Speaker Notes

Philanthropic Organizations (POs) are formal organizations without owners that produce goods or services for one stakeholder group (i.e. the beneficiaries), that are predominantly paid for by another stakeholder group (i.e. the donors).

POs are subject to a number of unusual conditions that make their governance challenges exceptionally daunting;

1. The non-overlap between the stakeholder group that pays for the goods or services and the stakeholder group that consumes them implies that there is no functioning market for POs goods and services, and hence no price mechanism to guide organizational decision-making on what to produce and for whom

2. POs do not have a single primary stakeholder group whose interests as a residual risk bearer provide incentives to monitor managerial decisions

POs are hardly subject to market forces that would weed out inefficient producers.

We define POs as organizations that meet three basic requirements;

* Legal personality

* Non-distribution constraint

* POs service purchasers and service recipients are two largely non-overlapping groups.

Because ownership entails the formal right to control an organization and the right to appropriate its profits, NPOs are organizations without owners.

A PO receives the bulk of its income from parties other than the recipients of the delivered service. This feature distinguishes POs within the class of NPOs.

According to the literature, POs, and NPOs more generally, are organizations that emerge in conditions where markets fail to govern transactions. This happens when;

* The goods or services produced are public goods;

* Severe information asymmetries stand in the way of efficient exchange;

* The product or service is delivered to a party other than the one paying for it.

In such circumstances regular contractual arrangements cannot provide purchasers with sufficient means for contract enforcement, resulting in contract failure

Although...