a strong need to closely study the

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behavioural processes and dynamics in and around the boardroom to better understand the conditions for effective governance (Leblanc & Schwartz, 2007; McNulty & Pettigrew, 1999; van Ees et al., 2009; Westphal, Seidel, & Stewart, 2001). In this new stream of research, some corporate governance scholars have included variables as time, change and learning to define boards role and task expectation, putting under debate the involvement of non-executive directors in their strategic roles (Golden & Zajac, 2001; Pugliese et al., 2009) with important contributions through the provision of advice (Hillman & Dalziel, 2003; Westphal, 1999). Combining their discussion on the examination of both the human factor of corporate governance and board behaviour implications, they also state the importance of human and social capital of boards (Hillman & Dalziel, 2003) and board members expertise (Payne, Benson, & Finegold, 2009) as an important antecedent for board effectiveness to govern management. Shifting the analysis on organisational governance from the private sector to the public one, Hodges, et al. (1996, p. 12) stated, ‘a number of outstanding issues remain. These include the need to adapt corporate governance principles to meet the considerable diversity of objectives and management structures within the public services’. As some scholars pointed out (Farrell, 2005), while the micro (organisational) level of governance is widely researched in the private sector literature, it is not so developed in the public sector, even if the relevance of this topic can be traced back to the application of NPM and to the application of PG. The literature on boards of public organisations has already shown that governing bodies have many similarities with private boards and non-profit ones (Cornforth, 2003). These similarities take into consideration their accountability requirements (Levacic, 1995) and their role in the strategic decision-making processes (Goodstein et al., 1994). Cornforth (2003), shifting the focus from private boards to public and non-profit ones, identified six governance models about the relationship between theoretical perspectives and the board’s role. He evidenced the opportunity to assume a multi-paradigm perspective (Cornforth, 2003) (Table 1). As in the corporate governance debate, Cornforth (2003, pp. 251–252) asked for a deeper understanding of competencies, skills, abilities and behaviours of public boards. Nevertheless, the literature on public governance focused on the analysis of boards tasks expectations in public organisations, evidencing strategic tasks (Dopson, Stewart, & Locock, 1999; Jørgensen 1999; Sullivan, Barnes, & Matka, 2006), control tasks (Clatworthy et al., 2000; Considine, 2004; Hood et al., 2000; Hyndman & Eden, 2001; Midttun & Kamfjord, 1999; Sanderson, 2002; Siciliano, 2002;

Stakeholders have different interests

Stakeholders and Chosen for influence with organisation have different key stakeholders interests

Owners and managers have different interests

Stakeholder theory

Resource dependency theory

Managerial hegemony theory

Source: Cornforth (2003, p. 13).

Members/the public contain different interests

Democratic perspective

Owners’ representatives

Stakeholder representatives: elected or appointed by stakeholder groups

Lay representatives

Experts

Owners and managers share interests

Stewardship theory

Owners’ representatives

Board Members

Owners and managers have different interests

Interests Compliance model

Model

Largely symbolic: ratify decisions give legitimacy managers have real power

Boundary spanning: secure resources maintain stakeholder relations being external perspective

Balancing stakeholder needs: balance stakeholder needs/make policy/strategy control management

Political: represent constituents/ members reconcile conflicts make policy control executive

‘Rubber-stamp’ model

Co-option model

Stakeholder model

Democratic model

Improve performance: add value to Partnership model top decisions/strategy partner/ support management

Compliance/conformance: safeguard owners’ interests oversee management check compliance

Board Role

Theoretical Perspectives on Governance.

Agency theory

Theory

Table 1.

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Smith & Beazley, 2000; West & Durant, 2000) or networking tasks (Klijn & Skelcher, 2007; Lowndes & Wilson, 2003). Only few scholars investigated the human side of boards (Benz & Frey, 2007; Boyne & Dahya, 2002; Cornforth & Edwards, 1999; Greer & Hoggett, 2000; Kirkbride & Letza, 2003). None research has yet analysed and described how in public organisations the board behaviour may influence its effectiveness in producing social and economic value (Moore, 1995). Very few academic contributions focus on variables influencing the effectiveness of the public governance system, taking into consideration two different levels of analysis (Cornforth, 2003; Farrell, 2005; Hinna et al., 2010): 1. the relationships between board and ‘external’ actors (stakeholders), asking for further investigations on the influences arising from political, cultural, historical factors; 2. the relationship between the public governance and the managerial behaviour, asking for producing evolutionary studies looking at changing power and roles among various coalitions of actors. Most of the studies focus on the first level of analysis. According to Cornforth, theoretical perspectives (2003), the board representativeness is the main feature analysed by public sector scholars, with the aim of evaluating the representation of the members of the board (i.e. Boyne & Dayha, 2002; Egeberg, 1999; Nestor, 2005; Siciliano, 2002; West & Durant, 2000). This might be considered as a consequence of their multi-stakeholder structures with the main objective in managing and gaining legitimacy through public consensus (Cornforth & Edwards, 1999). Therefore, making an important difference with literature on organisational governance in the private sector (Gabriellsson & Huse, 2004; McDonald, Westphal, & Graebner, 2008), agency theory is not the main theoretical perspective adopted by authors to study boards of directors in the public sector. However, agency theory appears as an important stream of organisational governance research in the public sector too with concern the second level of analysis (the relationship between the public governance and the managerial behaviour). Also, in the PG discourse – as in the private context – it is assumed that managers (agents) will maximise their own utility, rather than that of the organisation or of their principals. Some authors (Benz & Frey, 2007) suggest combining an agency theoretical perspective with a stakeholder one in defining boards’ roles. The organisational governance research in the public sector needs, more than in the private sector, to go far beyond the focus on the internal management of the firm. Thus, the board’s

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roles might combine the control tasks with the negotiation and the search for solutions to potential conflicts of interests of different stakeholders. Accordingly, in studying governance models (boards included), there are some new attempts to adopt a dynamic perspective, considering the possibility that the relationship between board and management may change in time (Jacobsen, 2006). In public sector literature on micro (organisational) level of governance, none research has analysed the board’s roles and tasks expectation to support or to guarantee the innovation of public organisations. On the contrary, this topic is particularly relevant regarding changes asked by NPM and PG and the discussion on public organisations’ resistance to change coming from administrative behavioural literature (i.e. Crozier & Friedberg, 1977; Gouldner, 1954; Merton, 1949; Selznick, 1948, 1949, 1966; Wright, 2001, 2004).

CONCEPTUAL FRAMEWORK In order to investigate the role of board of directors in designing and in implementing the organisational changes of both NPM and PG, we adopt a conceptual framework based on four distinct theoretical perspectives (Fig. 1): 1. The agency and the stakeholder perspective, and the board strategy involvement perspective on the one hand (the left side of the dashed line),

Agency & stakeholder perspectives

“Community ownership” expectations

Board strategic involvement perspective

Administrative behavior perspective

Board roles

Board tasks in innovations processes

Board behavioral implications for innovation

Fig. 1.

The Conceptual Framework.

Public value perspective

Value creation

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2. The administrative behaviour perspective and the public value perspective on the other (the right side of the dashed line). As a whole, the proposed conceptual framework arises some board behavioural implications in terms of: (a) complexity of organisational changes in the public sector; (b) relationships between the strategy involvement of the board and the innovation in public organisations.

Agency Theory Perspective Agency theory has been the starting point for most of the research about boards and governance for the past two decades (Gabriellsson & Huse, 2004) as it provides a comprehensive definition of board attributes as far as composition, characteristics, decision processes and structure are concerned. This theoretical perspective roots on the idea that managers operate as agents of principals (the owners of the organisation). The primary role of boards is to monitor actions of agents to ensure their efficiency and to protect principals’ interests. Board members have, according to Daily, Dalton, and Cannella (2003, p. 372), a range of ‘internal and external governance mechanisms to help bring the interest of managers in line with their own’. Agency theorists focus on different agency problems and possible solutions, useful in different sectors, as private and public. Managers (agents) are assumed to maximise their own utility, rather than the one of their principals. In private organisations, this divergence is reduced through external mechanisms (such as market for managers and capital control) and/or internal mechanisms (such as a managerial participation in ownership, and the introduction of agency cost-control mechanisms such as boards, strategic planning and reward systems). In the public sector, these mechanisms (except for the boards) are virtually not present (Cuervo & Villalonga, 2000). The link between principals and agents can be broken down into two other relationships: (1) the citizens to the politicians’ one and (2) the politicians to the managers’ one. The literature focuses more specifically on the second one of the double agency problem, the one between politicians and managers. Public organisations are predicted to be low performers, because politicians impose objectives that might help them to gain votes, but that might conflict with efficiency (Buchanan, 1972; Niskanen, 1971). For public organisations,

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the costs of monitoring this behaviour likely offset the benefits (Cuervo & Villalonga, 2000). Stakeholder Theory Perspective The ‘who or what really counts’ question is the main issue in the stakeholder perspective literature (Huse & Rindova, 2001). A stakeholder is ‘any individual or group who can affect or is affected by the achievement of the organization’s objectives’ (Freeman, 1984, p. 6). While specific stakeholder definitions vary, the literature on public organisations concurs in the need for stakeholder support to create and to sustain winning coalitions (Baumgartner & Jones, 1993; Riker, 1986) and to ensure long-term viability of organisations (Abramson & Kamensky, 2001; Bryson, Gibbons, & Shaye, 2001; Eden & Ackermann, 1998), as well as policies, plans and programmes (Baumgartner & Jones, 1993; Bryson & Crosby, 1992; Jacobs & Shapiro, 2000). Public organisations are multi-stakeholders systems with a main objective in managing and gaining legitimacy through public consensus. Different stakeholders have significant different expectations. Furthermore, the divergence and convergence of stakeholders’ expectations may provide an organisation’s management with critical leverage in using boards for stakeholder management (Huse & Eide, 1996). The stakeholder approach suggests that the board’s roles are to represent the interests of the groups ‘served’ by directors. Cornforth (2003, p. 9) stated that ‘by incorporating different stakeholders on board, it is expected that organizations will be more likely to respond to broader social interests than the narrow interests of one group’. Board Strategy Involvement Perspective Boards should be active and decisive in the organisation strategy (Andrews, 1981; Mintzberg, 1987). In the corporate governance literature, even if the traditional behavioural perspectives assume that boards are not involved in strategy formulation (Finkelstein & Hambrick, 1996), agency, stewardship and resource dependence theories have already provided insights into the strategy involvement of boards (Hendry & Kiel, 2004). The content of this perspective is about what of the board’s strategy involvement is and how it is related with the strategy formulation process.

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Focusing on both the content and the process, McNulty and Pettigrew (1999) evidence three different levels of board strategy involvement (taking strategic decision, shaping strategic decision and shaping the context and conduct of strategy), that also represent different models of ever-increasing controlling influence over management (Table 2). The models describe a range of board behaviours not already identified in previous corporate governance studies, evidencing different effects on the content and on the process of adopted strategies. The board role might be considered ‘as a broad mechanism to shape the mission and the vision, to regulate the capacity for innovation and entrepreneurship’ (Hendry & Kiel, 2004, p. 511) and therefore defined as a ‘strategic control’. The board exerts a continuous process of formal and informal influence. This level of strategy involvement entails a proactive board strategic thinking rather than a reactive one, characterised with a long-term orientation. Recently, public organisation studies have began to refer this specific model examining the extent of strategy involvement of public boards (Farrell, 2005).

Administrative Behavioural Perspective The dysfunctions (Gouldner, 1954; Merton, 1949; Selznick, 1948, 1949, 1966) of the bureaucratic model (Weber, 1922) may compromise the effectiveness of administrative behaviour (Wright, 2001, 2004). The control of the behavioural conformity requires a massive commitment. Actually, the public organisations’ model is based on: (a) rules and regulations that cover the entire organisation and that govern decisions and actions, guaranteeing activity’s uniformity, continuity and stability, (b) an established division of power and duties, (c) a hierarchy, as a rigid system of authority, (d) some official secrets, in order to maintain all the pertinent resources to the functioning of the organisation, (e) an impersonal approach in external and internal relationships in order to avoid a subjective interference in carrying out official tasks. All these characteristics, ensuring formal equality and legality to actions, lead to dysfunctional outcomes. The coherence within systems and components of the bureaucratic model may be a barrier to change. Its effectiveness relays not only on the quality of its formal rules and procedures, but also on their completeness. During periods of change, their completeness may be unreachable due to their obsolescence. In these situations, public organisations present an increasing number of (a) spaces of subjective decisions of individuals and, therefore,

Inside the boardroom, boards take decisions to either accept, reject or refer capital investment proposals

All boards take strategic decisions

Board behaviour

Board involvement

Source: McNulty and Pettigrew (1999, p. 55).

Influence is exerted inside the boardroom at the end of the capital investment decision process

Definition

A minority of boards shape the content, context and conduct of strategy

The board develops the context for strategic debate, establishes a methodology for strategic development, monitors strategy content and alters the conduct of the executive in relation to strategy

Consultation with part-time board members by executive, either formally or informally while a capital investment proposal is being prepared, enables board members to test ideas, raise issues, question assumptions, advise caution and offer encouragement. Executive ‘sieve’ capital investments proposals in anticipation of the need for board approval Some board shape strategic decisions

Influence is continuous and confined to decision periods

Shaping the Content, the Context and Conduct of Strategy

Influence occurs early in the process as part-time board members shape the preparation of capital investment proposals by executives

Shaping Strategic Decision

Levels of Board Involvement in Strategy.

Taking Strategic Decision

Table 2.

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(b) forms of individual and collective power arising from the control of operating uncertainty that the formal rules are not able to cover (Crozier & Friedberg, 1977). At the same time, the defence of rules and procedures becomes the basis where bureaucracy organises itself, refusing any change which might upset the delicate equilibrium of power (Crozier, 1963), allowing only apparent changes. The lack of ability to change is an intrinsic trait of bureaucratic organisations. Due to their lack of mechanisms for continuous adaptation, they do not exploit incremental changes, but only radical ones related to crisis times (Crozier, 1963; Kotter, 1995).

Public Value Perspective In the private sector, the aim of managerial work is to create private value, while in the public sector it is to create a more articulated concept of value (Bozeman, 2002; Lowndes, Pratchett, & Stoker, 2006; Moore, 1995; Moore & Hartley, 2008; Stone, 1997; van Wart, 1998). In public organisations, the articulation of value creation introduces ambiguity on ends as well on means. Who leads an organisation has to define its evolution, but this definition may be different in private and in public managerial work. In private organisations, executives settle out strategic goals that maximise the long-term value of their shareholders. In public organisations, such a common agreement on ultimate goals does not exist and a certain degree of discretion arises, as an opportunity for leadership. An even more evident opportunity when new challenges appear. In this case, the society asks leaders for a support to learn what it is desirable and possible to realise in the public domain. The discretion is limited by legislatures, media and interest groups control and power, but such constrains still leave a room for the manoeuvre. Politics surrounding a public organisation are sufficiently contentious to suggest several different plausible and sustainable conceptions of value (Moore, 1995, p. 63). In the private sector, economic revenues represent a synthetic indicator for value creation. In public organisations, for measurement difficulties, actors may wait for a long time before the evaluation of results obtained from their efforts. The ends and the means of the success of public organisations are complex ones to define and ensuring their survival is too easy to achieve (Moore, 1995, p. 9). Tensions on efficiency and their adaptation to the evolution of political demands are important challenges, but they do not fit with the concept of success. Adopting an effectiveness-oriented approach and implementing political preferred policy goals have the aim of avoiding

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that managers follow their own desires or personal views of public needs. However, the value creation may be different from actual political aspirations and the success of public organisations is connected to their value in the society, both in the short and in the long run. In public organisations, elected directors and executives need to articulate a concept of value that it requires legitimacy and support, and it has a twofold implication in their responsibility’s domain: (a) there will be a continuous political fight for resources, (b) the capabilities they need will emerge both from inside and outside the organisation itself. Therefore, from a strategic perspective the expected results are related to (Moore & Hartley, 2008): public value (‘outcome’ creation and not only of outputs creation as in the private sector); legitimacy and support (it goes beyond the idea of material and financial support. It is also related with a sort of social and political ‘legitimacy’ on how a public organisation maintains its right to operate in a particular social and political environment, as well as its economic viability or its financial sustainability); operational capabilities (it includes also investments and innovations that permit an efficient and effective execution of the public processes).

BOARD BEHAVIOURAL IMPLICATIONS FOR PUBLIC ORGANISATION INNOVATION According to research and theory development literature (e.g. Dubin, 1978; Whetten, 1989, 2009), we propose some steps for building box in understanding the role of boards in innovation in public organisation, evidencing concepts that should be considered as part of the explanation of board role for public organisation innovation. Thus, the following theoretical propositions are here presented as a way to map the conceptual landscape of our topic. These propositions are normative, evidencing where we argue enhancements in the study of board behaviours in public organisations. As a starting point, we assume that in public organisations, the environment–organisation relationship may not be strictly interpreted in a deterministic perspective but, rather, in a logic of a voluntary one (Cafferata, 1995). A situation of ‘crisis’ is not able by itself to induce public organisations to change, it only represents a potential source of pressure for change (Airoldi, 1991), since several elements rely on the ‘market’ that the organisation faces. The less an organisation needs to compete for its survival, the more important are the influences on individuals’ power games (Crozier & Friedberg, 1977). These influences represent secondary sources of uncertainty. These sources are of little importance for the organisation itself,

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but extremely relevant for individuals. They do not create a risky situation for individuals’ survival, leaving unchanged their strategies and power relationships. Therefore, even if (according to NPM and PG) public organisations have to manage more complex tasks (Galbraith, 1977), these tasks may increase the real complexity they face, i.e. to determine a change in their organisational behaviours, if they are reinforced by an adequate pressure on results (Airoldi, 1991; Bilodeau, Laurin, & Vining, 2006). However, this reinforce is hardly achievable since: (a) the new logics of vertical and horizontal networking in services management make more difficult the attribution of specific and distinct responsibilities between different actors (Jørgensen, 1999); (b) the output of many public services is difficult to measure and, therefore, citizens might not be able to evaluate them objectively (Barberis, 1998); (c) in public organisations, principals and agents relationship defines a particular configuration (Cuervo & Villalonga, 2000; Jørgensen, 1999). Even though the community has the right to establish the economical and social targets, the exploiting of that right suffers for the double mediation of politicians and managers. The target’s definition is exposed to failure, typical of the democratic process, generally connected to the complexity of the procedures of supervision and to a situation of strong information asymmetry. In public organisations, innovations are conditioned by their ‘will’ and their ‘self-determination’, defining a problem of strategic choice between (a) introducing organisational solutions that help organisations to manage the new complexity; (b) reducing the (potential) complexity of the new tasks, accepting a lower performance and transferring the cost of the ‘no change’ to the community. According to scholars discussing the dysfunction of the bureaucratic model from the administrative behavioural perspective (i.e. Gouldner, 1954; Merton, 1949; Selznick, 1948, 1949, 1966; Wright, 2001, 2004), public bureaucracies are inclined to accept a lower performance, unless they are in specific goal pressure conditions that cannot be exogenous but endogenous ones. The importance of board behaviour for innovation in public sector organisations is here defined: in order to better represent the community and stakeholders interests, public boards can assume a mediating role between the requests to change coming from the requested innovation and resistance or inertia from within the organisation. Therefore, they can represent an important form of internal pressure (Galbraith, 1977), setting a pre- condition for public bureaucracy to carry out its assigned tasks and to adopt innovation strategies and not (or not only) through the acceptance of lower levels of organisational efficiency and effectiveness. Otherwise, boards will compromise their effectiveness to

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represent the interests of the groups that board members might ‘serve’, as the multi-stakeholder structure of public organisation requires (Cornforth, 2003). Proposition 1. Starting from a stakeholder perspective of governance, boards may be best able to protect stakeholders by pressing management to undertake the changes related the external requests for innovation (Fields, 2007). If boards might create conditions for changing public bureaucracies, questions on board strategic involvement arise. Board tasks are enriched by new control issues, overcoming board constraints on management (to reduce divergence on interests with stakeholders) to shape innovation directions, breaking organisational habits and forcing the organisational change (Stiles & Taylor, 2001), while a new configuration of the relationship between politics (board) and organisation in public organisations too (Dunn & Legge, 2002; Hansen & Ejersbo, 2002). This request seems contradictory with respect of the politics and the organisation dichotomy model, suggested from both ‘classic’ (Weber, 1922) and NPM scholars (Bevir et al., 2003; Bogason & Toonen, 1998; Dunsire, 1995). The change management should rely on dialogue and interlocution, bridging the gap between politics and organisation, even if the independence of one or the other is sacrificed (the partnership model, Dunn & Legge, 2002). As we have already mentioned presenting our theoretical background, such deeper thought on a dynamic relationship between politics (board) and organisation in public organisations, considering the possibility that this relationship may change in time, is also coherent both with pioneer academic contributions in public sector literature (Jacobsen, 2006) and, in a more extensive way, with corporate governance studies (i.e. Pugliese et al., 2009; Westphal, 1999). Therefore, according to authors who have already integrated the organisational control theory and the agency theory in order to explain the board’s role in strategy, we assume the desired control of board on management as strategic control (Baysinger & Hoskisson, 1990; Fields, 2007), with important research implications on board strategy involvement (Hendry & Kiel, 2004; Huse, 2007; McNulty & Pettigrew, 1999; Stiles, 2001). Proposition 2. Overseeing the implementation of organisational changes, boards have to exert strategic control, in order to deal with an apparent paradox: (a) they are expected to carry out their control task on management and especially on top management teams in order to

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protect the interest of stakeholders; (b) they need to work closely with them in order to make informed decisions in implementing the innovation. Proposition 3. To increase the influence on strategic control over management, boards are appointed to ever-increasing levels of strategy involvement, exploiting their influence not only at the end of the decisional process, but also during the formulation of proposals and the shaping the context, the content, and, in particular, the conduct of the innovation process. As we have already said, recently some public sector scholars (i.e. Cornforth, 2003; Farrell, 2005) pointed out that while the micro (organisational) level of governance is widely studied in private sector literature, it is not so developed in the public sector one, even if the relevance of this topic can be traced back to the mainstream of NPM and PG researches. NPM and PG paradigms contribute to develop the role of boards for public organisations innovation, but there are still many questions on the extent of their strategic capabilities. In the literature on public organisations, there is a gap of knowledge on the conditions in which boards are active in strategy. As Davenport and Leitch (2005) highlighted, ‘much of the literature on strategy in the public sector frames the topic in a very managerialist and prescriptive way, leaving little room for the vagaries that might enable public sector strategy to differ significantly from that employed in the private sector’ (Davenport & Leitch, 2005, p. 1605). Some elements of power dynamics become important for future researches: (a) due to the dialectical nature of public strategy, the stakeholders’ interdependences suggest to consider a wider spectrum of agency relationships; (b) due to a multi-stakeholder context, the strategic ambiguity of public organisations exposes the decision-making process to a widespread scrutiny. Therefore, the strategic role of boards asks to answer to different stakeholder interests and to maintain a consistency in setting the strategic direction. Otherwise, they may compromise their authority and their leadership with important implications on organisational success. Organisations without strong and unified leadership are unsuccessful, while ‘the diffusion of power makes difficult to take any decisive action’ (Miller & Friesen, 1977, p. 268). Proposition 4. The board’s strategic role and the protection of worthy interests are influenced by two opposed variables: (1) the extent of partisan responsiveness and (2) the attempt to balance and insulate its functions from undue political influence (West & Durant, 2000).

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Public organisations differ one each other in their mission and market environments, but all of them have multiple objectives, including economical, political and social distribution. Nevertheless, the introduction of NPM and PG has led public organisations to stimulating, soliciting, directing and coordinating more stakeholders, transforming them from mono-centric bodies to polycentric realities, able to take a full advantage of the autonomy acquired and exploiting the full potential of the resources which the various categories of stakeholders have to offer. The duties of professionals in making decisions have to change, and these duties cannot be exclusively technical ones, since they must involve interaction with other actors (Simon, Smithburg, & Thompson, 1964). The technical duties are inadequate to support the decisional processes that are (by this time) not only experimental, i.e. directed to the production of political efficiency (oriented to the result, not to the process), but also conflictual, directed in turn, towards the production of acceptable policies resulting from the intermediation among local organised interests. Moore and Hartley (2008) suggested ‘as the goal of private managers is to create private (economic) value, the goal of government agencies is to create public (social) value’. The public sector strategy should be related to: (a) public value, (b) legitimacy and support and (c) operational capabilities, as distinct but complementary strategic dimensions (Moore & Hartley, 2008). The attention of public organisations’ governance is on simultaneously matching all the constraints of the strategic triangle, in order to produce socially valuable results and to successfully adapt them to a changing environment. Proposition 5. Exploiting their strategic role for public administrations innovation, boards have to face the tension between the need to answer to different stakeholder interests and priorities and, at the same time, the attempt to balance the investments in different but complementary strategic dimensions. Changes requested to public organisations pose important questions on each of the previous three strategic dimensions (public value, legitimacy and support and operational capabilities). A re-definition of operational capabilities requires the evolution of the bureaucratic model towards a form of diffused intelligence (Decastri, 2005), merging the traditional rules and procedures of bureaucracy with tools aimed to increase the skill to manage new levels of information complexity, related to unfamiliar problems (Perrow, 1986) with solutions not yet belonging to the memory of the organisation. According to administrative behavioural studies, we assume that the constant reference to rules and regulations has had and

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still has a great influence in terms of: (a) a reduction of the flexibility of the behaviours of individuals and a correlated risk of unawareness of the underlining change, and, therefore, a persistence of old habits; (b) an inversion between means and ends, where the respect for the rules is not an instrument to obtain more efficiency and effectiveness, but a goal itself; (c) an obligation of the single operator to assume a detached behaviour with respect to the specific needs of the end user. Therefore, innovations and subsequent organisation changes raise new questions about the cultural identity of public organisations, altering beliefs, values and relationships between and within all their subsystems (Kumar & Thibodeaux, 1990). Proposition 6. Due to the bureaucratic nature of public organisations and to the limited abilities and inclinations of individuals to change, the planning process of changes has to consider cognitive perspectives within the management group. These cognitive perspectives concern the rules and the behaviour that have helped the organisation in the past and that may need to be the focus of the change now, gathering information necessary to assess the organisation’s ability to change (Croizer, 1963; Kerber & Buono, 2005). The analysis of interactions between board and management in a situation of innovation requires a deeper understanding, in order to better match the complexity of the organisational change. If changes and innovations are viewed as a source of uncertainty, new forms of power will arise, as already highlighted by some upper echelons researches (Carpenter, Geletkanycz, & Sanders, 2004). In the innovation processes in public organisations, information asymmetry between board and management plays an important role in determining whether the former will be effective in carrying out its tasks. The risk of an imperfect information distribution has been examined by corporate governance literature (Rindova, 1999), while there are a few researches on public governance literature. Proposition 7. Innovation leaves space to exert structural and relational power, and the strategic control of boards could be problematic, because the board’s members normally have less access to information (Crozier, 1963; Giddens, 1977; McNulty & Pettigrew, 1999; Stiles, 2001). As it already happened for the corporate governance debate concerning the board’s strategic involvement, also in public sector research (Hillman & Dalziel, 2003; Payne et al., 2009), there is a need to analyse the human capital of boards as an important antecedent for board effectiveness to govern management (Cornforth, 2003; Hinna et al., 2010). As the agency

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theory and the debate on corporate governance have shown, board composition, tenure and quality on the one hand, and their system of information gathering on the other, may also affect the ability of the board to effectively carry out its tasks (Finkelstein & Hambrick, 1996; Rutherford & Buchholtz, 2007). Some public organisation scholars have investigated board composition (Greer and Hoggett, 2000; Kirkbride & Letza, 2003; Oldersma, JanzenMarquard, & Portegijs, 1999; Siciliano, 2002; West & Durant, 2000), but they were not focused on those dimensions influencing board effectiveness and they did not analysed the personal traits and characteristics of board members needed for building effective boards for public organisations. Even if some pioneer studies refer to competencies of board members (Cornforth & Edwards, 1999), in public organisations we suggest to examine boards from a wider perspective. We ask to take into account an intellectual capital framework, defined by resources such as knowledge, skills, experiences, relationships, routines and procedures that boards may employ to create value (Nicholson & Kiel, 2004). Proposition 8. The human capital of the board represents a fundamental source of innovation of public organisations (Ingley & van der Walt, 2001; Stiles, 2001), through integrity, leadership skills, analytical understanding, business-specific skills and knowledge, open-minded/strategic perception and decision-making ability (Blake, 1999).

CONCLUDING REMARKS Recent innovations in public organisations moved from legislative reforms. They tried to shape changes in their relationships with both their external and internal environments. In changing public organisations, a fundamental role is theoretically and practically played by two complementary approaches: NPM and PG. The former mainly focuses on the internal side of public organisations and it suggests that they should gradually transform their traditional bureaucratic configuration into models and methods settled for private organisations. On the other side, evidencing that the social and economical phenomena may be efficiently managed with close interactions between public organisations and social actors, the latter suggest that innovation require higher levels of coordination and integration (i.e. governance) between public organisations and their external environment.

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In managing these interactions and interpreting the relative internal changes, the role of governing bodies (i.e. boards) enriches and asks for a new configuration of the relationships between different stakeholders, politics and organisation. In public organisations, both from a theoretical perspective and from a practical one , the board’s role is not so developed as in private or non-profit ones, while it is accepted that governing bodies have many similarities with private boards and non-profit ones. The literature on boards in public organisations focuses mainly on the analysis of their formal aspects. Only marginally, it has investigated the human side of boards, evidencing those dimensions influencing board effectiveness, but not investigating the personal traits and the characteristics needed for building an effective board for public organisations. On the other hand, some corporate scholars recently developed the human side of governance, introducing issues for a behavioural theory of board and corporate governance, investigating attributes of actors and relationships inside and outside boardrooms. The chapter tries to understand the dimensions that influence board effectiveness in the innovation processes. Governing bodies are typically exposed to uncertainty both in terms of goals and in terms of means. Public boards are surrounded and engaged by a large number of stakeholders with different expectations (Moore, 1995). The variety of expectations extends the role of boards in public organisations. Changes requested to public organisations pose important questions on both their bureaucratic re-configuration and how to evaluate their ability to carry out their new tasks. Boards should assume a mediating role between the requests of change coming from outside and the resistance arising within public organisations. In public organisations, the extended role of boards requires the nurturing of the conditions for public bureaucracies to carry out their own tasks and to adopt innovation strategies. As in the private sector, in public organisations the idea of strategy is strongly related with the idea of value creation, but a public value creation (Bozeman, 2002; Moore, 1995). The main goal of the chapter is to explore some behavioural implications for boards in governing the relationship between (a) (external) stakeholders and boards members, and (b) board members and management team. The chapter focuses on interactions and on dynamical power influence between the three groups (external stakeholders, board members and management team). Different perspectives are employed: the agency perspective, the stakeholder perspective and the board strategy involvement perspective on

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the one hand. The administrative behavioural perspective and the public value perspective on the other. The chapter proposes a behavioural framework that evidences: (a) the complexity of the processes of organisational and managerial innovation; (b) the relationship between board strategy involvement and the internal and external innovation of public organisations. The chapter provides support for a board model in public governance, evidencing both the opportunity to assume a multi-paradigm perspective (Cornforth, 2003) and the existing similarities and differences between boards in public and corporate governance approach. The public governance approach is close to agency theory and it stresses the need to control the self-interested behaviour of managers (Benz & Frey, 2007), but, at the same time, it differs from it by more deeply investigating who has the actual right to decide ‘what’. The main contribution of this chapter is that in public organisations, governance and boards have to be examined adopting a behavioural perspective. Starting from a stakeholder perspective, with an adequate pressure on results, forcing management to undertake planned changes for innovations, public boards may better able to protect stakeholders. In order to reinforce the change, boards have to exploit a strategic control, managing a potential cause of a role conflict: they are expected to carry out their control task on management to protect the interests of stakeholders, but they need to work closely with management to take informed decisions in implementing the innovation process. To improve their control over management, boards need to be appointed to ever-increasing levels of strategy involvement, exploiting their influence not only at the end of the decisional process, but also during the planning of the innovation process. The board’s strategic role and the protection of worthy interests are influenced by two opposed variables: (1) the extent of partisan responsiveness; (2) the attempt to balance and insulate its functions from undue political influence. Public organisations differ in their mission and market environments, but all of them have multiple objectives, including economical, political and social distribution. In public organisations, exploiting their strategic role, boards face the tension between the need to answer to different interests of different stakeholders and, at the same time, to maintain a consistency in designing the strategic direction. In order to cope with the bureaucratic configuration and the resistance of individuals to change, the planning process of changes has to consider the

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cognitive perspectives that are present within the management group. These cognitive perspectives are connected to behaviours that have helped the organisation in the past and now they are the focus of the change, gathering the information necessary to assess the organisation’s ability to change. Information asymmetry between board and management plays an important role. Board members normally have less access to information. In this case, innovation may lead to exert structural and relational power, making a problematic one the strategic control of boards. Board composition, tenure and quality may affect the ability of the board to effectively carry out its tasks. The human capital of the board is, therefore, a fundamental resource for innovation in public organisations. Even if some pioneer studies refer to skills and expertise of board members (Cornforth & Edwards, 1999), in public organisations we need to examine boards from a wider perspective, in order to take into account the intellectual capital framework, defined by resources such as knowledge, information, experiences, relationships, routines and procedures that a board may employ to create value (Nicholson & Kiel, 2004). This study contributes to stimulating various future research directions. Further studies about boards and their processes in public organisations should be undertaken, and further conceptual and empirical studies should also be conducted. In addition to these general calls for contribution, we may identify some further research paths, in relation to some limitations of this chapter. As far as the board’s role in the innovation of public organisations is concerned, the study focuses on the relationship between board members and management team and does not investigate the board processes. Moreover, recent studies (Bessant, 2003; Bilodeau et al., 2006; Greve, Flinders, & van Thiel, 1999; Hartley, 2005) have showed that different typologies of public organisations are involved in different innovation processes, which vary from each other with diverse government levels involved. We know that the chapter raises more questions than answers, but we hope it provides a starting point for a debate. We are aware that in opening a new small stream of research, the accumulation of knowledge represents a prerequisite (Huse, 2009). The chapter has presented theoretical perspectives on governance research, and both some pioneer studies in public sector research and some of the major contributions in corporate governance studies. All of them have been put together, introducing a new stream of research in the debate on the micro (organisational) level of governance in the public sector. The main goal was not to assess the importance of different explanations for public boards, but to identify the theoretical components that assign a relevance to boards for

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innovations in public organisations and to highlight the opportunity to examine them from a behavioural perspective. As literature suggests (Whetten, 1989), mapping the different concepts useful for the explanation of our concern, we risk to err in favour of including too many factors, recognising that over time our ideas will be refined by future contributions.

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COMMON AGENCY THEORY, CORPORATE GOVERNANCE, AND NOT-FOR-PROFIT ORGANIZATIONS Marco Romano ABSTRACT The chapter contributes to the theoretical understanding of how corporate governance affects organizational processes and outcomes in not-for-profit organizations. The contribution claims that cooperation is not only a good proposition held by the variety of actors relevant to corporate governance of non-for-profit organizations, but it also determines the wealth maximization of organization’s stakeholders. Theoretical results, according to the common agency framework, are driven by the case study of the largest humanitarian organization’ corporate governance: the International Federation of Red Cross and Red Crescent Societies (IFRC). Keywords: Corporate governance; common agency; not-for-profit organizations; International Federation of Red Cross and Red Crescent Societies

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 91–113 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001008

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INTRODUCTION In recent years, interest about not-for-profit organizations has increased in intensity. Extensive researches study not-for-profit entrepreneurship and philanthropic ventures (Dees, 1998; Pidgeon, 1998; Weisbrod, 1988, 1998), how to manage not-for-profit organizations for civic action (Butler & Wilson, 1990; Drucker, 1997; Milofsky, 1997; Powell, 1987; Powell & Clemens, 1998; Wallender & Newman, 1978), why it is important to hire professional management able to attract donations in cash, kind, and services, to motivate members, and to commit staff and volunteers (Andreasen, 1996; Connors, 1995; Mathieu & Zajac, 1990; Pappas, 1996; Pidgeon, 1998); several studies underline tax advantaged status (Goodspeed & Kenyon, 1993; Webb, 1996; Weisbrod, 1988, 1998); and benefit to not-for-profits to explain their survival (Bennett & DiLorenzo, 1989; Letts, Ryan, & Grossman, 1999; Nielsen, 1977; Singh, Tucker, & House, 1986). In this chapter, we seek to contribute to theoretical understanding of how corporate governance affects organizational processes and outcomes in notfor-profit as well as for-profit organizations. We provide novel applications of common agency, an economic theory, on issues, actors, and relationships relevant to corporate governance literature. Basic assumptions of the common agency model are grounded in the extant agency theory (Fama, 1980; Fama & Jensen, 1983a, 1983b; Jensen & Meckling, 1976; Ross, 1973; Williamson, 1996) originally based on the analysis of ‘‘property rights’’ literature (Coase, 1937). The common agency theory extends the principal–agent relationship to situations in which many principals attempt to influence a common agent. The common agency relationship represents a situation where several principals voluntarily, and perhaps independently, bestow the right to make certain decisions upon a single common agent (Bernhein & Whinston, 1986a, 1986b, 1998; Dixit, Grossman, & Helpman, 1997; Martimort, 1996a, 1996b, 2007; Martimort & Moreira, 2010; Pavan & Calzolari, 2009). Specifically, the chapter examines the separation between organization’s stakeholders (principals) and the board of directors (common agent) in not-for-profit organizations based on voluntary resources. According to the common agency framework, principals’ cooperation affects organizational outcomes of not-for-profit organizations based on voluntary resources. We present a conceptual framework that attempts to express the following proposal: cooperation is not only a good proposition held by the variety of actors relevant to corporate governance of nonprofit organizations, cooperation determines the wealth maximization of the organization’s stakeholders.

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This chapter makes several contributions. First, we describe specific elements that characterize the not-for-profit organizations based on volunteerism by identifying some economic and social values of volunteering that influence the organizational processes through which donations in cash, kind, and services are acquired. Furthermore, we analyze properties of the multilateral relationship between principals’ structure and the board of directors of not-for-profit organizations based on voluntary resources. Finally, we present some propositions for future research to investigate the relationship among players relevant to corporate governance to not-forprofits, as well as, for-profit firms. Our theoretical results are driven by the case study of the corporate governance context of the largest humanitarian organization, the International Federation of Red Cross and Red Crescent Societies (IFRC), to emphasize the fact that voluntary service is a fundamental principle of the International Red Cross and Red Crescent Movement, but also that it is a global principle for civic action.

THE NOT-FOR-PROFIT ORGANIZATIONS BASED ON VOLUNTARY RESOURCES The not-for-profit organizations pursue complex goals and distribute their main outputs among specific beneficiaries according to their philanthropic mission (Dees, 1998; Weisbrod, 1998). Not-for-profit organizations based on voluntary resources (VNPOs) are interpreted as solidarity associations (Wilson, 1995) providing social capital, inclusion, integration, and quality of life in a society not adequately supplied by for-profit organizations (Williamson, 1975). Voluntary organization is at the heart of communitybuilding. It encourages people to be responsible citizens and provides them with an environment where they can be engaged and make a difference. To achieve their goals, VNPOs necessarily receive financial and human resources voluntarily, interacting with governments, private donors, members, community, etc. On a daily basis, volunteers validate that they are pleased to be able to do something to help and are proud to have something to offer to the society. They value the acknowledgment they get from people in their community, the new experience they discover, and have a strong sense of belonging to a caring organization. Thus, VNPOs are different from other organizations because of (a) the remuneration of all the production factors, and (b) the discontinuity of the process through which donor responses in cash, kind, and services are acquired. First, VNPOs do

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not remunerate residual claims as opposed to firms in which profit represents the residual remuneration of capital invested as production factor of entrepreneurs. The profit cannot be distributed to any individual of the organization. Second, the process through which VNPOs acquire their financial and human resources is different compared with other organizational forms operating in the not-for-profit sector (i.e., cooperatives and foundations). In details, the supply of resources (quality and quantity) depends on (1) the individuals’ attitude to donate voluntarily and VNPOs’ capability to promote themselves to attract either private or public donations (helpfulness); (2) the amplitude of resources donated by contributors (generosity); (3) the space in which donations are either acquired or utilized as production factors of VNPOs, in fact, some kind of voluntary contribution (i.e., in kind and services) must be used at the same time as their acquisition (timing); (4) the frequency of donations received from governments, private donors, volunteers, et. (episodicity). This flow depends on either episodic or stable and predictable actions. These factors dramatically affect the outcome of VNPOs especially because the availability of financial and human resources of VNPOs is characterized by discontinuity and uncertainty. Resources are available and have a price on the market, but above all, it is challenging to attract volunteer response giving his or her own knowledge, skills, time, or resources (i.e., blood) at less-than-market prices to someone in need of help or comfort. It is the most important production factor that VNPOs receive, thanks to transactions based on altruism (Weisbrod, 1998; Williamson, 1975). The evolution of volunteer recruitment and retention regards (a) the number of volunteers, (b) the number of hours volunteered, (c) the field in which the volunteer work is performed, and (d) the type of work performed. Volunteering promotes trust and reciprocity. Shifting socio-economic and environmental trends are changing how people volunteer. In addition to structured volunteer programs, increasingly people are contributing to their communities informally (i.e., during disasters volunteers are taking action online or volunteering from their workplace with the encouragement of their employer) (IFRC, 2011). For these reasons, often VNPOs employ paid workforce to guarantee continuity and professional competencies that the volunteer community cannot offer. We assume that individuals with high altruistic values establish not-forprofit organizations based on voluntarily response in cash, kind, and services for community and civic involvement. The ultimate goal of principals funding a not-for-profit organization is the social value maximization, although the principals’ structure has a particular composition. While a

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stable core of participants (i.e., members, volunteer workforce and ethical risk-bearing) are clearly central figures in the governance of VNPOs, other less stable groups of organizational stakeholders coexist (i.e., beneficiaries, suppliers, and local communities) and have emerged as important players as well. Among these, some actors have specific ownership prerogatives, such as risk and control, and others can influence the governance processes. The high number of groups of stakeholders and their heterogeneous participation to operation in the governing bodies of VNPOs generates conflicting interests. It regards, among others, the decision about the organization structure, strategic planning, designation of CEO, nomination of the board’s directors, and their compensation system (Fama & Jensen, 1983a). Such differences of interest affect the relationship between organization’s stakeholders and managers (volunteer and paid workforce) (Rowley, 1997). In the following sections, we use the combination of agency and common agency theories to verify conceptually the likelihood to ensure order between corporate governance players of not-for-profits (owners, members of the board of directors, and managers) that may have conflicts of interests in terms of decisions, actions, and outcomes. In our example, it is the IFRC. The IFRC was founded in 1919 and is part constituent of the International Movement of Red Cross, established by Henry Dunant in 1859, a voluntary relief movement not prompted in any manner by desire for gain. The IFRC brings assistance without discrimination to the wounded on the battlefield, and endeavors, in its international and national capacity, to prevent and alleviate human suffering wherever it may be found. Its purpose is to protect life and health and to ensure respect for the human being. It promotes mutual understanding, friendship, cooperation and lasting peace among all peoples (International Federation of Red Cross and Red Crescent Societies, 1997, 1998, 2011). The IFRC’s vision is to inspire, encourage, facilitate, and promote at all times all forms of humanitarian activities by national societies, with a view to preventing and alleviating human suffering, thereby, contributing to the maintenance and promotion of human dignity and peace in the world. The IFRC carries out relief operations to assist those affected by disasters, and combines this with development work to reduce vulnerabilities and strengthen community capacities. The IFRC is the world’s largest humanitarian network. National Red Cross and Red Crescent Societies and their 97 million volunteers in 186 countries work during disasters, emergencies, and peacetime to meet the needs and improve the lives of vulnerable people, without discrimination as to nationality, race, gender, religious beliefs, class, or political opinions.

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The IFRC’s strength lies in its volunteer network, community-based expertise, and ability to represent the interest of vulnerable people. Red Cross and Red Crescent Societies would not be able to deliver essential services without the support of their volunteer networks. Volunteers extend the paid workforce by a factor of between 1 and 2,000, with a median average of 20 volunteers to every paid member of staff. The regions with the highest ratio of volunteers to staff are sub-Saharan Africa, South East Asia, and East Asia. Regardless of the form it takes, volunteering remains an essential driver of political, social and economic development. It is an instrumental force in promoting positive and sustainable growth for humanity (International Federation of Red Cross and Red Crescent Societies, 2011).

LITERATURE REVIEW Agency Theory In extant literature, many articles on corporate governance are grounded in the bilateral relationship of agency theory, which assumes that a principal engages an agent to perform some services on his behalf, thus delegating some decision-making authority but not all the risks associated with that decision-making authority, to the agent (Alchian & Demsetz, 1972; Eisenhardt, 1988, 1989; Jensen & Meckling, 1976; Ross, 1973). Principals, as risk-bearers, residual claimants, or owners, bear the risk associated with the decisions of agents as decision-makers or managers (Aggarwal & Knoeber, 1996). Assumed differences between interests of principal and agent make the separation of decision-making and risk-bearing the central problem of organizational governance (Fama & Jensen, 1983a, 1983b). Information flow is asymmetric, leading to moral hazard and adverse selection. The principal maximizes the expected utility of the agent (first best), or motivates agent through incentives and monitors (second best). In this chapter, we will focus on the situation in which several principals with conflicting interests in terms of decisions and outcomes engage an agent to perform some activities on their behalf (Dees, 1992). For example, in a matrix organization, product managers are responsible to a number of superiors that exercise some control over their outcomes at the same time. The bilateral principal–agent framework has something to say also when several principals behave cooperatively. In fact, it is possible to consider the group of principals as a single principal because there are institutional procedures that guarantee cooperation between various interests and

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collective decisions (Ang, Cole, & Lin, 2000). In theory, it would be possible to have all groups of actors affected by organization decisions—its stakeholders, such as workers, customers, contributors, members of distinct segment of the community, and environmental groups—sharing in collective decision making, having representation on the firm’s board of directors. But the participants’ divergent interests and making everybody part of the governing body would increase the costs of collective decision making enormously (Hansmann, 1996). ‘‘When principals act collectively, application of the bilateral agency framework (treating the set of principals as a single entity) is appropriate’’ (Bernhein & Whinston, 1986a, 1986b). In this case, principals could benefit from mutual cooperation. Nevertheless, in many circumstances the mutual cooperation is not always realizable; in such ambiguous situations, the traditional agency framework is inadequate and likely principals decide to act noncooperatively to influence the decisions and outcomes of a common agent. In the next section, we utilize the descriptive model proposed initially by Bernhein-Whinston to illustrate the conceptual understanding of the common agency theory, that extends the principal–agent framework to situations in which numerous principals (as multiple entity) attempt to influence a common agent and principals could potentially benefit from mutual cooperation.

Common Agency We refer to an instance of common agency when the action chosen by a particular player (the agent) affects not just one, but several other parties (the principals), whose preferences for the diverse likely actions conflict (Bernhein & Whinston, 1986a, 1986b, 1998; Maskin & Tirole, 1992; Bond & Gresik, 1996; David, 1998; Dixit et al., 1997; Fraysse, 1993; Kahn & Mookherjee, 1998; Laffont & Martimort, 1997; Martimort, 1996a, 1996b; Martimort, 2007; Martimort & Moreira, 2010; Mezzetti, 1997; Olsen & Torsvik, 1995; Pavan & Calzolari, 2009). A common agency situation can be indicated as a delegated or an intrinsic relationship between multiple principals and a single common agent. The delegated relationship is when numerous actors voluntarily and sometimes independently delegate the decision-making right upon a single common agent, for example in the wholesale trade. ‘‘Intrinsic common agency, on the other hand, arises when an individual is naturally endowed with the right to make a particular decision affecting other parties, who may, in turn,

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attempt to influence that decision.’’ (Bernhein & Whinston, 1986a, 1986b). Consistent with the common agency theory, governmental and nongovernmental planning problems fall into this category. The common agency framework deals with a not-cooperative version of the principal–agent relationship in which several principals contract with a common agent. It investigates how multiple principals, who simultaneously and not-cooperatively announce incentive schemes for a common agent, should design incentive contracts for a single agent that they share. Assuming principals are risk-neutral with conflicting views about which decisions should be taken and try to influence the agent’s alternative and the common agent’s action cannot be observable by the principals straightforwardly. In the extensive model of multiple–principal and a single-agent game, principals move simultaneously, each principal’s strategy consists of an outcome-contingent reward scheme; the agent observes and aggregates the different incentive scheme offered by the principals, then selects a distribution (or nonparticipation) (Bernhein & Whinston, 1986a, 1986b). The contribution of Bernhein and Whinston concerns two questions about equilibrium behavior of the multiprincipal and single agent game: which action is implemented, and what incentive structure leads to its implementation? Equilibrium is implemented efficiently (first-best) when the outcome of cooperative interaction achieves an aggregate incentive scheme. Such an incentive structure is ‘‘necessarily the least-cost way of inducing the agent to select that action’’ (Bernhein & Whinston, 1986a, 1986b). But even in a situation of complete cooperation (between principals), we can report welfare losses because of informational asymmetries and coordination issues between principals. Also nonobservability can generate welfare losses to the principals determining the second best outcomes. Following the seminal contribution of Bernheim and Whinston, common agency literature has tackled with a variety of important problems such as menu auctions (Bernheim & Whinston, 1986a, 1986b; Wilson, 1979); public goods provision through voluntary contributions (Laussel & Le Breton, 1998), or policy formation with competing lobbying groups in complete information environments (i.e., Dixit et al., 1997; Grossman & Helpman, 1994). An important contribution in developing Bernhein and Whinston’s model comes from the work of Dixit et al. (1997) in which they make an application to Government Policy Making, considering the political processes that generate economic policymaking in the common agency framework (Dixit et al., 1997). They point out that the initial Bernhein and Whinston model assuming quasi-linear preferences was originally designed to analyze

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the partial equilibrium of industrial organizations and was not appropriate in other economic settings, which require a more general equilibrium analysis. Other extensions less directly relevant for the analysis of this chapter include Prat and Rustichini (2003), concerning competition among principals trying to influence multiple agents, Bergemann and Va¨lima¨ki (2003), considering dynamic issues, Ho¨lmstrom and Milgrom (1991) and Dixit (1996, 1997), analyzing common agency models in which competing principals have access to different information in a multitask environment. In this case, the agent carries out two tasks and each principal cares about one of these two tasks. In addition, Stole (1990), Gal-Or (1991), Martimort (1992, 1996a, 1996b), Mezzetti (1997), Biais, Martimort, and Rochet (2000), and Martimort and Stole (2002, 2003, 2007), among others, analyze oligopolistic screening environments where different principals elicit information privately known by the common agent. Other studies even extend the applicability of the common agency framework (David, 1998; Fraysse, 1993; Kahn & Mookherjee, 1998; Martimort, 1996a, 1996b), to the relationship between two companies, (a) a common input supplier, (b) a common retailer or wholesale agent, (c) a common research agency, and (d) a common consultant (Mezzetti, 1997). In particular, Mezzetti’s model assumes that the common agent views the two principals horizontally differentiated because his payoff function is characterized by tasks’ complementarities. But in the situation in which common agents do not have the ability to select principals to contract with, according to Bernhein and Whinston’s (1986) model the common agent can only ‘‘accept or reject as a whole the set of contracts offered between multiple regulatory bodies and regulated entities, or a subordinate with multiple bosses within a matrix organization’’ (Kahn & Mookherjee, 1998). Kahn and Mookherjee (1998) limit the application of Bernhein and Whinston’s model in the context of market competition among several corporations dealing with customers, who are free to choose. In the same time, they analyze the management compensation contractual relationship between board of directors and managers who seek to diversify risks by join in complementary asset market transactions or insurance contracts. Also this contribution represents an important application of the common agency economic model to corporate governance issues (Laussel & Le Breton, 1998). Our chapter attempts to study the relationship between principals and the board of directors (common agent) of a particular form of organizations,

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those VNPOs. This is a delegated common agency situation that generates costs of selecting different actions, costs of controlling, and costs of managerial opportunism resulting from the failure of monitoring managers with perfect effectiveness. We assume that in VNPOs, institutional procedures do not guarantee a collective decision and cooperation between principals is not always realizable (Baysinger & Hoskinsson, 1990; Davis, 1991; Dees, 1992; Demsetz, 1995; Duca, 1996; Eisenhardt, 1985; Freeman, 1984, 1999; Golden-Biddle & Rao, 1997; Mitchell, Agle, & Wood, 1997). To illustrate the applicability of the common agency model to the multilateral relationship between many principals and the board of directors in the next section, we conceptually define who are the principals that attempt to influence the common agent separately.

THE GOVERNING COALITION-BOARD OF DIRECTORS RELATIONSHIP The Governing Coalition as Principals of VNPOs In general, organizations present different natures and structures of ownership (i.e., other than the conventional firm owned by investors). Existing literature on ownership, and the particular type of ownership in itself, focuses on investor-owned, worker-owned, consumer-owned, producerowned, nonprofit, and governmental. Owners are those individuals who share two formal rights: the right to control the firm and the right to appropriate the firm’s profits. But the essence of what we term ‘‘control’’ is precisely the authority to determine those aspects of firm policy that, because of high transaction costs or imperfect foresight, cannot be specified ex-ante in a contract but rather must be left to the discretion of those to whom the authority is granted (Hansmann, 1996). In VNPOs, there are not principals with the right to appropriate the organizations’ profits, it is barred for the actors controlling VNPOs. According to the conventionally meaning of the notion of ‘‘owners,’’ some researchers believe that in nonprofit organizations there are no owners (Weisbrod, 1996). Nevertheless, there are several principals that control organizations. The principals who control VNPOs represent the governing coalition. ‘‘By coalition is meant an enduring arrangement requiring that choices over some common set of interests, for example, resources, goals, strategies, or the like, be made by explicit agreement among the members’’ (Wilson, 1995).

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In this chapter, we refer to the governing coalition of VNPOs to indicate the organization’s governing body that explicitly coordinates and manages common interests, exercises its control directly to the actions to the members’ board of directors. In this case, however, the governing coalition delegates most of its decision-making authority to the board of directors. The governing coalition of VNPOs is formed by numerous principals that bestow the highest right to monitor decisions and to control the outcomes of organizations. In particular, components of the governing coalition are themselves agents (Sharma, 1997). It is because they are professional as agent on behalf of several internal and external groups of principals joining the governing coalition. These individuals represent the stable core of principals (i.e., members, volunteer workforce, and ethical risk-bearing) that coexist with those delegated by less stable groups of stakeholders (i.e., beneficiaries, suppliers, consumers of products and services, and distinct segment of the community) (Aoki, 1984; Donaldson, 1999; Freeman, 1984, 1999; Frooman, 1999; Gioia, 1999; Jones & Wicks, 1999; Trevino & Weaver, 1999). Within the stable core of principals, there are the organization’s members and the volunteer workforce who are directly and permanently involved in VNPOs’ operations. Also there are groups of ethical risk-bearing (both public and private) who provide stable contributions (i.e., financial and in kind contributions) to the organizations. Both groups of contributors have a relevant role to guarantee the nonprofit organization’s survival, they supply most of the resources needed. Also the groups of stakeholders with less stable relationships support VNPOs with their voluntarily contributions episodically. These groups of stakeholders are interested in the monitoring of management equally. The structure of IFRC’s governing coalition is an interesting example to represent the complexity and variety of the highest governing body, the General Assembly composed of 186 national societies, members of the IFRC, who meet every two years (Fig. 1). VNPOs’ multiple principals attempt to influence the board of directors’ decisions to guarantee the effectiveness utilization of resources and the maximization of their expectations. Without satisfaction, principals can withdraw their support to the organization and provide it to another. Episodic contributors (i.e., donor response in cash, kind, and services is part of the principals structure) can have diverse, unstable goals, and expect VNPOs to meet these goals. In order to do so, VNPOs’ board might take into consideration these alternative goals of the different groups of principals while supporting the goals of their stable core of principals. When VNPOs have a complex structure of the governing coalition in which

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Beneficiaries Core participants

NGOs

Donors (stable)

Governments

Volunteers

IFRC

National Societies

Staff

Customers

Members Community UN & UE

Fig. 1.

Donors (episodic)

The Governing Coalition of IFRC.

multiple principals have conflicting interests in terms of decisions and outcomes and do not act collectively, application of the common agency framework is appropriate. In such a situation, various players attempt to influence the board’s distribution choice. Principals simultaneously and non-cooperatively design incentive schemes for the board’s members and their activities are not clearly observable by the governing coalition. In VNPOs, the lack of a clear and stable governing coalition structure determines higher risks that multiple principals have not ultimate power to directly control the organization and likely occur between them noncooperative actions. For example, when principals disagree about the organization’s objectives and governance processes do not guarantee a collective decision, we can expect that each principal of the governing coalition offers a single incentive scheme to the board’s members. Instead, ‘‘forming an alliance is optimal for the principals; it allows them to extract more rent from the agent’’ (Mezzetti, 1997). In a multiple principals situation, the governing coalition could potentially benefit from mutual cooperation to affect the relationship with the board of directors. The Board of Directors of VNPOs The board of directors as an effective governance mechanism sets policy and works with management to implement it through the organizational

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processes. The organizational governance of VNPOs involves numerous players that may have diverse objectives about decisions and outcomes (Fama & Jensen, 1983a; Taylor, Chait, & Holland, 1996). Previous contributions concern the board of directors composition (Alderfer, 1986; Baysinger & Hoskinsson, 1990), the individual and professional characteristics of directors (Westphal & Zajac, 1995; Zajac & Westphal, 1995), and the implications related to the performance of the organization (Conger, Finegold, & Lawler III, 1998; Dalton, Daily, Ellstrand, & Johnson, 1998; Westphal & Zajac, 1997; Zajac & Westphal, 1995, 1996). A well-functioning board represents an important internal governance mechanism (Baysinger & Hoskinsson, 1990; Beatty & Zajac, 1994; Duca, 1996; Westphal & Zajac, 1995, 1998; Wood, 1996; Taylor, Chait, & Holland, 1996) that enables owners to monitor managers and control organizational outcomes. The view that boards of directors of not-for-profit organizations can act to buffer the organization from the uncertainties of its environment is supported. For example, the board of directors has been one such boundary-spanning element, in terms of the capacity of their board of directors to obtain large amounts of contributions attracting important and influential members of the community and its power structure to serve on their boards (Austin, 1998; Provan, 1980). But too often, the boards of directors of not-for-profit organizations are ‘‘little more than a collection of high-powered people engaged in low-level activities’’ (Taylor, Chait, & Holland, 1996). In theory, the board mediates goals of principals, directs managers, and protects the principals’ interests against the risk of managerial opportunism (Pfeffer & Salancik, 1978). In practice, individual board members represents formally VNPOs’ governing coalition participants (i.e., core stable and episodic contributors) but lack sufficient understanding of the action of the organization and stay away from managing issues requiring professional expertise. In our example of the IFRC, the world’s largest humanitarian and development network, members of the Governing Board are elected from among the individual constituting the General Assembly. By now the Governing Board comprises the following National Societies’ representatives: President (Japan), Secretary General-ex officio secretary with no vote (Canada and Ethiopia), Chair of the Finance Commission (Seychelles), Chair of the Youth Commission (Guyana), five Vice presidents (Switzerland, Kenya, Jamaica, Qatar, and Sweden), and twenty National Society Board Members elected on a regional basis (Australia, Austria, Bolivia, Coˆte d’Ivoire, Dominican Republic, Ecuador, Egypt, France, Guatemala, Italy, Malaysia, the Netherlands, the Republic of Korea, Russian Federation,

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South Africa, Sudan, Syrian Arab Republic, Tunisia, the United Arab Emirates, and the United States). The description of the case of the IFRC facilitates the understanding of the importance of effectiveness to guarantee and represent the multiple interests that cohabit in the organization. These are expressions of various worldwide needs and request of help coming from the local community of each country. Moreover, a key issue to organize the work of the Governing Board is the cultural and social traits differences faced the IFRC. Empirical studies have defined cluster countries where the major cultural dimensions accounting for similarities among countries measure work goals, values, needs, and job attitudes (Ronen & Shenkar, 1985). It is important to note that presumably countries similarities and differences have a certain role on corporate governance also in not-for-profit organization (La Porta, Lopez-de-Silanes, & Shleifer, 1999). In general, there are several differences in terms of board of director composition of the for-profit corporation and non-profit organization. In nonprofit organizations, there are members of the board of directors who hold honorary positions. Therefore, on the boards of nonprofits cohabit employees (i.e., staff members), not paid positions (i.e., volunteer members), and hybrid member, in the same time, staff, and volunteer. Furthermore, when board members are volunteers, they are not always chosen for their management expertise (i.e., volunteers elect such members). Volunteer management can be less effective than management provided by full time, administratively trained and oriented leadership (Herman & Renz, 1998; McFarlan, 1999). Another constraint to effective management is that nonprofit organizations do not have control that marks the for-profit organization’s managers (Wallender & Newman, 1978). Educational opportunities available to nonprofit executives are inadequate to managerial needs of the executives of nonprofit organizations (Leduc, 1981). Inside the board of directors of nonprofits, there are considerable differences in terms of board members’ background, place of employment previous or concurrent to the position on the board, age, delegated activities, motivation, and nomination. The average length of the time each director serves on the board can be different between the board members (Butler & Wilson, 1990; Conger, Finegold, & Lawler III, 1998; Connors, 1995; Duca, 1996; Provan, 1980; Westphal & Zajac, 1995; Wood, 1996; Zajac & Westphal, 1995). In our example, according to IFRC Governance Guidelines all the board’s members hold an honorary position and they are elected within the members National Societies that constituted the General Assembly through

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an internal elective process. Substantially, different National Societies can be represented within the General Assembly by staff members. Quite often, such members are paid employers nominated or designated by each National Societies (i.e., staff, related or independent outsider) instead of been elected by the volunteer community. Members of the board of directors are classified in three groups: outsider, related outsider, and insider. The members who have the highest independence to the organization are called outsiders. They provide expertise maturated in another company or different environment (i.e., academic environment); they are not involved in day-to-day activities. The members having some relationship with the organization (i.e., contractual relationship) are indicated as related outsiders; as the first group, they are not involved in the day-to-day operations of the organization (Zajac & Westphal, 1995, 1996). The third group are the so-called insiders, top-executives involved directly in the organization; they are a source of information about the day-to-day businesses (Baysinger & Hoskinsson, 1990). NVPOs board of directors’ composition is important in itself and in consideration of the multiple principals delegating to directors the right to administrate the organization and to take action. The composition can positively (or negatively) affect the effectiveness of the board of directors in terms of the decision-making processes. A significant percentage of insider members from the organization’s top executive can reduce the effectiveness of monitoring and controlling of managerial choices; it depends on the close relationship they have with managers (Baysinger & Hoskinsson, 1990; Beatty & Zajac, 1994; Conger et al., 1998; Westphal & Zajac, 1997; Zajac & Westphal, 1995, 1996). A significant majority of outsider members of the total board’s composition cannot have an appropriate role in the organization’s decision-making processes, they have no contact with day-to-day operations; they have no access to the information necessary to manage and evaluate the organization’s outcomes. Board of directors’ composition can affect the organizational choices delegated; an outsider-dominated board may stress financial evaluations instead of strategic implications, or an insider-dominated board may emphasize risk-adverse activities (Fram & Withers, 1999; Hitt, Ireland, & Hoskinson, 1999). The board of directors activity guarantees that managers make strategic decisions; those may satisfy the interests of the entire group of principals (i.e., contributors, employees, customers, and host communities) (King, 1998). All players should be able to identify the board of directors’ composition (both internal–external members and managers) and links with the governing coalition. We want to point out that in NVPOs, unclear

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composition of the governing coalition (with no ultimate power), individuals board member lack specialized knowledge and sufficient understanding of the issues of the organization determine the high risk of not control of management and therefore of the organization’s outcomes (Duca, 1996). Also, phases of the organization’s operations and performance monitoring and controlling cohabit. This can considerably affect the board of directors’ relationship with managers. We assume that the relationship between the board of directors and managers of NVPOs is characterized by conflicts (Golden-Biddle & Rao, 1997) and opportunistic behavior. The board of directors should attempts to reduce costs of monitoring managers and the costs generated by the risk of managerialism, but appear clear that the predominance of management affects seriously the board’s control effectiveness. This is when managers achieve the control of the organization exploiting information they needed to exercise control directly. Managers might preserve their autonomy or their jobs and nominate new board members. The expropriation of the board of directors as central figure in the governance of NVPOs is completely achieved.

DISCUSSION Studying the governing coalition–board of directors relationship we have understood that the organizational governance of VNPOs is not the same as those that for-profit corporations face (i.e., ownership and board of directors’ structure, executive compensation, information collection, and market for corporate control) (Fama & Jensen, 1983a, 1983b; Rediker & Seth, 1995). Some of the internal governance mechanisms cannot be applied to VNPOs because they might not respond to nonprofits’ characteristics. For instance, executive compensation does not apply to VNPOs when parts of managers are volunteers or within the board of directors if there are members holding honorary positions. The fundamental assumption is that differences in interests of the actors relevant to corporate governance are significantly presented and affect organizational outcomes. In fact, it is not possible to reconstruct the governing coalition’s composition in terms of the amount of contributions supply by the variety of principals; only financial and certain in kind donations are accountable. It might be realistic that among the multiple principals the essential ones for the organization’s survival will try to influence the common agent’s distribution choice attempting (with monetary and/or non-monetary

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rewards) to exclusive dealing with the board of directors, instead of cooperating with the others components (i.e., when principals disagree about the firm’s objectives and actions). Moreover, both governing coalition and board of directors’ members are themselves professional as agent on behalf of numerous internal and external groups of principals. As ultimate result, lack controlling managers, risk of managerialism and overlapping of individual responsibilities deeply affect organizations’ coherence to the original philanthropic mission. Boards of directors are no longer the exclusive monitors of corporate management. Thus, the relationship between a set of principals and managers raises unresolved issues. Our conceptual tentative to contribute to the corporate governance discussion proposes cooperation within governing coalitions’ members as a key aspect to align managerial and principal interests.

Implications for Research Future research is considered necessary regarding not-for-profit organizations based on volunteers, as well as elements of our theoretical framework and propositions concerning the interrelationship among type of entrepreneurship, institutional coordination processes, and innovative criteria to evaluate organization’s outcomes. Daily, non-for-profit organizations attempt to raise private or governmental’ donations to fund philanthropic ventures. Competition for resources exists and in future it will take the form of a direct challenge between two or more not-for-profit organizations struggling various ethical dilemmas (Fram & Withers, 1999). Our emphasis on governing coalitions’ cooperation and managerial implications is needed to underline risks of misrepresentation of non-for-profit goals of organizations involved in a economic exchange relationship. Starting from these elements and relating to considerations developed in the previous sections, three propositions emerge. They are addressed to study the elements of corporate governance exchange relationship with a special focus on organizational process and outcomes of not-for-profit. Proposition 1. The relationships among players relevant to corporate governance to not-for-profit are dependent on the governing coalition and board of directors composition based on volunteer resources. Proposition 2. Focusing on corporate governance antecedents determines a more efficient and suitable definition of monitoring and controlling

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mechanisms of not-for-profit organization, with a closer look at whom monitors who. Proposition 3. The more corporate governance multientities relationship is based on cooperation, the more outcomes of not-for-profit organizations are efficient both for principal and for agent. Proposition 4. Theoretical approaches to understanding trustworthy behavior, integrating economic modeling implications to not-for-profit, as well as for-profit firms, are dependent on the focus on cooperation that permits efficient outcomes both for the principals and for the agent. Avenues for future research towards developing the common agency framework might analyze several strategic implications when the firm is strongly threatened by internal and external forces influencing corporate governance relationship of shares in family-owned firm, dominant shareholders, large debtholders, and institutional investors community. Finally, to develop the discussion on corporate governance structures and processes internationally, the IFRC is an important source of inspiration because cultural and social traits differences faced among the National Societies of the worldwide humanitarian network. Extant empirical studies have identified cluster countries where the major cultural dimensions accounting for similarities among countries (Ronen & Shenkar, 1985). It will be interesting to test whether countries’ similarities and differences have any role on corporate governance in not-for-profit, as well as for-profit organizations.

CONCLUSION This chapter analyzes the common agency model that naturally applies to the relationship between the governing coalition and the board of directors. Cooperation is not only a good proposition relevant to corporate governance; cooperation determines the stakeholders’ wealth maximization in not-for-profit organizations based on volunteer resources. In this specific case, lack ultimate power of the governing coalition and predominance of managers affects the role of not-for-profits’ corporate governance. The study of not-for-profit corporate governance raises unresolved issues to monitoring management and controlling org outcomes.

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PART II EMPIRICAL STUDIES ON PUBLIC AND NON-PROFIT GOVERNANCE

THE MOVEMENT BEYOND THE NEW PUBLIC MANAGEMENT: PUBLIC GOVERNANCE PRACTICES IN ITALIAN PUBLIC ORGANISATIONS Luca Gnan, Alessandro Hinna, Fabio Monteduro and Danila Scarozza ABSTRACT Purpose – The chapter aims to analyse specific management tools which can be used to facilitate public governance practices, such as the process of stakeholder involvement. Methodology/approach – By means of both a theoretical discussion and an empirical research conducted on Italian local public utilities (LPUs), the chapter attempts to understand: (a) the degree of application of quality management, sustainability mechanisms and stakeholder’s involvement; (b) the correlation between the application of these tools stakeholder involvement processes. Findings – Not all the tools imported from the private sector have the same ‘attitudes’ for stakeholder involvement evidencing a gap of Italian Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 117–150 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001009

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LPUs in quality management systems in ensuring that stakeholders and their contribution to product value is considered. These results give support to the necessity to move beyond New Public Management. Therefore, governance becomes a new process for developing and implementing public policies: this requires original mechanisms of coordination among institutional actors, public authorities and stakeholders. Research limitations/implications – This study gives rise to new research path in LPUs corporate governance research. Looking for the creation of a series of suppositions and considerations as to why LPUs actively venture into the practice of good corporate governance trough stakeholder involvement. Accordingly, it is necessary to invest in the debate on the tasks of the board of directors. Originality/value of paper – This study gives a new path of research, asking board of directors to move toward a stakeholder-conscious governance model, with broader input and ongoing engagement, as an important aspect for a better corporate governance in public administrations. Keywords: Public governance; stakeholder involvement

INTRODUCTION Local public services is the area in which new public management (NPM) (Barberis, 1998; Ferlie, Lynn, & Pollitt, 2005; Hood, 1998; Hood & Jackson, 1991; Vigoda-Gadot & Meiri, 2008) and Public Governance (PG) (Bevir, Rhodes, & Weller, 2003; Eckardt, 2008; Kelmann, 2007; Kettl, 2000; Lynn, Heinrich, & Hill, 2000; Peters & Pierre, 1998) issues are most in evidence (Bognetti & Obermann, 2008; Denhardt & Denhardt, 2000; McKoy, 2006; McLaughlin, Osborne, & Ferlie, 2002; Schwartz, 2008). The local public services are characterised by the rethinking of the role played by local government in the provision of services. An evolution has taken place, from a traditional configuration in which local public services were managed by local governments to a configuration in which there is a separation between the local government role (which continues to be the guarantor of the satisfaction of public needs) and the role of local public utilities (LPUs) (responsible for delivering the services). This transformation implies both the delegation of resources and authority to lower organisational levels

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within the public sector and the transformation of accountability chains between state institutions and the society (Blair, 2000; Crook & Manor, 2000; Manor & Crook, 1998). Local governments now entrust local public utilities with the responsibility to provide better quality services, major direct contact with the citizens (not only customers) and to be accountable and more aware of local needs and expectations (allocative efficiency) (Oates, 1993; Wagner, 1983). From this point of view, an evolution of quality debate on managerial issues in public organisations has arisen, shifting from a purely technical focus on the organisation of internal management processes to a wider comprehensive quality management concept based on a personal organisation–consumer relationship, transforming the quality concept in a ‘subjective’ concept according to different stakeholders’ expectations, providing a framework for an overall strategic approach to an organisation’s environmental policy, plans and actions (Lo¨ffler, 2001). In this context, quality in management systems remains high on the reform agenda of EU member countries, and the label ‘quality’ can be considered with a new meaning and coverage, going beyond the improvement of public services and taking a more comprehensive approach to management innovations. The decision to embrace a quality approach becomes part of a more general desire to demonstrate accountability to, and secure legitimacy with, a variety of stakeholders (Bovaird & Loeffer, 2003). As a consequence, managerial issues in the LPUs domain are likely to take the modernisation process of organisations beyond the quality improvement of services by managers within individual organisations, looking toward inter-organisational co-ordination and stronger consultation and participation of citizens and stakeholder groups in the planning and co-production of public services. Therefore, a two-way communication with internal and external stakeholders becomes a key point to implement and maintain successful managerial improvement (Pollitt, 2007). This provides an extremely interesting framework concerning the relationship between NPM and PG paradigms. Concerning this issue, two different currents of thought can be found in literature about the relation between NPM and PG. The first argues that the PG approach replaces the NPM approach, NPM principles are in conflict with the operative logics suggested by PG. The second current of thought, on the contrary, argues that PG integrates NPM practices, NPM tools if ‘reviewed and integrated’ represent a good opportunity to move towards PG practices (Bevir et al., 2003; Kettl, 2000; Lynn et al., 2000; Peters & Pierre, 1998). Following this second vision, the modernisation of public organisations goes beyond a mere technical

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approach and the impact on the system of relationships between public organisations and their stakeholders. Previous considerations on the dynamic meaning and coverage of quality in managerial issues in LPUs give support to this second vision, integrating NPM with the PG approach. From this wider perspective, the chapter aims to analyse specific management tools which, even if they are formally instruments of NPM, can be used to facilitate public governance practices, such as the process of stakeholder involvement. By means of both a theoretical discussion and an empirical research conducted on 39 Italian LPUs, this chapter attempts to address the following questions: 1. What is the degree of application of quality management, sustainability mechanisms and stakeholder involvement in LPUs? 2. Does a correlation exist between the application of quality management, sustainability mechanisms and the stakeholder involvement processes in LPUs? In particular, in our study we focus: – on the adoption of quality standards (ISO 9000 and Customer Satisfaction) as instruments of NPM to facilitate stakeholder involvement practices, to help organisations perform better, as the cited strategic management theorists argue; – on the adoption of sustainability tools (sustainability reports and ISO 14000 standard) as an instrument of NPM to facilitate stakeholder involvement practices, to create a dialogue-based accountability of the organisation, as the cited strategic management theorists argue. These two groups of NPM instruments have been chosen because the creation of a dialogue between the organisation and the community of stakeholders is necessary to apply both sets of instruments. This concerns also the two standards involved, both ISO 9000 and ISO 14000, do not focus on outcomes, but focus on processes, considering the involvement of internal and external stakeholders (Delmas, 2001). This implies a common effort to offer new forms of organisational behaviour in the decision-making processes (i.e. the choice of the performance indicators and the reporting tools). The chapter is organised as follows. In the next section, we present the theoretical frame and hypotheses. The research methods are then described and finally, findings and conclusions are discussed, including implications for future research.

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THEORETICAL FRAMEWORK AND HYPOTHESES Following the ‘reinventing government’ slogan (Osborne & Gaebler, 1992), a modernisation process of public organisations has begun in both industrialised countries and underdeveloped ones. In the 1980s and the 1990s, the NPM (Barberis, 1998; Ferlie et al., 2005; Hood, 1998; Hood & Jackson, 1991; Vigoda-Gadot & Meiri, 2008) approach indicated that public organisations should progressively abandon their more traditional bureaucratic configuration and import models and methods utilised in private organisations. The main changes recommended by NPM are: a gradual de-bureaucratisation of the organisational structures; a growing emphasis on citizens as clients; greater attention to quality of services; an increased ‘contestability’ for services between in-house and out-sourced production (Agranoff & McGuire, 2001; Haque, 2007; Hood, 1998; Kelmann, 2007). Despite the great diffusion of NPM, public sector scholars (Bovaird & Lo¨ffler, 2001; O’Flynn, 2007; Stoker, 2006) have highlighted its limitations, such as the prevalent (or exclusive) focus on the needs of customers; the division of power between politicians and administrators; the consideration of the budget formulation as a top-down exercise; and the prevalent focus on technical efficiency. Public sector literature evidences the shift from the ‘government’ to ‘governance’ debate (Bevir et al., 2003; Eckardt, 2008; Kelmann, 2007; Kettl, 2000; Lynn et al., 2000; Peters & Pierre, 1998), suggesting that innovation might be considered as a question of coordination and integration between public organisations and their broader environment (Kettl, 2002). In the PG discourse, social and economical phenomena can be more efficiently governed with close interactions between public organisations and social actors, creating a favourable and an encouraging environment (Kettl, 2002). The ‘new’ PG debate evidences important characteristics of good governance practices (Leftwich, 1993): from a systemic perspective, the opportunity of an internal and external balanced distribution of economic and political power; from a political perspective, the recognition of the authority democratically conceded; from an administrative perspective, the relevance of an efficient bureaucratic machine with the competence to project and to implement public policies. Following PG arguments, the role of the state is also being questioned at local level, beginning with the way in which territories are administered and policies implemented, creating a new system variously termed ‘local’, ‘territorial’ or ‘community’ governance (Clarke & Stewart, 1994; Stoker, 1991). These labels refer to the roles of the different tiers of government

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and the ways they collaborate with each other and with actors outside the public sphere (Bevir et al., 2003; Kettl, 2000; Lynn et al., 2000; Peters & Pierre, 1998; Stoker, 2006), with the aim to strengthen the voice of the citizens in local decision making (Hambleton, 2004), moving beyond NPM indications.

Stakeholder Involvement Convergence of actions and trust among the different actors involved constitute pivotal conditions for creating public value in a networked governance context (Moore, 1995; Stoker, 2006). The roots of such arguments can also be found in both the democratic and the stakeholder perspective literature (Hillman, Keim, & Luce, 2001; Huse & Rindova, 2001; Johnson & Greening, 1999; Luoma & Goodstein, 1999). While specific stakeholder definitions vary, the literature concurs in the need for stakeholder support to create and sustain winning coalitions (Baumgartner & Jones, 1993; Riker, 1986) and to ensure long-term viability of organisations (Abramson & Kamensky, 2001; Bryson, Gibbons, & Shaye, 2001; Eden & Ackermann, 1998), as well as policies, plans and programmes (Baumgartner & Jones, 1993; Bryson & Crosby, 1992; Jacobs & Shapiro, 2000). Adopting stakeholder involvement tools does not automatically guarantee positive effects, neither in strategic terms nor in terms of accountability and responsibility. A great deal depends on the context in which stakeholder involvement takes place and on the implementation approach. Three branches of research can be identified in the public sector dealing with stakeholder involvement: 1. The strategic management branch (Bryson, 2004; Moore, 1995; Pollitt & Bouckaert, 2000), which places great value on managerial action and increased discretion for managers with respect to the political process (Pollitt & Bouckaert, 2000). At this level, questions of stakeholder involvement are constructed in terms of their potential to facilitate the implementation of qualified organisational processes rather than as matters of accountability or democracy. For example, Bryson (2004) argues that stakeholder involvement is useful to public managers, either to directly help their organisation perform better, or to support the development of an ‘authorising environment’, which will indirectly improve organisation performance (i.e. updating the mission, fundraising, decision-making protocols or accountability mechanisms).

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2. The accountability branch (Roberts, 2002), which highlights the relevance of a dialogue-based accountability (Roberts, 2002). Accountability is construed as a process of dialogue which has to be expanded beyond organisational boundaries to take fuller account of political knowledge and stakeholder practice (Harmon, 1995, pp. 196–197). The dialoguebased accountability does not violate nor replace traditional mechanisms, but reinforces them by making traditional accountability mechanisms more transparent and visible (Roberts, 2002). The publicity of the dialogue makes participants accountable to one another and it builds relationships on mutual listening and learning. It has been argued (Heikkila & Roussin, 2007) that accountability requires citizen and stakeholder engagement because citizens’ and stakeholders’ expectations play a critical role in shaping how an agency defines its mission and the criteria for ‘success’ that will be used in meeting these goals (i.e. the object of accountability). 3. The participatory democracy branch (Fung, 2004; King, Feltey, & O’Neill, 1998; Kweit & Kweit, 1981; MacNair, Caldwell, & Pollane, 1983; Thomas, 1995), which has gained considerable popularity in the recent past (Edelenbos & Klijn, 2006; Fung, 2004; Kaifeng & Callahan, 2007; King et al., 1998; Vigoda, 2002). Following this approach, society is seen as a self-reliant community of places and interests, where cooperation rather than competition contributes to consensually set social values and goals. On the operational front, local communities collectively identify impediments to a better quality of life and work together to construct longterm sustainable solutions (Skelcher, Mathur, & Smith, 2005). Manifestations of the participatory democracy include a variety of collective decision-making forms (citizens’ juries, community forums, participatory budgets, etc.). The participatory discourse stresses the values of inclusivity, equality of standing and power between the actors involved (Fung, 2004). Education is promoted through a collective learning process where all participants acquire and share information and all participants accept responsibility for policy decisions. The international literature, even though based on a different theoretical background, suggests that stakeholder dialogue can be reasonably considered an innovative way to conduct public policies, whereby a government interacts with its citizens, social organisations, enterprises and other stakeholders in the policy-making process, measurement, evaluation and reporting of policy outcomes (Ho & Coates, 2002; Holzer & Yang, 2004; Kaifeng & Callahan, 2007; Skelcher et al., 2005; Vigoda, 2002). But

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management tools which can favour its adoption have yet to be investigated on the operational front. Against this backdrop, the chapter aims to analyse how some management tools inspired by NPM can be used to facilitate public governance practices (i.e. the process of stakeholder involvement). From the literature just presented and in relation to our research questions, two independent variables have been identified: 1. practices of quality management 2. practices of sustainability management and promotion.

Practices of Quality Management Since the late 1980s, ‘quality’ has been hailed as the fundamental or even the ‘ultimate goal’ of business companies (Malorny, 1996). The notion of ‘quality’ evokes a broad range of responses (Bensley & Wortman, 1994). The term ‘Total Quality Management’ is defined by the International Organization for Standardization (ISO) as ‘‘a management approach of an organization centered on quality, based on participation by all its members and aiming at long-term success through customer satisfaction and benefits to the members of the organization and to society’’ (Lewis, 1991, p.72). Many scholars have key motivations for private organisations to adopt quality management tools, such as opportunities for improving product/ service quality and attaining competitive advantage, desires to promote corporate image, needs to improve internal efficiency and requirements for improving cost control (Anderson, Daly, & Johnson, 1999; Buxbaum 1993; Crowe, Novel, & Machimada, 1998; Farrell & Saloner, 1985; Freeman-Bell & Grover, 1994; Huarng, 1998; Lee & Palmer, 1999; Meegan & Taylor, 1997; Morgan & Murgatroyd, 1994; Tsiotras & Gotzamani, 1996; Younis, 1997). Despite its private sector origins, quality management approaches have been particularly popular, albeit in different ways. ‘Reinventing government’ movement also shared some of the tenets of quality management such as the focus on customers and the management by fact (Anschutz, 1995; Bernowski, 1993; Osborne & Gaebler, 1992; Thompson, 2000). In addition, by virtue of the customer/user-based emphasis of quality, the public sector became more conscious regarding the importance of public services quality. According to Pollitt and Bouckaert (1995), since LPUs operate at local level and deliver public services, a first relevant dimension in the citizen perspective is that of quality. Quality is a multidimensional concept (Garvin,

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1987) which includes both the quality of processes and the quality of services. The measurement of the quality of processes and services is a complex operation, especially with reference to public organisations. However, the adoption of specific systems and mechanisms for managing and improving the quality of processes and services may be considered a good proxy, if not of the outcome (better quality), at least of the organisation’s commitment to this issue. A number of quality management tools and techniques have been promoted as rational means to increase organisational performance and to secure organisational survival, as: – Customer Satisfaction Management – ISO 9000 standards. The Customer Satisfaction Management (CSM) and the ISO 9000 standards are among the most popular quality models. The Customer Satisfaction Management emphasises the organisational ability to satisfy customer needs. There is an exchange between customer and organisation. The Customer Satisfaction Management helps organisations to achieve goals more effectively (Houston, 1986). In this perspective, quality management is based on a definition of quality that sets customer expectations as the first and ultimate goal of each activity in an organisation. ISO 9000 standards give indications on how to set up quality systems in organisations where a contract between the seller and the buyer requires the demonstration of the supplier’s ability to satisfy mutually agreed requirements. In order to function properly, quality management requires the full and active involvement of all employees in an organisation quality plan as well as comprehensive information systems which collect and process information with regard to customers and other stakeholders. The involvement of people is a stated principle of the standard (with customer satisfaction, leadership, process approach, system approach to management, continual improvement, factual approach to decision making and mutually beneficial supplier relationships) for a quality management system. According to Russell (2000), the importance of people, underlined by the ISO 9000 Standards, reveals a moving towards a wider definition of partnerships, a major focus on innovation and learning, a greater importance of the inclusion of public responsibility and a more inclusive approach to results (balancing the needs of all stakeholder groups). For Gobbels and Jonker (2003), in fact, recent years have seen an extension of the scope of quality management, going from tangible products,

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through processes and systems, to the whole organisation and even beyond. When putting the quality scope beyond the organisational level, the trend towards managing the relationship with the actors around the organisations becomes apparent. According to Logsdon and Lewellyn (2000), the standard is important to its particular domain of stakeholder impacts and, at the same time, its standardisation effort may create conditions and pressures among stakeholders that will enhance the implementation of effective quality systems. Another stream of literature (Azzone, Bianchi, & Noci, 1997; Gilardoni, 2000; Tencati, Perrini, & Pogutz, 2004) supports the idea that the diffusion of managerial tools and standards on total quality management allows organisations to acquire legitimacy and consensus from local stakeholders (Rasche & Esser, 2006). Last but not least, quality management involves cultural change towards continuous improvement. Up till now, the existing management standards for quality point at the internal activities of the company. Today, organisations have to expand the social and environmental responsibility for their actions to the different actors interested in them, therefore: Hypothesis 1. There is a positive relationship between the adoption of Customer Satisfaction Management and the stakeholder involvement. Hypothesis 2. There is a positive relationship between the adoption ISO 9000 Standards and the stakeholder involvement.

Practices of Sustainability Management and Promotion Behaviour and actions of organisations in relation to social, economic and environmental sustainability has become a critical issue in the economic and political fields (Enticott & Walker, 2008). Previous studies describe the costs and the benefits of the adoption of environmental policy and standards, both regarding companies and very specific cases (Ammenberg, Wik, & Hjelm, 2001; Bell, 1997; Brio & Junquera, 2001; Dowie, McCartney, & Tamm, 1998; Fryxell & Szeto 2002; Hillary, 2004; Khanna & Anton, 2002; Kwon, Seo, & Seo, 2002; Peng, 2005; Reith & Guidry, 2003; Sheldon, 1997; Steger, 2000; Zobel & Burman, 2004) and the system itself (Johnson, 1997; Roberts & Robinson, 1998; Woodside & Aurrichio, 2000).

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On the basis of the positive experience that these instruments provided, their application has been extended to similar organisations, just as quality management systems were in the past. Currently, although they arose as tools of economic policy, they are used by public administrations with the aim of improving efficiency and relationships with citizens (clients) (Lozano & Valle´s, 2007). Since the LPUs deliver services in sectors characterised by a high socioenvironmental impact (energy, gas, water, etc.), they have a civic responsibility to properly manage public goods, resources and/or facilities in a way that supports sustainable development objectives and promotes the public interest. Moreover, public accountability implies that public organisations report publicly and transparently on their activities to promote sustainability (Guthrie & Farneti, 2008). The most popular sustainability tools include: – Sustainability Reports (SR); – ISO 14000 standards. SR underlines the importance to communicate more than the economical and financial performance. Considering the growing number of issues in which various stakeholders are interested, organisations have moved from traditional (financial) reports to social and environmental reports, which enlarge the scope and contents of their communication activity. However, there are published surveys which reveal defects in sustainability reports: these reports often fail to focus on the most important risks facing their organisations, they cover too many issues, they fail to reflect a rigorous process in deciding what to report, and they betray a lack of method in assuring results (Pojasek, 2009). Against this backdrop, there are a few key elements which can guarantee the quality of sustainability reporting. For instance, with reference to Pojasek (2009): – a sustainability report needs to focus on the unique context of the organisation. The definition of sustainability is related to the attributes and characteristics of each organisation; – it is important that the sustainability report addresses how the organisation’s activity is doing and not how the sustainability initiative is doing. The usefulness of SR as a form of democratic accountability depends on the involvement of citizens (Behn, 1998, p. 159). A first step in the accountability process is to present information in a way that is relevant to stakeholders, who are interested in monitoring and evaluating organisational achievements. This may mean stating objectives and presenting

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results according to the differentiated needs of the various groups of stakeholders. Second, the reports should identify who has been involved in establishing goals and objectives and evaluating their achievement, specify the extent of involvement and mention whether those responsible for achieving results participated in the establishment of goals and objectives. Probably, it is possible to affirm that SR represents a significant effort in communicating with external stakeholders, starting a process of stakeholder involvement (Marcuccio and Steccolini, 2004). Interestingly, Owen, Swift, and Hunt (2001) argues that SR – in contrast with other types of reports (i.e. environmental report) – addresses both the problems of information deficiency and stakeholder exclusion. The guidelines offered by GRI (Global Reporting Initiatives, 2002) to obtain a good report underline the central importance of stakeholder dialogue: ‘‘a primary goal of reporting is to contribute to an ongoing stakeholder dialogue. Reports alone provide little value if they fail to inform stakeholders or support a dialogue that influences the decisions and behaviour of both the reporting organisation and its stakeholders’’ (GRI, 2002, p. 9). Regarding the second sustainability tool here considered, many public administrations have designed, certified and implemented environmental management systems under ISO 14000 standard, because they provide a harmonised standard for managing an organisation’s environmental impact (Tibor & Feldman, 1996). Particularly, ISO 14001 is a set of guidelines by which a whole organisation can establish or strengthen its environmental policy, identify environmental aspects of its operations, define environmental objectives and targets, implement a programme to attain environmental performance goals, monitor and measure effectiveness, correct deficiencies and problems and review its management systems to promote continuous improvement (Weaver, 1996). Of course, interest in stakeholder engagement as a mechanism for enhancing sustainability is not new (Amaeshi1 & Crane, 2006). Existing literature (Adams, 1999; Delmas, 2000; Klaver & Jonker, 1998) suggests there are many benefits to adopting ISO 14001 (as enhancement of a certified firm’s environmental performance and enhancement of competitive advantage). Furthermore, these potential advantages would be linked not only to the specifics of each organisation, but also to the value that stakeholders attribute to the standard in its present form. Delmas (2001), in particular, shows that ISO 14001 is a process standard, and it is difficult for stakeholders to get credible information on the effectiveness of the standard if they are not involved in its design. On the other hand, organisations will

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not reap the full benefit of the standard if external stakeholders do not value the standard positively. Boiral and Sala (1998) affirm that managers must make sure the ISO 14001 standard corresponds to real requirements of stakeholders before adopting it. The first question that managers must ask themselves is whether their organisation can expect pressure in favour of ISO 14001 from customers or other stakeholders. Gavronski, Ferrer, and Paiva (2008), instead, argue that the organisations seek a certification to prevent potential problems with external stakeholders. They summarise the perceived benefits following the adoption of ISO 14000 standard. According to them, the benefits may be divided in two major groups: internal and external. Internal benefits are related to financial performance and productivity. External benefits are related to the relationship with stakeholders. According to previous considerations, it is reasonable to propose the following hypotheses: Hypothesis 3. There is a positive relationship between the adoption of Sustainability Reports and the stakeholder involvement. Hypothesis 4. There is a positive relationship between the adoption ISO 14000 Standards and the stakeholder involvement.

METHODS Sample and Data Collection The population of Italian LPUs under investigation in this study includes all organisations created as joint-stock companies whose main (or exclusive) shareholder is represented by the local government, either directly or indirectly and which are engaged in activities of distribution to end consumers of services, such as the provision of electricity, gas, water, waste management and transportation. Instead, the chapter excludes enterprises that have other managerial forms different from joint stock companies, special enterprises, institutions, in-house units, etc. It also excludes purely regulatory bodies as well as organisations engaged in ‘non-business’ activities such as social and community services, including health and education, cultural and research organisations.

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Based on the most recent statistics published by the association of Italian LPUs (Confservizi, 2008a, 2008b), our specific target population of LPUs consists of about 700 units in Italy. This population includes two types of organisations: (1) mono-business enterprises that deliver only one type of service (electricity, gas, etc.) are usually smaller and present a lower level of managerial complexity; (2) multi-utility enterprises, usually companies (sometimes listed) and normally operating on wide territorial areas. With reference to the ownership structure, joint-stock companies whose exclusive shareholder is represented by the local government are predominant (73%), 23.6% has a majority public share, a small percentage (3.4%) has a minority public share (Confservizi, 2004). With reference to the territorial distribution of our specific target population of LPUs, a prevalence of organisations located in the north of Italy is registered, reflecting the different geographical levels of economic development in the country. A random sample of 39 organisations was drawn from our population. Data were obtained from various sources. A first source of information is represented by the websites of all the LPUs included in the sample. Through this source, some information on the adoption of quality management and sustainability mechanisms was gathered. A second source of information was direct telephone interviews with the public relations manager of each LPU (a total of 39 interviews). In order to improve the reliability of the results, we extracted a further random sample of 14 organisations from the initial sample (composed of 39 LPUs). Then, direct telephone interviews were made to the presidents of this second group (14 organisations), obtaining, in many cases, the same answers (about 85%). Through the direct telephone interviews, it has been possible to gather two main categories of information. First, information on the number of stakeholders involved (stakeholder diversity) in the decision-making processes of an organisation. Second, the information about the adoption of quality management and sustainability mechanisms which were not available or not adequately reported on the website. Third, a relevant source of data is the sectoral statistics published by the Association of Italian LPUs (Confservizi, 2008a, 2008b). Through this source, it was possible to obtain important data on the ownership structure of LPUs, the type of services delivered and the main results achieved and some economic and financial indicators (Table 1). The last source of information is the Italian Register of Enterprises held by the Chambers of Commerce. All LPUs created as joint-stock companies

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Table 1. The Sample.

LGs total ownership LGs majority of shares Privates majority ownership TOT %

Northern Italy

Central Italy

Southern Italy

TOT

%

17 7 2 26 66.7

4 5 0 9 23.1

4 0 0 4 10.2

25 12 2 39 100.0

64.1 30.8 5.1 100.0

have to be registered in the aforementioned Register of Enterprises. Through the consultation of this database, it has been possible to gather anagraphic data on board members (number) as well as the number of enterprises in which they were members of the board at the time of analysis (interlocking directorates). The analysis was carried out from January 2009 to July 2009. During this period, the information retrieved from the aforementioned sources was entered in a data matrix including statistical units in rows and the variables, which will be explained later on, in columns.

Measures and Control Variables Dependent Variable  Stakeholder involvement (STK_DIV) according to Carmin, Darnall, and Mil-Homens (2003), we measured this variable with the diversity of involvement that considers the number of different types of stakeholder groups engaged by LPUs. In particular, the diversity was calculated as the ratio between the number of effective stakeholders involved and the number of potential stakeholders that is possible to involve on the basis of the 15 categories identified (users, users’ associations, environmental associations, shareholders, employees, trade associations, labour union, banks, suppliers, media, other utilities, political parties, local authority, public administrations and ‘other’). The categories were identified on the basis of literature in LPUs (Brody, 2003; Carmin et al., 2003; Pedersen, 2003). The choice to measure the diversity is related to PG suggestions according to which the greater the number of stakeholder categories involved, the more the interests taken into account in the public decisionmaking processes. A great number of stakeholders categories involved can be considered a good measure of active participation.

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Independent Variables  Quality management tools. This category includes two different variables:  Customer Satisfaction (CUSTOMER_SAT) was calculated as a dichotomous variable with the code 1 indicating the adoption of the tool and the code 0 indicating no adoption of the tool.  ISO 9000 Standard (ISO_9000) was calculated as a dichotomous variable with the code 1 indicating the adoption of the tool and the code 0 indicating no adoption of the tool.  Sustainability management tools: This category includes two different variables:  Sustainability Reports (SUSTAIN_REPORTS) was calculated as a dichotomous variable with the code 1 indicating the adoption of the tool and the code 0 indicating no adoption of the tool.  ISO 14000 Standard (ISO_14000) was calculated as a dichotomous variable with the code 1 indicating the adoption of the tool and the code 0 indicating no adoption of the tool. In both cases, we used dichotomous variables in order to distinguish between organisations that have adopted actions in favour of quality or sustainability from those which have remained inert in relation to the needs of quality or sustainability manifested by their users. Control Variables The control variables have been identified on the basis of existing literature on quality management (Anschutz, 1995; Bernowski, 1993; Osborne & Gaebler, 1992; Thompson, 2000), sustainability (Enticott & Walker, 2008; Guthrie & Farneti, 2008; Lozano & Valle´s, 2007), stakeholder involvement (Bryson & Cosby, 1993; Ho & Coates, 2002; Holzer & Yang, 2004; Kaifeng & Callahan, 2007; Skelcher et al., 2005; Vigoda, 2002) with reference to public management (Laegreid, Roness, & Rubecksen, 2007) and the utility industry (Fumagalli, Garrone, & Grilli, 2007). These variables have been operationalised by making the following choices:  Board composition. Board composition can be defined as the number and configuration of members on the board, ‘‘it is, essentially, about how a board should be assembled so that, as a group, it can successfully carry out its task’’ (Huse, 2007, p. 82). The literature has investigated many board characteristics related to the dimensions and composition of the board (i.e. dimension, diversity, relations with other organisations,

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professional profile and personal background). In this chapter, we have chosen to measure two of them:  Board size (BSIZE). We determined the total number of directors listed as active members on the board of directors.  Interlocking directorates (INTERLOCK). An interlocking directorate occurs when a person affiliated with one organisation sits on the board of directors of another organisation. We calculated the total number of other organisations in which each board member had taken part during his/her mandate.  Organisational size (ORGSIZE). Lagreid et al. (2006, p. 8) affirms that organisational size is a significant factor in the adoption of the new management tools (management by objectives, quality management tools, development dialogue, balanced scorecard, etc.). The present study uses as a measure of the size of the organisation, the total number of salaried employees (Agarwal, 1979).  Ownership (OWNERSHIP). We controlled for LPU ownership. Previous studies found mixed observations with regard to the association between ownership structure and accountable and participative practices. Some scholars (Leung & Horwitz, 2004; Norita & Shamsul-Nahar, 2004) found that ownership has a positive and significant association with voluntary disclosure in favour of stakeholders. Chau and Gray (2002) found a positive relationship between wider ownership and the extent of voluntary disclosure. On the contrary, there are also studies which found insignificant associations (Halme & Huse, 1997; Leung & Horwitz, 2004). Specifically, Huang and Jianguo (2007) discovered that managerial ownership, state ownership and legal-person ownership are not related to voluntary disclosure. A dummy variable was included with the code 0 indicating LG total ownership, and the code 1 indicating the presence of private investors in the ownership structure.  Diversification (MULTIUTILITY). Diversification could play an important role even if in literature, there are few studies that have tried to investigate the relationship between diversification and some action in favour of stakeholders. The LPUs that have chosen the multi-utility model are usually bigger, operate on a large scale and have greater complexity levels. Greater diversification, in fact, increases managerial, structural and organisational complexity, incurs greater coordination and integration costs, strains top management resources (Grant & Jammine, 1988), limits ‘organizational attention’ (Ocasio, 1997) and inhibits firms’

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ability to respond to major external changes (Donaldson, 2000; Greenwood & Hinnings, 1996; Hoskisson & Hitt, 1994). Therefore, we controlled for diversification strategy based on the multi-utility model. A dummy variable was included with the code 0 indicating no multi-utility diversification, and the code 1 indicating the adoption of a multi-utility diversification strategy.  Financial performance (ROI). Waddock and Graves (1997) try to explain the relationship between financial performance and action in favour of stakeholder. They argue that better financial performance potentially provides the opportunity for organisations to invest in social domains, such as community relations, employee relations or environment. Therefore, we use return on investment (ROI) to measure LPUs financial performance. Return on investment is measured as income before extraordinary items divided by total invested capital (the sum of long-term debt, minority interest and common shareholder equity). Table 2 reports the main characteristics of the variables used in the analysis.

Data Analysis In order to test our hypotheses we used both bivariate and multivariate statistical methods.

RESULTS Description of Practices The results of our empirical research show that in Italian LPUs, there is not a widespread adoption of quality and sustainability tools. Table 3 shows that about 30% of companies belonging to the sample – on average – adopt these tools. Customer Satisfaction Management is the most used practice (35.90%), while ISO 14000 Standards was found to be the least used (20.51%). The low rate of adoption depends on complexity related to the application of these management tools in public organisations, in comparison to private sector organiations. The adoption of the tools may also be linked to a time factor.

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Table 2.

Main Characteristics of the Variables Used in the Analysis.

Variables

Label

Type of Variable

Year

Source

Stakeholder involvement

STK_DIV

Continuous

Independent Quality management tools

ISO_9000

SUSTAIN_ REPORTS

Dichotomous 2009 LPUs Web Survey Dichotomous 2009 LPUs Web Survey Dichotomous 2009 LPUs Web Survey Dichotomous 2009 LPUs Web Survey

BSIZE

Continuous

Dependent

Sustainability management tools Control

Board size

Interlocking directorates

Organisational size

Ownership

Diversification

Financial performance

CUSTOMER_ SAT ISO_14000

2009 Survey sites sites sites sites

2009 Italian Register of Enterprises – Chambers of Commerce INTERLOCK Continuous 2009 Italian Register of Enterprises – Chambers of Commerce ORGSIZE Continuous 2008 The association of Italian local public enterprises (Confservizi, 2008a) OWNERSHIP Dichotomous 2008 The association of Italian local public enterprises (Confservizi, 2008a) MULTIUTILITY Dichotomous 2008 The association of Italian local public enterprises (Confservizi, 2008a) ROI Continuous 2008 The association of Italian local public enterprises (Confservizi, 2008b)

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Table 3.

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Adoption of Quality and Sustainability Management Tools.

NPM Suggested Practices Quality management

Tools ISO 9000 Customer satisfaction

Sustainability management and reporting

ISO 14000 Sustainability reports

Adoption

Frequency

Percentage

No Yes No Yes No Yes No Yes

27 12 25 14 31 8 26 13

69.23 30.77 64.10 35.90 79.49 20.51 66.67 33.33

Results of Bivariate and Multivariate Analysis Descriptive statistics appear in Table 4. The correlation analysis (Table 5) points to a statistically significant (po0.01) and relevant positive correlation (r ¼ þ 0.460) between the adoption of one of the investigated tools (sustainability reports) and the implementation of a stakeholder involvement process based on a plurality of stakeholders involved (stakeholder diversity). Moreover, the analysis highlights that stakeholder involvement and the presence of private investors in the LPUs ownership structure are significantly correlated to each other (r ¼ þ 0.391); po0.05). The adoption of the ISO 9000 is significantly correlated with ISO 14000 (r ¼ þ 0.349; po0.05) and with the board size (r ¼ þ 0.455; po0.01). The adoption of the Customer Satisfaction tools is significantly correlated with the interlocking directorates (r ¼ þ 0.448; po0.01) and with the diversification strategy based on the multi-utility model (r ¼0.302; po0.10). In addition to the previously reported correlations, the adoption of sustainability reports 9000 is significantly related to the board size (r ¼ þ 0.380; po0.05). Finally, the financial performance (ROI) is significantly correlated with LPUs size (r ¼ þ 0.361; po0.05) and with the presence of private investors in the LPUs ownership structure (r ¼ þ 0.542; po0.001). Therefore, the correlation analysis offers a result compatible with one (Hp 3) of the four hypotheses that have been formulated. To wit, there is a positive relationship between the adoption of sustainability reports and the implementation of a stakeholder involvement process based on a plurality of stakeholders involved (stakeholder diversity). No support has been found for the other three hypotheses. In fact, the relationship between stakeholder

39 39 39 39 39 39 39 39 39 39 39

ISO 9000 Customer Satisfaction ISO 14000 Sustainability reports

Board size Interlocking directorates Organisational size Financial performance (ROI) Diversification (multiutility) Ownership

Independent

Control

3 0 8 17.6 0 0

0 0 0 0

0

Statistic

Statistic

Stakeholder involvement

Minimum

7 38 8,682 20.7 1 1

1 1 1 1

15

Statistic

Maximum

Descriptive Statistics.

N

Dependent

Variables

Table 4.

4.590 11.103 360.282 1.490 0.333 0.359

0.308 0.359 0.205 0.333

6.615

Statistic

0.216 1.463 220.421 1.267 0.076 0.078

0.075 0.078 0.066 0.076

0.940

Standard Error

Mean

1.352 9.136 1,376.526 7.913 0.478 0.486

0.468 0.486 0.409 0.478

5.870

Statistic

Standard Deviation

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1

0.022

0.080 1

0.198

1

ISO Customer 9000 Satisfaction

Significance at the 0.05 level (2-tailed). Significance at the 0.01 level (2-tailed) Significance at the 0.001 level (2-tailed).

Significance at the 0.10 level (2-tailed).

#

Stakeholder involvement ISO 9000 Customer Satisfaction ISO 14000 Sustainability reports Board size Interlocking directorates Organisational size ROI Multi-utility Ownership

Stakeholder Involvement

1

0.349 0.248

0.056

ISO 14000

0.045 1

0.236 0.265

0.460

1

0.251 0.380

0.455 0.030

0.195

Board Size

0.080 0.008

0.338 1 1

0.298# 0.265

0.261 0.111

0.230

Organizational Size

0.191 0.173

0.202 0.448

0.106

Interlocking Directorates

Correlation Analysis.

Sustainability Reports

Table 5.

0.391

Ownership

1

0.083 1

0.542 0.076 1

0.203

0.361 0.081

0.149 0.151 0.190 0.080

0.045 0.038

0.118 0.196 0.302# 0.114

0.094

Multiutility

0.014 0.022

0.123 0.005

0.277 0.001

0.242 0.236

0.190

ROI

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Table 6.

Multiple Regression Results (Standardized Coefficients).

Model Item

Model 1

Independent variables

ISO 9000 Customer Satisfaction ISO 14000 Sustainability reports

Control variables

Board size Interlocking directorates Organizational size ROI Multiutility Ownership

R2 Adjusted R2

Model 2 0.075 0.174 0.031 0.361

0.185 0.208 0.197 0.149 0.156 0.425

0.043 0.318 0.085 0.061 0.215 0.387

0.256 0.117

0.408 0.196

Significance at the 0.05 level (2-tailed).

involvement and the adoption of the other tools of quality management and sustainability is not statistically significant. However, given that the analysis of the literature has highlighted that further variables could have a relevant effect, a regression analysis has been carried out. Table 6 shows the regression results. The findings of the regression analysis confirm the results of the correlation analysis and show a significant result (po0.05) compatible with (Hp 3), while no support has been found for the other three hypotheses (H1, H2 and H4). When controlling for such variables as board size, board relational capital (in terms of interlocking directorates), organisational size, LPU ownership, diversification strategy and LPU financial performance, there is a positive and significant relationship between the presence of sustainability reports and the implementation of a stakeholder involvement process based on a plurality of stakeholders involved (stakeholder diversity).

DISCUSSION AND CONCLUSIONS Innovations in public organisations have moved from an initial inspiration by the NPM movement proceeding towards PG principle. Local public services is an area in which NPM and PG issues are particularly evident

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(Bognetti & Obermann, 2008; Denhardt & Denhardt, 2000; McKoy, 2006; McLaughlin et al., 2002; Schwartz, 2008). On the one hand, NPM proponents have suggested a broad-spectrum adoption by LPUs of private sector management tools, in order improve their efficiency and effectiveness. On the other hand, following the PG approach, some authors (Bevir et al., 2003; Kettl, 2000, 2002; Lynn et al., 2000; Peters & Pierre, 1998; Stoker, 2006) highlighted the importance of improving not only the ‘internal’ organisational system of LPUs but also the system of relations with their ‘external’ actors implementing stakeholder involvement processes based on a plurality of stakeholders. The first result of our empirical research is that quality and sustainability tools are seldom adopted and that this situation is widespread among Italian LPUs. Only 30% of companies belonging to the sample adopt these tools. These results force us to refer our discussion to the existing debate concerning the distance between the theory and the practice of the NPM discourse (Hughes, 2008), questioning its concrete application. On this stream, a range of critiques to NPM have already been made and are generally related to both: (a) the complexity of application of these management tools in public organisations, in comparison to private sector organisations (Gaster, 1995; Morrison, 1990; Pollitt & Bouckaert, 1995; Walsh, 1995); (b) the opportunity of such applications in the public sector (Halachmi, 1995; Meyer & Rowan, 1991; Murray, 2004). According to the first argument, a first explanation of our empirical results can be found in the obstacles and in the effects that an implementation of quality and sustainability management tools provides in public organisations, since its success is strictly connected to the changes in the level of standard awareness, to the degree of resistance from employees, to the level of internal cooperation among units, to management capability and involvement (Murray, 2004; Poole, Davis, Risman, & Nelson, 2001). Moreover, new strategies to train and develop the human capital of individual organisations are necessary to support the new quality and sustainability management culture in public organisations (Hyde, 1992). A second explanation of the empirical results could also be related to an ‘explicit’ choice made by LPUs examined, in relation to the unreasonable application of (private) management tools (such as the quality and the sustainability tools) to public sector organisations in general. There are insights on this from the literature. Walsh (1995), for example, refers to the difficulty of determining quality in relation to services rather than to products. Hackman and Wageman (1995) indicate that the results from adopting these ‘new’ management systems may not live up to the rhetoric.

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Following these kind of arguments, public sector scholars dared to argue that public management differs from private management in its essential nature and therefore the application of such business management principles and practices can ‘‘undermine the integrity of public bureaucracies and so threaten our democratic way of life’’ (Terry, 1999, p. 276). In this sense, NPM has been criticised for creating a potential risk for the traditionally respected values (such as fairness, equality and impartiality) and ethics on which public administration has been based (Denhardt & Denhardt, 2000; Schick, 1996). From this point of view, NPM is criticised for focusing on managerial reforms – whose goal is the pursuit of efficiency and economy within the constraints of pre-determined policy and resources – and for emphasising performance evaluation despite the user need and the stakeholder expectations. These types of arguments give support to the necessity to move beyond NPM, including stakeholder expectations in the decision-making processes. As we already said, this is the PG perspective, which goes beyond a vision of modernisation focused only on internal structures and mechanisms of organisation, replacing NPM basic principles. In this way, social, economic and environmental phenomena are more efficiently managed through close interaction between public and social actors, pursuing different but compatible purposes. Therefore, governance becomes a new process for developing and implementing public policies: this requires original mechanisms of coordination among institutional actors, public authorities and stakeholders. Partially against this point, other public sector scholars argue that NPM could represent a good opportunity to move towards PG issues, but it seems ‘incomplete’, since there is a passive form of citizen participation (Pollitt & Bouckaert, 1995). Inside this stream of research, the chapter provides some interesting insights. Shifting the focus from the adoption of the different management tools here considered (quality management and sustainability mechanisms) to the correlations between these and the implementation of the processes of stakeholder involvement, the analysis shows that some of the instruments (indicated by NPM) can be used to foster stakeholder involvement. In particular, we noted that a correlation exists between the adoption of sustainability reports (SRs) and the adoption of stakeholder practices. Therefore, SRs seem to be more than formal reporting practices for LPUs, giving support to the idea that public accountability has changed over time as a consequence of changes in the social, cultural, political context and the role of public sector organisations (Cochrane, 1993; Degeling, Anderson, & Guthrie, 1996; Ogden, 1995). The last decades have

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generally witnessed shifts in the idea of accountability diffused in the public sector: for example, from a concern for ‘fiduciary’ and process accountability, focused on compliance, to an emphasis on ‘managerial’ or performance and programme accountability, focused on effectiveness and efficiency, outcomes and outputs. Lately, the attempts at overcoming the limits of ‘managerialist’ reforms have meant a further development towards the concept of democratic accountability (Behn, 1998), involving citizen participation in the evaluation of government results and in the decisionmaking processes. This evolution seems to confirm a movement toward the application of PG. From the results, however, it can be assumed that not all the tools imported from the private sector have the same ‘attitudes’ for stakeholder involvement. Even though, following the recent international debate on the evolution of quality concepts in the public sector a more significant correlation between the adoption of ISO 9000 and ISO 14000 standards and stakeholder involvement was expected, this is not supported by our empirical evidences. In our sample of LPUs, these instruments do not involve cooperation and coordination among different levels of government or among external actors. On the contrary, quality and sustainability management practice have been adopted as internally oriented initiatives, focusing on the improvement of the principles of management, but without the expected and necessary consultation and participation of different stakeholder groups. This evidence underlines a delay of Italian LPUs practices in comparison to European discourse on public services quality which has been progressively encompassed by the wider concept of good governance (Fukuyama, 2004), making a bridge between NPM and PG practices. Italian LPUs evidence a gap in quality management systems in ensuring that stakeholders and their contribution to product value are considered, evaluated and incorporated into the management process. This might represent still an obstacle for mutually beneficial relationships between public organisation and community and therefore an obstacle to real improvement in managerial processes and practices.

REFERENCES Abramson, M. A., & Kamensky, J. M. E. (2001). Managing for results 2002. Lanham: Rowman and Littlefield Publishers, Inc. Adams, R. (1999). ISO 14001: A key ingredient of competitive edge. Environmental Law & Management, 11(3), 103–104.

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GOVERNANCE AND VALUE CREATION IN GRANT-GIVING FOUNDATIONS Giacomo Boesso, Alessandro Hinna and Fabio Monteduro ABSTRACT Purpose – Grant-giving foundation leaders are increasingly concerned with understanding the primary role their institutions are pressured to play in financing the growing nonprofit sectors. The main objective of the chapter is to determine whether effective governance plays a major role in driving foundations’ innovation and value-creation processes. Methodology – Building on the idea that foundations should act as financial partners, managerial experts, and innovator facilitators who deal with the projects proposed by nonprofit organizations, this chapter uses a survey and the annual reports of Italian grant-giving foundations to isolate their records in term of governance, innovation attitude, and performance. Findings – The results of this chapter contribute to improving understanding of the drivers that help foundations to improve the sophistication level of the grant-giving process. In particular, the analysis of governance provides relevant insights about the path foundations follow to incorporate

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 151–178 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001010

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selected tailored methods and practices from the ‘‘for profit’’ competitive arena to improve foundations’ output and nonprofit grantees’ outcomes. Social implication – Many academics, political leaders, and practitioners expect foundations to play the unique dual role of merchant bank and venture capitalist to foster the positive impact of nonprofit organizations on societies and people. The findings of this chapter facilitate this process. Originality/value of the chapter – The main contribution of this study lies in proposing and testing a theoretical framework that foundations can implement to disseminate liquidity and managerial expertise efficiently among selected grantees and to improve grantees’ social outcome. Keywords: Foundation governance; board composition; board attributes

INTRODUCTION Grant-giving foundations are major players in the growing arena of nonprofit organizations (NPOs). After undertaking thorough screening procedures, they provide funding and managerial expertise to NPOs for projects with demonstrable social outcomes. Foundations’ support to NPOs is increasingly important as government funding declines and the provision of welfare services moves from a national to a local level and the nonprofit sector takes a leading role in the daily delivery of primary social services. The emergent expectations placed on foundations raise fundamental issues, such as the capacity of those organizations, in cooperation with the funded NPOs, to deliver ‘‘welfare services’’ to the various constituencies they serve and their capacity to create social value (Porter & Kramer, 1999). Most Italian grant-giving bank foundations are new, having been constituted in the last 20 years as a result of the privatization of public entities. Since nonprofit Italian foundations indirectly (through tax exemptions and fiscal advantages) reduce public financial capacity, there is a strong social expectation that they will create social value in terms of both economic performance (as measured by the money invested in social projects) and social output (as measured by the type of projects selected and funded). A strong debate is growing in the country after the recent reorganization of the Italian banking foundations such that many institutional players (e.g., Govern, Bank of Italy, the entrepreneur unions) expect

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foundations to a play a major role in funding others NPOs and in acting as a ‘‘social merchant bank.’’ These high expectations are based on evidence that, while the third-sector organizations are rarely performance-oriented or managerially driven, the 88 Italian banking foundations incorporate business skills and investment expertise in their governance boards and operative structures. As such, the Italian banking foundations are an appropriate environment for research that will fill some of the gaps highlighted by the international nonprofit literature. A limited number of extant studies have focused on how the value-creation processes of NPOs differ from those that are directly engaged in the provision of social services (e.g., voluntary organizations). This gap is particularly critical because of the role of grant-giving foundations in funding the nonprofit sector and leading social progress (Porter & Kramer, 1999). Accordingly, this chapter focuses only on the value-creation processes of the leading Italian grantgiving foundations. In addition, the relationship between board members’ profiles and NPOs’ value creation has not been adequately explored. Scholars have suggested that the social value creation of NPOs could depend on the governance activity (Bradshaw, Hayday, & Armstrong, 2007), and a comprehensive review of the literature on nonprofit governance argued for more research on the active role of nonprofit boards of directors in the creation of value (Ostrower & Stone, 2006). Accordingly, this chapter isolates two important governance attributes of foundations – leadership in the community and strategic managerial advice – in order to study their effects on economic and social performance, as measured by resources invested and strategic giving. The chapter addresses these gaps by answering the following research question: RQ: How can governing bodies improve value creation in grant-giving foundations?

The chapter addresses this research question empirically by performing a quantitative analysis on a sample of 53 Italian banking foundations. The result of the analysis shows that selected boards’ attributes facilitate the adoption of value-creation actions. Therefore, the chapter argues for an emerging role of the Italian bank foundations as professional players (i.e., merchant banks) for the further development of the national nonprofit sector. This rising role is associated with an increased role in leadership in the community and improved managerial skills in the foundation’s governance, both of which are proposed as distinctive drivers of enhanced economic and social performance.

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BANKING FOUNDATIONS IN ITALY Italian grant-giving bank foundations are intermediaries between the individual donors and the social enterprise they support. Currently, banking foundations are mainly involved in the areas of arts and culture, assistance to the underprivileged, education, support to voluntary organizations, healthcare, and scientific research. They typically operate in their own communities and rarely carry out activities outside their local territory or at the international level. They have no shareholders, and regional and local authorities typically appoint the members of their boards of governors, their most important body, which next appoints the boards of directors. The Italian Ministry of Economy and Finance (MEF), as supervision authority, prescribes investment guidelines and special tax status. Italian bank foundations originated formally during the privatization of the Italian banking industry, which began in 1990 with Law 218 of 30 July 1990 (the ‘‘Amato’’ law). The Amato law required the state-owned banks to transfer their banking operations to newly formed joint stock companies and to turn themselves into foundations to pursue the public interest, economic development, and socially oriented activities. Since 1998, these foundations have been recognized as subjects expressive of social freedoms, according to their status as private organizations (Law 461 of 31 December, 1998; Constitutional Courts’ ruling 330/2003). Today, banking foundations can be grant making if they fund other organizations that operate in the statutorily fixed fields of social activity, or operating if they directly or indirectly deliver services in the statutorily fixed fields of social activity. Grant-making activities absorb the greater part of financial resources in the banking foundations sector (ACRI, 2007), and the 88 existing banking foundations account for more than 80% of all the foundations’ financial assets, an impressive concentration considering that more than 2300 other grant-making foundations account for the remaining 20%). Because of their banking background, Italian banking foundations are the most business-oriented organization in the NPOs’ multifaceted world, so they are well suited to handle the emerging challenges the third-sector faces around the Western societies. The most prominent among these challenges is a massive increase in the required private welfare services. The diversification of population social needs, increased demands for transparency and accountability, a shift from philanthropy to sponsorship, and a shift from operating funds to project-based funding (Bugg & Dallhoff, 2006). To cope with these unavoidable changes in the environment, Italian banking foundations are currently internally debating their new organizational

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paradigms (ACRI, 2007). At the same time, many private and institutional players would like to assign them the emerging role of ‘‘social merchant banks’’ in order to push their funding activities farther toward innovative and advanced research and development, that is, sponsorship of academic spin-off and corporate research; leadership in complex projects participated in by many organizations, such as local master plans for the relaunch of specific territories; responsibility for planning autonomous projects that could be replicable by other foundations for the private welfare (e.g., health assistance, private education, retirement housing, and unemployment services), and other economic development activities, such as entrepreneurship competitions. However, these challenges and proposals imply that the foundations must be oriented toward social value creation and managed by professional governing bodies (boards of directors). The next section highlights how the literature examines foundations’ value creation and governance.

THEORETICAL BACKGROUND Banking Foundations’ Value Creation: The Provision of Economic and Social Value Grant-giving foundations share a commitment to creating value, with respect to a community and its needs. They create value when they generate benefits that go beyond the amount of their grant, improve the performance of social enterprises, create new knowledge, or influence the public and private welfare. Foundations’ ability to create tangible and measurable value is commonly related to two major elements: the amount of resources they invest in social projects and the level of strategic giving they develop in cooperation with grantees, local stakeholders, and funded NPOs (Porter & Kramer, 1999). As far as the resources are concerned, foundations are always identified with a separate, identifiable asset (the root meaning of fund, fonds) that they donate (the root of stift) to a particular purpose that is usually public in nature (implying the root of philanthropy) (Anheier, 2001). Therefore, their first goal is to invest their funds in ways that obtain positive returns that can be invested in philanthropic projects that are in line with the foundations’ aims. The classical performance ratio that is always attached to grant-giving foundations is the share of resources invested in philanthropic activities divided by the foundation’s total revenues, the argument being that the

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largest is the share of resources invested in the projects, the greater the value transferred from foundations to NPOs’ services first (output) and to the social community’s welfare next (outcome). Significant external forces are pushing foundation leaders toward increasing their emphasis on economic and social performance. Critics point to the lost tax revenue from contributions to foundations and their operations and ask whether society is receiving benefits commensurate to their investment. Some suggest that foundations are inappropriately protecting their endowments by spending at or only slightly above a minimum payout level (CEP, 2002). Another critical issue is the growing cost of the foundations’ operations (overhead) compared with the resources they make available for the social services. As such, the need for efficiently managed foundations able to invest a great part of their annual revenues in effective social projects is clear and increasing. The effectiveness of the funded projects is currently associated with the second element of value creation, the level of strategic giving implemented by foundations. In Porter and Kramer’s (1999) model, grant-giving foundations are ‘‘intermediaries between the individual donors and the social enterprise that they support’’ (Porter & Kramer, 1999, p. 121). Porter and Kramer identify four actions by means of which grant-giving foundations can create greater value:  Selecting the best grantees: Most of the foundations work through others (mainly NPOs and public entities) by giving grants. Relevant issues are related to the criteria by which to select grantees and the ability to improve the quality of the process and the value for end users of the services;  Signaling other funders: Because foundations share information, the results of each foundation’s grants affect others’ selection processes, enriching the overall quality of the selection process.  Improving the performance of grant recipients: Aware of the structural weakness of many NPOs, foundations must become more engaged in building their beneficiaries’ project capabilities in order to improve their performance;  Advancing the state of knowledge and practice: Foundations are expected to create a systematic progression of research to produce effective ways to solve or deal with social problems. In this way, the efficiency and effectiveness of ‘‘old’’ solutions can be strengthened. All four actions can create value, but there is a clear hierarchy of ascending impact. Each successive approach leverages a foundation’s special assets – resources, expertise, independence, and time horizon – more than

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the preceding one does as the focus of activity shifts from the individual recipient to the overall social sector. This research shares the view that both allocation of resources and strategic giving are important elements of value creation and that they should be the object of accurate planning by foundations’ governing boards. More specifically, the aim of this chapter is to test empirically whether foundations’ governance has a positive influence on the elements of value creation. In order to proceed in this direction, the following sections isolate the governance elements that we believe can contribute to value creation, as measured by enhanced performance (more resources invested in the social projects) and increased strategic giving because of proactive relationships with funded NPOs.

The Board of Directors and Value Creation in Banking Foundations Governance issues relate to how internal and external polices, laws, institutions, and customs affect the way an organization is directed, administered, and controlled. Although corporate governance has been a part of businessorient research for several decades, governance in the nonprofit sector has not been investigated as deeply as that in the for-profit sector (Murray, Bradshaw, & Wolpin, 1992). NPOs pose problems of governance that are even more complex than those in the for-profit sector since NPOs’ internal bodies are typically required to answer to their supporters, members, beneficiaries, employees, cooperating organizations, and government agencies (Futter, 2002). Considerable emphasis on business-oriented research has been put on studying governing bodies (Hinna, De Nito, & Mangia, 2010), presenting such theories as agency theory (Eisenhardt, 1989; Fama, 1980; Jensen & Meckling, 1976); stewardship theory (Donaldson & Davis, 1991; Muth & Donaldson, 1998); resource-dependence theory (Pfeffer & Salancik, 1978; Zahra & Pearce, 1989); managerial hegemony theory (Lorsch & Maciver, 1989); stakeholder theory (Donaldson & Preston, 1995; Freeman, 1984); and institutional theory (Meyer & Rowan, 1977) and correlated them to board roles like those of control, strategy, linking, support, coordination, and maintenance (Hung, 1998). Cornforth (2003) also connected these theories to specific NPOs’ board roles and identified how each theory contributes differently to an effective activity in nonprofit governance. Table 1 synthesizes the mentioned approaches.

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Table 1. NPO’s Board Roles in Mainstream Theories. Theory Agency theory Stewardship theory

Resource-dependency theory Democratic perspective Stakeholder theory

Board Role

Model

To oversee management To provide support to managers in order to improve the performance of the organization To secure resources, to maintain stakeholder relations, to support to the organization in the pursuit of its goals To choose the appropriate policy to balance the interests of various constituents To negotiate and resolve the potentially conflict of interest between different stakeholders

Compliance model Partnership model

Co-option model

Democratic model Stakeholder model

Source: Adapted from Cornforth, 2003, p. 13.

However, unlike the corporate governance debate (Huse, 2009), NPO boards’ value creation is a pioneering field of research. Some authors have suggested that the innovativeness and effectiveness of NPOs could depend on their governance model (Bradshaw et al., 2007) and on the boards’ characteristics in terms of structure, composition, and performance (Becker, 1964; Brown & Iverson, 2004; Herman & Renz, 2000; Miller-Millesen, 2003). This argument is not fully developed in the existing literature on the nonprofit sector, possibly because of the widely differing aims pursued by organizations in the private and public/nonprofit sectors and the resulting complexity of measures related to the organizations’ value creation. In the public and nonprofit sectors, a more clearly articulated concept of ‘‘value’’ must be considered (Moore & Hartley, 2008; Moore, 1995), which introduces a problem of ambiguity concerning ends, means, and measures. A second reason for the gap in study of the relationship between the governance model and value creation in NPOs (banking foundation included) can be found in the peculiarity of the topic because of the challenging hypotheses and frameworks usually adopted in the corporate governance research field. The major difference between corporate and nonprofit governance is the ‘‘absence’’ of the owners; while the stakeholders of a company can be structured in a hierarchical way, starting with the owners of the financial capital, a similar structure cannot be pursued by nonprofits (Speckbacher, 2008). The donors and beneficiaries of foundations are not usually identical, but both can be understood as principals. The former may expect an efficient use of their donations (Fama & Jensen, 1983), .

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while the latter is more concerned with the availability of service. The co-existence of donors, volunteers, beneficiaries, and paid staff leads to structural conflicts that are driven by interests, power, and prestige (Futter, 2002). Accordingly, only a talented governing leadership can mediate among these numerous legitimate interests by participating in the planning of the funding activities and by measuring the expected and actual performances. The division of ownership and control is one of the major reasons for governance in corporations and the primary assumption of the agency theory (Berle & Means, 1932). It is unclear whether a total division of ownership from control is possible, but it is clear that clarification of competencies and accountabilities among different actors is an important requisite for an efficient governance structure. Therefore, effective nonprofit governance relies on the board’s information, cooperation, and participation in the development of strategies (Bradshaw et al., 2007). In a grant-making foundation, the participation of the board in the development of strategies requires punctual supervision of the screening process in which the foundation isolates among all the NPOs applying for funding only those that have the best chance to optimize the social outcome of the funds invested. Therefore, the value creation of nonprofit governance is related to selected value-chain activities and goes beyond measures of corporate financial performance to include a larger set of parameters, such as innovation and development of resources, value for employees, and value for the society. In optimizing the governance control over the value-chain activities, the most common argument in the literature goes, it is necessary to recognize that specific board members’ characteristics have positive or negative effects on their individual ability to perform directly (in terms of monitoring, strategic direction, and provision of relevant resources) and indirectly on the board’s outcomes (e.g., innovation and performance). All of the governance theories (e.g., agency theory, stewardship theory, and resource dependence theory) share this underlying argument, although the characteristics of boards (e.g., size, diversity, and skills) have also been investigated, and different kinds of effects have been hypothesized for each of them. The governance attributes isolated by this research as key elements in the foundations’ governance – leadership in the community and managerial advice – are studied here in terms of the specific characteristics of the board members in the foundations’ governing bodies. The next section presents our hypothesis on the relationship between board members’ characteristics and the foundations’ value creation.

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HYPOTHESES Foundations pose complex problems of governance since their internal bodies are typically required to answer to their supporters, members, beneficiaries, employees, cooperating organizations, and government agencies (Futter, 2002). More specifically, the nonprofit sector literature looks at the board’s role mainly as that of a trustee on behalf of its communities, and the board needs to ensure that it is responsive to these stakeholders through the articulation of a clear vision and a shared set of values. Concerning the Italian banking foundation, the board’s role has been addressed by the institutive law and later implemented by each foundation’s statute. As a result, all the classical governance functions (management monitoring, strategic planning, and provision of key resources) are formally incorporated in the board roles of banking foundations. This is an important starting point from which to set up some specific hypotheses on the relationship between board resources (e.g., knowledge, skills, experience, relationships, routines, and procedures) and the foundation’s value creation. More specifically, the Italian banking foundation sector is particularly appropriate for an analysis of the board’s impact on organization performance since the two elements of value creation – economic value and social value – are strictly related to the board’s decisions and task expectations. The next section describes how the main theories deal with the role of the board in banking foundations, particularly with the key attributes identified as fundamental for exercising its role effectively. The theoretical analysis explains how the different theories associate some characteristics of the board members with the effectiveness of the board in terms of improved organizational performance or actions.

Board Members’ Profiles in Banking Foundations In the specific context of banking foundations, boards are appointed to ever-increasing levels of community and managerial involvement. They apply their influence not only at the end of the decisional process but also during the formulation of proposals concerning the share of resources invested in by the foundation’s total revenues and gains and the adoption of actions to increase social value according to the Porter/Kramer model. Strategic control by boards can be problematic because board members normally lack nonprofit expertise and have less access to useful information

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(McNulty & Pettigrew, 1999) than the foundation’s management does. For that reason, as agency theory and the debate on corporate governance have shown, board composition and its system of information gathering are likely to affect the ability of the board to lead the strategic process and screen for the most appropriate grantees and recipients. Therefore, board members should be selected based on their skills and contacts because skilled directors can improve the connection with critical external factors, reduce uncertainty, and minimize external dependencies. Each director brings to the organization unique attributes. Hillman, Cannella, and Paetzold (2000) suggest that differences among directors are most visible in terms of their individual experience or occupational attributes. These differences reflect the heterogeneity of resources in terms of expertise, skill, access to information, and links to external constituencies. Hillman et al. (2000) developed a taxonomy of four director profiles based on human capital experience, but the current chapter, taking account the peculiarities of grant-giving foundations, employs only two of the categories: ‘‘business experts’’ and ‘‘community influentials.’’ Business experts are directors who are active or retired executives in other organizations and directors who serve on other large corporate boards. These directors bring expertise and knowledge to the organization derived from their experience in other organizations. Therefore, they may serve as sounding boards for executives, providing advice on internal operations and strategy formulation. Community influentials are retired politicians, university or other institutional representatives, officers of social organizations, and other relevant stakeholders. The resources supplied by community influentials stem from knowledge, experience, and connections to community groups and organizations like social interest groups, social interest movements, and other community constituencies that may affect or be affected by the organization’s operations and strategic choices. The two profiles target different key functions of the organization governed and controlled by the board members. In the specific context of banking foundations, those key functions are ‘‘leadership in the community’’ and ‘‘strategic managerial advice’’ in governing the grants’ allocation process. In matching the grant-allocation process with the theoretical taxonomy of the board profiles, the next section of this chapter associates the presence of community influentials on the boards of the Italian bank foundations with the establishment of positive stakeholder networks and increased leadership in the community. The presence of business experts is associated with improved strategic managerial advice when the board is

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Fig. 1.

Board Roles and Board Members’ Attributes.

involved in analyzing the profile of potential recipients and achieving the maximum social outcome from the grants distributed. The analysis of the board members’ profile is an appropriate catalyst for the investigation of Italian banking foundations’ capacity to create value. Fig. 1 systemizes the mentioned relationships.

Board Profiles and Value Creation in Banking Foundations Clearly, boards can affect the economic and social value creation of banking foundations, but additional explanation is required concerning how the two board profiles are related to our construct of economic and social value provision (SVP). The first point concerns the foundations’ need to return to society a benefit commensurate with the tax privileges they receive. NPOs are multistakeholder structures that must manage and gain legitimacy through public consensus (Cornforth & Edwards, 1999). Stakeholders have significant differences in terms of their expectations, but the divergence and convergence of stakeholders’ expectations may provide an organization’s management with critical leverage in using boards to manage stakeholders. This leads to a political model (Cornforth & Edwards, 1999) of the role of the board as a means of representing the interests of the stakeholders the

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organizations serve, resolving or choosing among the interests of different groups of stakeholders, setting the overall strategy of the organization to be implemented by administrators, holding staff to account for such implementation, and being publicly accountable for the organization as a whole. From this perspective, the presence of community influentials among the director profiles could be a central requirement of board composition. Therefore, we test empirically two hypotheses: H1. There is a positive relationship between the presence of community influentials among board members and the banking foundations’ value creation, as measured by economic provisions. H2. There is a positive relationship between the presence of community influentials among board members and the banking foundations’ value creation, as measured by social provisions. A second point concerns the active participation of foundations’ board members in the grants’ allocation process. Board members are also requested to assume internal strategic tasks and to exert a continuous process of formal and informal influence, and the board may act as a protective buffer for the management against unjustifiable external interference. It can also, separately or at the same time, serve as a communication bridge between the management and stakeholder expectations. The buffering and bridging capacity of a board can be important in safeguarding and promoting the foundation’s autonomous existence and operation, thinking proactively rather than reactively with a long-term vision for the future of the organization, and working closely with the managers in order to make informed decisions in the right allocation of resources and grants. In this framework, the presence of both types of directors may be a central requirement of board composition. Therefore, we test empirically two additional hypotheses. H3. There is a positive relationship between the presence of business experts among board members and the banking foundations’ value creation, as measured by economic provisions. H4. There is a positive relationship between the presence of community influentials among board members and the banking foundations’ value creation, as measured by social provisions.

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METHODS Sample Our study sample consists of fifty-three Italian banking foundations. For at least three reasons, the banking foundations ‘‘industry’’ is a suitable field in which to carry out our empirical investigation about value creation and boards: First, the industry is relevant in Europe in terms of resources mobilized. Four Italian banking foundations (Compagnia di San Paolo, Fondazione Cariplo, Fondazione Monte dei Paschi di Siena, and Fondazione Cassa di Risparmio di Torino) are among Europe’s fifteen top spending foundations. Second, drawing the sample from a relative homogeneous industry and from a single country (Italy) reduces biases associated with differences in the regulatory, economic, and social environments. Third, information on social and economic provision and boards was readily available. Information has been collected mainly from mandatory annual reports that address financial information, as well as other information about the foundation’s mission, strategies, policies, and any relevant action undertaken by the foundation during the year. Based on the most recent statistics published by the Association of Italian Banking Foundations (ACRI, 2009), our specific target population of banking foundations consists of about 88 units in Italy. All of the data we needed for our analysis was available for fifty-three organizations. Table 2 shows that the sample represents the investigated population well.

Variables Dependent variables. We specified two dependent variables to measure respectively the banking foundations’ provision of social value and economic value (i.e., the two components of value creation). – SVP: Measurement of the SVP is based on the Porter and Kramer model, which specifies four actions by which foundations can create social value. In terms of ascending impact, they are selecting the best grantees, signaling other funders, improving the performance of grant recipients, and advancing the state of knowledge and practice. In order to test the ability of our approach to capture the SVP of the banking foundations, we interviewed six experts of the sector: two researchers active in the field, two board members, and two managers from two different banking

3 3 4 2

12 23%

4 5 7 2

18 20%

17 19%

1 5 6 5

N

7 13%

1 3 3 0

N

N ¼ Population of Italian Banking Foundations. N ¼ Sample. Source: Adapted from data provided by ACRI.

Total %

Northwest Northeast Central Italy Southern Italy

n

N

MediumSmall Foundations

18 20%

3 6 8 1

N

8 15%

2 3 3 0

n

Medium-Sized Foundations

17 19%

4 7 4 2

N

10 19%

2 2 5 1

n

MediumLarge Foundations

18 20%

5 7 5 1

N

16 30%

5 6 4 1

n

Large Foundations

88 100%

17 30 30 11

N

13 17 19 4

n

53 100%

Total

100%

19% 34% 34% 13%

N

Distribution of the Italian Banking Foundations by Size and Geographical Area.

Small Foundations

Table 2.

%

100%

24% 32% 36% 8%

n

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foundations. The six experts confirmed our approach and provided some specific criteria in order to collect information. Therefore, we measured the SVP through a summative variable consisting of each foundation’s adoption of these four actions. Higher scores indicate higher impact on the grant recipients and on the overall social sector. – Economic value provision (EVP): Measurement of the economic value is intended to specify which part of a banking foundation’s revenues and gains is invested in the social activities encapsulated in its organizational mission. According to the industry-specific studies carried out by ACRI, banking foundations can increase or reduce the economic value provided to the community by reducing or increasing their operating costs, respectively. Therefore, a good measure of the EVP is the ratio of operating costs to total revenues and gains or the ratio of the surplus to total revenues and gains. Therefore, we measure the EVP as year’s surplus divided by total revenues and gains using the average value for the three most recent fiscal years for which data are available (2005–2007). Independent variables. Considering the research aims and the state of the art of the literature, two independent variables were identified: business experts (BUSINESS_EXP) and community influentials (COMMUNITY_ INFL). – Business experts (BUSINESS_EXP). Following the guidelines provided by Hillman et al. (2000), we indentified director characteristics based primarily on occupation. Business experts are directors who are or have been both directors and executives in other organizations. We calculated the average percentage of business experts, divided by the total number of board members, for 2005–2007 fiscal years. – Community influentials (COMMUNITY_INFL). The support specialists group consists of retired politicians, university or other institutional representatives, officers of social organizations, and other relevant stakeholders. We calculated the average percentage of community influentials among the total number of board members for the 2005– 2007 fiscal years. Control variables. The control variables were identified based on the existing literature on innovation and boards (Callen, Klein, & Tinkelman, 2003; Goodstein, Gautam, & Boeker, 1994; Kramer, 1985). We also considered literature on nonprofit management and governance (Guo & Brown,

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2006; Tinkelman, 1996) and sectoral studies carried out by the ACRI (ACRI, 2009). Control variables were operationalized as follows: – Board size (BSIZE). We determined the average number of directors listed as active members on the board of directors (Pfeffer, 1983; Yermack, 1996) for the 2005–2007 fiscal years). – Board gender diversity (BDIVERSITY). We developed a measure of board diversity that reflects the average percentage of women among the total number of board members (Brown, & Anastasopoulos, 2002) for the 2005–2007 fiscal years. – Organization size (ORGSIZE). As a measure of the organization size, we employ the natural log of a given foundation’s average asset size (Guo & Brown, 2006) for the 2005–2007 fiscal years. – Return on the foundations’ net assets (ROFNA). In the business sector literature on boards, financial profitability is typically measured using accounting/financial variables like return on assets, return on equity, variations on Tobin’s Q ratio, net earnings, and growth in sales (Hutchinson & Gul, 2004). However, banking foundations invest their assets with the goal of generating a profit that can be used to finance the grants. Therefore, although the foundation’s net assets don’t give an appropriate measure of the overall performance, they could measure the ability of a banking foundation to get the financial resources it needs to fulfill its mission. This measure is usually employed in sectoral statistics carried out by ACRI. Therefore, we use the return on the foundations’ net assets (ROFNA), measured as the ratio of ordinary revenues and gains, net of withholding taxes, to the book value of net assets using the average value for the 2005–2007 fiscal years. – Geographic location (GEOLOC). We refer to the geographic location of the banking foundations, distinguishing three territorial areas: northern Italy, central Italy, and southern Italy. In Italy, these territorial areas are highly differentiated and heterogeneous in terms of socio-economic development, the demographic makeup and occupational status of the population, traditions, and dominant cultures, and the historical evolution of management systems and mechanisms. Therefore, we controlled for geographical location by including a dummy variable with the value of 1 if the banking foundation is located in northern Italy (the most developed area in the country) and 0 otherwise. Table 3 synthesizes the main characteristics of the variables used in the analysis.

Board size BSIZE Board gender diversity BDIVERSITY Organization size ORGSIZE Return on the foundations’ net assets ROFNA Geographic location GEOLOC

Control

Continuous Continuous Continuous Continuous Continuous

BUSINESS_EXP Continuous COMMUNITY_INFL Continuous

Business expert Community influentials

Independent

Continuous Continuous

SVP EVP

Type of Variable

Social value provision Economic value provision

Label

2005–2007 2005–2007 2005–2007 2005–2007 2005–2007

2005–2007 2005–2007

2005–2007 2005–2007

Year

Source

Annual Annual Annual Annual Annual

reports reports reports reports reports

Original database developed Original database developed

Original database developed Annual reports

Main Characteristics of the Variables Used in the Analysis.

Dependent

Variables

Table 3.

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Data Collection and Analysis Data were obtained from two sources: annual reports for the 2005–2007 fiscal years and a new database developed by our research team. Banking foundations’ annual reports, which are mandatory, encompass financial information as well as information about the foundation’s mission, strategies, policies, board members, and any relevant action undertaken by the foundation during the year. In all, 159 annual reports were analyzed (three for each foundation in the sample – one for each of the three years under consideration). Through these annual reports, we obtained important data on the foundations’ EVPs (dependent variable) and on all control variables. The second source of data, a new database developed by our research team, contains information about the SVP (dependent variable) and all the data needed to classify directors into the categories of business experts and community influentials. Data were collected through a three-stage process. First, we did in-depth research into annual reports (especially to gather information about the actions indicated in Porter and Kramer’s model), general and specific search engines, electronic databases, the national and local press, economic magazines, and so on, thereby collecting a rich set of records about the activities undertaken by our sample of fifty-three banking foundations and the profiles of more than five hundred directors. These data refer to the 2005–2007 fiscal years. In the second phase, we classified the actions undertaken by foundations according to the Porter and Kramer model and placed each director into one of the two profile categories (business expert or community influential). One of the authors and a second researcher not involved in the study made all of these classifications. If there was a difference in coding, it was resolved by a subsequent discussion. Classification was straightforward, and followed the guidelines provided by Hillman et al. (2000). In the third phase, a survey questionnaire was developed. Two copies of the questionnaire were mailed to each foundation, one to the CEO and one to the chairperson of the board of directors. Out of the 88 banking foundations contacted, we received responses from seventeen banks, of which fifteen responses were complete and usable (a response rate of 17%). The questionnaire asked the CEO and the board chairperson to specify whether the identified actions had been undertaken by the foundation and to classify each of the board members of their foundation into one of the two categories. We registered a high level of agreement in the classifications by the CEO and the board chairperson (an average of 80% for actions indicated in the Porter and Kramer model and 90% for board members’

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profiles). We also found a similar agreement with our own classification (an average of 73% for actions indicated in the Porter and Kramer model and 85% for board members’ profiles). To test our hypotheses we used both bivariate and multivariate statistical methods. A bivariate statistical analysis was performed using parametric techniques (Pearson’s r). Then a multivariate analysis was carried out by means of the ordinary least squares (OLS) regression technique.

RESULTS Descriptive statistics appear in Table 4. The bivariate correlation analysis (Table 5) points to a statistically significant (po0.001) and relevant positive correlation (Pearson’s r ¼ þ 0.778) between the SVP and the percentage of business experts in the board. The percentage of business experts in the board is also significantly correlated (Pearson’s r ¼ þ 0.302; po0.05) to the EVP. On the other hand, the percentage of community influentials in the board is negatively correlated both to EVP and to SVP, although the relationship is statistically significant only in the case of the SVP (Pearson’s r ¼ 413; po0.01). Moreover, the analysis highlights that the organization size (log assets) is significantly correlated to almost all other variables.

Table 4. N

SVP EVP BUSINESS_EXP COMMUNITY_INFL BSIZE BDIVERSITY ORGSIZE ROFNA GEOLOC Valid N (listwise)

Descriptive Statistics.

Minimum Maximum

Mean

Standard Deviation

Statistic

Statistic

Statistic

Statistic

Standard Error

Statistic

53 53 53 53 53 53 53 53 53 53

1.00 .50 .00 .20 3.00 .00 6.66 .04 .00

4.00 .97 .50 1.00 11.00 .33 9.86 .15 1.00

2.43 .84 .11 .66 6.89 .06 8.36 .06 .56

.09 .01 .02 .02 .26 .01 .09 .00 .06

.72 .08 .14 .21 1.90 .08 .68 .02 .50

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Table 5. 1

Correlations (Pearson’s r). 2

3

4

5

6

7

8

SVP EVP .316 BUSINESS_EXP .778 .302 COMMUNITY_INFL .413 .220 .485 BSIZE .144 .431 .219 .045 BDIVERSITY .147 .062 .032 .114 .119 ORGSIZE .566 .439 .624 .300 .321 .061 ROFNA .017 .387 .062 .123 .230 .211 .145 GEOLOC .106 .216 .041 .180 .092 .027 .186 .458 Correlation is significant at the 0.001 level (2-tailed). Correlation is significant at the 0.01 level (2-tailed). Correlation is significant at the 0.05 level (2-tailed).

The two dependent variables measuring value creation (i.e., EVP and SVP) are significantly correlated (Pearson’s r ¼ þ 0.316; po0.05). Therefore, the bivariate correlation analysis offers a result that is compatible with two of the four hypotheses (H3 and H4). No support was found for the other two hypotheses (H1 and H2). The relationship between SVP and the percentage of community influentials on the board is statistically significant, but the relationship goes in the opposite direction to that hypothesized. A multivariate analysis was carried out by mean of the ordinary least squares (OLS) regression technique in order to understand the effects of selected board characteristics (independent variables) on the provision of social and economic value (dependent variables) while keeping the action of the other variables under control. In order to test our hypotheses we specified two models (Models 1 and 2). The models are identical in terms of independent variables (business experts and community influentials on the board) and control variables (board size, board diversity, organizational size, return on investment, and geographic context). The models differ only for the dependent variable: the SVP in Model 1 and the EVP in Model 2. Table 6 presents the results of the ordinary least squares (OLS) regression analysis. Both models are statistically significant, although Model 1 has more explanatory power, but the results support only Hypothesis 4, which posits a positive relationship between the presence of business experts among board

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Table 6. Multiple Regression Results (Standardized Coefficients) of Models 1 and 2. Model 1 (SVP)

Model 2 (EVP)

Variables BUSINESS_EXP COMMUNITY_INFL BSIZE BDIVERSITY ORGSIZE ROFNA GEOLOC

B .689 .077 .081 .155 .109 .090 .033

b .017 .220 .278 .109 .212 .326 .038

Adjusted R2 Model F-statistic (p-value)

0.591 11.743

0.315 4.418

Correlation is significant at the 0.001 level (2-tailed). Correlation is significant at the 0.01 level (2-tailed). Correlation is significant at the 0.05 level (2-tailed).

members and the banking foundations’ value creation, as measured by social provisions. We found no empirical support for the other hypotheses (H1, H2, and H3).

DISCUSSION AND CONCLUSION Compared with the wider debate on corporate governance, the literature concerning the micro-level governance of NPOs is traditionally prescriptive in nature and is not empirically grounded (Cornforth, 1995, 2003). The few extant empirical studies in the nonprofit governance research follow a case study methodological approach (Cornforth & Edwards, 1999) and usually refer to organizations that are directly engaged in the provision of social services (e.g., voluntary organizations). Therefore, the governance of charitable foundations is a neglected area of empirical research, even though they have a relevant role in funding the nonprofit sector and leading social progress (Porter & Kramer, 1999). Moving from this backdrop, this chapter aimed to provide some new insights for the debate on foundation governance and value creation. The chapter quantitatively investigates whether and how board members’ profiles positively affect the economic and SVP in Italian grant-giving banking foundations. Two main relationships were empirically tested: the relationship

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between the presence of community influentials on the board and the foundations’ value creation, and the relationship between the presence of business experts on the board and the foundations’ value creation. The results are mixed. While a higher percentage of business experts leads to a higher level of social provision (as defined by Porter & Kramer, 1999), no relationship was found for the influence of community leadership on strategic social giving. Furthermore, neither community leaders nor business experts on the board were found to be related to a higher level of economic provision, as measured by the percentage of the revenues and gains of a banking foundation that is invested in social activities. For most of the relevant Italian grant-giving foundations, the study shows that the presence of community influential members does not drive the adoption of decisions and actions that foster economic and social value creation. This result could be related to a ‘‘stakeholder governance model.’’ Especially because of banking foundations’ particular origins (privatization of state-owned banks) and their use of public resources, the national law allows regional and local authorities to appoint their members to the foundations’ boards of governors in order to make banking foundations more accountable to the community of stakeholders. In line with this stakeholder governance model, the boards are expected to negotiate and resolve the potential conflicts of interest among the stakeholders on the board itself (Cornforth, 2003, pp. 7–11). Accordingly, in such a political model, members are not selected to ensure the provision of social or economic value. The focus of the chapter is to determine how boards can affect value creation. Our results show that there is a significant and positive relationship between the presence of business experts among board members and the banking foundations’ creation of social value. This finding is consistent with the ‘‘partnership governance model,’’ which is based on stewardship theory (Donaldson & Davis, 1991; Muth & Donaldson, 1998). In this model, the primary task of the board is to provide support to managers in order to improve the organization’s performance. Given the specific operative activities carried out by grant-giving foundations, we assumed that this managerial support was related to the business experts’ enhanced ability to screen among projects and grantees in order to achieve the maximum social outcome from the money invested. Additional research could build on this first positive evidence in order to detail the value-creation tasks that should be carried out by the business experts on the foundations’ boards. Board members who are selected for their specific business knowledge and expertise are more likely to work with managers, to improve strategies, and

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to add value to decisions and managerial practices. As our empirical result confirms, the actions by which the grant-making foundations maximize their social value serve to leverage the organization’s special assets or resources. Among these, board member knowledge has particular relevance. Our results reveal tension between boards with stakeholder representatives and professional boards in the debate concerning the composition of governance boards in banking foundations and the future role of ‘‘social merchant banks.’’ While the board of directors is expected to assume a proactive role in foundations’ future strategies, the board members could be either stakeholder representativeness appointed to negotiate and solve potential conflicts of interest or knowledge providers selected to support the foundation’s management and to generate benefits that go beyond the amount of their grant, improving the performance of social enterprises, creating new knowledge, and influencing public and private sector institution and performances (Porter & Kramer, 1999). This tension leads to a governance paradox that has already been highlighted in the nonprofit governance debate (Cornforth, 2003) and that seems particularly relevant in the specific context of banking foundations. Italian banking foundations that are rich in community influentials appointed by local authorities risk being less free from political pressure and less independent from the institutional context in which they operate than are other private charitable foundations. Therefore, boards in banking foundations, more than in those in classical charitable foundations, face the tension between the veto posed by competing stakeholder interests and the need to foster strategic actions required for higher value creation. This tension can be managed best by boards that find the right balance among members’ profiles. On a balanced board, the community influentials are called, along with the other board members, to play an active and strategic role in establishing the social networks with which the money distributed and invested by the foundations can generate the highest social outcome. From this point of view, the results in this chapter call for future contingency studies on board effectiveness in NPO, focusing on boards’ roles, profiles, tasks, and power and controlling for the organization’s contextual environment.

REFERENCES ACRI. (2007). XII Rapporto sulle Fondazioni di origine bancaria. Rome: ACRI ed. ACRI. (2009). XIV Rapporto sulle Fondazioni di origine bancaria. Rome: ACRI ed.

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Anheier, H. K. (2001). Foundations in Europe: A comparative perspective. Civil society – Working Paper No. 18. Centre for Civil Society, LSE, London. Becker, G. (1964). Human capital. New York, NY: Columbia University Press. Berle, A., & Means, G. (1932). The modern corporation and private property. New York, NY: Macmillan. Bradshaw, P., Hayday, B., & Armstrong, R. (2007). Non-profit governance models: Problems and prospects. The Innovation Journal: The Public Sector Innovation Journal, 12(3), article 5. Brown, D., & Anastasopoulos, V. (2002). Women on boards: Not just the right thing y but the ‘bright’ thing. Report, 341-02: The Conference Board of Canada, Ottawa. Brown, W. A., & Iverson, J. O. (2004). Exploring strategy and board structure in nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 33, 377–400. Bugg, G., & Dallhoff, S. (2006). National study of board governance practices in the non-profit and voluntary sector in Canada (Vol. xix, 106pp.). Toronto, Ontario: Strategic Leverage Partners. Callen, J. L., Klein, A., & Tinkelman, D. (2003). Board composition, committees, and organizational efficiency: The case of nonprofits. Nonprofit and Voluntary Sector Quarterly, 32, 493–520. CEP. (2002). Indicators of effectivness. Boston, MA: Centre for Effective Philanthropy. Cornforth, C. (1995). Governing non-profit organizations. Heroic myths and human tales’. Researching the UK voluntary sector. Conference Proceedings, London: National Council of Voluntary Organizations. Cornforth, C. (2003). The governance of public and non-profit organizations. What do boards do? London: Routledge. Cornforth, C., & Edwards, C. (1999). Board roles in the strategic management of public service of non-profit organizations: Theory and practice. Corporate Governance: An International Review, 7(4), 346–362. Donaldson, T., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49–64. Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of corporation: Concepts, evidence, and implications. Academy of Management Review, 20(1), 65–91. Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74. Fama, E. (1980). Agency problem and the theory of the firm. Journal of Political Economy, 88(2), 288–307. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 301–325. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston, MA: Pitman. Futter, V. (Ed.). (2002). Nonprofit governance and management. Chicago, IL: American Bar Association. Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic Management Journal, 15(3), 241–250. Guo, C., & Brown, W. A. (2006). Community foundation performance: Bridging community resources and needs. Nonprofit and Voluntary Sector Quarterly, 35, 267–282. Herman, R. D., & Renz, D. O. (2000). Board practices of especially effective and less effective local nonprofit organizations. American Review of Public Administration, 30(2), 146–160.

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Hillman, A., Cannella, A., & Paetzold, R. (2000). The resource dependence role of corporate directors: Strategic adaptation of board composition in response to environmental change. Journal of Management Studies, 37, 235–256. Hinna, A., De Nito, E., & Mangia, G. (2010). Board of directors within public organisations: A literature review. International Journal of Business Governance and Ethics, 5(3), 131–156. Hung, H. (1998). A typology of the theories of the roles of governing boards. Corporate Governance: An International Review, 6(2), 101–111. Huse, M. (2009). The value creating board. Corporate governance and organizational behaviour. London: Routledge. Hutchinson, M., & Gul, F. A. (2004). Investment opportunityset, corporate governance practices and firm performance. Journal of Corporate Finance, 10, 595–614. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360. Kramer, R. M. (1985). Toward a contingency model of board-executive relations in nonprofit organizations. Administration in Social Work, 9, 15–33. Lorsch, J. W., & Maciver, E. (1989). Pawns or potentates: The reality of Americas corporate Boards. Boston, MA: Harvard Business School Press. Mcnulty, T., & Pettigrew, A. (1999). Strategists on the board. Organization Studies, 20(1), 47–54. Meyer, J., & Rowan, B. (1977). Institutionalized organization: Formal structures as myth and ceremony. American Journal of Sociology, 83(2), 340–363. Miller-Millesen, J. (2003). Understanding the behavior of nonprofit boards of directors: A theory-based approach. Nonprofit and Voluntary Sector Quarterly, 32, 521–532. Moore, M. (1995). Creating public value. Cambridge, MA: Harvard University Press. Moore, M., & Hartley, J. (2008). Innovations in governance. Public Management Review, 10(1), 3–20. Murray, V., Bradshaw, P., & Wolpin, J. (1992). Power in and around nonprofit boards: A neglected dimension of governance. Nonprofit Management & Leadership, 3(2), 165–182. Muth, M., & Donaldson, L. (1998). Stewardship theory and board structure: A contingency approach. Corporate Governance: An International Review, 6(1), 5–29. Ostrower, F., & Stone, M. M. (2006). Governance: Research trends, gaps and future prospects. In W. Powell & R. Steinberg (Eds.), The nonprofit sector: A research handbook (2nd ed.). New Haven, CT: Yale University Press. Pfeffer, J. (1983). Organizational demography. Research in Organizational Behavior, 5, 299–357. Pfeffer, J., & Salancik, G. (1978). The external control of organizations: A resource-dependence perspective. New York, NY: Harper & Row. Porter, M., & Kramer, M. (1999). Philanthropy’s new agenda: Creating value. Harvard Business Review, 12, 121–130. Speckbacher, G. (2008). Nonprofit versus corporate governance: An economic approach. Nonprofit Management & Leadership, 18(3), 295–320. Tinkelman, D. (1996). An empirical study of the effect of accounting disclosures upon donations to nonprofit organizations. Unpublished doctoral dissertation, New York University. Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185–212. Zahra, S., & Pearce, J. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15, 291–344.

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FURTHER READING Abernathy, W., Clarke, K., & Kantrow, A. (1983). Industrial renaissance. New York, NY: Basic Books. Amabile, T. M. (1988). A model of creativity and innovation in organizations. In L. L. Cummings & B. M. Staw (Eds.), Research in organizational behavior (Vol. 10, pp. 123–167). Greenwich, CT: JAI Press. Bantel, K. A., & Jackson, S. E. (1989). Top management and innovations in banking: Does the composition of the top team make a difference? Strategic Management Journal, 10, 107–124. Bhagat, S., & Black, B. (1999). The uncertain relationship between board composition and firm performance. Business Lawyer, 54, 921–963. Carver, J. (1990). Boards that make a difference. San Francisco, CA: Jossey-Bass. Daily, C. M., & Dalton, D. R. (2003). Women in the boardroom: A business imperative. Journal of Business Strategy, 24(5), 8–10. Damanpour, F. (1992). Organizational size and innovation. Organization Studies, 13, 375–402. Damanpour, F. (1996). Organizational complexity and innovation: Developing and testing multiple contingency models. Management Science, 42, 693–716. Downs, G. W., Jr., & Lawrence, B. M. (1976). Conceptual issues in the study of innovation. Administrative Science Quarterly, 21, 700–714. Fondas, N., & Sassalos, S. (2000). A different voice in the board-room: How the presence of women directors affects board influence over management. Global Focus, 12, 13–22. Fram, E., & Pearce, R. (1992). The high-performance nonprofit: A management guide for boards and executives. Milwaukee: Families International. Golden, B. R., & Zajac, E. J. (2001). When will board influence strategy? Inclination  power¼strategic change. Strategic Management Journal, 22, 1087–1111. Houle, C. (1989). Governing boards: Their nature and nurture. San Francisco, CA: Jossey-Bass. Huse, M. (2007). Boards, governance and value creation. Cambridge: Cambridge University Press. Huse, M., Gabrielsson, J., & Minichilli, A. (2008). Knowledge and accountability: Outside directors’ contribution in the corporate value chain. In P. E. Gomez & R. Moore (Eds.), Board members and management consulting: Redefining boundaries. Research in Management Consulting, Greenwich, CT: Information Age Publishing. Judge, W., & Zeithaml, C. (1992). Institutional and strategic choice perspectives on board involvement in the strategic decision process. Academy of Management Journal, 35(4), 755–794. Kanter, R. M., & Summers, D. V. (1987). Doing good while doing good: Dilemmas of performance measurement in nonprofit organizations and the need for a multipleconstituency approach. In W. Powell (Ed.), The nonprofit sector: A research handbook (pp. 154–166). New Haven, CT: Yale University Press. Labie, M. (2005). Economie sociale, non profit, tiers-secteur: A` la recherche d’un cadre de gouvernance ade´quat. In A. Finet (Ed.), Gouvernement d’entreprise. Aspects manage´riaux, comptables et financiers (pp. 101–124). De Boeck: Bruxelles. Lipton, M., & Lorsch, J. W. (1992). A modest proposal for improved corporate governance. Business Lawyer, 48, 59–77. Mayaux, F. (1999). Typologie des conseils d’administration d’association, RECMA, n1 272, 2e`me trimester, 45–57.

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Maznevski, M. L. (1994). Understanding our differences: Performance in decision-making groups with diverse members. Human Relations, 47, 531–552. Ocasio, W. (1994). Political dynamics and the circulation of power: CEO succession in U.S. industrial corporations. Administrative Science Quarterly, 39, 285–312. Olson, D. E. (2000). Agency theory in the not-for-profit sector: Its role at independent colleges. Nonprofit and Voluntary Sector Quarterly, 29, 280–296. Osborne, S. (1998). Naming the beast. Defining and classifying service innovations in social policy. Human Relations, 51(9), 1133–1154. Oster, S. M., & O’Regan, K. M. (2002). Does the structure and composition of the board matter? The case of nonprofit organizations. Yale SOM Working Paper No. PM-04. Yale School of Management, New Haven. Pearce, J., & Zahra, S. (1992). Board composition from a strategic contingency perspective. Journal of Management Studies, 29, 411–438. Pestoff, V., & Brandsen, T. (2006). Co-production. The third sector and the delivery of public services. London: Routledge. Pfeffer, J. (1972). Size and composition of corporate boards of directors: The organization and its environment. Administrative Science Quarterly, 17, 218–228. Powell, L. (1995). Pathways to leadership: How to achieve and sustain success. San Francisco, CA: Jossey-Bass. Provasi, F. (2004). Lo sviluppo locale: una nuova frontiera per il non profit, FrancoAngeli, Milano. Salamon, L. M., & Anheier, H. K. (1996). The emerging nonprofit sector. Manchester: Manchester University Press. Wiersema, M. F., & Bantel, K. A. (1992). Top management team demography and corporate strategic change. Academy of Management Journal, 35(1), 91–121. Wright, G. (1992). The not-for-profit CEO: A survivors manual. Oregon, Portland: C3 Publications.

THE CODIFICATION OF NONPROFIT GOVERNANCE – A COMPARATIVE ANALYSIS OF SWISS AND GERMAN NONPROFIT GOVERNANCE CODES Georg von Schnurbein and Sabrina Sto¨ckli ABSTRACT Purpose – During the last decade, several nonprofit governance codes have emerged in Germany and Switzerland. In contrast to the corporate sector, where one code exists in each country, the nonprofit sector has not unified its initiatives on governance guidelines. This research study searches for reasons of this heterogeneity by analyzing the content of the governance codes. Design/methodology/approach – Based on a comparative content analysis of 15 governance codes from Germany and Switzerland, this survey gives some insight about the different range of issues and levels of detail. Findings – The findings report a great variety among the nonprofit governance codes. Three different clusters are defined in order to classify the governance codes regarding their information detailedness. Some codes

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 179–202 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001011

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present the basic principles, others give detailed information on focused subjects, and some others function as soft law with a large scope. Additionally, the kind of the producers does have an influence on the content of nonprofit governance codes. Research limitations/implications – The survey is limited because of its geographically focus. However, several implications for further research can be drawn, that are of international relevance. Better knowledge is necessary about the implementation of the governance codes. Additionally, further influence factors on the content of governance besides the kind of the producers have to be analyzed. Finally, it would be interesting to test the acceptance of the codes and the participation process of development among a larger group of organizations that complies with a governance code. Originality/value – For the first time, a complete list of all nonprofit governance codes in the two countries was conducted as a basis for this study. Former studies used a smaller sample of governance codes without clarifying the reasons for the selection. Keywords: Nonprofit governance; governance codes; transparency; Germany; Switzerland; content analysis

INTRODUCTION Governance has gained importance in both research and practice in nonprofit management. There is a common understanding that governance is a premise for a better board performance (Carver, 2001; Holland & Jackson, 1998; Preston & Brown, 2004). Attempts in defining nonprofit governance often refer to corporate governance approaches, especially to the agency theory (Callen, Klein, & Tinkelman, 2003; Fama & Jensen, 1983). Following existing corporate governance standards, nonprofit governance addresses mainly legal and fiduciary responsibilities, most likely transparency, effectiveness, and checks and balances (Stone & Ostrower, 2007). However, most definitions do not go beyond the statement that nonprofit governance is a set of instruments, measures, and mechanisms, which supports the board of a nonprofit organization (NPO) in the process of providing leadership, direction, and accountability. In search for a better practicability and standardization, the nonprofit sector soon has followed

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the profit sector in defining good governance through principles and guidelines, recorded in codes. Basically, principles of decision making, checks and balances, and decision control in respect to the stakeholder interests are the main features of governance codes (Zimmer & Basic, 2008). However, the manifold and divergent stakeholder interests cannot be addressed in a general way. Thus, governance codes serve as a basis of general understanding of governance. The first governance codes were developed in countries with common law like the United Kingdom or the United States and were oriented to corporations. Other countries like Germany or Switzerland followed soon after with their own governance codes for corporations. Besides, governance codes are made to avoid legal regulations that are stricter, less adjustable, and more bureaucratic (Dawson & Dunn, 2006). In contrast to law, one can decide voluntarily to follow soft law regulations like governance codes. Usually, they are based on a comply or explain rule, for example, a disrespect of a part of the code is possible but has to be explained. Some codes are published as recommendations with an even lower compliance (Theisen, 2003). The major difference between corporate and nonprofit governance is the question of the owners. While the stakeholders of a company can be structured in a hierarchical way starting with the financial capital owners, a likewise structure cannot be made for nonprofits (Speckbacher, 2008). Usually, donors and beneficiaries of nonprofits are not identical, but can both be understood as principals. The former may expect an efficient use of their donations (Fama & Jensen, 1983). The latter know best, how the nonprofits can serve them to get by in life (Abzug & Galaskiewicz, 2001). This unsolved question has implications on the development of governance codes in Germany and Switzerland. As in the corporate sector, several initiatives were started to define general governance guidelines in both countries. While there corporate initiatives were unified to one corporate governance code in each country, there are still several different nonprofit codes coexisting, and there is no sign of coordination.

LITERATURE ON NONPROFIT CODES Neither in the literature nor in practice exists a complete overview of the nonprofit governance codes in Germany and Switzerland. Existing literature concentrates on basic aspects such as the transfer of corporate to nonprofit

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governance guidelines. (Schwarz & von Schnurbein, 2005; Siebart, 2006b; Theuvsen, 2008). However, articles comparing different governance codes always refer to a small sample of two to three codes without clarifying the reason of their choice (Dawson & Dunn, 2006; Lichtsteiner, 2008). In the following section, the most relevant articles comparing governance codes are shortly described. Dawson and Dunn (2006) examine the appropriateness of the Governance Hub Code and the challenges NPOs are facing when implementing the code. The authors draw the experience of the corporate combined code upon. The authors conclude that the Hub Code is generally valuable as a governance and regulatory tool, but significant aspects as the extent of constituency remain unclear. Based on their findings, the authors specify general requirements for the development and implementation of nonprofit governance codes. Theuvsen (2008) develops a measuring concept for the operationalization of transparency in NPOs. The Swiss NPO-Code is then analyzed based on this concept. The author shows that governance codes only focus on a subset of transparency aspects. Lichtsteiner (2008) compares the Swiss NPO-Code, the Swiss Foundation Code (SFC), and the Swiss Code of Best Practice for Corporate Governance based on the criteria accountability, general assembly, board, control, and transparency. He shows that the codes feature different levels of detail. Concerning the criteria ‘‘control,’’ the author discovers significant differences between the codes. Siebart (2006b) analyzes if the main subjects of the German corporate code can be transferred into the nonprofit sector. It is argued that basically all subjects are transferrable and that the relevance of the subjects ranges from indifferent (division of leadership and control) to highly relevant (dealing with conflicts of interest and provision of guidelines for accounting and reporting). Our study is the first attempt to present a complete list of all nonprofit governance codes existing in Germany and Switzerland as a basis for our research. Not included in our list are quality management certificates and donor certificates that are both more oriented to the operative activities of an organization, whereas governance codes usually address the strategic level of the organization. Based on a systematic literature analysis with professional journals, organization reports, and open sources, a total list of 15 codes was generated (Table 1). Ten codes come from Germany, five are from Switzerland.

Diakonischer Corporate Governance Kodex Swiss Foundation Code

Grundsa¨tze Guter Stiftungspraxis Swiss NPO-Code

Diakonischer Corporate Governance Kodex der Kindernothilfe e.V. Empfehlung zu guter Fu¨hrung (Corporate Governance) von Wohnbaugenossenschaften Good Governance Code der Stiftung fu¨r das Tier im Recht Richtlinien der Verbandsfu¨hrung des Deutschen Olympischen Sportbundes Verhaltenskodex fu¨r Mitglieder der Organe, Fu¨hrungskra¨fte und Mitarbeitende im TCS

Diakonie

GGS SNC

Kindernothilfe

TCS

DOSB

STR

WBG

SFC

Arbeitshilfen 182

Name of the Code

Touring Club Schweiz (TCS)

Deutscher Olympischer Sportbund (DOSB)

Stiftung fu¨r das Tier im Recht

Schweizerischer Verband fu¨r Wohnungswesen (SVW)

Verband der Dio¨zesen Deutschlands und Kommission fu¨r caritative Fragen der Deutschen Bischofskonferenz Diakonisches Werk der Evangelischen Kirche in Deutschland e. V. Swiss Foundations-Verband der Schweizer Fo¨rderstiftungen Bundesverband Deutscher Stiftungen Konferenz der Pra¨sidentinnen und Pra¨sidenten grosser Hilfswerke KPGH Kindernothilfe e.V.

Producer of the Code

Single organization

2007

2007

2007

Single organizationa Single organization

2007

2007

2006 2006

2005

2005

2004

Year

Umbrella organization

Single organization

Umbrella organization Umbrella organization

Umbrella organization

Central organization

Central organization

Organization Type

CH

DE

CH

CH

DE

DE CH

CH

DE

DE

Country

Overview of the Swiss and German Nonprofit Governance Codes in Chronological Order.

Arbeitshilfen

Abbreviations

Table 1.

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AWO Unternehmenskodex Selbstverpflichtung fu¨r mehr Transparenz und gute Gescha¨ftsfu¨hrung

AWO STGG

Bischo¨fliches Hilfswerk MISEREOR e. V. Bundesvereinigung Lebenshilfe fu¨r Menschen mit geistiger Behinderung e.V. Bundesverband entwicklungspolitischer Nichtregierungsorganisationen e.V. (VENRO) AWO Bundesverband e.V. Aktion ‘‘Brot fu¨r die Welt’’ und Diakonie Katastrophenhilfe

Producer of the Code

2008 2008

2008

Umbrella organization

Central organization Single organizationb

2008

2008

Year

Central organization

Single organization

Organization Type

DE DE

DE

DE

DE

Country

The DOSB is classified as single organization because the code is only addressed to the central organization. The organizations are affiliated and belong to the umbrella association Diakonisches Werk der Evangelischen Kirche in Deutschland e.V.

b

a

VENRO

GUL

Grundsa¨tze zur Transparenz von MISEREOR Corporate Governance Kodex – Gute Unternehmensfu¨hrung in der Lebenshilfe VENRO Verhaltenskodex

Name of the Code

Misereor

Abbreviations

Table 1. (Continued )

184 GEORG VON SCHNURBEIN AND SABRINA STO¨CKLI

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RESEARCH QUESTIONS The existence of several nonprofit governance codes raises the question, which commonalities and differences can be found? This study concentrates on a content analysis of the existing codes. The introduction already showed that there is not one general and coherent understanding of governance. Thus, it can be expected that the different codes have different contents and emphases. These differences may be the result of a different level of detail or of a varying range in respect of the issues addressed in the code. Both aspects have a crucial impact on the implementation of a code. If the level of detail is too low, the code might be regarded as shallow. If it is too precise, it will not be adjustable to the special surroundings of one organization. The broadness of issues means that a code can cover all aspects of governance or only a few selected issues. With the content analysis we like to analyze which issues the different codes address and if there are significant differences between the codes. Research Question 1: How do Nonprofit Governance Codes Differ in Respect of Content and Issues Addressed? Usually, governance codes are the result of self-regulation. Thus, the acceptance of a code is always dependent on the legitimacy of the producers. In most countries, the corporate codes were developed by practitioners, not state authorities. It is important that the producers know the reality and that they develop reasonable guidelines based on their own experience (Dawson & Dunn, 2006). As pointed out before, there is a misfit of owners in NPOs. Thus, it is not unimportant who developed a nonprofit governance code and thereby defined the basic understanding. This study tries to give insight on the question, what consequences have the kind of producer for the content of a nonprofit governance code. Research Question 2: What Influence Do the Producers Have on the Content of a Code?

METHODOLOGY The methodology to answer these two research questions is explained in the following section. A major focus is put on the description of the criteria to assess the different codes in order to generate a comprehensible and objective comparison of the codes.

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The comparative content analysis is based on the criteria developed by Siebart (2006b) that are chosen because of the multidimensionality and their relevance for nonprofits. The criteria are described in the following.

Division of Leadership and Control The division of ownership and control is one of the major reasons of governance problems in corporations and the primary assumption of the agency theory (Berle & Means, 1932). In the nonprofit context, the division of taking decisions and controlling their implementation is the vital aspect of governance (Alexander & Weiner, 1996; von Schnurbein, 2009). However, it is unclear if a total division is necessary or not (Nobbie & Brudney, 2003; Siebart, 2006a). But it is obvious that a clarification of competencies and accountabilities among different actors is an important factor for an efficient governance structure (Siebart, 2006a). Thus, a code should contain requirements for the information of the board, the need for cooperation, and the obligation to participate in the development of strategies (Siebart, 2006b).

Definition of Clear Allocation of Competencies The division of tasks is a major problem of the organizational structuring in nonprofits. Wrong or unclear allocated competencies lead to inefficiency of management (Schwarz, 1996). The relationship between the board and the CEO is the most important governance relation (von Schnurbein, 2008). However, this relation is heavily influenced by the fact that it is often not easy to divide the tasks of both actors completely from each other because the tasks of leadership and control cannot be separated totally (Siebart, 2006b). The coexistence of volunteers and paid staff leads to a structural conflicts that is driven by interests, power, and prestige (Schu¨tte, 2000). The insufficient definition of competencies of these groups leads to discrepancies, and further on reduces the transparency and efficiency of an organization. Governance code can help to avoid conflicts if they contain guidelines on the separation and allocation of tasks (Siebart, 2006b). Requirements for Risk Management Avoiding risks and detecting chances is elementary to the strategic management of any company or organization (Heilmair & Witt, 2008).

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However, many nonprofits lack of a structured risk management. Thus, governance codes should contain basic requirements of a risk management in nonprofits (Siebart, 2006b).

Dealing with Conflicts of Interest Nonprofits are driven by different interests and groups of interests. The board has the obligation to combine the different interests and clarify the general strategy of the organization. However, if diverging interests cannot be aligned, conflicts of interest arise. These are one of the main reasons for governance problems (Hart, 1995). Research studies have shown that guideline on how to deal with conflict of interests can ameliorate the work of the board (Holland, 2002)

Composition of the Board The general mission of the nonprofit, the complex goal system, and the participation rights of different stakeholder group lead to a composition of the board that is not only guided by expertise but also by several factors, for example, representation of stakeholder groups and integration of important donors (Siebart, 2006a, 2006b). However, expertise is a relevant condition for the evaluation of the organization’s and the CEO’s work. Furthermore, the composition of the board influences the effectiveness and performance of the organization in (Schuhen, 2002; Siciliano, 1996). Thus, basic requirements about the composition of the board should be part of a governance code.

Transparency Transparency is important for external stakeholders such as donors or the public to value the performance of the organization and to compare it with social expectations (Theuvsen, 2008). Guidelines on transparency are an important aspect of governance codes, because the legitimacy and acceptance of the organization is dependent of the external stakeholders (Siebart, 2006b). Transparency contains different aspects. First, the structural transparency is necessary to offer stakeholders the relevant information in order to participate in decision making. Second, social transparency contains the

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information behavior of the actors. Finally, process transparency shows how fast, clear, and true the information is delivered to the stakeholders by the organization (Theuvsen, 2008).

Securing an Effective Information System Information is important to evaluate and interpret decision-making situations. This function is covered by accounting systems that collect data in a systematic and complete manner and that process the data timely (Schwarz, 2006). An effective information system facilitates the exchange between the internal stakeholders and the management level within the organization (Eschenbach & Horak, 2007). Through complete information of the directors and the board, information asymmetries can be reduced and abuse of power avoided.

Provision of Guidelines for Accounting and Reporting The final criteria of nonprofit governance are requirements for accounting and reporting. Most nonprofits are dependent on external public and private funders in order to realize their mission. Thus, the nonprofits are accountable to these donors and have to report on the money spending. Without a consistent accounting, an organization cannot give a persuasive report on their operations and how they met the donors’ expectations (Theuvsen, 2008). Internally, accounting supports decision making and the definition of future goals and strategies. These two aspects have gained more importance since nonprofits become more and more professional and management driven. Furthermore, basic requirements of accounting are legally regulated (Eschenbach & Horak, 2007). This contains the nomination of an independent auditor who examines the economic transactions and testifies an adequate accounting. This secures an independent control that is usually not given in the relation of the board and the CEO (Siebart, 2006b). Maybe there are more criteria that can be taken into account in order to analyze nonprofit governance codes, but in our opinion this list covers the most frequently mentioned aspects of governance well. For the content analysis, each criterion was coded with four different levels. The code value ‘‘’’ means that the relevant criteria are not included in the code. The code values ‘‘ þ ’’, ‘‘ þ þ ’’, ‘‘ þ þ þ ’’ reflect the elaborateness of the relevant

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Table 2. Coding System for the Criterion: ‘‘Division of Leadership and Control’’. Criterion ‘‘Division of Leadership and Control’’ Code Level  þ þþ þþþ

Description The subject is not mentioned. The basic principle is named. The main features of the dualistic model are described. The dualistic model is described in detail. The code contains for instance guidelines on collaboration, the supply of information, and the duties of the supervisory and management board.

issue in the code. Based on this code system, all issues were analyzed in all governance codes. Table 2 shows as an example, how the coding system works for the criterion ‘‘division of leadership and control.’’ Despite a consequent exertion of the coding system, subjective influences cannot be eliminated totally. Thus, to minimize subjectivity the governance codes where coded independently through two researchers and diverging ratings discussed afterward. Further restrictions have to be made due to possible interferences between the criteria chosen. For instance, there is a possible interference of transparency and information system. To reduce overlapping, the criteria were defined narrowly. In the concrete example, transparency is reduced to its external component (transparency to external stakeholders), whereas the information system contains the standardization of information flow within the organization. Based on the described proceedings and under consideration of the mentioned restrictions, the content analysis led to the results shown in Table 3.

RESULTS The results of the content analysis presented in Table 3 show that the governance codes have different profiles in regard of the eight criteria. The exceptions are the two codes Misereor and Diakonie that show the same coding profile. First, we are now going to present the result addressing the range of issues and the level of detail in all the criteria. Second, we are going to take a closer look at the producers of the code.

Arbeitshilfen 182 (Arbeitshilfen) Diakonischer Corporate Governance Kodex (Diakonie) Swiss Foundation Code (SFC) Grundsa¨tze Guter Stiftungspraxis (GGS) Swiss NPO-Code (SNC) Diakonischer Corporate Governance Kodex der Kindernothilfe e.V. (Kindernothilfe) Empfehlung zu guter Fu¨hrung (Corporate Governance) von Wohnbaugenossenschaften (WBG)

Code (Abbreviations)

Criterion

þ þþþ

þþþ  þþþ þþþ

þþ

þ þþþ

þ

þ

þþ þþþ

þþþ

þþ

þþþ þ



þþ

þ þ

þþ

þþ þþ

þþ

þþþ

þþþ þþþ

Dealing with Conflicts of Interest

þþ

þþ þ



þþþ

þþþ þþ

þ

þþ 

þþ

þþ

þ 

Composition Transparency of the Board

Results of the Content Analysis.

Division of Definition of Requirements for Risk Clear Leadership Allocation of Management and Competencies Control

Table 3.

þþ

þþþ þþþ

þ

þ

þ þþþ

þ

þþ þ

þ

þþþ

þ þ

Securing an Provision of Guidelines Effective for Information Accounting System and Reporting

190 GEORG VON SCHNURBEIN AND SABRINA STO¨CKLI

Good Governance Code der Stiftung fu¨r das Tier im Recht (STR) Richtlinien der Verbandsfu¨hrung des Deutschen Olympischen Sportbundes (DOSB) Grundsa¨tze fu¨r Corporate Governance beim TCS (TCS) Grundsa¨tze zur Transparenz von MISEREOR (Misereor) Corporate Governance Kodex – Gute Unternehmensfu¨hrung in der Lebenshilfe (GUL) VENRO Verhaltenskodex (VENRO) AWO Unternehmenskodex (AWO) Selbstverpflichtung fu¨r mehr Transparenz und gute Gescha¨ftsfu¨hrung (STGG) þþþ

þþ

þ þ þþþ

þþ þþþ þ

þþ

þþ

þ

þ

þþþ

þþ

þþþ

þ

þ

þ

þþ

þþþ

þ

þ



þþ



þþþ

þ

þþþ



þþ

þþþ

þþ



þ

þ

þþ



þþþ





þþþ



þþþ



þþþ

þþ

þ

þþ



þþ

þþ

þþþ



þ

þþþ

þþ

þþ

þ

þþþ

þþ

þþ

þþ



þ

The Codification of Nonprofit Governance 191

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The range of issues refers to the number of criteria that are covered by a certain governance code. The analyzed code can be situated on a continuum starting form very narrow to very wide. Six codes have a wide range of issues covering all issues of the analysis. On example for such a code is the SFC that contains guidelines to the eight criteria and additionally addresses further issues such as spending policy, project selection, and asset management (Sprecher, Egger, & Janssen, 2008). Besides the SFC, the following codes cover a comparable wide range of issues: the Swiss NPO Code (SNC), the code WBG, and the code TCS from Switzerland; the Arbeitshilfen and the code VENRO from Germany. At the other end of the continuum, there are four codes that cover only five issues. For instance, the codes Misereor and STGG do not mention guidelines on the composition of the board, on the information system, or how to deal with conflicts of interest. Additionally, the codes GGS and DOSB have a rather low range of issues as well. However, the range of issues only gives information, if an issue is addressed in a governance code or not. But there cannot be made any conclusion, how an issue is elaborated in the code. Thus, with the second aspect of the level of detail, we look at the elaborateness of each governance code. After coding the detailedness of all governance codes in each issue, we counted the number of issues valued with ‘‘ þ þ þ ’’ for each code. The code GUL has the highest level of detail with five issues ranked ‘‘ þ þ þ .’’ This code explains each issue very thoroughly. For instance, in the context of conflicts of interest the code does not only address individual conflicts of interest of board members, directors, or collaborators. Moreover, it addresses institutional conflicts of interest as well. In this section, the role of the organization as agency and consultancy for other organizations is clarified. The different conflicts of interests are illustrated with practical examples in order to ameliorate the understanding of the code. Besides the GUL, the SFC and the code Diakonie with four issues ranked ‘‘ þ þ þ ’’ offer a high level of detail. A low level of detail has the code GGS that is not ranked ‘‘ þ þ þ ’’ in any issue. This code contains only general guidelines to the different issues without mentioning clear requirements for the practice. This leaves a lot of space for interpretation. For instance, it is not clarified which governance actor is responsible for special tasks and issues. Next to the code GGS, there are the codes Misereor, STGG, WBG, STR, and TCS that have only one issue ranked ‘‘ þ þ þ .’’ In order to better analyze the content of each codes, we looked at the correlation of range of issues and level of detail (Fig. 1). The radius of the

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GUL 5 Diakonie

SFC

4 AWO & Kindernothilfe level of detail

SNC 3 DOSB

Arbeitshilfen & VENRO

2 Misereror & STGG

TCS & WBG STR

1

GGS 0 4

5

6

7

8

range of issues Codes with basic principles and narrow range of issues Codes with special focus and wide range of issues Detailed codes with wide range of issues

Fig. 1.

Correlation of Range of Issues and Level of Detail.

circles at the nodes of the matrix shows the number of governance codes that are at the same node. Based on this diagram we developed three different clusters of governance codes: codes with basic principles and low range of issues, codes with special focus and wide range of issues, and detailed codes with wide range of issues.

Codes with Basic Principles and Narrow Range of Issues The codes in this cluster are form by a low level of details and a narrow range of issues. They offer basic principles to a selected number of issues

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and leave space for adjustments and interpretations. Some of the codes have one or two issues that are described in more detail, for instance transparency or conflicts of interest. The codes in this cluster transmit the general ideas and principles of governance, but do not offer detailed information, how these principles can be realized in practice.

Codes with Special Focus and Wide Range of Issues This cluster contains governance codes that cover a wide range of issues. Just like the codes in the first cluster they focus on some selected issues that are covered in greater detail. These focus issues vary from one code to another and seem to reflect special challenges that are faced by the organizations addressed by the code. For instance, the code VENRO is very precise on requirements of transparency and accounting. The target group of this code is development aid organizations that rely heavily on private fundraising. Thus, transparency and accounting are very important issues for these organizations. The codes in this cluster show a strong orientation toward the expectations and the needs of their target groups.

Detailed Codes with Wide Range of Issues Finally, the last cluster covers the codes with a wide range of issues that are covered in great detail. These codes were ranked ‘‘ þ þ þ ’’ in at least three issues in our analysis. Especially the code GUL and the SFC offer a lot of detailed information on each governance issue. They go beyond listing expected requirements and give additional examples and explanation how the requirements should be realized in practice. However, the code GUL and the SFC are both presented as recommendations with no compliance rule for the organizations addressed. Through the way the codes in this cluster are elaborated, they are the closest to common corporate governance codes. This broad setup gives them a reputation that goes beyond their target group. To conclude, the previous section gives some information to answer research question one. By analyzing the content of the governance codes in regard of the two criteria the range of issues and the level of detail, we have shown that there is a great variety among the nonprofit governance codes. Three different clusters were defined in order to classify the governance codes. Nonprofit governance codes offer divergent information on governance. Some present the

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basic principles, others give detailed information on focused subjects, and some others function as soft law with a large scope. In order to determine and classify the producers of the codes in our analysis, we differentiated them according to their network character as single organization, central organization, and umbrella organization (Table 1). Single organizations are formally independent and have elaborated a code that is only addressed to their own organization. Central organizations are the centre or national unit of several other mostly independent organizations. The central organization is hierarchically superior to the other organization and the code addresses all of these organizations. Finally, umbrella organizations are central or national organizations, where other independent organizations of one industry can become member on a voluntary basis.

Single Organizations Six codes in our analysis where elaborated by single organizations. These codes usually refer strongly to the specific structures and circumstances of the single organization. For instance, the code STR is strongly oriented on the legal structure of the organization that is a foundation. The specific tasks and requirements of the board, the directors, and other governance actors are highlighted throughout the code. The codes Misereor and STGG highlight the transparency toward external stakeholders, most importantly their donors. These organizations are specialized on fundraising for churchrelated organizations. Finally, the code DOSB put the emphasis on conflicts of interest. This code was elaborated after the vice president of the organization came under criticism because of his activities as consultant parallel to his position in the organization (Inacker, 2008). The rules on how to implement this code are highly related to the special structure of the single organization. The definition of governance according to the requirements of the single organization and the high level of individualization results in a narrow coverage of governance issues. The codes Misereor and STGG give detailed information on transparency, but at the same time they offer no guidelines on conflicts of interest, composition of the board, or the information system. Other governance issues with a stronger internal orientation such as division of leadership and control or definition of competencies are covered superficially. In another example, the code Kindernothilfe, we find a reverse situation. Here, internal issues such as information system, definition of competencies, and division of leadership

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and control are highly elaborated. But the transparency toward external stakeholders is not mentioned, at all. The solitude of the organizations endangers a limited perspective and understanding of governance that is only reflected by the organization’s own situation.

Central Organizations Four codes of the sample are produced by central organizations. All of these codes have a high level of detail and cover a wide range of issues. Thus, they all belong to the third cluster. One reason for this consistent totality of these codes is the fact that they have to contain governance guidelines for different legal forms, for example, associations and foundations. This given situation requires detailed and differentiated information in various cases. For instance, the supervision of members in associations does not exist in foundations, because they have no members. Thus, foundations are supervised by state authorities. These legal basics have to be respected in the governance codes of central organizations (and umbrella organizations, as well). Although the codes are very detailed, they are not very individualized. The codes are formulated in a general and open manner. They avoid giving clear figures, for example, number of board members, because they have to respect the different structures of their subunits. The competencies and responsibility to put the codes in to practice is delegated to the subunits. Thus, each subunit has to adjust the code to its own situation. Usually, the code does not contain guidelines for the implementation. Another typical characteristic of the codes of central organization is the definition of the target group through quantitative limits, for example, amount of earnings, number of fulltime collaborators. These criteria should protect small subunits that might be overburdened with the complexity of the code. Usually, the code is binding for the organizations above the limit and should be respected by does below the limit. As the central unit is hierarchical superior, it can constrain the subunits to comply with the code. On exception of this high compliance is the code GUL, which is only presented as recommendations.

Umbrella Organizations In contrast to the codes of central organizations, the codes elaborated by umbrella organizations have a high individualized character. This can be

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explained with the fact that these codes are adjusted to the special requirements of the target organizations. Three of the five codes in this group have a high level of individualization. For instance, the SFC targets only grant-making foundations, and refers to the special conditions of these organizations, only. In the code VENRO, one chapter deals with the communication of the organizations, especially the public relations and fundraising communication. The chapter contains special requirements for this issue and lists communication means that are reasonable for fundraising organizations. Another characteristic of these codes is their wide range of issues. Four of the five codes cover all eight issues and go even beyond. In this respect, there is a clear difference to governance codes of single organizations that cover only selected issues. The development of the codes in umbrella organizations is done through a participative process that includes the member organizations. Thus, the implementation takes longer than in central organizations that do not consequently include their subunits. It seems that the umbrella organizations put a high emphasis on legitimating their code through the participative and open process. The code VENRO emphasizes collaborative implementation of the code and a continuous development of the code in the future. By highlighting the strong support among opinion leaders and important members, the acceptance of the code is fostered. It animates the members to implement the code in their own organization. This is necessary because the umbrella organization have less influence on their members than central organizations on their subunits. Thus, the implementation of the code has to be realized by acceptance. This leads to the conclusion that the codes of umbrella organizations cover a wide range of issues and display a high degree of individualization. The development of the code is the result of a participative process that is described in the code. However, this classification refers completely only to three of the five codes from umbrella organizations. The codes GGS and WBG do not fit into this description. Especially, they show a lower range of issues and a lower degree of individualization. The difference between these codes and the ones mentioned before can be explained with the logic of collective action (Olson, 2004). Olson (2004) states that individual and collective reality is not always consistent, because for some group members it is more rational to maximize their own utility. Group size influences the impact of the degree of consistency. Olson differentiates between privileged, medium-sized, and latent

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groups. Both, the Bundesverband Deutscher Stiftungen (3000 members) as producer of the code GGS and the Schweizerische Verband fu¨r Wohnungswesen (987 members) as producer of the code WBG can be classified as latent groups. Within latent groups, the individual member is not influential any more. This circumstance raises the attempt for individual utility maximization. Thus, a collective good such as a governance code has to be covered by a common interest of the latent group. If the common interest is missing, the members try to maximize their own utility. As a consequence, the umbrella organization has to put up positive or negative incentives to realize a collective action of the members. If the members maximize their own interests in the process of the elaboration of a governance code, it will be difficult to find solid compromises. Thus, the result of this process is the least common denominator. It can be stated that the basic character of the codes GGS and WBG is based on three aspects, according to the logic of common action: – size of the organization – missing common interest in the issue of governance – missing positive or negative incentives of the umbrella organization. Based on the method and results of this study, we can only analyze the size of the organization. But no comment can be made about the two additional arguments. Answering research question two, we state that the kind of the producers does have an influence on the content of nonprofit governance codes. A major Table 4.

Typical Code Characteristics According to the Network Character of the Producer.

Organization Type

Typical Code Characteristics

Single organization

 Narrow range of issues  High level of individualization

Central organization

    

Umbrella organization

 High level of individualization  Wide range of issues  Development of the codes through a participative process

Wide range of issues Low level individualization High level of detail High level of bindingness Definition of the target group through quantitative limits

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influential fact is the type of the organization. Table 4 concludes the specific content features of single, central, and umbrella organizations. Additionally, the twofold group of codes produced by umbrella organizations showed that there might be other criteria that influence the content of a code as well. Next to the size of the organization this could be structures of interest or incentives.

CONCLUSION This chapter focused on the analysis of the content and the producers of nonprofit governance codes in Germany and Switzerland. For the first time, a complete list of all nonprofit governance codes in the two countries was conducted as a basis for this study. Former studies used a smaller sample of governance codes without clarifying the reasons for the selection. The content analysis was based on eight governance issues taken from the literature in order to allow a structured and comparable analysis of the different codes. Based on the results we answered two research questions on the content and the producers of nonprofit governance codes. First, the analysis has shown that the content of governance codes is divergent in respect of the range of issues and the level of detailed information. Thus, three clusters were developed in order to classify the codes. Second, the influence of the kind of producers was investigated. Codes of single organizations tend to be less complete and are strongly focussed on a few relevant issues. While codes of central organizations and umbrella organizations are both wide in the range of issues, they differ significantly in terms of individualization. Codes of central organizations are written in a general manner, addressing many different types of organizations. Codes of umbrella organizations are much more oriented on the specific situation of their member organizations. However, there are some codes of umbrella organizations that show a lower profile. Based on these findings we draw some conclusions for practice and further research. In general, the codes analyzed for this study had a very high degree of elaboration and reflected a professional understanding of nonprofit governance. Organizations thinking about implementing governance guidelines in their organizations should be aware of the fact that the content of different governance codes vary extremely. Thus, they have to make the choice either to accept an existing governance code or to establish one on their own. In the former case, the organization should proof who developed the code. In the latter case, the organization should try to find

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other organizations to participate in order to realize a more consistent governance code. Umbrella organizations have to put the emphasis on the participation process of developing the code in order to reduce the influence of individual interests. This leads to our implications for further research. Better knowledge is necessary about the implementation of the governance codes. As most of the codes are not too old, it might be too early to stress the question, what impact governance codes have on the organizational performance of nonprofits. Another interesting issue for ongoing research is the analysis of further influence factors on the content of governance besides the kind of the producers. As the number of governance codes is small, it is difficult to conduct a quantitative survey on this topic. However, it would be interesting to test the acceptance of the codes and the participation process of development among a larger group of organizations that complies with a governance code. To conclude, this survey has added some insight for a better understanding of the development of nonprofit governance codes. This might help for the future to ameliorate the implementation and acceptance of governance codes.

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THE VOICE OF PATIENTS AND THE PUBLIC IN THE NATIONAL HEALTH SERVICE: ISSUES OF IMPLEMENTATION Gianluca Veronesi and Kevin Keasey ABSTRACT Purpose – The chapter aims to understand what kind of policy approach has been more successful in facilitating the involvement of patients and the public in the design and provision of health-care services at the local level and the explanatory factors justifying the implementation outcome. Methodology – By applying Richard Matland’s ambiguity/conflict policy implementation model, the chapter analyses the impact of a number of policies introduced after 1997 in the English National Health Service that targeted final users and the local population in decision-making processes. Findings – The evidence shows that policies emphasising the importance of context-specific contingencies can be more effectively implemented when room for interpretation and discretion in selecting the appropriate means for involvement is given. In this way, the overall aims/purposes of health policies can be locally reshaped by allowing the adoption of flexible strategies within the implementation process.

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 203–226 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001012

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Practical implications – A strong leadership at the top of public sector organisations and, in particular, from the board of directors is needed to steer and facilitate a consensus oriented outcome in organisational decision-making processes that aim to incorporate the views and opinions of patients and the public. Social implications – Local initiatives in increasing participation, for specific purposes, are bound to be more successful than a general initiative, expecting comparatively uniform implementation. Keywords: Board of directors; National Health Service; patient and public involvement; policy implementation

INTRODUCTION Policy networks and academics have stressed the importance of increasing democratic legitimacy by placing patient and citizen participation at the centre of the decision-making processes of public organisations (Baggott, 2005; Edelenbos, 2005; Edelenbos & Klijn, 2006; Roberts, 2004). Accordingly, over the past 20 years great prominence has been given to the introduction of reforms aimed at increasing the responsiveness (and effectiveness) in the way public services are provided (Martin, Currie, & Finn, 2009; Newman, Barnes, Sullivan, & Knops, 2004), on the assumption that a decision can be considered legitimate or a judgment is legitimately made if citizens are included and given adequate opportunities to contribute to the decision-making process (Ansell & Gash, 2008; Stoker, 2006). In the United Kingdom, the Labour governments heavily emphasised the involvement of users and the public in the design of public services (Newman, 2001; Pickard, Sheaff, & Dowling, 2006). Active citizenship was seen as a means to modernise the delivery of public services by making them more capable of meeting local needs (Hyde & Davies, 2004; McNulty & Ferlie, 2002; Newman et al., 2004; Pollitt, 2003; Simmons, Birchall, Doheny, & Powell, 2007). Thus, following the belief that a decentralised approach to government (Peckham, Exworthy, Powell, & Greener, 2007) would provide the solution to complex problems in health-care provision, policy makers strongly supported the adoption of non-bureaucratic/participative models (Allen, 2006; Buchanan, Addicott, Fitzgerald, Ferlie, & Baeza, 2007; Powell, 1998) for a patient-led National Health System (NHS) (Hyde & Davies, 2004; McNulty & Ferlie, 2002; Rowe & Shepherd, 2002), ideally

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characterised by freedom from central control and a greater distance from politicians (King’s Fund, 2002). The present study, therefore, focuses on a number of policies introduced since 1997 within the English NHS and, specifically, on the declared goal of policy makers to decentralise decisions over the provision of health care through the involvement and active participation of final users and the local population. Categorising different policy approaches on the basis of Richard Matland’s (henceforth RM) ambiguity/conflict policy model (Matland, 1995), this chapter aims to answer the following research questions: what kind of policy approach has been more successful in facilitating the involvement of patients and the public in the design and provision of services at the local level? Can we identify any explanatory factors justifying the implementation outcome? Issues of mere representativeness and ex-post control have been excluded as they do not reach a level of influence that grants patients and the general public direct power in the determination and pursuit of local priorities (Winkler, 1987). Substantially, we have concentrated on instances where patients and the public are directly engaged in decision-making processes and do not just exercise advisory/ consulting functions (Ansell & Gash, 2008).

METHODOLOGY The study was conducted as a year-long research project using a range of qualitative methods (focus groups, semi-structured interviews and documents analysis). Specifically, the semi-structured interviews have provided the body of the data, whereas the focus groups have been used to generate ideas and to gather opinions/comments on our interpretative activity. Document analysis has been adopted for the examination of policies, to collect further data on trusts’ activities and to triangulate the views of the participants. Qualitative approaches have been considered particularly relevant especially where the policy environment is complex (Spencer, Ritchie, Lewis, & Dillon, 2004), specifically within modernisation programmes of health and social care. We have intentionally concentrated our investigation on senior executives and boards of directors because of their privileged position within the internal governance structure. Every participant (in total 27 – 12 executive directors, 11 non-executive directors and 4 senior executives) was interviewed twice, in the first instance to gather the initial data that were then coded and reorganised into themes

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of analysis, and the second time to stimulate sense making and general observations. The interviews followed a plan of general themes but questions were intentionally kept open to avoid leading the interviewees (Silverman, 2004). All the quotes reported in the chapter are related to the interviews. Focus groups were used to facilitate the contribution of participants in the initial stage of the research process. At each stage, field observations and the authors’ sense making were circulated amongst participants for further comments (Bryman & Burgess, 1994). The constant interaction between the whole range of the participating subjects was aimed at reducing researchers’ bias (Miles & Huberman, 1994). Fifteen trusts (4 mental health trust and 10 acute care trusts – of these 2 typologies 7 were foundation trusts (FTs) – and one ambulance service trust) were involved as they represent the main instrument for materialising the decentralisation ethos and giving prominence to the interests and needs of the local populations. A multiple case studies approach was used to develop a more comprehensive interpretative framework (Denis, Lamothe, & Langley, 2001) and, following Eisenhardt (1989), organisations were chosen for opportunistic (location proximity, existing contacts with participants and familiarity with the history and characteristics of the trusts) and theoretical reasons (targeting organisations that are at the forefront of the patient interface). Narratives of the case studies were written, summarised and sent to the respective participants’ organisation for validation (Yin, 1994).

RICHARD MATLAND’S AMBIGUITY/CONFLICT POLICY MODEL Richard Matland’s (RM’s) ambiguity/conflict policy implementation model offers a parsimonious approach for the assessment of policy implementation efforts (deLeon & deLeon, 2002; Ingram, 1990). The model is based on a four-cell matrix framework in which the interactions between conflict and ambiguity dimensions are counterposed. Accordingly, the framework has been employed as an analytical tool to assess the outcomes of different policy attempts aimed at enhancing the role of patient and public voice in organisational decision making (Table 1). Firstly, policy conflicts are originated in the implementation process when divergent views exist on the policy goals and/or the means for their achievement (Perry, Thompson, Tschirhart, Mesch, & Lee, 1999). The evidence collected suggests that the principle of increasing patient and public

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Table 1. The Ambiguity–Conflict Matrix. Low Conflict

High Conflict

Low ambiguity Administrative implementation Political implementation Policy environment: goals and means Policy environment: goals are clear but are known and therefore solutions also incompatible, generating for outstanding/emerging issues dissent and resistance amongst/ are clear between implementing agencies High ambiguity Experimental implementation Symbolic implementation Policy environment: goals/values of Policy environment: outcome(s) the policy not contested and hence determined by the degree of power the contextual conditions become or the coalitional strength of implementing agencies crucial for a successful implementation Source: Adapted from Richard Matland (1995).

involvement in decision-making processes seems to have been seen by service providers as a legitimate step towards the democratisation of the health-care provision. We have heard of trusts committed to ‘fully embrace the policies’ ethos’ and board members emphasising the ‘virtues of the policy makers’ mandate’; essentially, the rhetoric of the respondents has undoubtedly been in support of an increased localisation and democratisation of decision-making processes. Historically, nonetheless, this has not always been the case (Lupton, Peckham, & Taylor, 1998). Board members with long-term experience in the NHS recognised how conceptually similar pre-Labour initiatives such as the community health centres (CHCs), the engagement of citizens in service commissioning and the creation of public juries/panels suffered from a lack of support and at times open opposition at the implementation point. For that reason, one might take with a pinch of salt the unanimous responses in favour of the policy makers’ overall goal. Nevertheless, the evidence based on the analysis of the trusts’ internal documents has confirmed the existence of a conspicuous ‘degree of goal congruence’ (Matland, 1995, p. 156) with the objective to foster the involvement of patients and citizens at the local level. The second dimension of the model is centred around policy ambiguity; that is, the uncertainty surrounding policy means (actions) and the consequences of the implementation processes for everyday practice (Hill & Hupe, 2002; Pressman & Wildavsky, 1973). RM suggests that conflict levels might be kept to a minimum if the policy initiative counterbalances ‘the

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dysfunctional effects of clarity and the positive effects of ambiguity’, p. 158. Essentially, it might be more beneficial from a policy effectiveness perspective to provide ‘an organisational headroom that enables the transformation of meanings and creates new frames’ p. 78. Several policies have stated that patients and citizens are in a privileged position to exercise their health-care decisions and should be able to shape services at the local level (Allen, 2006; Greener & Powell, 2008; McMurray, 2007; Peckham et al., 2007) but the overall policy-umbrella can be divided into two different groups. In the first group, we have included three policy approaches that have specifically introduced implementation mechanisms targeting final users and the role of the local population in decentralised decision-making processes. Here, the policy makers have opted for the introduction of precise frameworks, based on clear inputs and formalised processes, targeting patient and citizen involvement in local health. They fall in the category of administrative processes characterised by both low levels of conflict and ambiguity of means (Matland, 1995). They imply a high degree of consensus and shared knowledge of the means necessary to achieve predetermined goals, mainly requiring compliance with set activities rather than autonomous decision making (deLeon & deLeon, 2002). In the second group, we have, on the other hand, focused our attention on a wide range of policy makers’ initiatives (see Table 2) that, building on and reforming previous governance arrangements, have promoted the active participation of patient and public in the provision of health care by setting general principles and open forms of guidance (Exworthy & Powell, 2004). Not unusually, these loser forms of guidance are incorporated in wider, agenda-setting policy making documents, that is, White Papers. Thus, one main characteristic of this policy approach entails the absence of detailed implementation mechanisms/processes indicating, for instance, the preferred way to facilitate patient and citizen engagement and who should be specifically targeted. This policy approach corresponds to an experimental type of implementation process, characterised by low conflict levels but high ambiguity of the means of implementation (Matland, 1995).

ADMINISTRATIVE IMPLEMENTATION PROCESSES: DESTINED TO FAIL? An administrative implementation process usually entails a predominantly hierarchical approach to public administration practices, with specified tasks and defined responsibilities amongst the actors involved in the process

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Table 2. Health Policies. Year

Policy

Extracts

1997

The New NHS: Modern, dependable (White Paper)

The needs of patients will be central to the new system. ‘Integrated care’ system based on partnership and driven by performance centred on the needs of the patients.

1999

Saving lives: Our healthier nation (White Paper)

People, communities, local authorities to work together in partnership to improve health. People improving their own health supported by communities working through local organisations.

1999

Modernising government (White Paper)

Making sure that public service users, not providers, are the focus, by matching services more closely to people’s lives. Public services to meet the needs of citizens.

1999

Patient and public involvement in the new NHS (NHS Executive Communication)

Building a health serviceyresponsive and sensitive to the needs of patients and the wider public. Peopleyfully involved in decisions both on their own care and on the way services are provided. Every part of the NHSyto work in partnershipyto ensure that it systematically engages with, and listens to, its local communities.

2000

NHS Plan: A plan for investment and plan for reform (White Paper)

NHS to be responsive to different needs of different populations throughout regions and localities. NHS to develop partnerships and co-operation at all levels of care to ensure a patient-centred service.

2003

Building on the best: Choice, responsiveness and equity (White Paper)

Establish a process of decentralisation to pass power outwards and downwards to put patients in control. Local health servicesyto involve patients and the public in the overall modernisation of the NHS. Patients, the public and their representativesyfully involved in both the planning and the development of services, and fully consulted on decisions that affect the operation of the services.

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Table 2. (Continued ) Year

Policy

Extracts

2004

Choosing health: Making healthier choices easier (White Paper)

Real progress depending on effective partnership across communities. Involvement will enable NHS organisationsyto meet the needs of changing local populations.

2004

The NHS improvement plan – Putting people at the heart of public services (White Paper)

Communities to be given greater influence over the way that local resources are spent and the way local services are run. Greater readinessyto seek and listen to the views of patients, and to act on them. Statutory dutyyto involve and consult patients and the public in service planning, service operation and the development of proposals for change.

2006

Our health, our care, our say: A new direction for community services (White Paper)

Give people a louder voicey at a local level whereykey priorities are. Patients will be in the driving seat of reformyto shape care pathways which are most appropriate to local people. Strong voice for people using services and for local communities in the way in which the whole health and care system is designed and work.

Source: Department of Health Publication library.

(Barrett, 2004; Hill & Hupe, 2002). It assumes a high degree of consensus with shared knowledge of the means necessary and, hence, compliance with set activities rather than autonomous decision making (deLeon & deLeon, 2002). In this chapter, three examples of administrative implementation processes are considered and, more specifically, the focus concentrates on the factors behind their unsuccessful outcomes. RM considers a key element of administrative implementation the existence ‘of a set of rules that structure discretion so as to insure the preferred outcomes’, p. 161. Example 1: Patient and Public Involvement Forums The first implementation process to be considered is the establishment in 2003 of the Patient and Public Involvement Forums (PPIs). These forums

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should have provided assistance to patients, their families and carers and offered trusts with their views; facilitated service quality improvement; monitored and reviewed the service provision; and made recommendations on areas in need of improvement (Peckham, Exworthy, Greener, & Powell, 2005). Nevertheless, public forums struggled to achieve relevance in terms of interacting with local NHS organisations and experienced problems of engagement and retention of members. In addition, they were severely under resourced and poorly supported, unclearly positioned in relation to other bodies/agencies and scarcely integrated with the existing systems of performance management and service improvements. A review conducted by the Health Committee of the House of Commons in 2007 found that PPIs had been far too bureaucratic, poor value for money [sic] and not representative enough of their communities, with few local members participating in the forums (Day & Klein, 2005; Hogg, 2007). Substantially, their decision making was dominated by professional and managerial perspectives. In addition, an overlap between the role and functions of the forums and the other two administrative implementation processes analysed in the remainder of the section further compromised the effectiveness of the forums. Eventually, PPIs were deemed largely ineffective and terminated altogether with the abolishment of the ad hoc Commission for Patient and Public Involvement in Health.

Example 2: Patient and Public Membership in Foundations Trusts The second policy mechanism entails a mandatory procedural requirement in the application process that trusts have to follow to become a FT, the new form of public benefit corporation introduced by the 2003 Health and Social Care Act. Applying trusts must reach a certain membership threshold before attaining full authorisation and new legal status from the independent regulator, monitor. The compulsory presence of members (comprising staff, general public, patients, carers and other local constituencies) should facilitate the direct interface between the trust and its wider community, providing a mandate for developing locally relevant solutions and offer opportunity for communication. Therefore, the trust decision-making activity should duly account for the opinion and views of its members at least in the most important strategic decisions. Nevertheless, membership figures have so far stood at a substantially lower level than initially hypothesised (average of 3000 ‘volunteers’ per trust at the time of the application), with trusts often struggling to collect a

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sufficient number of individuals and considerable variations in the overall numbers from trust to trust. Trusts have been criticised for the underrepresentation of certain socio-demographic groups (young people and ethnic minorities), but in particular for the negligible evidence of active citizenship. To date, thus, the membership requirement has acted more as a formal than a substantive condition for the existence of FTs and there is scant evidence of its effective impact on organisational decision making. Example 3: Board of Governors of Foundation Trusts The other type of administrative implementation process in relation to FTs has taken the form of the board of governors (an organisational governing device made up by trust staff, private individuals, representatives of the local authority and primary care trusts members) that ideally oversees the activity of the FT board and contributes to the formulation of organisational strategic goals (Allen, 2006). Governors appoint or remove the chair and non-executive directors and oversee the appointment of executive directors, contribute to the formulation of the long-term strategy, provide information and feedback to the local community and, fundamentally, monitor the overall performance of the trust. Clearly, the intention of the policy makers was to introduce a mechanism of control and democratic participation in the activity of boards of directors. However, published evidence suggests (as confirmed by our own interviews with board members) that the contribution of boards of governors to the running of individual FTs is in several cases still largely underdeveloped (Allen, 2006; Day & Klein, 2005; Healthcare Commission, 2005), with many governors not being clear about their role and the extent of their functions (Lewis, 2005), that is, if they have to take care of the interests of the FT members or the whole stakeholder base. Accordingly, governors have openly recognised in the press their problems in establishing an effective communication flow with the FTs’ population that they are supposed to represent and protect (Butler, 2008). They feel undermined by the executive board and find it difficult to achieve a two-way communication channel with the organisation. Explanatory Factors Evidently, there exists a range of factors behind the unsatisfactory outcome of these attempts to mandate administrative implementation processes.

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Firstly, administrative implementation draws from traditional public administration practices/top-down processes that involve non-discretionary and mechanical actions by implementers (deLeon & deLeon, 2002). Nevertheless, the policy makers’ assumption of a direct, clear-cut application of techniques and mechanisms aimed at patient and public involvement has been far removed from the real modus operandi of many NHS organisations and their boards. Following NPM principles, these have been instructed and made responsible for giving priority to internal governance matters and related organisational performance (Greener & Powell, 2008), with little space left for collaborative governance approaches. Only in more recent years have central authorities explicitly demanded more attention to externally oriented concerns and objectives. Furthermore, policy makers have introduced these policy mechanisms based on the assumption of built-in capabilities at board and senior management levels in the form of expertise and capacity in dealing with a collaborative approach. Nevertheless, this demands a specific set of skills at individual and collective levels, first and foremost the knowledge and awareness of how to deal with more complex interpersonal relationships (Edelenbos & Klijn, 2006; Rowe & Shepherd, 2002). When boards (and their trusts) have been asked to work under different perspectives and hence to face different types of challenges, they have found it difficult to adapt their internal dynamics and collective behaviours because of a lack of familiarity with partnership models and their limited correspondence to existing known processes. The scarce familiarity in dealing with the direct participation of members of the public and patients can also explain the sense of mistrust still manifested by some interviewees in the ability of ‘outsiders’ to effectively contribute to the governance of trusts. Traditionally, the medical profession has had a well-documented aversion to giving due consideration to the opinions and views of patients (Greener, 2008; Guven-Uslu, 2006) and, similarly, managers have for a long time shown a hardly enthusiastic attitude in relation to citizen engagement. Thus, patients and the general public have been seen as not possessing sufficient background knowledge (expertise) to take an active part in decision-making processes. For instance, members of PPIs were criticised for not having sufficient knowledge and experience of the nuances of the NHS. Additionally, the fact that the NHS as a whole has gone through continuous top-down changes (Greener, 2008; McNulty & Ferlie, 2002) has created a sort of ‘resistance’ at trust level for centrally dictated mandates, especially when these have been characterised by strict guidelines. According

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to many interviewees, policy makers have been frequently out of touch with the activity of trusts and have been deemed incapable of understanding the complexity of the system at the implementation point. The common perception of administrative implementation processes has, therefore, been of hierarchical mandates not applicable to complex situations which have not been understood in the first place at the central level.

EXPERIMENTAL IMPLEMENTATION PROCESSES: A STORY OF (UNEXPECTED?) SUCCESS In the second type of implementation process under investigation, the absence of clearly stated means of implementation confers experimental character to the whole process (Perry et al., 1999), allowing the moulding of the policy content to the reality and multiplicity of local needs as the environmental influences are more likely to be reflected into the process (deLeon & deLeon, 2002; McCreadie, Mathew, Filinson, & Askham, 2008). Consequently, in line with RM’s model we expect contextual conditions to dominate the implementation processes at the local level. The organisations participating in the study have shown different levels of success in increasing patient and citizen participation in their activities and, consequently, three cases have been selected due to their representativeness, according to the evidence, of successful implementation attempts. Nevertheless, we do not dwell on the mechanisms and techniques adopted which have taken different forms/routes across the cases; although of generic interest, it is believed more worthwhile to investigate the factors behind the positive outcomes of these processes; in essence, the content rather than the formal elements.

Case 1: Improvement in Overall Organisational Performance The first case study involves a Mental Health trust in dire need to improve its overall performance and chronically unable to efficiently use the resources available. The trust was also lagging behind in terms of the adoption of mandatory statutory changes. The process chosen by the board to enhance the contribution of citizen voice was threefold: up front consultation open to all interested parties, open discussion with key stakeholders (staff, representatives of patients and local population, members of local authorities and voluntary organisations) and, once

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decisions were taken, a survey questionnaire to the wider stakeholder base. In essence, patient and citizen engagement was sought from the beginning of the decision-making process: We wanted to involve from the beginning the people. In the past we had sat down and decided what to do, without really listening to those who were the target of the changes. (Executive director) We wanted people to take ownership of the processywe wanted to make a statement to our stakeholders that we’re complaining with their indications. (Non-executive director)

The outcome of this joint approach was fundamentally twofold. On the one hand, the board of directors, previously at the margin of the trust activity, became more involved in the internal processes, simultaneously growing in visibility outside the organisation. On the other hand, the trust acquired a greater in depth knowledge of the problems affecting the local community, particularly in relation to the booming number of ethnic minorities. The organisation was, as a result, able to rebalance the allocation of its resources in line with the new environmental contingencies. New partnerships were also established with local charities which allowed a further realignment of the service provided to the specific needs of a growing number of patients: We managed to be very effective and created a process that was very powerful in terms of bringing out existing issues and involving people. (Non-executive director) We could finally benchmark ourselves, we could understand where we were at and where we needed to go. And this was achieved in the public eye! (Executive director)

Case 2: Realisation of New Hospital Facilities The second case study focuses on a FT that, in spite of relatively limited resources, was looking to improve its hospital facilities. The organisation had a troublesome history of financial management and was providing health care mainly from two dated hospital sites. The engagement process saw a first preliminary round-table with key stakeholders (elected local politicians, service delivery partners and members of staff), followed by a series of meetings with the wider stakeholder community that were then fed into board discussions. Finally, a closing round of consultation with the initial group of key stakeholders and representatives of patients and the local population was held. According to the interviewees, the process

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dramatically improved the form and, especially, substance of stakeholder interaction with organisational matters: They [the stakeholders] prepared a list of all the things they considered a priority, which were then used to inform the boards, and it really engaged executives and non-executive directors. And one of the things they really wanted to have was more interaction with the organisation. (Governance director) A lot of people have been engaged by giving them important functions, and empowering them to formulate proposals in their groups. (Chair)

On a practical level, the engagement process ended up with the shared decision to concentrate the Accident and Emergency department and specialist services for maternity and children in one of the hospitals managed by the FT, allowing the other to focus on traumatic surgery and rehabilitation. This helped the organisation to achieve better recovery times and increased the number of beds available for patients. Moreover, the representatives of patients and the local community obtained the opening of one walk-in centre and the relocation of one already planned in place of the projected extension of the existing buildings. Perhaps more significantly, the FT saw a marked improvement in the approval ratings from patients and their families: It [the engagement process] really helped to create a sense of commonality, to bring people together, to find a sense of being on the same side. At the end of the day we’re going to be a different organisation, we’re leaving our world to go into the unknown. (Governance director) They [the stakeholders] can understand better the process whereby the board goes through its decision, what it can achieve and the information that directors need for the decision making. (Chair)

Case 3: Reorganisation of the Governance Processes The third case study concentrates on the rearrangement of the governance processes within an Acute Care trust, which had previously been investigated by central authorities for the state of its finances and the inability to meet the required quality standards. The first step in the engagement process was to make the public aware of the outstanding issues in the trust: ‘I used the report to identify key issues, key pressures, the real problems the organisation was facing, and everything ended up in the public domain’ (Chief Executive). Once a public interest report had been published, stakeholders were openly invited to come up with suggestions for the turnaround plan: ‘I made them [the participants] responsible for cross-cutting piece of work

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inside the trust. So, there was a sort of dependence between each other’ (Chief Executive). The trust management was particularly keen on making the whole processes as visible as possible given that board proceedings had been previously criticised for not being sufficiently accessible and externally auditable. The more evident result of the reorganisation of the governance mechanisms was a marked improvement in the overall clinical targets, with reduction of waiting time lists and an increase in the number of patients treated. Moreover, a successful financial recovery brought a redirection of resources towards departments previously underfunded. In addition, representatives of patients and their families convinced the trust board to institutionalise a simplified and more direct feedback process in order to improve the existing communication channels. In all, the greater recipient of these improvements was the board of directors, which gained a more comprehensive understanding of the organisational activities: The rigour brought a better understanding of the health care needs and what the organisation was trying to achieve, which has helped to understand different areas and consequently broadened the horizons of the board itself. (Executive director) What was critical was to change the mindset of people, was to make people aware of what should have been going on and how should have happened, and part of doing that was to tell them that external stakeholders can provide a big help in terms of suggestions but also criticism. (Non-executive director)

Explanatory Factors In this subsection, we describe the explanatory factors that have contributed to increasing the role of patient and citizen voice in trusts’ decision making, linking each factor with the drivers of the experimental implementation processes in the cases previously reported. Table 3 provides a summary of the analysis. The first factor consists of the flexibility and room for interpretation given to local bodies within the policy-umbrella. Many interviewees strongly suggested that trusts need freedom and discretionary power to be able to effectively adapt the policy mandate to local contingencies and specificities. In this way, patient and public involvement in the delivery of health care can successfully embody a source of context-specific knowledge against the shortcomings of a system otherwise deemed ineffective in supporting the activity of local bodies. Looking at the implementation drivers (see Table 3, Factor 1), it appears that as a first priority the trusts discarded their

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Table 3.

Explanatory Factors and Implementation Drivers.

Factor 1. Flexibility and discretionary power at the local level

Case

Implementation Driver

1

Using patient and public engagement as a benchmark Prioritising strategic awareness instead of mere compliance Transforming rigid, bureaucratic approaches into flexible, interconnected activities Placing local interests and needs at the centre of board discussions

2 3 2. Commitment to actively seek stakeholder participation

1 2 3

3. Board and senior management leadership

1 2 3

Repositioning patient and citizen involvement at the centre of the decision making process Legitimising stakeholders to formulate proposals Bringing organisational issues in the public domain Creating stakeholder interdependence in the process Providing more accurate information, time and preparation for board intervention Securing board initiative in the consensus-oriented process Changing board directors and senior managers mindset in relation to patient and public engagement

4. Crisis as a change agent

1 2 3

Solving long standing governance issues Overcoming poor service performance record Complying with pressures from central authorities

5. Organisational learning

1

Allocating more efforts and resources to the planning phase Seeking active participation not agreement Encouraging responsiveness from organisational stakeholders Linking participation with accountability and performance Designing a more effectively structured decision making process

2

3 6. Increased patient and citizen awareness

1 2 3

Actively complying with stakeholders’ concerns Transferring stakeholders’ priorities into board agenda Using patient and public participation as a strategic driver

embedded, bureaucratically oriented modus operandi and actively sought to broaden their overall awareness of the local environment: If we’d carry on doing what we were doing what we had got would have always been what we were already getting, which is the same kind of nonsense most trusts get from

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the NHS, an illusion of comfort and reassurance that everything is under control, when the reality is that nobody knows if anything is under control, there are only a few things that you really know. We all needed to make a concerted effort to communicate with our stakeholders. (Chair, FT)

Moreover, the increased presence of patient and citizen voice in trusts’ decision making seems to have been made possible by the commitment at different organisational levels to engage with a wide variety of actors (similarly Ansell & Gash, 2008; Edelenbos & Klijn, 2006). This initially required improving the width of stakeholder participation-aiming to engage the maximum possible number of interested parties-and, subsequently, the depth of their involvement – taking into consideration a whole range of values, expectations and concerns from multiple sources. Substantially, in the three case studies the broad policy mandate has been translated into open and inclusive action plans (see Table 3, Factor 2) targeting a greater, meaningful participation and interconnectedness of the wider stakeholder base in the decision-making process (Addicott, McGivern, & Ferlie, 2007; Harrison, 1999): We did realise that this could only be achieved through a planned actionyThe new openness in the decision making process allowed everybody to discuss properly the plan, what this restructuring was about and the impact of the changes. (Non-executive director, FT)

A further factor that appears to have facilitated the increased resonance of patient and citizen voice in trusts’ decision making was the direct involvement of senior managers and, in particular, the board of directors from the early stages of the implementation activity, which provided a higher profile and sense of urgency to the whole process. Fundamentally, the management team and the board, directly or through its internal committees, expressed their leadership function by playing, in contrast with the pre-existent modus operandi, a deeper, more intense role in supporting patient and public involvement in organisational decision making (see Table 3, Factor 3). Thus, an obvious question to ask is what has triggered this different perception at board level of the role of patients and citizens in the design and delivery of health-care services. Firstly, it is worth noting that all three case studies centred on organisations that, for different reasons, had been facing a ‘crisis-point’ (see Table 3, Factor 4). This forced the boards to take a more direct control of the organisational activity and to formulate strategies capable of turning around organisational performance and the public image of their trusts. The improvement in patient and public participation, therefore, largely benefited from the initial momentum originated by the need to overcome outstanding issues but it also provided

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additional positive outcomes like reinforcing the sense of belonging to the local community: As a director, I have really enjoyed the opportunity to attend and participate in these open meetings, to really engage the board with things that matter to the organisation and to the local population. (Non-executive director, Trust)

Furthermore, it should not be underestimated the fact that trusts had been previously exposed to several policy makers’ attempts to achieve a wider patient and citizen involvement within the health-care sector. This gave them the opportunity to understand the reasons behind the unsatisfactory outcomes of previous implementation efforts and to make amend for these failures. Effectively, trusts seemed to have taken into consideration the previous shortcomings by making sure that the internal profile of the new initiatives would be raised and given sufficient support in terms of resources and coordination throughout the organisation (see Table 3, Factor 5). Many interviewees recognised the positive impact of having created a more effective process for patient and public involvement: It felt much more robust than the process that was used in the past. It really seemed that people would take ownership of the process. The real difference was that people were really involved in it, really involved throughout the process. (Executive director, Trust)

In addition, the Labour governments’ emphasis on governance principles of partnership, cooperation and empowerment for patients and local communities have contributed to the generation of much wider expectations in society. The modest interest created by FT membership might provide conflicting evidence in relation to people’s attitudes to active citizenship in the health sector, but the modern citizen has generally a much more developed awareness and willingness to have a role in the way local services are run. Trusts have, therefore, been required to deliver in an environment characterised by mounting pressures for cooperation and co-production from patients, local population and the vast number of private and thirdsector organisations operating in the health sector (see Table 3, Factor 6): We did perceive that one thing our stakeholders really wanted was to have more integration with the organisation. They considered this a priority, they wanted to flag us all the things that really mattered to them, to fundamentally engage executive and nonexecutive directors. (Chair, FT)

DISCUSSION By applying RM’s theoretical model it has been shown how the introduction of detailed administrative implementation approaches aimed at increasing

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the role of patient and public voice in organisational decision making is bound to produce negative outcomes due to their inadequate fit with the contingent situation at the local level. RM’s framework has, therefore, provided a theoretical justification for the ineffectiveness of top-down policy efforts dictating specific implementation processes based on the assumption of absolute fitness of the central mandate for any potential outstanding/ emerging issue. A rigorous, a priori application of the model would have signalled to central authorities the futility of rigid top-down mandates in a situation in which an experimental approach would have had a better likelihood to achieve the intended results. Essentially, the evidence suggests that patient and public participation represents a far too complex and multifaceted policy goal to expect every local organisation/body to work with a precise formula and be successful at it. The dictated uniformity of the implementation mechanisms stands at odds with the task of catering for a wide range of interests at the local level as it fails to take into adequate consideration the contest-specific complexity. Indeed, as pointed out by RM, ‘top-down models emphasize command, control and uniformity and fail to take into account the diversity inherent in much implementation that occurs’, p. 167. On the other hand, patient and public engagement requires individual and collective skills to operate with inclusive approaches, the presence of effective leadership governance mechanisms and learning processes and shared commitment and reciprocal trust between the actors involved. Not by accident, these skill-based, process-type and consensus-oriented factors have appeared to underpin the success of the three experimental implementation processes reported. Incidentally, it needs to be underlined how the respondents’ perspectives claiming the positive outcome of experimental implementation attempts have not been accepted uncritically. By looking at trusts’ internal documents and, in particular, at the minutes of the board of directors’ meetings, we have been able to discern between those cases where the implementation of the policy mandate was merely formal from those where it was substantive. Accordingly, a positive assessment in relation to patient and public engagement at the local level has not been made for all the trusts included in the study. In some organisations the role given to patient and citizen voice has taken more the form a rhetorical exercise rather than an effective participation in decision-making processes, that is, ex-ante consultation activity and/or ex-post feedback process. In these trusts, patient and public voice still has a limited place in the internal discussions as the demands from the central authorities in relation to performance and service standards have forced

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trusts to radically prioritise their efforts. In this sense, patient and public involvement has been described as a potential ‘point of distraction’ for the activity of local organisations as it takes the focus away from what is really relevant; that is, meeting the central targets. Health-care organisations are, by definition, required to deal with the implementation of central mandates that are not necessarily aligned (or might even clash) with relevant local needs, forcing local bodies to carry out a careful balancing between alternative (conflicting) objectives. These topdown mandates are, usually, associated with increasingly challenging performance targets that potentially compromise the ability of trusts to protect/satisfy contingent interests. As a result, many trusts have found it challenging to ensure that patient and citizen voice is given adequate prominence because their strategic focus is dedicated to performancedictated matters. In the language of the participants, there seems to be little scope/incentive to jeopardise financial viability by pursuing more complex and less-easily manageable representative models. In relation to the successful examples of implementation processes, a point that requires further elaboration is related to the role of internal crisis in giving relevance to patient and public involvement. The importance of a crisis situation lies in the fact that, in order to tackle the issue effectively, boards were forced to change the existing modus operandi and find a different approach to the management of their trusts. According to the participants, this triggered a process of learning that, amongst other factors, focused on previous failed attempts to increase patient and citizen voice in organisational decision making and made trusts more receptive of the pressures from patients and citizens to have a say in the way local services were provided. The crucial (unanswered) question is whether this is achievable, or even desirable, on a larger scale.

CONCLUSIONS This chapter has examined the impact of some of the policies introduced after 1997 within the English NHS. Specifically, we have focused on the policy makers declared aims of decentralising the provision of the services at the local level and, hence, supporting patient and public involvement in the decision-making process of local bodies. Our analytical lens has particularly concentrated at the level of senior management and board of directors, given that these are first and foremost responsible for designing the organisational strategy according to local needs. Drawing from the

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ambiguity/conflict model proposed by Richard Matland, two conceptually different policy approaches have been identified-administrative and experimental-types of implementation processes-and the factors behind the success/failure of the policy makers’ mandate have been highlighted. The evidence gathered suggests that, in a portion of the trusts involved in the research, the policy makers’ key objective of providing local communities and patients with more voice has been recognised, shared and implemented by trusts. Reinforcing the views of Exworthy, Berney, and Powell (2002), the findings support the idea that policies which emphasise the importance of capturing context-specific contingencies as driven by localised voice can be more effectively implemented when room for interpretation and discretion is given to implementing bodies. Essentially, local initiatives in increasing patient and public participation, for specific purposes, are likely to be more successful than a general national initiative, expecting comparatively uniform implementation at the local level. Many board members have highlighted the advantages of autonomous decision making and independence at the local level in terms of selecting the more appropriate means for patient and citizen involvement in the activity of trusts. In this way, the overall aims/purposes of health policies can be locally reshaped by allowing the adoption of flexible strategies within the implementation process (Lipsky, 1980; Pope, Robert, Bate, Le May, & Gabbay, 2006). In contrast, the failure of centrally driven implementation models has provided further evidence that when the ultimate policy goal is increasing the voice of users and the local population, the vertical/ hierarchical dimension entails a weak device for the transmission of central authorities’ values and aims – and hence policy outcomes are bound to be unsatisfactory (Bate & Robert, 2002; Powell, 1997). The implications of our findings for policy makers are profound in the sense that forcing implementers to adopt formal policy mechanisms for patient and citizen engagement does not seem to yield the intended results. The extant literature (for an exhaustive review see Ansell & Gash, 2008) is explicit in dictating shared activities among stakeholders to make collaborative forms of governance effective. Following this perspective, the research suggests that a strong leadership at the top of public sector organisations and, in particular, from the board of directors is needed to steer and facilitate a consensus oriented outcome in organisational decisionmaking processes that aim at incorporating the views and opinions of patients and the public. It, consequently, represents an important learning outcome for the developing agenda of the UK government coalition (Department of Health, 2010).

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CO-OPERATIVE GOVERNANCE OF PUBLIC–CITIZEN PARTNERSHIPS: TWO DIAMETRICAL PARTICIPATION MODES Richard Lang, Dietmar Roessl and Daniela Weismeier-Sammer ABSTRACT Purpose – The aim of this study is to examine the impact of co-operative governance structures on citizen participation in public service provision. Methodology – Using a multiple case study-approach, we analyse and compare five examples of co-operative public–citizen partnerships in Austria and Germany. Findings – The study clearly shows that co-operatives can be a tool for both, (1) the bottom-up self-organization of citizens (co-operative as ‘contested space’) and (2) the top-down organization to canalize citizen participation (co-operative as ‘invited space’). Co-operative public–citizen partnerships therefore represent a balancing act between dependency through public funding and autonomy through community-based decision making.

Conceptualizing and Researching Governance in Public and Non-Profit Organizations Studies in Public and Non-profit Governance, Volume 1, 227–246 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-6630(2013)0000001013

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Research implications and limitations – The chapter underlines the importance of context-sensitive qualitative research. Limitations might stem from the fact that municipal areas might differ in other countries than Germany and Austria, for example, due to legal prerequisites. Practical implications – If regional government representatives are supporting a bottom-up initiative, they are more inclined to provide crucial resources for the public–citizen partnership and tensions between different stakeholders involved are weakened. Social implications – Co-operative public–citizen partnerships might enhance participatory democracy and seem to strengthen solidarity and social cohesion on the neighbourhood level. Originality/value of chapter – In showing that co-operatives are a suitable governance structure for community organizations, which enhance democratic decision making and foster social innovation in public service delivery, we support the findings of other studies. The chapter suggests that in order to enhance our understanding of citizen participation, context-sensitive research that goes beyond merely descriptive governance analysis is needed, taking into account the historical trajectories of public– citizen partnerships. Keywords: Co-operatives; governance; participation; public-citizen-partnerships; public services

INTRODUCTION Small municipalities in Austria face a range of fundamental public responsibilities, such as providing adequate childcare and care for the elderly as well as the allocation of municipal recreational facilities. Due to budget constraints, municipalities in Austria (as in many other European countries; cf. Evers, 2006) are trying to find new ways for the provision and governance of public services, for example, by involving citizens as co-producers of the services needed (Moedlhammer, 2009; Pestoff, 2009). Concepts like communitarianism (Farrell, 2000) or participationalism (Evers, 2006; Pestoff, 2009) highlight the importance of citizen participation in both the political and the production process of public service provision. In line with Spear and colleagues, we focus within this article on ‘public

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sector spin-offs’ as a type of social enterprise which takes over the administration of services previously provided by public authorities (Spear, Cornforth, & Aiken, 2009). In order to distinguish such spin-offs from public–private partnerships (for an overview see Bovaird, 2004), we introduce the term ‘public-citizen partnership’ (PCP) which is defined as an organizational form of the conjoint production of public services by municipalities and their citizens based on co-operative principles (Karner, Roessl, & Weismeier-Sammer, 2010). In PCPs, local politicians and citizens try to adequately provide a public service, for example, childcare or care for the elderly, which can no longer be sufficiently provided by the municipality on its own. Hence, effective citizen participation plays an important role for the success of PCPs which aim at promoting a culture of self-help rather than a culture of dependency (Mayo, 1997). With its democratic principles and commitment to self-help, the co-operative represents a suitable governance structure for PCPs (Lang & Roessl, 2009; Somerville, 2007). In this respect, the actual legal form is secondary as long as the organization itself is based on co-operative principles. It therefore constitutes a democratic member-based organization (Spear, 2004). Nonetheless, research on the governance of co-operative organizations in public service provision is underdeveloped compared with the literature found on the governance of business corporations (Cornforth, 2004; Spear, 2004; Spear et al., 2009). We therefore aim to answer the following research question: How does a co-operative governance structure influence citizen participation in public service provision via PCPs? In a first step, we focus on current literature highlighting the importance of citizen participation in public service co-production. Subsequently, we introduce co-operatives as a possible governance structure for PCPs. In a further empirical step, we present our case study approach, with five cases drawn from a recent research project.1 We conduct a cross-case comparison and relate the empirical results to our initial conceptual considerations. Finally, we discuss the implications of our findings for further research in the context of citizen participation in co-operative public service provision. This study contributes to existing research in the field in two ways: (1) our findings extend the current literature on citizen participation in public service provision by providing empirical insights through a multiple case study-approach, and (2) assumptions derived from empirical data might provide a solid basis for further (quantitative) research in this field, in order to contribute to a better understanding of the role co-operative governance structures play for citizen co-production.

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CITIZEN PARTICIPATION IN PUBLIC SERVICE DELIVERY In response to the crisis of the Keynesian welfare state, new lateral institutional arrangements such as partnerships have emerged on different scales to replace traditional state-centred governance (Jessop, 2002). Strengthening the role of citizens as co-producers of local public services (Ostrom, 1996) is considered crucial for achieving improved service delivery, strengthening social cohesion and democratic empowerment of citizens (Taylor, 2007). It is also needed to ensure the ideal fit between local services and local needs (Lowndes & Sullivan, 2004) through mobilizing community resources (Mayo, 1997). Moreover, co-production may lead to cost reductions and an overall higher quality of public services, with an expansion of opportunities for citizens to participate in public service provision (Pestoff, 2006). Thus, co-production of public services, as the term is used within this study, refers to ‘an arrangement where citizens produce their own services at least in part’ (Brandsen & Pestoff, 2006, p. 497). In Austria, local partnership structures have been part of the debate on public sector reform since the late 1990s (Hammerschmid & Meyer, 2005). Similar to the situation in other European countries (e.g. EnqueteKommission, 2002; Pestoff, 2009; Taylor, 2007), Austrian municipalities are increasingly seeking the support of their citizens in the delivery of vital public services (e.g. childcare and care for the elderly, education, recreational facilities) (Moedlhammer, 2009). In recent years, several organizations for the co-production of public services have been founded in Austria and Germany (cf. Flieger, 2003 for German examples). The challenges that are driving the call for the active citizen are similar in many EU member states: increasing fiscal pressure, an aging population and a general democracy deficit (Pestoff, 2009). To meet these challenges, different concepts of citizen involvement between ‘welfarism’ and ‘managerialism’ have emerged in the European context (Evers, 2006). Depending on the ruling government, it mostly comes down to the choice between more public ‘professionalism’ and more private competition in the welfare system (Pestoff, 2009). However, there is no real political commitment to a coproduction of public services which would empower citizens to shape and design their own welfare system. Swyngedouw (2005) argues that there is a flipside to more participatory governance arrangements which constitutes the ‘fundamentally Janus-faced’ character of PCPs in public service delivery. Compared with clearly

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regulated forms of representative democracy, ‘governance-beyond-the-state’ raises new issues on the accountability of the actors involved and the legitimacy of their actions. Thus, potentially promising models for citizen participation may actually result in the reinforcement of hierarchical and market mechanisms in the governance of public services (Swyngedouw, 2005; Taylor, 2007). In PCPs that are controlled by political and economic elites, citizen participation might thus be reduced to a ‘flanking, compensatory mechanism for the inadequacies of the market mechanism’ (Jessop, 2002, p. 455). Therefore, only a governance structure which explicitly supports social inclusion and democratic representation of the community can actually create social innovations for public service delivery (Defourny, 2001; Gerometta, Haeussermann, & Longo, 2005; Pestoff, 2009).

CO-OPERATIVE GOVERNANCE AND CITIZEN PARTICIPATION In Austria, the current debate on alternative forms of public service delivery has reemphasized the role of co-operatives as a possible governance structure for citizen co-production (e.g. Hofinger & Hinteregger, 2007; Lang & Roessl, 2009; Roessl & Hatak, 2008). Despite the promising potential co-operative governance structures contain for public service delivery, their importance is not widely acknowledged (Somerville, 2007). In order to understand the suitability of a co-operative for PCPs, one has to look at the distinctive social nature of co-operatives compared with capitalist organizations. According to new institutional economics, co-operatives are a hybrid form of governance between the ideal typical mechanisms of market and hierarchy, emerging as a safeguard mechanism against contractual hazards and opportunistic behaviour of outside trading partners (Bonus, 1986; Williamson, 1975). However, approaches in the tradition of new institutional economics fall short of exhaustively explaining the existence of co-operatives, leaving it open why ‘hybrids’ should gain a potential beyond the ability of the two ideal typical governance mechanisms (Valentinov, 2004). In this respect, situations of both market failure and failure of hierarchical coordination open up the view to the existence of a third ideal-type coordination mechanism (Adler, 2001; Fink & Kessler, 2010; Furubotn, 2001; Roessl, 1996). Providing local food supply or leisure services on the neighbourhood level are simply not attractive tasks for economic actors who would opt for short-term profits but also cannot be effectively carried

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out through hierarchical coordination alone. Here, co-operative selforganization might be the only possibility, without which these proximity services would simply not exist (Draheim, 1952; Valentinov, 2004):  In an ideal typical co-operative, actors with shared interests associate and pool their resources to further their benefits. The transactions occurring are not coordinated by price considerations or by a hierarchical body. They are the result of a self-imposed obligation. Individual considerations based on balanced reciprocity (Enjolras, 2009) lead to maxim-based trust among actors. For the sake of the value of the relationship, the actors impose themselves the maxim not to behave opportunistically (Roessl, 1996).  Community-based co-operatives in the field of public services do not exist to benefit a closed membership but operate for the benefit of a whole neighbourhood, and thus, involve transactions based on social and moral obligations, such as volunteering and donating by citizens (Lang & Roessl, 2011). The transactions of community co-operatives are not merely coordinated by price, hierarchy and balanced reciprocity, but by norm-based trust which is based on generalized reciprocity considerations (Enjolras, 2009), rooted in the specific territorial context (Lang & Roessl, 2011). In contrast to traditional co-operatives, co-operative organizations in the community-based economy actually combine all four coordination mechanisms (market-coordination, hierarchical-coordination, maximbased trust and norm-based trust), thus, the mobilization of a variety of resources is made possible (Enjolras, 2009). In this respect, the role of an organizational structure based on the co-operative governance instruments of collective autonomy, mutual self-help, democratic control, voluntary and open membership, community orientation etc., allows for the pooling of resources resulting from transactions – such as volunteering or donating by citizens – building predominantly on generalized reciprocity. For the Swedish context, Pestoff (2009) compared patterns of citizen participation in different governance structures for providing childcare on the community level (co-operative, municipal and for-profit organizations). He concludes that while municipal and for-profit governance structures offer only marginal participation possibilities, substantial citizen participation in the design and control of the public service can only be found in co-operative governance models. If we compare the co-operative principles with the governance mechanisms of price and authority, Pestoff’s results should not come as a surprise: Co-operatives as governance structures which aim at promoting and

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sustaining collective action based on reciprocity, offer the highest possible degree of citizen participation in public service delivery because their members jointly own, manage and control the organization. Whereas a lot of non-co-operative local partnerships are faced with an unequal power balance between the stakeholders involved and hardly recognize citizens, co-operative governance structures provide a possibility for establishing equal partnerships (in terms of power) (Lowndes & Sullivan, 2004). At least in terms of democratic control over the public service provision, the potential advantages of collective self-organization hold true for moderate numbers of participants. However, with greater size, community-based co-operatives are potentially threatened by ‘degeneration’ into either bureaucratic organizations or corporate enterprises (Purtschert, 1990; Valentinov, 2004). With the growing difficulties in democratic decision making and the creation of returns on investment in social capital, citizens are likely to be less inclined to see themselves as owners and patrons of the organization (Somerville, 2007) and confine themselves to the role as investors or customers. The high dependence of co-operative governance on citizen participation thus also becomes the major limitation compared with other governance mechanisms. In the next sections, we will contrast these conceptual considerations with the reality of citizen participation in co-operative PCPs in Austria.

RESEARCH APPROACH AND METHODS The aim of this study is to examine the impact of co-operative governance structures on citizen participation in public service provision. Particularly with regard to existing research gaps regarding co-operative governance structures (Cornforth, 2004; Spear et al., 2009), we chose a qualitative, multiple case study-approach in order to gain first in-depth insights (Stake, 1995) into the structures of co-operative PCPs. Therefore, we followed the rules of iterative explanation-building processes outlined by Yin (2009), who claims six distinctive stages to be followed in a series of iterations. In short, explanations of empirical phenomena are in this line the result of (1) initial theoretical statements, (2) combined with an initial case, (3) the revision of the initial statement, (4) the comparison of other case details against the revision, (5) the comparison of the revision to some more cases and (6) the repetition of this process as many times as it is needed (Yin, 2009, p. 143). In a first step, desk research was undertaken in order to track suitable cases, which had to meet the following criteria: (1) co-production of a public

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service between municipalities and their citizens and (2) organization based on co-operative principles. Requests to ‘auditing associations’2 helped us to locate appropriate cases in Austria and Germany. Overall, we analysed five cases in our study. Case vignettes (cf. Table 1) as well as founding histories are presented in the following chapter. In order to meet validity and reliability criteria in case study research (Gibbert, Ruigrok, & Wicki, 2008 referring to Cook & Campbell, 1979; Yin, 2009), we organized our research activities as follows. We used a combination of interviews and focus groups with mayors, citizens and co-operative members of all cases to gain extensive qualitative data about the co-operative structures. Basically, interviews were semi-structured with a mix of single and group interviews. Furthermore, we were able to analyse archival data in most cases (mainly press articles and internal reports). Additionally, we derived relevant data from participatory observation during co-operative meetings or workshops. Data was collected from October 2008 until July 2009; in four out of five cases the data collection was supplemented by on-site visits. All interviews, focus groups and parts of the workshops were tape recorded and transcribed afterwards. Finally, for each case a case study report, including all relevant documents (transcripts, archival data, etc.), was generated.

FINDINGS Case Analyses Overall, we analysed and compared five single cases within our qualitative study. In order to facilitate comparison of the different cases, Table 1 provides an overview. Cross-case comparison followed the perspective of Bovaird (2007) in a slightly modified form. He develops a conceptual framework for characterization of different relationships of citizen co-production of public services. Within this framework, he differentiates between the actors involved in the planning and delivery of a public service. In our cross-case comparison, we draw on this conceptual framework and distinguish between two types of actors (municipality, citizens) being involved in public service provision through PCPs in two arenas of interaction: taking the initiative for developing a community co-operative in order to provide public services and controlling of the provision of public services. Our findings are presented in two steps. Firstly, we discuss and compare the five cases analysed in our study. Afterwards, we pick out cases B (food

(Planned) Voluntary services by citizens

None

30

Nursing home for care of the elderly

Co-operative business purpose

No. of co-operative members

Care for the elderly

2900

Carinthia/ Austria

Municipal service provided

Approx. no. of inhabitants

Province/country

Case A

Care for the elderly

1700

Pannonia/Austria

Case C

Case Vignettes.

Building services, maintenance

72

Organizing leisure activities for elderly people

Failed

Operation of the only Establishment of a dayfood store in the care centre for elderly village people

Local food supply

300

Vorarlberg/Austria

Case B

Successful Co-Production

Table 1.

Failed

Operation of public outdoor pool

Recreational facilities

2000

Lower Austria/Austria

Case E

Maintenance, lifeguard, Maintenance, lifeguard, counter services, counter services gardening gardening

1000

Operation of public outdoor pool

Recreational facilities

6000

Lower Saxony/ Germany

Case D

Successful Co-Production

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supply) and D (pool) in order to exemplify two possible development paths of partnerships. These two cases are successful ones, in the sense that they actually survived the implementation stage – at the same time they show diametrical development paths. Case A illustrates a partnership arrangement where the design of a social service is carried out in the traditional way by public service agents. In this case, the co-operative governance structure obviously serves as a tool to allow for economic (e.g. financial contributions) and political participation (especially regular participation in decision making) of local residents. However, as citizens were closed out of the planning stage and of strategic decision making, the governance structure reflects the local administration’s policy approach to public service delivery. Thus, the community-based co-operative is threatened by ‘degeneration’ into a bureaucratic organization. So the co-operative can be interpreted as an ‘invited space’: The municipality invites the residents to join the initiative, but as it was always clear that the municipality wants to have the say in this organization this invitation was not accepted. The initiative to form a community co-operative will finally become an organization run entirely by the municipality. Case B illustrates the delivery of a public service planned by local representatives and some citizens. For years, the local food supply in this small Austrian community had to struggle with serious financing problems. Local representatives decided to found a co-operative in order to ensure local food supply especially for senior citizens, who find it hard to drive to the next supermarket and are dependent on food supply within easy walking distance. From the very beginning, they discussed these issues with important and highly respected citizens. Almost all households of the community signed a co-operative membership. The local council and the federal state government provide financial support for the co-operative, too. After the municipality set up this co-operative, citizens were invited to join in. The high level of community support for the project is triggered by the active role of some citizens in the initial stage, which was transferred into the organization of the co-operative. The co-operative governance for this community-run public service guarantees both economic and political participation, as it transfers ownership of the local shop to the residents. Thus, management and decision making reflects the needs of the community. As long as the co-operative principles are embedded in the local culture, there seems to be no immediate threat of degeneration for this co-operative. So this successful initiative can also be perceived as an ‘invited space’ where the municipality invites the residents to join in. But in this

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case – differently from case A – it was always clear that the municipality wants the citizens to manage and control this organization, and therefore, this invitation was accepted. Case C illustrates the delivery of a public service planned by local representatives. Here, the mayor supported by other municipal politicians initially noted growing demand for assistance services for senior citizens in the community. So the initiative was taken by the municipality. Nevertheless, very early in the planning stage, local politicians and public agents invited community representatives to join in. The idea was that as the project matures, citizen participation should broaden and include a wider community that engages in various forms of volunteering. The setting up of the organization and all strategic decisions were left to the citizens’ discretion. At this stage, however, there was no formal community activist group that could have accomplished this task. So again, we have the case of an ‘invited space’ but this ‘space’ could not be filled by the citizens. Case D is an example of community co-operative with little support from the municipality. A community activist group was started in order to prevent the closing of the public outdoor pool. Firstly, the municipality tried to impede this initiative. However, as the politicians realized that their attempt was not successful, they – for better or worse – accepted the initiative. So in this case, the PCP was both started and implemented by the citizens, whereas the local administration provides some funding but is not involved in the management of the leisure facility. The co-operative governance structure complements the community-based character of this initiative, as it provides the possibility to mobilize reciprocal resources. Furthermore, the sustainability of the project seems to be secured by its approximately 1000 members who are heavily involved in running this leisure facility and the economic value the co-operative produces for its members. Even though there are no immediate threats to the project, both the complete withdrawal of public funding and private sponsoring could eventually turn the project back into the hands of public service agents or lead to the ultimate shutdown of the facility. Difficulties could also arise from the lack of professional support, especially when volunteers are no longer able to deliver the service with an appropriate quality. So this case shows a successful initiative of setting up a community co-operative that can be interpreted as a ‘contested space’: The citizens wrenched the acceptance and some support from the municipality. Case E is comparable to case D: The council decided to close the public pool area because of serious construction deficits and disclosed that the

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municipal budget would not allow for a reconstruction of the leisure facility. Shortly after, a community activist group was organized. The group managed to attract members and investors, and lobbied representatives from the federal state government, who decided to grant assistance for reconstruction costs. Nevertheless, after months of intense discussion between the municipality and citizens, the municipality finally came to the decision that no PCP would be needed. The reconstructed leisure facility is now run by the municipality as before. As the closure was prevented, the activist group was successful in this respect but the initiative did not lead to the formation of a co-operative PCP. At first sight, case E seems to reflect the shift from a traditional type of public service delivery to a co-production, with citizens supporting public service agents. However, a closer look at the case reveals what has earlier been described as the ‘Janus face’ of partnerships (Swyngedouw, 2005). The inherent imbalance of power between the municipality and civil society activists enables the former to quickly empower or disempower the latter according to its political needs (Gerometta et al., 2005). Against this background, the infiltration of an already established co-operative organization seems to be a necessity for the municipality in order to secure control over the public service delivery. So here the initiative is brought to naught because the municipality took over the initiative step by step. If the municipality would have tried to impede the initiative and not to take over the project, this case probably would have developed like case D.

Case Comparison Comparison of the five cases discussed results in a first conclusion: There are two diametrical starting points for PCPs, depending on who initiated the project. Those initialized by the municipality, we call Top-Down-PCPs (cases A, B), whereas PCPs which arose from community activist groups (cases D and E) are labelled Bottom-Up-PCPs. In a top-down approach a municipality sets up a co-operative PCP and then invites citizens to participate. The invitation to engage in this initiative will be accepted, provided that the municipality is ready to share control, as shown in case B. If the municipality does not want to share control (case A), the invitation to participate will not be accepted. Furthermore, if the municipality does not develop the ‘space’ for engagement (case C), citizens cannot meet the expectations because they are somewhat overcharged. On the other hand, in a bottom-up approach, co-operative PCPs can develop successfully if the

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municipality lets the activist group do as they want to and provides some support (case D), but does not break the impetus of this initiative by taking over the project (as happened in case E). So our five cases are reduced to two successful co-operative PCPs as can be seen in Fig. 1: a top-down model (case B) and a bottom-up model (case D), which remained for further in-depth analysis. In the following, we focus on these two cases of co-operative PCPs. In both of the selected cases, the development process of the partnership unfolded along three phases (initiation, formalization, and institutionalization) but followed different institutional logics.  Initiation: In case D, community organization was a reaction to the closure of an important local infrastructure, an outdoor swimming pool. Shortly after the announcement of the closure, a small group of residents started lobbying local council members and convinced them of the facility’s social importance for the neighbourhood, as in their opinion, it contributed to the overall quality of life of residents. In order to mobilize more residents for their cause, a formal community association was founded which organized several events in the neighbourhood. The local council had already experienced the rise and fall of such a community association which had promoted the preservation of another public swimming pool. However, after some initial activism, the initiative ended up with a handful of committed residents who would occasionally

Provision of Public Services

Planning of Public Services Municipality

Citizens

Case A Municipality

Co-provision

Case B Case B

Case E

Case D

Case C Citizens

Case D top-down approaches

Fig. 1.

bottom-up approaches

Planning-/Provision Grid of Public–Citizen Partnerships.

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volunteer for the facility. Thus, as the local council did not believe in the sustainability of the promised support, it did not refrain from the decision to close the pool. In case B, community activism originated from a different source. The local representative of the neighbourhood fought actively against the loss of local food supply, trying to prevent the village from falling into a marginalized role. His efforts were backed by the local council and by representatives of the provincial state level because the regional policy approach was focused on maintaining traditional settlement patterns. In spite of the high level of cohesion in the neighbourhood, there was no culture of resistance comparable to the situation in case D. The local representative’s efforts to stick to a market-based approach in securing local public services and revitalize a privately run food supply met considerable scepticism among residents and finally failed. Thus, he decided to search actively for citizens’ support in running the store.  Formalization: In case B, the second phase of the partnership development was marked by the local representative activating some influential residents of the village by highlighting the social importance of an economic infrastructure. While most inhabitants remained passive, the local representative together with a handful of residents decided to switch from a market-based to a community-based restructuring approach. Under the leadership of the local authorities, community-based governance was set up for the village shop. In contrast, case D shows community activists founding a co-operative in order to strengthen their collective power and to attract even more support from local residents. Nevertheless, as in case B, it was an emotional link – an imaginary view of the neighbourhood as a place of social importance – which connected residents. The initial membership boom among residents was followed by wide-spread enthusiasm for volunteering to convert the public pool area into a recreational facility based on ecological standards. While the local council unwillingly agreed to the proposed ‘outsourcing’, local government representatives subsequently adopted a more professional attitude towards the community cooperative, educating its representatives of existing regulations and policies that had to be respected.  Institutionalization: In the meantime, the co-operative PCP in case D has been institutionalized in the region and gets substantial financial support from the municipality. Furthermore, the municipality council charges the co-operative a symbolic rent of one euro per year for the land the outdoor pool is situated on. The partnership could not substantially change

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governance relations on a broader scale. The process of collective selfempowerment came to an end because community activists were not seeking to challenge power relations on a broader political agenda. They are aware that the complete withdrawal of public funding could turn the community project back into the hands of government professionals or lead to the ultimate shutdown of the facility. The village shop in case B has become popular among residents. It does not only offer a wide range of products, but turned into a new central meeting point, where residents would meet during the day and have a chat. While former shop owners were always viewed with envy, residents are no longer suspicious of profit making. Motivated by the local representative, residents participate in activities in the facility, and, all local associations are ‘disciplined’ to use the co-operative as an exclusive supplier for events happening around the village. In this way, there are also signs that solidarity among residents has been strengthened. Furthermore, nobody questions the partnership structure behind the ‘community project’ of the village shop.

DISCUSSION The empirical results can be related to the theoretical discussion on the governance of PCPs earlier in the chapter. In this respect, our case study evidence suggests that the institutional context is crucial for understanding the nature of governance in PCPs and its potential for user and citizen empowerment which is often highlighted in third sector and public management literature (e.g. Bovaird, 2007; Pestoff, 2009; Somerville, 2007). In both of our in-depth cases studies, the concept of co-operative governance has been transferred from other geographic contexts. However, due to the specificity of the context, co-operative governance was shaped differently in the case communities. This variation results from the specific history of the places and their inherited institutional frameworks (Scott, 1995). Thus, for instance, context-sensitive analysis in both discussed cases reveals that local restructuring of public services is regulated by different scales pointing to the crucial role of regional state actors. However, in contrast to case D, the regional government in case B kept a strong normative commitment to maintaining economic and social infrastructure in the small village, thus providing the necessary economic resource base and political backing for citizen participation in local public service delivery.

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Thus, the authors suggest that in order to enhance our understanding of the nature of co-operative governance in PCPs, we need context-sensitive research that goes beyond merely descriptive governance analysis put forward by mainstream governance literature, taking into account the historical trajectories of PCPs. Furthermore, our case findings allow for the formulation of practical propositions for policy makers: if key regional players feel normatively committed to support local initiatives, they are more inclined to provide resources for the particular partnership and the tensions between different stakeholders involved are weakened. However, if co-operative practices in a particular community are in conflict with regional practices, such practices seem to be trapped in the local as the sustainability of these initiatives highly depends on public funding, mostly provided by the regional state level. Thus, we suggest that sustainable user and citizen empowerment is rather a question of bottom-linked institutionalization than bottom-up creativity alone. Nevertheless, setting up a co-operative PCP represents a balancing act between dependency through public funding and autonomy through community-based decision making.

LIMITATIONS AND CONCLUSIONS In this study, we discussed the impact of co-operative governance structures on citizen participation in PCPs. Our assumptions are based on a multiple case study-approach (Gibbert et al., 2008; Yin, 2009). Although we took great care to meet validity and reliability criteria for case study research – internal validity through derivation of research framework from literature; construct validity through data triangulation; external validity through cross-case analysis in five cases; reliability through detailed case study protocols – our study apparently faces some limitations. Firstly, the cases analysed are located within different life cycle stages, which might influence cross-case comparison. Secondly, our study is restricted to one German and four Austrian cases. Municipal areas of responsibility, mainly in public service provision, might differ in other countries due to legal prerequisites. Thus, the applicability of our findings appears to be restricted. Nonetheless, our study extends current governance literature in the field of public service provision, and also provides a basis for further research in this field. Cross-case analyses of five cases situated in Austria and Germany show a number of supporting as well as constraining factors for citizen

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participation in co-operative PCPs. Therefore, this study contributes to the existing body of literature in several ways: Firstly, our findings show that mayors and local representatives play an important role in determining the degree of citizen participation in service co-production and are therefore in line with Bovaird (2004), who claims that politicians (in public–private partnerships) often fear losing power and control over the planning and management of public services. Thus, co-operative PCPs seem to face the potential threat of becoming bureaucratic organizations when they are highly dependent on the municipality (e.g. through substantial funding). Nonetheless, co-operative PCPs in public service provision often need political support (Somerville, 2007) in order to attract citizens to join the partnership and assume responsibility for their community. Thus, our cases show that the co-production of public services is highly dependent on financial support by municipalities and regional governments. Although Somerville (2007) highlights the importance of economic independence for co-operatives, we assume that in the area of public service provision, co-funding by public institutions is essential for the survival of co-operative PCPs. Still, financial support must not necessarily lead to an imbalance of power if the municipality or regional actors do not misuse the initiative to channel citizens’ initiatives. Secondly, our case analysis provides evidence that co-operative PCPs are potentially threatened by degeneration into either bureaucratic organizations or corporate businesses. However, in contrast to human or financial capital, the crucial resource of co-operative PCPs is the social capital available in the community. Thus, the sustainability of co-operative PCPs depends on their ability to mobilize and sustain reciprocal resources (volunteering and donations) that could otherwise not be accessed to deal with specific public service issues (Bovaird, 2007). And thirdly, the chapter has shown that the development of PCPs follows different institutional logics: In case D, a community group has pro-actively taken over the delivery of a public service that was previously provided by the local state authority. This resulted in a contested partnership between the community group and the local council. In case B, however, community participation was government-driven, as citizens were ‘invited’ to participate in a co-operative partnership by the local government. Hence, local government bodies played an ‘enabling role’ in line with Coaffee and Johnston (2005). Thus, a co-operative governance structure can be used as a tool for both (1) the bottom-up self-organization of citizens (co-operatives as a ‘contested space’ for citizen participation) but also (2) as a top-down government directed practice to canalize citizen participation (co-operatives

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as an ‘invited space’ for citizen participation). Setting up a co-operative PCP represents a balancing act between dependency through public funding and autonomy through community-based decision making. Nevertheless, we suggest that sustainable user and citizen empowerment is rather a question of bottom-linked institutionalization than bottom-up creativity alone. Summarizing, our empirical data support the findings of other studies that co-operatives represent a suitable governance structure for community organization in terms of supporting democratic decision making and fostering social innovations in public service delivery (Defourny, 2001; Gerometta et al., 2005; Pestoff, 2009). Therefore, co-operative PCPs are a possibility to enhance participatory democracy and to improve public service provision. Furthermore, there are indications that co-operative governance strengthens solidarity and social cohesion on the neighbourhood level.

NOTES 1. This one-year research project was undertaken by the Research Institute for Co-operation and Co-operatives (RiCC) at WU, Vienna University of Economics and Business, Austria. 2. There is no exact English equivalent for the Austrian Revisionsverband, which is defined as an association responsible for co-operatives’ annual audits. Membership in such an association is obligatory for co-operatives in Austria (the term ‘audit federation’ stems from German co-operative law, cf. Mose, 1994, p. 36).

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