Nongovernmental Organizational Governance and Corporate Governance: A Comparative Analysis

Abstract

In an organizational setting, the board members are the persons in whom power is entrusted by the principals to act as fiduciaries and to guide the organization. A main cause of concern originates from the elassical problem of the separation of ownership and control. Although agency theory, the dominant approach to research on corporate governance in particular, holds that the separation of ownership and control constitutes an efficient division of labor, there is widespread awareness that managers and boards may take actions that hurt principals or constituencies they are meant to serve. An agency problem can manifest in several ways. First, managers and boards exert insufficient effort while overcommitting themselves to external activities. Secon, they might reap private benefits in the form of perks. Last, they may take unnecessary risks by committing to mature projects. This basic agency problem suggests a possible definition of corporate governance and nongovernmental (organizational) governance as addressing both and adverse selection and a moral hazard problem. A good governance structure is then one that selects the most able managers and makes them accountable to relevant constituents. Moreover, strengthening board performance in NGOs and thus their governance structure is widely recognized as being a major requisite for the improvement of community services that NGOs provide.