Accountability standards and legitimacy of not-for-profit organizations in the Netherlands

Abstract

Over the past five to 10 years, central government has expanded the rules and guidelines relating to the accountability standards of not-for-profit organizations aimed at increasing transparency. This information should enable stakeholders to assess whether the organization is operating in a legitimate way. This reasoning presumes a direct link between accountability standards and legitimacy. We have found that in theory there should be a link between both, because accountability standards are aimed at supplying information to external parties in order to be able to judge activities. On the other hand, we have found that all stakeholders are different and have varying information needs. Furthermore, in order to operate legitimately, the organization not only has to supply information but should also interact with different stakeholders at various moments and in various ways. These findings suggest that an overly strong focus on strengthening accountability standards in order to enhance legitimacy is not enough. Organizations should interact in different ways with stakeholders to enhance legitimacy.

Keywords:

• legitimacy
• accountability standards
• public value
• not-for-profit organizations

Notes

1. A branch organization is an organization which represents a group of organizations, such as healthcare organizations, housing corporations, welfare organizations and educational organizations. The branch organization has been given the authority to act on behalf of all organizations.

2. Dutch not-for-profit organizations no longer need to draw up detailed annual reports for central government. They are obliged to comply with accounting rules and regulations which also apply to private-sector organizations. Politicians are convinced that the fact that not-for-profit organizations do not account for their actions in a detailed manner has created space for incidents. Politicians are convinced that not-for-profit organizations will act in a legitimate way if they have to account for their actions in detail.

3. We think it is important to give some background about Dutch not-for profit organizations in order to fully understand our research. The development of this type of organization is not the same in every country. Until the 1980s, many organizations that nowadays are called not-for profit organizations were part of national, regional or local government. Central government was convinced that liberalizing these not-for profit organizations would enhance efficiency and effectiveness. After the liberalization, different types of not-for profit organizations emerged. Some organizations became private organizations with public goals; other organizations stayed governmental. Sometimes this division changed over time. At this moment, some organizations are still governmental, while others are more or less privatized.

However, we can distinguish a number of similar characteristics:

• A not-for-profit organization is a private organization. The main objective is not power or profit but the delivery of goods and services to thereby fulfill a social value which is perceived and legitimized by its stakeholders. The financing of operations and financial position are preconditions to achieve the objectives. The revenues come from various sources of funding.

• Not-for-profit organizations are accountable to the government and their stakeholders. Accountability guidelines are defined per sector (e.g., healthcare, education, charitable organization).