Discussion 2: Financial Capacity and Sustainability in Human Services

Discussion 2: Financial Capacity and Sustainability in Human Services ORDER NOW FOR CUSTOMIZED AND ORIGINAL ESSAY PAPERS ON Discussion 2: Financial Capacity and Sustainability in Human Services Due 07/25/2019 by 6 PM EST Receiving funding from a grant or other source of funds is a great accomplishment. Once the funding is received, the human services organization must be able to manage the funds effectively. The organization must also develop a plan to sustain the program after the funding period ends or the potential for change from the funded program may be limited. Discussion 2: Financial Capacity and Sustainability in Human Services For this Discussion, review the budget provided in the grant proposal that you discussed in Discussion 1 of this Week. Consider how you would prioritize budgetary needs and fundraise to continue covering costs of this program after the grant period has ended. Post a brief description of the budget presented in the grant proposal you selected. Describe how you might alter the budget after the grant ended or which budget items you would prioritize as you sought additional funding to continue the program. Explain why you would make these changes or prioritize specific budget items. Finally, explain how you would fundraise to meet the budget priorities. References Lauffer, A. (2011). Understanding your social agency (3rd ed.). Washington, DC: Sage. Chapter 9, “Fundraising and Development” (pp. 285–320) Bowman, W. (2011). Financial c apacity and sustainability of ordinary nonprofits. Nonprofit Management & Leadership, 22 (1), 37–51. LeRoux, K. (2009). Managing stakeholder demands: Balancing responsiveness to clients and funding agents in nonprofit social service organizations. Administration & Society, 41 (2), 158–184. Barasa, E. W., Cleary, S., Molyneux, S., & English, M. (2017). Setting healthcare priorities: a description and evaluation of the budgeting and planning process in county hospitals in Kenya. Health policy and planning, 32 (3), 329-337. Nelson, D., & Ruffalo, L. (2017). Grant writing: Moving from generating ideas to applying to grants that matter. The International Journal of Psychiatry in Medicine, 52 (3), 236-244. Foundation Center. (2018). GrantSpace: Sample documents. Retrieved from https://grantspace.org/resources/sample-documents/ Note: You will need to create a log-in to the website to access and download the documents. This is a free service. leroux_managing_stakeholder_demands.pdf nelson_grant_writing__moving_from_generating_ideas_to_applying_to_grants_that_matter.pdf barasa_setting_healthcare_priorities.pdf bowman_financial_capacity_and_sustainability_of_ordinary_nonprofits.pdf Managing Stakeholder Demands Administration & Society Volume 41 Number 2 April 2009 158-184 © 2009 Sage Publications 10.1177/0095399709332298 http://aas.sagepub.com hosted at http://online.sagepub.com Balancing Responsiveness to Clients and Funding Agents in Nonprofit Social Service Organizations Kelly LeRoux University of Kansas, Lawrence Nonprofit social service organizations face unique challenges in attending to the needs of their various stakeholders. This article uses data from a sample of nonprofit organizations in Michigan to examine how well nonprofits manage multiple stakeholder demands. Findings indicate that nonprofits generally balance organizational time and attention to the needs of both clients and funding agencies. However, a small percentage of nonprofits devote disproportionate time to funding agencies at the expense of client-related activities. Factors that increase this likelihood include financial dependence on forprofit corporations, a racial mismatch between the board and agency clientele, and board dominance by economic elites. Keywords: nonprofit governance; accountability; responsiveness; nonprofit stakeholders; resource dependence A s nonprofits theorists have frequently observed, third sector organizations occupy a precarious place in the American political and economic landscape, situated somewhere in the middle of the market and the state (Salamon, 2002 ; Weisbrod, 1988). Discussion 2: Financial Capacity and Sustainability in Human Services Their public service missions cause nonprofits to share a likeness with governmental organizations, and this likeness has become more pronounced in recent years as nonprofits have adopted increased accountability requirements to fulfill their roles as contract partners of the state (Dicke & Ott, 1999; Kramer, 1994; Romzek & Johnston, 1999). Yet, nonprofits are private enterprises and they display unmistakable business sector tendencies in their quest to sustain themselves Author’s Note: Please address correspondence to Kelly LeRoux, Department of Public Administration, University of Kansas, 1541 Lilac Lane, 323 Blake Hill, Lawrence, KS 66045; e-mail: [email protected]. 158 LeRoux / Managing Stakeholder Demands?? 159 financially. Many have noted that nonprofits are becoming more businesslike, particularly in their revenue-generating strategies as earned income continues to rise as a share of nonprofit funding (Independent Sector, 2002; Ott, 2001; Weisbrod, 1998). This tension between the inherent public service motives and marketlike survival impulses of nonprofits is particularly prominent within (and problematic for) social service organizations. Although social service organizations depend heavily on government,1 they also rely on philanthropic foundations, individual donors, for-profit corporations and increasingly, on client service fees as sources of income. These funders constitute critical groups of nonprofit stakeholders. Discussion 2: Financial Capacity and Sustainability in Human Services Nonprofits are challenged to fulfill the demands of these different stakeholder groups, as well as those of the clients they serve. Although the need to demonstrate responsiveness to multiple stakeholder interests is not unique to nonprofit organizations, it can create an incentive for organizations to devote more time and attention to some stakeholders than others. Although fulfilling the requirements of their funding agents and serving the interests of their clients are generally not incompatible organizational objectives for nonprofits, a potential dilemma for responsiveness to client interests arises when catering to current and prospective funders consumes a disproportionate share of time and attention in the governance agenda. Nonprofit organizations in particular are confronted by hard choices in time allocation because they typically operate with fewer staff and smaller staff-to-workload ratios than public and for-profit organizations (Light, 2002). This article draws on the theory of stakeholder management and on findings from the corporate governance literature to examine the stakeholder orientations of nonprofit social service organizations. Two models of stakeholder orientation are recognized in this literature: (a) the normatively oriented, intrinsic stakeholder commitment model and (b) the instrumentally motivated, strategic stakeholder management model (Berman, Wicks, Kotha, & Jones, 1999). The former model projects governance relationships with stakeholders to be based on “normative, moral commitments rather than a desire to use stakeholders solely to maximize profits” (Berman et al., 1999, p. 492). Discussion 2: Financial Capacity and Sustainability in Human Services This model has until recently, functioned as the dominant paradigm in stakeholder management research. The latter model is grounded in rational choice logic and suggests that organizations adopt an instrumental stance toward stakeholders in an attempt to maximize financial gains and suggests they serve other stakeholder interests only as a means of achieving that end. As private enterprises with public serving missions, nonprofits are widely assumed to conform to the intrinsic commitment model, but it raises 160?? Administration & Society an interesting and timely set of empirical questions about the extent to which this assumption is true. To what extent has an instrumental stakeholder orientation manifested among nonprofit social service organizations? What factors help explain the adoption of an instrumental orientation by nonprofits? Instrumental orientation is examined in this analysis through a measure constructed from a series of survey questions in which nonprofits report the amount of organizational time spent on activities associated with fund development as excessively high and simultaneously report the frequency of time spent on client activities as excessively low. In light of public organizations’ roles as major stakeholders of nonprofits, a critical question arises as to whether government revenues have had the unintended effect of promoting an instrumental orientation within nonprofits.Discussion 2: Financial Capacity and Sustainability in Human Services These questions have important implications for nonprofit accountability, for government–nonprofit contracting, and for the responsiveness of third party agents to client interests. Clients of nonprofit social service organizations are often vulnerable citizens who lack the information, ability, or luxury of the “voice” option or “voting with their feet” in the same way customers in the for-profit service market might (Weisbrod, 1988). Nonprofits are generally thought to make preferable contract partners for government because they are less opportunistic and more trustworthy than for-profit firms (Hansmann, 1980), and there is some evidence suggesting this may the case (Marvel & Marvel, 2007; Weisbrod & Schlesinger, 1986). However, the documented growth in entrepreneurial practices adopted by nonprofits, increased prevalence of nonprofit executives trained in business management, and increased need for nonprofits to compete in the marketplace with for-profit firms (Ott, 2001) calls for a closer look at the issue of how nonprofits orient themselves toward their key stakeholder groups. Stakeholder Theory and Nonprofits Stakeholder theory is largely a normative organizational theory suggesting that managerial attention to all stakeholder interests is critical to the firm’s success (Freeman, 1984). As Jones and Wicks (1999) describe stakeholder theory “the interests of all stakeholders have intrinsic value, and no set of interests is assumed to dominate the others” (p. 207). Essentially, stakeholder theory implies a need for organizations to expand the domain of corporate governance to be both sensitive and responsive to all stakeholder interests and not simply those of shareholders. Discussion 2: Financial Capacity and Sustainability in Human Services This normative approach to stakeholder LeRoux / Managing Stakeholder Demands?? 161 theory inspired by Freeman has clearly served as the prevailing analytical framework upon which most stakeholder studies have been based (Berman et al., 1999; Clarkson, 1995; Donaldson & Preston, 1995; Evan & Freeman, 1993; Freeman & Evan, 1990; Jones & Wicks, 1999). Given that nonprofits do not have shareholders who stand to profit from the organization’s activities, stakeholder theory has been scarcely applied to nonprofit organizations and only in a descriptive sense (Abzug & Webb, 1999; Keating & Frumkin, 2003). This lack of scholarly attention to how nonprofit organizations manage their stakeholders may be attributed to the fact that nonprofits do not have shareholders who own a personal financial stake in the organization. If nonprofits do not have shareholders, then who are the stakeholders of nonprofit organizations? Institutions and individuals that finance the work of nonprofits, such as government, private charitable foundations, corporations, clients, and individual citizens who donate, comprise key groups of nonprofit stakeholders. These actors finance the work of the organization, and may therefore play a critical role in shaping nonprofits’ stakeholder management practices. As a condition of both receiving and maintaining contracts, grants, and other forms of financial support, nonprofits are required to demonstrate their accountability through financial audits and various forms of performance reporting. Some organizations have embraced highly sophisticated performance measurement programs and use the results as a marketing tool in promoting their services to prospective funders (Ott, 2001). However, organizations vary in the amount of time they allocate to these and other activities related to interactions with funders. In addition to funders, clients who function as the organization’s “customer” base represent another key stakeholder group to which the organization must allocate time, both in the form of direct services and in indirect governance activities that support client interests, such as advocacy, client education, and linkages to community institutions. Although they provide the justification for organizations’ existence, clients are far less powerful than funders as a stakeholder interest. Discussion 2: Financial Capacity and Sustainability in Human Services On the whole, clients are likely to be less influential in shaping organizational resource allocation decisions, particularly if they do not pay for the services they receive. Like for-profit firms, private nonprofit organizations are governed by boards of directors that are fundamental to organizational governance. Boards are the policy-making and oversight body of nonprofit organizations, and their influence on organizational priorities and resource allocation 162?? Administration & Society decisions is often substantial (Green & Griesinger, 1996). Board members may play a particularly salient role in shaping nonprofits’ stakeholder orientation, because they are uniquely positioned at the nexus of internal and external demands made on the organization. Board members do not influence the organization’s resource allocation decisions from outside of the organization as funders do, or from “below” the organizational governance level as clients do, but rather they help shape organizational management through their authoritative role in internal decision making. Each of these groups—funders, clients, and boards will be examined in greater depth below along with hypotheses about the predicted effect of each on organizations’ stakeholder orientation. Models of Stakeholder Orientation Stakeholder orientation refers to how organizations manage their stakeholders through resource allocation decisions (Berman et al., 1999). Time is a critical resource that must be allocated among a number of organizational activities in order to accomplish the organization’s objectives. Organizational time allocation decisions have consequences for stakeholders. Two divergent views exist in the corporate governance literature about the ways organizations allocate time and attention to stakeholder groups.Discussion 2: Financial Capacity and Sustainability in Human Services These divergent views form the basis for the two models of stakeholder orientation: the normative model (intrinsic stakeholder commitment) and the instrumental model (strategic stakeholder management; Berman et al., 1999). As suggested in the preceding discussion of the theory, the normative approach that originated with Freeman’s (1984) work has served as the prevailing theoretical model in stakeholder management research. The intrinsic stakeholder commitment model is grounded in the corporate ethics literature and views values and ethics as being inextricably linked to strategy and organizational behavior. This model speaks to the frequently cited argument made by Freeman and Gilbert (1988) that an organization must ask “what do we stand for?” when making organizational decisions (p. 70). The intrinsic commitment model suggests that organizations give equal attention to all stakeholder interests, or as Clarkson (1995) states, “the economic and social purpose of the organization is to create and distribute increased value to all its primary stakeholder groups without favoring any one group at the expense of others” (p. 112). This predominant model is thus a normative theory proposing the way that organizations should act, but proponents of this model also claim it to have descriptive utility (Donaldson & Preston, 1995; Jones & Wicks, 1999). LeRoux / Managing Stakeholder Demands?? 163 However, a second view challenges the normative model as an inaccurate reflection of organizational behavior (Gioia, 1999; Jawahar & McLaughlin, 2001). Discussion 2: Financial Capacity and Sustainability in Human Services This alternative perspective draws on the resource dependence view of organizational behavior (Pfeffer & Salancik, 1978) which suggests that organizations seek to defend against environmental uncertainty through conscious attempts to manage their external dependencies. This forms the basis for a competing model of stakeholder management in which organizations can and do strategically place some stakeholder interests over others because financial performance (revenue growth) is contingent upon such a strategy. For example, Jawahar and McLaughlin (2001) argue that “organizations are likely to favor certain stakeholders depending on the extent to which they are dependent on those stakeholders for resources critical to the organization’s survival.” (p. 397). The instrumental model acknowledges that stakeholder management presents opportunity costs; devoting time to stakeholder interests that provide opportunities for financial gain may require trading off some time and attention to other stakeholder interests. Thus, organizations with an instrumental stakeholder orientation will systematically invest more time in activities that offer the potential for yielding financial gains for the organization. The Budget-Maximizing Nonprofit Executive? Can nonprofit leaders be motivated by financial gain, when the organizations they govern are, by definition, not-for-profit? The motivations of both public and nonprofit executives for financial gain are thought to be held in check by what Weisbrod (1977) termed the “non-distribution constraint,” referring the legal prohibition on public and tax-exempt organizations from distributing their profits to employees or board members. Discussion 2: Financial Capacity and Sustainability in Human Services However, nonprofit organizations can and do, generate profits. Surplus revenues, interest and dividends on assets, and “unrelated business income” are legally permissible under the tax-exempt regulations, with the caveat that such forms of surplus income are reinvested into organizational programs and activities, broadly defined. The nondistribution constraint suggests that nonprofit leaders would have no interest or incentive for attempts to procure more revenues for their agency because they cannot personally reap the rewards of financial gain. Yet in the same way Niskanen (1971) argued that program budget size functions as a proxy for bureaucratic utility, budget growth would serve the same utility function for nonprofit leaders. Niskanen suggested that public managers have personal goals that might be attained through maximizing 164?? Administration & Society discretionary budgets, and the same logic can be applied to nonprofit leaders. Whether in public or nonprofit organizations, larger budgets typically bring the benefits of power, prestige, enhanced reputation, productivity, additional staff, and ease of management (Niskanen, 1971). Frequently, it also brings the reward of increased salary for staff and organizational leaders. Indeed, in the case of nonprofit organizations, there is direct correlation between size of the organization and executive directors’ compensation (National Council of Nonprofit Associations, 2007). Discussion 2: Financial Capacity and Sustainability in Human Services Therefore, larger nonprofits may be more likely to adopt an instrumental orientation than smaller and medium sized organization. Predicting Orientation: Budgets, Boards, and Clients Nonprofits are generally viewed as displaying an intrinsic commitment to all stakeholders, balancing organizational time commitments between current and prospective funders, and serving their “customers.” However, certain factors may enhance the likelihood that nonprofits will adopt an instrumental orientation, whereby the organization displays a severe imbalance in time commitments between funders and clients, favoring the former. Specifically, who governs the organization, and which mix of sources it relies on most for funding may have significant consequences for how organizations orient themselves toward stakeholders. The issue of nonprofit financing is examined first. Nonprofit social service organizations rely on a variety of sources for their income, but their largest sources of funding are government, independent foundations, private for-profit corporations, client fees and other forms of earned income, and charitable contributions from individual donors (Independent Sector, 2002). Nonprofits vary widely, however, in their extent of reliance on this range of sources. Some social service organizations are solely dependent on government, whereas others rely entirely on client fees. Still others depend on a variable mix of revenues. Funds from government, private foundations, and corporations shape nonprofit behavior in distinctive ways because they represent institutional forms of support. As such, they have the power to embed their own desired values in the organizational practices of nonprofits they fund. However, the values transmitted to nonprofits by corporations will produce different organizational behavior than the values extended by government and independent foundations. Discussion 2: Financial Capacity and Sustainability in Human Services LeRoux / Managing Stakeholder Demands?? 165 Corporations Corporations are a set of economic institutions defined by capitalist values of profit-seeking and market-based competition. Corporations serve as an important source of financial support for many nonprofit social service organizations. Corporate donations may be made directly, or channeled through a corporate foundation. In addition to cash gifts, corporations are frequent sponsors of special events, annual fundraisers, and provide several forms of in-kind support. Grønbjerg (2001) has argued that nonprofit executives forge strategic alliances with corporations that serve the mutual economic interest of both parties. Nonprofits benefit from the wealth corporations have to offer, and corporations benefit from the large tax deductions they can claim for their contributions. Based on her research of child welfare and community development organizations, Grønbjerg (2001) demonstrated how nonprofit executives formalize their alliance with corporations by appointing corporate leaders to serve on their boards of directors. In turn, this alliance serves strategic purposes for corporate executives. She suggests that “for corporate leaders, financial support of nonprofit organizations and membership on nonprofit boards are indirect opportunities to promote corporate interests and extend their sphere of influence” (Grønbjerg, 2001, p. 222). 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