Assessing Changing Accountability Structures Created by Emerging Equity Markets in the Nonprofit Sector

Abstract

The issue of nonprofit accountability has received broad attention by practitioners and academics and a rich accountability literature has emerged within the past two decades. In recent years amidst rising costs within the economy, increased competition for donations and grants, and rivalry from for-profit companies entering the third sector in greater numbers, nonprofits have been increasingly turning to innovative foundations and the for-profit world to leverage and/or replace their traditional sources of funding. One inevitable result from these changes in financial structures is an accompanying change in accountability structures for organizations accessing such capital. On one hand, an infusion of philanthropic equity can encourage greater accountability and help organizations define internal controls and evaluation mechanisms, yet it can also pose threats including mission creep and corporate mimicry. While donors have, at least in theory, always desired accountability from nonprofits, for these new investors accountability will not be theoretical. It will require potential shifts to a more business-based accountability structure. This paper examines these emerging financing mechanisms, predicts the potential accountability impacts from both a nonprofit's managerial and governance perspective, and contributes to our knowledge of how nonprofit leaders can respond to emerging capitalization markets for organizations engaging with these nontraditional financing vehicles.