Panel Paper: Financial Impact of Nonprofit Organizational Changes

Thursday, November 6, 2014 : 8:30 AM
Dona Ana (Convention Center)

*Names in bold indicate Presenter

David Berlan, Florida State University
In the wake of the global economic crisis, nonprofits face a more challenging environment.  To respond to the resulting financial stress, individual nonprofits may make transformational changes to their organization: switching CEOs, shaking up their board of directors, overhauling organizational structures, shifting strategies, or revising their missions and goals.  In undertaking these changes, the expectation is that financial performance will improve and the nonprofit emerge in a position better able to achieve its mission.  This paper challenges these underlying assumptions by examining the financial impact of various organizational changes, in the context of internationally-active nonprofits.

Earlier nonprofit management scholarship on the different forms of change provides grounds for assumptions about financial improvements in their wake. Scholarship on nonprofit mission change includes a focus on the tension between fidelity to mission and financial gains, suggesting that such changes would increase revenues.  As with mission, pressures from funders, competition, and commercialization have been found by scholars to place pressure on nonprofits to shift strategies and structures, implying positive financial returns for such changes.  Changes in leadership, either executive or board, also share assumptions of improvement following changes, drawing on evidence from founders overstaying their effectiveness, board roles in evaluating and replacing executive directors, and improving board effectiveness.  The prior literature identifying the potential benefits of changes draws primarily from surveys, case studies, and theory, which leaves room for testing the conclusions through organizational statistics and reports.

This paper analyzes a custom built dataset that draws on public filings by nonprofit organizations (IRS form 990s).  The dataset captures financial measures and a range of changes, including CEO, board chair, mission, and lead programs, for a sample of 152 internationally active nonprofits from 1997 through 2012.  In addition, the dataset includes a range of financial variables and organizational characteristics.  The organizations sampled draws from a population of relatively large and long-running nonprofits (over $100,000/year in public support over at least 5 years as of 2005), with stratified random sampling on criteria of sub-sector and budget size.  Through fixed effects models of this panel data, this paper tests for correlations between prior period changes and financial performance in the year immediately following.

With nonprofit sector research on the impacts of the recession just beginning to emerge, this paper is intended as a timely contribution to scholarly and practitioner dialogues on responding to economic turmoil.  It contributes to scholarship by testing a range of different explanatory theories address the causes and impacts of organizational change, while contributing to practice by questioning assumptions about the financial benefits of change.  Evidence supporting, rejecting, or failing to reach a conclusion about revenues gains all could emerge, and may vary between different forms of change.  This paper thus serves both as an early stage inquiry into the post-change performance of nonprofits and an additional lens through which to view the process of organizational change.