Reputation as Collateral: An Economic Analysis of the Role of Trustees of Nonprofits

The role of the board of trustees of nonprofits (NPs) is to legitimize the nonprofit by signaling to consumers that the nonprofit can be trusted and is able to supply the services it offers. Therefore, nonprofits invite people with appropriate attributes such as reputation and wealth to endorse the organization by lending their names to it. Such people provide their reputations to NPs as collateral. It is the exposure of trustees to the potential loss of this collateral that enhances consumer and donor trust in NPs. This article expands these ideas and yields several results on the attributes of desirable and willing trustees.