The Contextual Impact of Nonprofit Board Composition and Structure on Organizational Performance: Agency and Resource Dependence Perspectives

Abstract:     
We study the relation between stability of the nonprofit organization’s environment and its board structure and the impact of this relation on organizational performance from the perspectives of both Agency Theory and Resource Dependence (Boundary Spanning) Theory. The impact of board characteristics on organizational performance is contextual. Specifically, we predict and show for a sample of U.S. nonprofits that board mechanisms related to monitoring are more likely to be effective for stable organizations, whereas board mechanisms related to boundary spanning are more effective for less stable organizations. We find that the two theories are complementary and address different aspects of nonprofit performance, but the results are statistically stronger and more often consistent with resource dependence than with agency theory. Overall, this study supports Miller-Millesen’s (2003) contention that, because the nonprofit environment is often more complex and heterogeneous than the for-profit world, no one theory describes all tasks of nonprofit boards.

Keywords: nonprofit governance, boards, resource dependency, agency theory, organizational stability

JEL Classification: D23, L31, M41

Accepted Paper Series