Board Composition, Committees and Organizational Efficiency : The Case of Nonprofits

This paper investigates the relationship between nonprofit board composition and organizational efficiency. Overall, we find a significant statistical association between the presence of major donors on the board and indicators of organizational efficiency. While proof of a causal link is beyond the scope of this study, our findings are consistent with the Fama and Jensen (1983) conjecture that major donors monitor non-profit organizations at least in part through their board membership. This study also implies that, with the exception of the finance committee, it is the presence of major donors on the board and not their presence on committees that is associated with organizational efficiency measures. The multivariate analysis shows that the ratio of total expenses to program expenses is significantly and negatively associated with higher donor representation. Decomposing the total expense ratio into its two components, we find that different factors affect the administrative and fund-raising expense ratios. The percentage of major donors on the finance committee, a key committee overseeing budgets and administrative expenses, is negatively related to the organization's administrative expenses ratio. The presence of major donors on other board committees is not significantly statistically associated with nonprofit efficiency