Background

Governance failures in the private sector have received significant attention in recent years. For
example in previous cases such as Enron where creditors and shareholders were both misled. In
contrast to the non-profit sector, which maintains a reputation for excellence despite its own
problems with financial mismanagement.

The analysis of governance in each sector is driven by two different theoretical approaches. They can
be broadly identified as shareholding and stakeholder. The stakeholder governance model, in
contrast, views organizations as a means to serve the interests of many. Although some scholars
believe that the stakeholder model applies equally to for-profits and nonprofits (cf. Bouckaert and
Vandenhove 1998), it seems likely that continued criticism of how for-profit acts will raise questions
about this.

Tantangan Tata Kelola dalam Sektor Nirlaba dan Nirlaba (not profit)
Landasan Teoritis dari Sektor Nirlaba

Stock ownership is the dominant model in earnings governance, while the non-profit sector has
stakeholders as its focus.

In the profit company sector:

• The shareholding model is preoccupied with agency issues and how boards and senior
management can be incentivized to act in the interests of shareholders.

• Senior managers, as agents of shareholders, are considered to be as careful with shareholders'

assets as the shareholders themselves.

• Agency is the main issue.

• Shareholders give managers enormous discretionary power over the conduct of the business.

• Shareholders hold them accountable for discretionary power.

In the non-profit sector:

• There is an assumption that nonprofit organizations serving their stakeholders will be ethically
guided so that directors will not act in their own interests.

• Agency is not a dominant issue.

• No one has a claim on organizational assets entrusted to the benefit of the community.

Keterlibatan Pemangku Kepentingan

The moral view is that non-profit organizations have a democratic ethos that places their obligation
to take the interests of society into account (cf. Iecovich 2005). To facilitate this, board membership
should be diverse and structured in such a way as to reduce the possibility of being dominated by
long-serving local elites.

Diversity of board membership is also a prominent issue in studies of profit sector firms. However,
the purpose of this diversity is different. This is primarily concerned with how board behavior can be
improved by ensuring that there is a possible reduction in the “comfortable boardroom relationship”
(Hayden 2006, p. 116) which has been linked to a lack of concern for shareholder interests.
Studi Kasus: ABC
ABC

ABC is a non-profit limited liability company founded in Huddersfield, England, in October 2000 and
established for six years and officially closed in 2006. Initially the organization was run by four staff
whose positions were supported by funding from the UK government through a job creation
scheme. ABC subscribed to a model of anti-social behavior that linked it with low educational
attainment, unemployment, and crime. They believed that they could reduce the incidence of social
exclusion by offering positive alternatives to the usual activities of drug taking, alcohol, and criminal
behaviour. These alternative activities were predominantly workshop-based sessions in music
technology, break-dancing, and drama.

ABC gradually became more established and received recognition for their work. Their turnover
increased as a result of trading, granting funds, and contracting with a government contract. The
existence of the contract gives more demands to ABC. As a result they do not maximize their
effectiveness with regard to the users of their services. This formality makes them less flexible and
less responsive to youth in their programmes. Accountability seems to be moving away from the
communities where ABC was founded to serve as they have to meet the increasingly demanding
demands of their contractors. As a result of this, ABC liquidated voluntarily.

Agen

Factors causing ABC failure are:

• Agency problems that arise in the establishment of a trading subsidiary focused on the music
industry.

• Directors fail in their role as agents of the organization and society.

• Boards allow their own vested interests in the music industry to cloud their judgment.

Keterlibatan

Stakeholder involvement is legally enshrined in the cooperative constitution. In theory at least, it is

possible for anyone to become a member. From there, each member is then entitled to apply to
become a member of the council. Therefore, every stakeholder can be involved in the governance
function. The same thing happened to the employees at ABC.

Finally, the situation became the subject of challenges from staff within the organization as they
became more aware of their legal rights. Employees began to claim membership rights and
therefore also pushed for full voting rights at the Annual General Meeting. After obtaining these
rights, the membership decides to remove the director from his role against his will. The company
continued to struggle despite improvements made to employee engagement in the governance
function, until it finally collapsed

Discussion

• For-profit and not-for-profit corporate governance should not always be viewed separately from
each other.

• Governance in these two sectors can actually exhibit very similar behavior under certain
circumstances so there is value in being open to this possibility.
• Cases focus on agency and engagement, two key governance challenges that stand out in the for-
profit and not-for-profit corporate literature, respectively.

• Bouckaert and Vandenhove (1998) suggest that an organization that claims to be socially
responsible should "take into account the expectations and interests of various stakeholders in
defining and realizing the company's values and mission"

• Directors' vested interests may be more common in the for-profit sector but should not be ruled
out in the for-profit arena.

• Better governance procedures in the not-for-profit sector aim to balance experience with new
ideas.

• Lack of openness to new board members can pose a threat to the quality of decision-making as
well as be an ethical issue.