J Manag Gov (2009) 13:355–363

DOI 10.1007/s10997-008-9077-2

Patrick S. Renz, Project Governance: Implementing

Corporate Governance and Business Ethics
in Nonprofit Organizations
Physica Verlag, A Springer Company, Heidelberg, 2007

Pasquale Arena

Published online: 26 November 2008

Springer Science+Business Media, LLC. 2008

1 Topic

Considering a major multi-donor development project in Bangladesh, which has

been steered by the University of St. Gallen, the author analyses the relevance of
governance for the nonprofit sector. He observes six modules as key responsibilities
of project governance: (a) system management; (b) mission management; (c)
integrity management; (d) extended stakeholder management; (e) risk management
and, lastly, (f) audit management.

2 Objectives and approach

This exploratory study pursues the objective of building a project governance model,
as a useful golden mean to overcome the governance gap (Erfurt 2004; Wunderer
1995; Tricker 1984; Schedler 2003). It deals with the level of a subordinate
organizational unit and focuses on how development policies, objectives and
approaches can be applied successfully.
The choice of research methodology falls upon the case study during the first
twenty months of project operation. Even though approximately eighty cases have
been reported in Renz’s book, the selected cases were roughly four hundred.
Features are: (a) cause and effect study (Scandura 2000); (b) events, incidents or
observation requirements (Eisenhardt 1989); (c) ethical imperatives complying with
the participant observer (Bernard 2000), and, (d) general analytical strategy for data
analysis (Yin 2003; Langley 1998).
Taking into account the definitions of the project’s researchers (Gomez et al.
2002; Hilb 2005), as regards governance and nonprofit governance, the author

P. Arena (&)
Department of Business, Culture and Society, University of Catania, Catania, Italy
e-mail: arena@unict.it

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defines project governance as ‘‘a process-oriented system by which projects are

strategically directed, integratively managed, and holistically controlled, in an
entrepreneurial and ethically reflected way, appropriate to the singular, time-wise
limited, interdisciplinary, and complex context of projects’’. At the same time,
looking at the management levels and at the leadership functions map (Ulrich
and Probst 1995), he positions project governance between corporate/nonprofit
governance and project management at the level of middle management.

3 Is there a need for project governance?

Due to the fact that every organization needs coordinative mechanisms and that
project management literature undervalues both strategic orientation and the
answers to concrete constitutional questions, it is arguable that ‘‘project governance
assures the best possible backing for the project manager, while properly
establishing the strategic and constitutional influence from stakeholders’’. Besides,
project governance creates a ‘‘handshake’’ between governance and operations and,
according to Chandler (1972), its structural implementation follows its strategy
statement.
Other points were highlighted at times where, due to considerable delegation,
information at the top level is often insufficient and sub-optimal, with knowledge
asymmetries, since project governance provides—institutionally—an adequate and
targeted information flow, both at operational and governance level. In the
development sector in particular, solutions for being more effective and accountable
at operational level allow us to tackle specific problems faced in developing
projects, such as high exposure, vulnerability, and loneliness during any crisis.
As time went by, the principal-agent relationship has often been surpassed by the
stakeholders’ relationship. Thus, the governance gap has increased and become
more complex than in the past. ‘‘The strategic orientation of project governance
allows a bridge with multi-ownership, on strategic level’’.
Looking at the current state of nonprofit governance, Renz observes how the
actual contribution to the developing sector appears to have different or partial
purposes (Schwarz et al. 2002; Schwarz 2005); (Alexander 1998, Eldenburg et al.
2001; Herman and Renz 1998) or initial (Hofstetter and Sprecher 2005;
Voggensperger et al. 2004). Non profit boards are strategically poor and too far
away from strategic operationalization ‘‘[…] are often non remunerated, working
strictly on a voluntary basis. Building (development and project) knowledge is
therefore a particular challenge, i.e. the described information and knowledge
asymmetry […] becomes even more significant’’.
The author also sets aside proper space for ethical reflections which derive from
the ‘‘magic triangle of reasonable development’’ (Ulrich 2004). Thus, he sustains
[…] ‘‘that the governance gap also comprises some type of ethics gap’’ and there is
a need to consider the institutional aspect of ethics in development, taking into
account the ethical issues such as those described in the Millennium Development
Goals, the Paris declaration, the Washington Consensus, the Copenhagen
Consensus.

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4 The roles of governance in development projects

After having discussed the governance gap, Renz analyses in short the organiza-
tional theories specially oriented towards indicating the key responsibilities
involved in governance roles. The aim of this review is to sketch valid applications
in the context of development projects.
In relation to the resource dependency theory (Pfeffer and Salancik 1978) and to
a possible application at project governance board level, he highlights how […]
‘‘development projects (through their implementation agencies) depend crucially on
the resources funded by donors’’ and cites an empirical study (Hodge and Piccolo
2005) through which it has been verified that the level of dependency is correlated
‘‘with the level of involvement by the board of nonprofit agencies’’. In addition,
stressing the importance that this theory can bring to development cooperation ‘‘at
least for that type of development work which tries to improve a cause in sincere
collaboration with other partners such as the development countries’’, it could be
useful to avoid interlocks being transformed into deadlocks.
As regards relevance to development cooperation, the author also recalls the
Stakeholder theory (Freeman 1984), emphasizing a direct link between truly
sustainable development progress and an ethically critical consideration of
stakeholders, in line with an ‘‘ethically critical stakeholder value approach’’
proposed by Ulrich (Rüegg-Stürm 2005). At the same time, this theory provides a
base to challenging dilemmas’’—such as who is the customer, the beneficiary? or
the donor?—that one gains a platform for broader consideration’’.
Regarding the agency theory (Eisenhardt 1989), a similarity is underlined, taking
into account the fact that ‘‘the implementation of a development project is mostly
delegated from one or various donors (principals) to an implementation agency’’.
However, due to multifaceted development missions and to the complexity in audit
and risk management practices, project governance allows for the emergence of a
commitment to deal with control issues.
On the stewardship theory (Davis et al. 1997), the author presents the affirmation
that nonprofit organizations, being social entrepreneurs and ‘‘playing the role of
change agents within society, are also an example of good stewards of the resources
that others have entrusted them’’ (Hitt et al. 2005). This approach seems quite
optimistic when applied to development work because it could mean that all human
beings are good stewards. As a consequence, the role of governance for
development projects is to take the function of strategic direction and support to
strengthen managerial entrepreneurship.
In relation to development cooperation and environment, the institutional theory
(Aoki 2001) is emphasized, since project governance has to assume the role ‘‘of
maintenance in identifying with social expectations’’ as, according to the
institutional theory—says Renz—governance has a ‘‘maintenance role [in …]
identifying with societal expectations of organization (Hilb 2005). For instance, it is
necessary to observe the institutional environment and assess if a project
development is coherent with its purpose or produces unexpected changes, whether
it does not succeed in achieving the pursued goal.

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Finally, regarding the theory of managerial hegemony (Hung 1998), the author
considers this theory as a negative model for the governance of development
projects because it does not concern the importance of stakeholders, affirming that
the existence of a governance gap can cause an inauspicious kind of hegemony.
As a result of this review, a concise pattern of Renz’s ideas, from governance
roles to key responsibilities of project governance, is exposed and translated. His
ideas synthesize, on the one hand, the governance roles relevant to development
projects and their downsides and, on the other hand, identify six key responsibilities
which attempt to cover these areas. For instance, looking at the downsides of agency
theory such as ‘‘not trust building’’, ‘‘too legalistically focused’’, etc. this area
appears to be covered by ‘‘integrity management’’. Attention is paid to linking the
role of resource dependency to the role of coordination by stakeholder theories,
where this area pertains to ‘‘extended stakeholder management’’.

5 The project governance model

This chapter opens with a slightly rotated (dynamic) diamond picture—which

represents the author’s idea of this invaluable model—comprising the six key
integrated responsibilities of the proposed project governance model, starting from
‘‘system management’’ and ending with ‘‘audit management’’.

5.1 System management

This system, considered as the fundamental key responsibility of project

governance, acts as a basis to understand how the environment works, and
consequently to assess appropriate development approaches useful to define a
development project. A deep understanding of the environment is essential to
ascertain on which structuring and ordering force a development project can rely.
Due to the fact that development projects should exercise ‘‘influence on the
context, the societal or physical environment’’ and wish to achieve several
objectives, Renz describes how its ‘‘impact should occur in a sustainable way, so
that its effects continue after the project finishes’’. The consequence is that we have
to deal with multiple values and strategies which underline both development
projects and the target environment as interacting parts of a complex system.
The term ‘‘understanding’’ is very often used in this chapter to stress the need for
dynamic thinking, also oriented towards economic rationality, which can be
potentially ready to face several issues through effective implementation. In fact, in
the book, as regards the objectives of system management, we read that ‘‘the
systematic and systemic understanding of the wider environment (for instance of
stakeholders’ interests) are the basis on which to establish […] structuring forces
and related structures of the sub-system called the development project’’; or, when
the author refers to the environmental spheres, ‘‘understanding […] environmental
spheres, and how they might possibly change, is particularly important for a
development project, because it aims at making an impact’’; or, when Renz explains
why he decided to use the term system management, ‘‘the task […] is to best

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understand the system and continuously try to influence its moving towards
established objectives. This continuous understanding and trying to influence are
what this book understands as system management’’.
This part ends by summarizing the following key responsibilities: (a) to promote
systemic thinking along with an holistic open system model; (b) to organize system
assessment and observation to make it work in a continuative way, taking into
account that ‘‘project governance may also define and observe certain thresholds’’;
(c) to assess a new system of management and to re-define missions to properly face
up to these critical points.

5.2 Mission management

After stating that mission management is ‘‘the governance function of strategically

directing, supporting, and controlling projects and their management’’, the author
draws a picture of the dimensions of the function’s tasks obtained with the
intersections of two columns—‘‘strategic direction and support’’ and ‘‘control’’ as
project governance roles, with three lines—‘‘strategy’’, ‘‘structure’’ and ‘‘culture’’ as
structuring forces. Renz, providing numerous illustrative cases, places and describes
such a picture: (a) five governance tasks include the intersection between ‘‘strategic
direction and support’’ and ‘‘strategy’’; (b) three governance tasks include the
intersection between ‘‘control’’ and ‘‘strategy’’; (c) seven governance tasks include
the intersection between ‘‘strategic direction and support’’ and ‘‘structure’’; (d) one
governance task includes the intersection between ‘‘control’’ and ‘‘‘‘structure’’; (e)
three governance tasks are included in the intersection between ‘‘strategic direction
and support’’ and ‘‘culture’’; finally, one governance task is included in the
intersection between ‘‘control’’ and ‘‘culture’’.

5.3 Integrity management

Referring to Paine (1997), the author states that integrity is ‘‘the quality of moral
self governance’’ and, looking at the most important objectives of development
projects, such as impact, sustainability and outreach, he puts forward some
questions concerning: (a) liberty of action (concerning corruption, conflict of
interest, power struggle, etc.); (b) credibility and trustworthiness (concerning
development paternalism, accountability, involvement of the target group, etc.); (c)
self-commitment or persistence (concerning the role of acting as ‘‘a driving force for
believing in and pursuing the project mission’’).
Particular attention is devoted to the critical path undertaken to reach ethical
behavior considering that in the context of development projects, more so than in
other environments, there is often a lack of essential and clear norms, or unclear
ideas on justice. This reflection brings the author to consider the need for discourse
ethics (Ulrich 2001) from which a basis, ‘‘a normative foundation’’, can be
developed, consisting of four guidelines: (a) communicative attitude; (b) interest for
legitimate action; (c) differentiated responsibility; (d) public binding. In parallel,
Renz, remarking upon the possible existence of ‘‘enormous social differences’’
—[…] and—the remaining influence of an old culture centered upon ‘‘caste

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systems—though legally abolished’’ and […] ‘‘where law and order are not enforced
by government institutions but reinforce the force of the more powerful’’, suggests
that the aforementioned four normative guidelines should be combined with the
recognition ethics representing them through: (1) emotional recognition; (2) legal
and political recognition; (3) solidarity.
The next stage—supported by 130 cases of normative ethical relevance out of a
total of nearly 400—consists in pointing out the so-called ethical dilemmas
(situational aspect) and how these tension areas can be overcome (constitutional
aspects). This interesting analysis is carried out creating clusters of observations
following the three structuring forces of strategy, structures and organizational
culture. For instance, in relation to the structuring force of ‘‘structures’’, the integrity
challenge (situational aspect) of ‘‘corruption in its different forms, conflict of
interest’’ corresponds to ‘‘contracts, processes, codes of conduct’’ as organizational
elements resorting to normative foundations (constitutional aspects).
The author goes on to link the aforementioned combined approach to a practical
generic model, which bridges […] ‘‘the often found disparities between theory and
practice’’, moving from step 1 (becoming conscious and engaged) […] to step 5
(adjusting organizational elements for long term success) and providing concrete
examples on how to deal with the tension zones.

5.4 Extended stakeholder management

As with other chapters of the book, this one, on extended stakeholders, is based
upon case studies which provide advice on how to solve problematic issues. In
parallel, this chapter aims to interiorize concepts which are especially useful in
development projects. Thus, the author refers to the strategic stakeholder approach
(Freeman 1984), the normatively critical stakeholder approach (Ulrich 2001);
Wilbers (2004) model and Gomez’s model (2002). Taking into account practical
examples (which are sometimes very astonishing), Renz recommends an integrated
model which stresses, on one hand, the importance of recognition ethics and, on the
other hand, puts monitoring activity at the center of a circular model.
In this picture, a pathway consisting of four steps is drawn: (a) stakeholder
identification; (b) stakeholder classification and assessment; (c) stakeholders’
actions; (d) stakeholder monitoring, as systematic, continuous and effective key
tasks of the governance board. As regards the last step, a ‘‘quarterly stakeholder
monitoring map’’ is provided as a valid instrument for discursive evaluations.
This section of the book ends by emphasizing how it is possible to implement an
understanding of ‘‘extended stakeholder management’’ […] ‘‘only when one
recognizes that appropriate stakeholder interactions are not only a way but also a
part of the objective’’.

5.5 Risk management

In this chapter, the initial consideration is to draw attention on how risk

management is still extremely inconsistent (Thomsett 2004). The author goes on
to emphasize two significant processes related to such risks. Firstly, he stresses the

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possibility of observing risk through connecting it with opportunities. The author

advises that in this specific case risk management has to work strictly with mission
management. Secondly, he points out that risks must be categorized without
confining them only to a rationale perspective (few predetermined categories) but
rather moving forward and trying to associate them with a creative thought (what-
if). To develop both of the aforementioned processes, this part is supported by the
St. Gallen Management Model (Rüegg-Stürm 2005).
After analyzing the possible risks occurring in the development project in
Bangladesh, always illustrated with appropriate examples, Renz suggests a model
for risk management. This model is displayed as a cyclical four-step process which,
starting from ‘‘risk identification and assessment process’’, continues dynamically
towards ‘‘risk mitigation process’’, and then towards ‘‘risk down-side planning’’, to
restart again until finally, at the end, it reaches a ‘‘risk identification and assessment
process’’. It is necessary to explain that, in this pattern, the fourth step, ‘‘risk
monitoring and controlling’’, is at the center of this circuit and is clearly linked to
the three aforementioned processes. For every process, a more detailed analysis is
exposed, highlighting specific issues regarding the development projects.
Finally, suggestions are made on how to obtain organizational integration at three
levels: NGO-Board, Project Governance and Project Execution, aiming to ensure
‘‘an integrated and complete risk treatment process’’.

5.6 Audit management

The relevance of audit management is corroborated by KPMG (2002) and

PricewaterhouseCoopers (2005) case studies, which reveal a small or potential
improvement at governance level. In parallel, as regards international development,
Renz, referring to the gravity of several cases of fault, such as fraud and corruption,
claims that even if nonprofit organizations are taking measures to face these events,
we are still in the initial stages, and this subject has not yet acquired adequate depth.
From this perspective, even though it might seem that processes of external auditing
have been developed enough, the examination of the audit-relevant case examples
show that […] ‘‘there are, however, reservations regarding the business under-
standing of the external auditors as well as their independence’’ and, looking at
internal auditing, it seems that […] [the idea of internal auditing] […] ‘‘is hardly
recognizable within a given project’’.
Outlines of the tasks of audit management in project governance comprise: (a)
direction and control of internal auditing—the responsibility of this task is
particularly stressed at the start-up of a project and needs […] ‘‘local audit know-
how and the establishing of audit processes and networks with local specialists for
audit requirements’’; (b) direction and control of external auditing—as crucial
requirements of this role emphasize ‘‘an understanding of the particularities of the
development business’’ and auditor’s independence (neutrality); (c) assessment of
(annual) financial reports and interim reports—the requisites of this task are IAS,
quality and voluntary complete information according to the needs of the various
key stakeholders; (d) legal compliance—taking into account that legal compliance
in a underdeveloped country could underlie ethical principles, this responsibility

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role becomes sensitive and interconnected with integrity management; (e) liaising
with other audit-related key stakeholders—namely […] ‘‘for instance, the head-
office of the implementing NGO, or the donor head-offices with their audit and
governance bodies’’.
The last considerations as regards this module are devoted to the opportunity to
create (or not) a specific audit committee and promote an ‘‘audit-sensible
organization culture’’, valid to avoid eluding of audit-responsible behavior. This
is to encourage work towards […] ‘‘an honest, active, and visible commitment of
management, starting at the top, from those in nonprofit governance, to those in
project governance and project management’’.

6 Final reflections on this book

The content of this book is very faithful to the stated premises. Reading the
chapters, the author’s deep experience on the topic of development projects
emerges, which stresses his commitment in Bangladesh. At the same time, the
conceptual framework seems to have been adequately balanced in relation to the
objective of harmoniously combining theory and practice. In conclusion, Renz’s
project governance model offers us, above all, the opportunity to consider a
governance gap and, generally speaking, the opportunity to think about how to
enhance and interiorize ethics and accountability in development sectors.

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Author Biography

Pasquale Arena is associate professor of Business Economics at the University of Catania (Italy),
Department of Business, Culture and Society. He is a founding member of European Business Ethics
Italian Chapter (EBEN) and European Spirituality in Economics and in Society Forum (SPES), member
of Business Economics Italian Academy, member of the Board of EBEN, and member of SODALITAS.
His main areas of research focus on Business Ethics and Accounting. His recent paper is Accounting and
Ethical Governance: A Responsible Pathway in the Resource Allocation Process (2008).

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