Regulation by Reputation: Monitoring and Sanctioning in Nonprofit Accountability Clubs

• Author: Mary Kay Gugerty,Joannie Tremblay‐Boire,Aseem Prakash
• DOI: http://doi.org/10.1111/puar.12539
• Published date: 01 September 2016
• Date: 01 September 2016

712 Public Administration Review • September | October 2016

Public Administration Review,

Vol. 76, Iss. 5, pp. 712–722. © 2016 by

The American Society for Public Administration.

DOI: 10.1111/puar.12539.

Mary Kay Gugerty is the Nancy Bell

Evans Professor in Nonprofit Management

in the Evans School of Public Policy

and Governance at the University of

Washington. Her research examines

evaluation and impact measurement in

the social sector; advocacy, accountability,

and voluntary regulation programs

among nonprofit and nongovernmental

organizations; and agricultural and rural

development in sub-Saharan Africa. Gugerty

is coauthor of the forthcoming book

The

Goldilocks Project: Right-Sized Monitoring

and Evaluation for NGOs and Nonprofits.

E-mail: gugerty@uw.edu

Aseem Prakash is professor of political

science, Walker Family Professor for the

College of Arts and Sciences, and director

of the Center for Environmental Politics

at the University of Washington. He is

general editor of the Cambridge University

Press Series in Business and Public Policy,

coeditor of

Journal of Policy Analysis and

Management,

and associate editor of

Business & Society.

He currently serves as

vice president of the International Studies

Association.

E-mail: aseem@uw.edu

Joannie Tremblay-Boire is assistant

professor of public management and policy

at Georgia State University. She studies

nongovernmental organizations and

nonprofits, focusing on their accountability,

internal structure, and legal environment.

Her dissertation, funded by the Social

Science and Humanities Research Council

of Canada, examined international

grantmaking by American foundations. Her

work has appeared in

Voluntas, Nonprofit

and Voluntary Sector Quarterly,

and

European Political Science Review.

E-mail: jtremblayboire@gsu.edu

Abstract : Nonprofits seek to enhance their reputation for responsible management by joining voluntary regulation

mechanisms such as accountability clubs. Because external stakeholders cannot fully observe nonprofits’ compliance

with club obligations, clubs incorporate mechanisms to monitor compliance and impose sanctions. Yet including

monitoring and sanctioning mechanisms increases the cost of club membership for nonprofits. What factors account for

the variation in the strength of monitoring and sanctioning mechanisms in voluntary accountability clubs? An analysis

of 224 clubs suggests that stringent monitoring and sanctioning mechanisms are more likely in fund-raising-focused

clubs, clubs that offer certification (as opposed to only outlining a code of conduct), and clubs with greater longevity.

The macro context in which clubs function also shapes their institutional design: clubs in OECD countries and clubs

with global membership are less likely to incorporate monitoring and sanctioning mechanisms than clubs in non-

OECD countries and single-country clubs, respectively.

Practitioner Points

•  e greater role of nonprof‌i ts in policy has invited concerns about their managerial practices and

accountability.

• If stakeholders do not f‌i nd accountability clubs of the appropriate design, they can help in establishing ones

that suit their preferences.

• Stakeholders evaluating club design should recognize that high-cost clubs do not necessarily contribute to

superior public policy if they attract too few participants.

• Voluntary accountability clubs operate in the context of public law. If clubs f‌i ll governance gaps, the strin-

gency of monitoring and sanctioning mechanisms will dif‌f er across jurisdictions, depending on the levels of

monitoring and sanctioning of‌f ered by public law.

• Stakeholders must evaluate the strength of accountability clubs while keeping in mind the quality of public

law within which nonprof‌i ts function.

Joannie Tremblay-Boire

Georgia State University

Aseem Prakash

Mary Kay Gugerty

University of Washington

Regulation by Reputation:

Monitoring and Sanctioning in Nonprofit Accountability Clubs

V oluntary regulation programs have

proliferated in the for-profit (Prakash and

Potoski 2006 ; Vogel 2005 ) and nonprofit

sectors (Bothwell 2001 ; Gugerty and Prakash 2010 ;

Sidel 2003 ). External stakeholders seek assurances

beyond those provided by public regulations that

organizations are behaving responsibly, following

societal expectations and norms of behavior. This issue

is particularly salient for the nonprofit sector because

of the ease with which nonprofits can be established

and the relative abundance of resources in the sector,

especially from international funders and government

contracts (Guo 2007 ; Smith and Lipsky 1993 ). The

increase in funding for nonprofits over the last decades

has attracted “bad apples” along with good ones.

The nonprofit sector suffers from a contamination

problem (Burger and Owens 2010 ) whereby the

reputations of responsible nonprofits are negatively

affected by the misbehavior of others—the recent

scandal involving Cambodia ’ s Somaly Mam attests to

this issue (Fuller 2014 ). Because external stakeholders

(such as foundations, donors, and the media) have

a limited ability to observe nonprofits’ operations,

when one nonprofit is accused of mismanagement,

it creates negative reputational externalities for other

nonprofits. A number of surveys have documented

declining public trust in the nonprofit sector (Light

2004 ; Salamon 2002 ). Brody notes, “The nonprofit

sector ’ s claims to exist for the public good are no

longer being taken on faith, and more people believe

they have a stake in the accountability of nonprofits”

(2002, 472). Kumi Naidoo ( 2004 ), executive director

of Greenpeace International, proclaims “the end of

blind faith” in civil society organizations.

The claim that, as a class of actors, nonprofits are

principled or trustworthy is difficult to defend.

This erosion of trust has concrete consequences for