All Else Equal: Making Better Decisions

Ep39 “Why Does the Non-Profit Model Work?” with Daniel Diermeier

Feb 14, 2024

Daniel Diermeier, Chancellor of Vanderbilt Uni, discusses the non-profit model in universities, including strong alumni connections, reputation benefits, and the challenges of managing stakeholders. The episode explores the advantages of the non-profit model for universities, such as goal achievement, financing research, and innovation over for-profit entities.

28:56

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Episode guests

Daniel Diermeier

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Quick takeaways

Successful nonprofit organizations, like universities, rely on unique governance structures and strong connections with stakeholders to ensure effective management and responsible decision-making.

The reputation and brand name of nonprofit universities serve as powerful catalysts for attracting resources and driving future success, as alumni willingly support institutions they believe in.

Deep dives

Nonprofits and Their Incentives

Unlike for-profit organizations, nonprofits lack a clear residual claimant and fiduciary duty to act in the best interest of equity holders. This creates a challenge in understanding the motivations and incentives of those running nonprofits. However, successful nonprofit organizations, such as universities, have shown that their unique governance structures and deep connections with stakeholders, particularly alumni, play a significant role in ensuring effective and responsible management. The strong emotional connection that alumni have with universities drives their willingness to contribute time, effort, and financial resources for the greater good of the institution.

Introduction

5min

The Nonprofit Model and Universities

8min

The Importance of Reputation and Protecting It

3min

Managing a Stakeholder Model in a University

9min

Advantages and Challenges of the Nonprofit Model for Universities

5min

Without a residual claimant, who sets the agenda of a non-profit organization like a university? Who makes sure that the organization follows that agenda rather than serving the interests of the administrators running the organization? Who are the stakeholders in a non-profit organization, and how does the organization prioritize their competing interests. In this episode, hosts and finance professors Jonathan Berk and Jules van Binsbergen welcome Daniel Diermeier, Chancellor of Vanderbilt University, for a discussion about Non-Profit Organizations, and some key ways in which they operate differently and are able, in some instances to achieve better results than For Profit Organizations.

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