9 - Enhanced Agency Costs

Summary

The accumulation of assets by charities enhances the risk of agency costs resulting from charity controllers shirking or acting in their own interests, such as by losing or misapplying accumulated funds or hoarding assets to increase their own prestige or job security. This chapter identifies that there is limited need for structural reform, although there may be some scope for improved administration by regulators so as to reduce agency costs. The chapter sketches key market mechanisms that work to reduce agency costs for many of the types of charities identified as potential sites of accumulation, such as universities, hospitals and fund-raising religious institutions. It then outlines the coordinated effect of the legal restraints discussed in Part II and considers whether there really are material gaps, particularly in jurisdictions such as Australia, the United Kingdom and New Zealand that have reformed their charity regulators. Finally, consideration is given to whether more coordinated action by existing regulators could fill any remaining gaps. Examples are provided from the United States, Canada, Australia and the United Kingdom.