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JOURNAL OF LEADERSHIP, ACCOUNTABILITY AND ETHICS
Ethical Dilemma of Nonprofits in the Agency Theory Framework
Author(s): Shyam B. Bhandari
Citation: Shyam B. Bhandari, (2010) "Ethics and Sovereign Wealth Fund Investing," Journal of Leadership, Accountability and Ethics, Vol. 8, Iss. 2, pp. 33 - 40
Article Type: Research paper
Publisher: North American Business Press
Abstract:
The so-called nonprofit organizations include governments and Internal Revenue Services’ Code 501 (c)
organizations. Nonprofits play a very significant role in our society. They provide very essential public
goods and humanistic services and employ millions of our nation’s workforce. Nonprofits pursue profit
no less than for-profits; they just refer to it as “increase in fund balances.” Nonprofits differ from forprofit
organizations in at least two significant dimensions: They do not pay tax and they do not have
principal (i.e. owner-stockholders) in the agency theory framework, typical of a for-profit business.
Because of these differences, nonprofits are relatively less effective, less efficient and less ethical in
fulfilling their goals and mission. This higher propensity of unethical behavior by nonprofits can be
attributed to the “agent without principal” paradigm. Other factors are typically passive board of
trustees, indifferent benefactors and reluctant beneficiaries. Furthermore, humanistic image and a weak
regulatory environment spare them from thorough scrutiny. This paper cites examples of questionable,
illegal and unethical practices by nonprofits. Remedial measures have been suggested to monitor and to
mitigate such practices.
