Nongovernmental Organizational Governance and Corporate Governance: A Comparative Analysis

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 classical 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. Second, 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 an 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. This paper seeks to address the following recurring questions: 1. What are the fundamental similarities and differences between corporate governance and nongovernmental governance? 2. What lessons can these forms of governance draw from each other in terms of recent governance reform efforts in both sectors? 3. What constitutes an efficient NGO accountability structure? 4. Should institutional constituents such as large donors interfere with management? Clearly, such questions lead observers to examine the comparative merits of var-ious legal, fiscal, and regulatory environments. In this paper, I examine recent advances in both agency theory and stakeholder theory in the organizational governance context. This is because many have advocated moving from traditional principal value to the broader concept of the stakeholder society, in which the interests of various community groups would be better represented. This paper suggests that the traditional agency theories of organizational governance are fundamentally inadequate to build trust. We propose an alternative theory and approach based on stakeholders and managerial stewardship. We briefly compare agency theory, stakeholder theory, and stewardship theory as models of organizational governance. We conclude by providing insights into the key implementation steps that are important in implementing an ethically consistent stakeholder model—key steps for restoring and rebuilding public trust.