The more board members a nonprofit has, the more goals it will have. But that doesn’t always decrease the organization’s effectiveness. It potentially increases effectiveness, as the nonprofit is able to simultaneously raise more money and spend more on programs — as long as there aren’t too many programs being pursued. However, as nonprofits pursue more goals, their executives’ pay-performance incentives decline.

That’s what Dhananjay “DJ” Nanda, an accounting professor at the School of Business, found in research he conducted with colleagues at the University of Minnesota and Indiana University. The research shows that additional directors bring valuable assets to a nonprofit, along with greater disagreement and dissonance on the board. Nonetheless, their additional assets offset both that dissonance and the greater complexity required for the organization to pursue multiple objectives.

By definition, the boards of nonprofits serve multiple stakeholder interests, including donors, aid recipients and the organization’s “community,” however that might be defined. Nanda and his colleagues found that a larger board:

  • Helps an organization raise and spend more money, because each board member either contributes intangible assets, such as expertise, or helps defray the fixed operating costs with direct donations or fundraising. The exception: health care nonprofits.

  • Leads the nonprofit to pursue a greater variety of program activities. In fact, the correlation suggests that each major program activity, on average, is associated with one additional board director.

  • Leads to lower managerial pay-performance incentives.

  • Leads to more donation revenue.

  • Leads to less commercial revenue. This is why health care nonprofits tend to bring in less revenue if their boards are larger.

The research will be published in a forthcoming article in the Journal of Accounting and Economics.
    Fall 2011
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