Does Government Funding Alter Nonprofit Governance? Evidence from New York City Contractors

This paper explores the relationship between nonprofit board governance practices and government contracting. Monitoring by a board is one way a governmental agency can help to insure quality performance by its contractors. Agencies could thus use both their selection process and their post-contracting power to influence board practice. Using a new, rich data set on the nonprofit contractors of New York City, we test a series of hypotheses on the effects of government funding on board practices. We find that significant differences exist in board practices as a function of government funding levels, differences that mark a shift of focus or energy away from some activities, towards others. Trustees of nonprofits which receive high government funding are significantly less likely to engage in the traditional board functions, such as fund raising, while more likely to engage in financial monitoring and advocacy.