Stakeholder performance reporting for nonprofit organizations.

• Author: Stoetzer, Sandra
• Position: Report

1 INTRODUCTION

As is generally known, nonprofit organizations (NPOs) are of great importance in modern societies and the heterogeneous organizations of the third sector (nonprofit sector) operate in several areas. In contrast to business companies or profit organizations (POs) and public entities, they show characteristics which involve consequences for their management. NPOs are confronted with manifold and often contradictory demands of various stakeholders as any individual or group who can affect or is affected by the achievement of the organization's objectives (Freeman, 1984, 25 and 46). Of course this multiple embeddedness in society complicates the setting of objectives. They have to balance diverse requirements, logics, and fundamentals like efficiency and effectiveness (Badelt et al., 2007, 620; Schwarz et al., 2005, 39; Simsa, 2001, 12; Simsa, 2004, 484ff.). Their characteristic service and performance configuration corresponds to their complex revenue structure. Typically, NPOs show a mix of different revenue sources which comprise charges and (member) fees for services, revenues from sales, various public sector payments, and donations (Anheier, 2005, 204f.; Anheier et al., 2007, 35; Blumle and Schauer, 2002, 561ff.; Pajas and Vilain, 2004, 344f.; Sacco and Nagy, 2004, 390). Because of the numerous kinds of resources (incl. non-monetary resources like donations and the support of volunteers) NPOs interact with diverse people and organizations that have a stake in the NPO, its sustainability and performance. These stakeholders confront NPOs with their heterogeneous demands and interests (Anheier, 2005, 204 and 227). Furthermore, the often insecure mix of financial revenue sources requires an adequate relationship management and precautious planning as this aspect concerns the NPO's economic survival (Eichhorn, 2003, 136ff.).

A series of challenges increases the necessity of professional management and good governance as well as the relevance of a proactive information policy, trustworthy communication, and of the building and maintaining of strategically important relationships with the NPO's main target groups (stakeholder relationship management; we define this--following Cennamo et al.'s broad definition of stakeholder management (2009, 491)--as the process of managing the expectations of and thus the relationships with stakeholders) who increasingly claim transparency and accountability (Anheier, 2005, 225ff.; cf. Drucker, 1990, 123ff.). Hence it is alarming that many NPOs still have considerable shortcomings concerning marketing, strategic management and controlling, performance- and stakeholderoriented accounting, performance measurement and reporting. A stakeholder-oriented information and communication policy, including appropriate accounting and reporting practices, is crucial for the NPO's legitimacy, credibility, and trustworthiness. In addition it facilitates fundraising and building strong relationships with supporters and therefore helps securing the NPO's existence. For these purposes there are numerous tools and practices which can be considered as confidence- building measures. Of significant importance for NPOs are seals of approval, certificates and labels, their an nual financial reporting (for instance in accordance with the Austrian legal requirements for associations named "Vereinsgesetz 2002" (VerG 2002), or the recommendations of Swiss GAAP FER 21), and several special forms of accounting and reporting (e.g. (Corporate) Social Accounting/Reporting/Auditing, Goal Accounting, Corporate Social Responsibility Reporting, Sustainability Reporting, Intellectual Capital Reporting, Member-Value Reporting etc.). Moreover, the voluntary submission to a code of conduct represents a trust-building action. Overall, these practices improve leadership and management, and consequently they can enhance the NPO's performance as well as its legitimacy (Stotzer, 2009).

This theoretical paper highlights an addressee-oriented accounting and reporting approach named Stakeholder Performance Reporting (SPR) which was developed on the basis of an extensive literature review and ten case studies of NPOs in Austria, Germany and Switzerland. Despite this focus on German-speaking countries SPR can be interesting for nonprofits in many other countries as well as their accounting and reporting practices for NPOs often show similar (or even more serious) shortcomings (with the positive exception of the UK Charities SORP in England and Wales). The paper will outline the basic concept, the theoretical framework, a possible design and benefits of an exemplary performance report which takes into account the information needs of various relevant stakeholders of NPOs (e.g. employees, volunteers, donors, sponsors, members, public contract partners etc.).

1.1 CURRENT CHALLENGES FOR NPOS

Various significant changes in the institutional environments of NPOs are taking place and represent both opportunities and risks. They can be classified as five interdependent trends (Stotzer, 2009, 69ff.): general social trends (changes in demographics, values, information and communication technology, etc.), structural/sectoral changes (within as well as in between the sectors incl. increasing competition as well as cooperation and contract partnerships), finances and nonmonetary resources (management of potentials/inputs, fundraising), increasing requirements (concerning efficiency, effectiveness, professionalism, accountability, good governance, and transparency), and finally stakeholder relationship management. Substantial consequences of current challenges for NPOs are an increasingly high significance of proficient nonprofit management and managerial know-how in NPOs (Anheier, 2005, 243ff.), the necessity for a well-defined positioning of the organization and for communicating its efficiency (Horak and Furnschus, 2004, 179ff.), as well as adaptability, flexibility, and the capability to be innovative (For further information concerning major challenges for NPOs see inter alia Badelt et al., 2007, Salamon and Anheier, 1999, Stoger and Salcher, 2006, and von Moos, 2004.). Essential facets of successful nonprofit management are amongst others the concentration on potentials, processes, results, performance, quality and impact, as well as trust on the part of internal and external stakeholders and thus sustainable stakeholder relations (Anheier, 2005, 244f.; Klingebiel, 2000, 166; Stoger and Salcher, 2006, 10).

The "crisis" of Unicef Germany in 2008 for instance attracted a great deal of attention and demonstrates how a case of mismanagement along with an intense media coverage can easily and persistently destroy trust. Such incidents can be traced back to poor governance and insufficient supervision. According to this, the dispute about generally accepted principles of good nonprofit management and governance as well as effective supervision has intensified in the nonprofit sector too (Andessner and Stotzer, 2007, 105ff.; Chait et al., 2005, xv; Siebart and Reichard, 2004, 271ff.); the development of numerous codes of conduct for nonprofits (codes of good governance) in recent years can act as an indicator for this. Good governance counterbalances the (often conflicting) interests of the NPO's stakeholders and should ultimately sustain the existence and success of the organization (Bachert, 2005, 197; cf. Siebart and Reichard, 2004, 272). Fundamental aspects of governance--especially within NPOs as multiple-stakeholder-organizations (Simsa, 2007, 133)--are the principal-agent problem and the existence of information asymmetries (Anheier, 2005, 226ff.). It requires a clear and functional strategy, adequate organizational structures, periodic evaluations and both internal and external supervision, and especially transparent information (incl. accounting/reporting) and communication in order to enable good governance and provide confidence. This model or network of corporate/nonprofit governance is based on organizational values and cultural norms (Andessner and Stotzer, 2007, 107ff.; Budaus, 2005; Haeseler and Gampe, 2002, 75ff.).

A stakeholder- and outcome-oriented accounting approach like Stakeholder Performance Reporting can help meeting the current demands for performance evaluation and accountability; it can strength en the focus on (important) stakeholders and results and may enhance fundraising (such as fostering positive relationships with (key) stakeholders has a direct impact on PO's financial performance; see Berman et al., 1999). By building and enlarging trust it should ameliorate and strengthen the relationships with the organziation's stakeholders as interactions based on (mutual) trust and cooperation can represent a competitive advantage (cf. Jones, 1995). If such a reporting practice (and in particular its basis of information) is linked with the NPO's planning, controlling, monitoring, and other management systems, it can improve the organization's professionalism as well. Given the frequently stated managerial shortcomings and other deficiencies of NPOs, this seems like an opportunity not to be neglected.

1.2 PROBLEM OUTLINE AND RESEARCH QUESTIONS

According to systems theory, communication (within the organization as well as with its institutional environment) is essential for the persistence, development, and sustainability of social systems. All actions and operational sequences are accompanied or even constituted by communication. Therefore, deficiencies in marketing and reporting of NPOs are even more serious (Bossong, 2006, 28ff.; Eichhorn, 2003, 136ff.; Mautner, 2007, 605ff.). But analysing these shortcomings gives the opportunity to identify useful indications for improving stakeholder (relationship) management and stakeholder-oriented accounting and reporting practices.

Both internal and external factors determine the communication of NPOs. In general their stakeholder structure is...