Fitting in as an outsider: a resource dependence theory approach to outside boards

Abstract

PurposeThis study draws on resource dependence theory (RDT) to explain a board's governance function in the United States (US) nonprofit healthcare industry. Specifically, while various nonprofit research studies have appealed to agency theory (AT) to explain the monitoring role of an outside board, RDT offers an alternative explanation that emphasizes an outside board's resource gathering role.Design/methodology/approachIn drawing on the nonprofit GuideStar database, a fixed effect (FE) panel estimation was conducted on a sample of 230 US Non Profit Healthcare Organizations (NPHCOs). This panel estimation examines the relationship between the composition of an outside board and an NPHCO’s revenue and public support performance.FindingsA key finding of this study is that the composition of an outside board involving its' number, compensation and gender impacts an NPHCO’s revenue and public support.Research limitations/implicationsThis study shows that the composition of an outside board impacts an NPHCO’s ability to gain access to external resources. As NPHCOs face increasing pressure to seek external forms of revenue support, this study suggests that boards should favor a larger number, compensation and female representation of outside members.Practical implicationsThe composition of an outsider board can offer external sources of revenue support that lower the poor's requirements for financial assistance and thus affirm an NPHCO’s identity as a charitable organization.Originality/valueAs an NPHCO’s identity as a charitable organization is dependent on serving the medical needs of the poor, an outside board not only introduces a resource gathering function that is absent in the monitoring explanations of AT, but that this resource gathering function is important to affirming this identity.