Professionalization and Voluntary Transparency Practices in Nonprofit Organizations

• DOI: http://doi.org/10.1002/nml.21263
• Date: 01 September 2017
• Author: Clemens Striebing
• Published date: 01 September 2017

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N M  L, vol. 28, no. 1, Fall 2017 © 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21263

Journal sponsored by the Jack, Joseph and Morton Mandel School of Applied Social Sciences, Case Western Reserve University.

Professionalization and Voluntary

Transparency Practices in Nonprofi t

Organizations

Clemens Striebing

Fraunhofer IAO , Center for Responsible Research and Innovation

There are currently no public disclosure requirements for privately controlled charitable

organizations in Germany. This study examines under which conditions German non-

profits, including both public charities and foundations, voluntarily choose transparency.

Transparent nonprofits are defined herein as those that publicly disclose their annual

reports and detailed financial information. A very small number of German nonprofits do

so. The results of a crisp-set Qualitative Comparative Analysis suggest that the driving force

behind the voluntary transparency of organizations is professional management rather than

revealed cases of malpractice or stakeholder demands.

Keywords: professionalization , voluntary transparency

Correspondence to: Clemens Striebing, Fraunhofer Center for Responsible Research and Innovation, Hardenbergstraβe

20, 10623 Berlin, Germany. Email: clemens.striebing@iao.fraunhofer.de.

TRANSPARENCY, AS UNDERSTOOD herein, is an organizational attribute denoting open-

ness toward stakeholders, especially the wider community.  ere is a divergence between how

charitable, tax-exempt funds can be legally spent and the common view of how these funds

should be spent. For example, it is legally acceptable in Germany for a charitable organiza-

tion called the “Movement to Promote Renewable Energy” to lobby for nuclear power plants.

Because the German transparency regime—by which I mean the legal framework determin-

ing the reporting duties of nonprofi ts—does not impose a public disclosure requirement on

nonprofi ts, whether to off er transparency is a voluntary decision. Without transparency to

their benefi ciaries and the wider community, the likelihood of an organization effi ciently

serving these groups and realizing the common good is reduced. Although most German

nonprofi ts reveal little information to the public, there are, of course, several cases of non-

profi t transparency. Of particular interest is the motivation to be transparent in the absence

of competitive (fundraising) incentives or legal compulsion.

When Do Charitable Organizations Choose

Transparency?

I examined the conditions for organizational transparency in two stages: (1) using Christine

Oliver ’ s theory of embedded agency based on her research on strategic responses to institutional

processes (1991) and (2) interpreting the identified conditions with a common meta-factor

Research Article

Nonprofi t Management & Leadership DOI: 10.1002/nml

66 STRIEBING

that connects the results to current research on the effects of professionalization on the non-

profit sector (for example, see Hwang and Powell 2009 ). The results of this study suggest that

voluntary transparency is a management measure for nonprofit emloyees and managers to gain

peer recognition within their professional community rather than to improve communication

with the organization ’ s beneficiaries or within the wider community.

Transparency of Privately Controlled Charitable

Organizations

A transparent organization publicly discloses information that facilitates judgment of its con-

duct and performance (Koppell 2010 ). Transparency is regarded as the basis of any account-

ability relationship (Ahmad 2008 ; Koppell 2010 ). Only actors who are obliged to explain and

to justify their conduct can be questioned and sanctioned by their forum (Bovens 2006 ). A

lack of transparency, therefore, typically results in a lack of accountability for a specific actor.

In many countries, nonprofits are required to maintain a basic level of transparency through

mandated public disclosure of financial or other records, such as through Internal Revenue

Service (IRS) Forms 990 and 990-PF in the United States. However, not all stakeholders

require publicly disclosed information to evaluate an organization ’ s performance. For example,

management board meetings or (informal) contractual reporting can serve that purpose for

donors. Public officials can acquire necessary information from tax and other legal reports.

Ironically, it is those who should profit most from the activities of a charitable organization—

its community or beneficiaries—who are served least well by conventional reporting structures

(Ebrahim 2005 ; Kilby 2006 ). Although charities claim to pursue the common good, they also

generally behave in ways that make it difficult for the public to assess the truth of this claim.

For instance, according to a 2010 survey by the business consultancy KPMG, only 13 per-

cent of philanthropic foundations in Germany produced a printed annual report, and only

9 percent published such information online (Falk, Kramer, and Zeidler 2010 ). Nearly two-

thirds (65 percent) of German foundations had no homepage (Pätsch and Rötzsch 2013 ).

Because only a fraction of nonprofits in Germany are transparent to the public, their

accountability to those who are directly or indirectly affected by their activities is limited.

Thus, the capacity for organizational learning, in this case the ability to better and more

consistently serve target groups, is reduced, and the evaluation of mission success is biased

(Edwards 2010 ; Jacobi 2009; Thümler and Bögelein 2012).

German Context and Focus of the Study

This study focuses on privately controlled charities referred to as “foundations” within Ger-

many, where an organization ’ s status as a foundation is determined by its legal registration

rather than its income tax treatment. In the United States, by contrast, a “private founda-

tion” is defined as a public-purpose nonprofit organization that obtains its principal funding

from a single source, which often carries connotations of being “donor controlled.” German

foundations are anchored in civil law and are constituted by the dedication of an asset and the

creation of a charter specifying the use of interest generated by this asset. The German defini-

tion of “foundation” is sufficiently broad that the inferences in this study apply to the majority

of nonprofits in both Germany and the United States.