Breaking With the Past: The Need for Innovation in the Governance of Nonprofit Social Enterprises

Abstract

The need to generate commercial revenues is forcing nonprofit social enterprises to shift their focus from social to economic value creation, which in turn requires them to renew their governance structure to maintain the balance between social and economic logics. This paper looks at how nonprofit social enterprises adjust their boards by appointing board members from non–social enterprise backgrounds. Using behavioral theory, we adopt a dynamic perspective on changes in board composition and evaluate the extent to which decision-making processes change accordingly. To complement the theoretical development, we examine four cases of social enterprises that changed their boards in response to the pressures of marketization and professionalization. We suggest that radical changes to board composition are necessary to govern the dual logics. Furthermore, attention to the organization’s bylaws is important to address the effects of bounded rationality and the formation of a dominant coalition in the board’s decision-making processes. We conclude with implications for research and practice.

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