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

University of Toronto

April Klein

New York University

Daniel Tinkelman

Pace University

This article 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. Although causality cannot be demonstrated,our findings are consistent with the Fama and Jensen (1983) conjecture that major donors monitor nonprofit organizations at least in part through their board membership. 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 fundraising 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.

Key Words: nonprofit governance • organizational efficiency • committees

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