This article examines the structure of nonprofit voluntary accountability and standard-setting programs, arguing that these programs can be understood as collective action institutions designed to address information asymmetries between nonprofits and their stakeholders. Club theory and the economics of certification suggest that such programs have the potential to provide a signal of quality by setting high standards and fees and rigorously verifying compliance. Such mechanisms can signal quality because higher participation costs may allow only high-quality organizations to join. The article examines the implications of signaling theory using an original dataset on the structure of 32 nonprofit accountability programs across the globe. While many programs set high standards for compliance, the key distinction between strong and weak programs is the use of disclosure or verification mechanisms to enforce compliance. Contrary to theoretical expectations, compliance standards and verification do not appear to be substitutes in creating stronger voluntary programs.
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In this model, the donor cannot observe whether or not the nonprofit applied for a certificate, only whether or not the organization has one. Unless the certifier provides information, therefore, rejected charities may not be easily distinguished from those that did not apply.
In traditional clubs, such as a country club, joining the club guarantees access to club amenities.
This criterion excludes some well-known programs such as the rating programs run by the BBB/Wise Giving Allowance and the American Institute for Philanthropy. Recently, however, the BBB/Wise Giving Alliance began to allow charities who have been rated to pay for a “seal of approval.” The charity seal program is included in the sample as a voluntary standard-setting program, although it differs slightly from other programs because the initial decision about entry is made by the watchdog group.
United Way organizations (of which there are about 1,300 in the United States) are also excluded from the sample, but the United Way represents an interesting accountability program that could be included in future studies. Historically, the United Way of America developed standards for participation for local United Way affiliates. Each United Way affiliate in turn established its own system of standards for participating nonprofits. In the recent years, however, this system has been in flux, with some local United Ways deciding against having specific standards for membership. Examination of the national and local standards set would be an interesting avenue for future research. I thank an anonymous referee for these points.
The cost of compliance consists of internal costs incurred to meet standards and document compliance, as well as any certification fees paid. Empirically, these fees are difficult to assess. Sometimes they are paid directly to program sponsors; in other cases, nonprofits pay certification fees directly to third-party entities approved by the program sponsor. A further complication is posed when membership associations sponsor voluntary accountability programs, as revenues and fees from this activity are often not assessed or reported separately.
The relatively small sample size and the bias of the sample toward survivor programs may serve as a constraint on the generalizability of these results.
This contrasts with some empirical analyses of voluntary environmental programs that suggest that sponsorship does not substantially affect program design (Darnall and Carmin 2005).
Programs reporting no revenue from fees also score significantly lower on certification scores and on the use of sanctions (significant at the 5% level in both cases). The disclosure score is also lower, but significant only at the 10% level. Since only five programs report no revenue from fees, however, these results may not be fully robust.
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Thanks to Travis Reynolds for excellent research assistance and to Aseem Prakash, Matt Potoski, Jodi Sandfort, and Stephen B. Page for valuable comments on earlier versions of this article. In addition, I thank two anonymous referees for their very helpful feedback. All errors remain my own.
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Gugerty, M.K. Signaling virtue: voluntary accountability programs among nonprofit organizations. Policy Sci 42, 243–273 (2009). https://doi.org/10.1007/s11077-009-9085-3
- Nonprofit accountability
- Collective action
- Voluntary programs
- Voluntary clubs