Stakeholder salience and accountability mechanisms in not‐for‐profit service delivery organizations

• Author: Maria Cadiz Dyball,Graeme Harrison,Jinhua Chen
• Date: 01 February 2020
• DOI: http://doi.org/10.1111/faam.12217
• Published date: 01 February 2020

Received: 29 August 2017 Revised: 26 November2018 Accepted: 1 February 2019

DOI: 10.1111/faam.12217

ORIGINAL ARTICLE

Stakeholder salience and accountability

mechanisms in not-for-profit service delivery

organizations

Jinhua Chen1Maria Cadiz Dyball2Graeme Harrison1

1Macquarie Business School, Department of

Accounting and CorporateGovernance,

Macquarie University, Sydney,New South Wales,

Australia

2Discipline of Accounting, The University of

SydneyBusiness School, The University of

Sydney,Sydney, New South Wales, Australia

Correspondence

JinhuaChen, Macquarie Business School, Depart-

mentof Accounting and Corporate Governance,

MacquarieUniversity, Sydney,NSW 2109, Aus-

tralia.

Email:jinhua.chen@mq.edu.au

Fundinginformation

Accountingand Finance Association of Australia

andNew Zealand

Abstract

Motivated by the importance and distinctiveness of accountability

to stakeholders in not-for-profit organizations (NFPs), we examine

the use of Ebrahim’s accountability mechanisms in a large sample

of service delivery NFPs in Australia. Although much prior litera-

ture relies on the concept of stakeholder power to explain NFPs’

accountability practices, stakeholder salience (embracing the con-

cepts of stakeholder power, legitimacy, and urgency) emerges as a

competingexplanation. Utilizing Mitchell et al.’s stakeholder salience

framework, we examinethe impact of stakeholder power, legitimacy,

and urgency on NFPs’ use of accountability mechanisms to account

to two key stakeholder groups, government and beneficiaries. Our

results show that although legitimacy and urgency of government

influence the use of upward accountability mechanisms, beneficiary

power influences the use of the downward accountability mecha-

nism of participation.

KEYWORDS

accountability, accountability mechanisms, leaders, not-for-profit,

stakeholder salience

1INTRODUCTION

Not-for-profit organizations (NFPs) exert significant economic and social impacts on the worldwide community

(Connolly & Hyndman, 2013; Connolly,Hyndman, & McConville, 2013). The rapid growth of the sector, together with

a series of scandals impairing stakeholder trust and threatening the sector’s legitimacy,has resulted in NFPs’ account-

ability attracting the attention of researchers, regulators, and not-for-profit management (Agyemang, O’Dwyer, &

Unerman, 2017; Becker, 2018; Dhanani & Connolly, 2015; Hyndman & McConville, 2018a; O’Dwyer & Boomsma,

2015).

Relative to organizations in the for-profit and public sectors, NFPs operate in a more complex accountability envi-

ronment with multiple stakeholders, whose demands for accountability often conflict (Dhanani & Connolly, 2015;

50 c

2019 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/faam FinancialAcc & Man. 2020;36:50–72.

CHEN ET AL.51

Schmitz, Rago, & Bruno-van Vijfeijken, 2012). NFPs depend largely on public trust and the support of multiple stake-

holders, including funders, regulators, beneficiaries, employees, volunteers, and partners (Hyndman & McConville,

2018a). By contrast with for-profit organizations that discharge accountability to shareholders (as their primary

stakeholder group) largely based on financial performance, NFPs lack “an analogue for financial profit/loss” (Gray,

Bebbington, & Collison, 2006, p. 334). Additionally,for-profit organizations’ accountability to customers (by providing

quality goods/services) simultaneously also serves the interest of shareholders because it translates into generating

revenues. ForNFPs, there is “no automatic relationship between increments of achievement in the organization’s mis-

sion and financial performance” (Costa, Ramus, & Andreaus, 2011, p. 475). Similar to NFPs, public organizations also

deal with multiple stakeholders (LeRoux, 2009). However,in the public sector, the recipients/beneficiaries of services

(e.g., public transportation, public hospitals, public schools, etc.) are typically those that also provide funds to enable

the services. Hence, unlike NFPs, there is no conflict between accountability to fund contributors and accountability

to service recipients (Bovens, Schillemans, & Hart, 2008).

Because NFPs face multiple and often competing demands by stakeholders for accountability (Ebrahim, 2010),

the challenge for managers, as leaders of NFPs, is to manage the tensions arising therefrom and to prioritize those

demands. Ebrahim (2010) and Knutsen and Brower (2010), among others, note that equal accountability to all stake-

holders is neither possible nor perhaps desirable.Hence, it is the leaders’ “strategic choice” to decide how to account to

their organizations’ stakeholders and to “embraceor resist particular stakeholders’ demands” (Brown & Moore, 2001,

p. 547). Chenhall, Hall, and Smith (2016) and Hyndman and McConville (2018a) argue that NFP leaders’ “strategic

choice” in this respect is crucial in affecting both an NFP’s identity as defined by the NFP’s social values and mission

(i.e., its legitimacy), as well as its access to resources, and developmentand survival. To quote Hyndman and McConville

(2018a, p. 2), “appropriate transparency (in accountability and reporting) can help cement ethical values, legitimize

organizations in the eyes of their stakeholders and provide a basis for the continuing health and growth (of those

organizations).”

With NFP accountability coming under increasing scrutiny,many NFPs are seeking to improve stakeholder account-

ability,and signal their legitimacy, using various accountability mechanisms (Becker,2018). These accountability mech-

anisms include, for example, regular reporting, performance evaluation, storytelling, and social accounting (Chen,

2013; Hyndman & McConville, 2018a; LeRoux, 2009; O’Dwyer& Boomsma, 2015). Becker (2018, p. 5) cited the exam-

ples of CARE International and UNICEF to demonstrate initiatives taken to “redeem the reputation of the nonprofit

sector and its organizations, in response to scandals and exaggeratedclaims of performance.”

Ebrahim (2003, 2010) identifies four accountability mechanisms typically used byNFPs: disclosure statements and

reports, performance assessment and evaluation, self-regulation, and participation. Agyemang, Awumbila, Unerman,

and O’Dwyer(2009, p. 11) comment that Ebrahim’s (2003) mechanisms are “carefully collated and classified.” Although

the framework has been widely discussed and applied in the literature (e.g., Agyemang et al., 2009; Murtaza, 2012),

Assad and Goddard (2010) claim that a description and an explanation of “how” and “why” NFPs account to stake-

holders require more attention. Some studies have examined multiple accountability mechanisms (e.g., Hyndman &

McConville, 2018b). However, many havefocused on a single mechanism (e.g., Assad & Goddard, 2010; Bies, 2010;

Dhanani & Connolly,2012; 2015). Additionally, most prior studies have used case studies of one or a limited number of

organizations. We complement and extend these prior studies by answering the “how” and “why” questions of Assad

and Goddard (2010) by (a) examining multiple mechanisms (consistent with Hyndman and McConville (2018b), for

example)and (b) using empirical data from a large sample of NFPs.

Wealso extend prior literature that has relied on the concept of stakeholder power to explain the choice of account-

ability practices (e.g., Costa et al., 2011; Ebrahim, 2010; O’Dwyer & Unerman, 2008). Power imbalance among stake-

holders is an undeniable reality.Funders are generally assumed to have more power than beneficiaries, resulting in the

dominance of upward accountability (O’Dwyer & Unerman, 2008). However,while persuasive, this is largely a norma-

tive claim that has not been tested empirically,particularly across a large sample of NFPs. Also, the literature narrowly

focuses on the utilitarian/economic power of stakeholders,thus failing to provide a full account of power of different

stakeholders arising from different sources.