Antecedents of board involvement and its consequences on organisational effectiveness in non-profit organisations: a study on European corporate foundations

Abstract

The governance of non-profit organisations is complex, as these organisations are not only intended to create value for third parties but also dependent on their donors. When the donor is a for-profit firm, it may be challenging to align and balance the firm’s for-profit interests and the non-profit organisation’s social aims. The board of directors has the main responsibility for supporting and monitoring managers’ decisions so that all perspectives are considered, but doing so requires appropriate information about stakeholders’ expectations. Adopting the agency theory perspective, this study focuses on corporate governance in corporate foundations (CFs), a type of non-profit organisation with a private firm as its founder and main donor. We hypothesise that bureaucratic control and coordination mechanisms between CFs and their founder firms, which are the main donors and consequently the main stakeholders, can increase the involvement of the board of directors, thereby leading to higher organisational effectiveness. We argue that the implementation of bureaucratic control and coordination mechanisms between a CF and its founder firm can strengthen corporate governance and provide the board of directors with the information needed to be more involved; such implementation fosters organisational effectiveness because it aligns the profit-oriented objectives of the founder firm and the social-oriented objectives of the CF. By analysing data from interviews of 188 CFs from six European countries, we aim to contribute to the debate on the role of corporate governance in non-profit organisations under the agency theory perspective. We provide evidence that the implementation of coordination and bureaucratic control mechanisms between a CF and its founder firm gives the board more information and leads to higher board involvement, thereby minimising agency issues and fostering organisational effectiveness.