# Managing stakeholders and public accountability
The audit letter lands on a Tuesday. By Thursday, the executive director of a mid-sized community housing nonprofit is sitting in a city council chamber, on camera, as a councilmember reads aloud a finding that grant funds were spent outside their approved categories. The room is full. A local reporter is live-tweeting. Two major donors are watching the stream. The board chair texts: "Call me the second you are out."
No private CEO faces this exact moment. A corporate chief executive answers to a board and shareholders. This executive director answers to a board, donors, a regulator, a funding government agency, the people the organization serves, and the general public, all at once, and in public. Welcome to public accountability.
In a private company, accountability mostly flows one direction: to owners who want returns. Authority and money come from the same place.
In the public and nonprofit world, the money, the mission, and the oversight often come from different stakeholders with different demands. That is the core management challenge.
Two terms to define up front:
The executive director cannot simply satisfy "the owner." There is no owner. There is a web.
Before the hearing, a smart leader maps every stakeholder and what each one actually controls. Leverage, not volume, is what matters.
The board holds fiduciary duty, the legal obligation to act in the organization's best interest and safeguard its assets. They can hire and fire the executive director. In a crisis, the board is both a shield and a threat: they can back the ED publicly or make the ED the story.
Restricted grants come with strings. A restricted grant is money a funder legally requires you to spend only on specified purposes. Violating those terms is not just embarrassing; it can trigger clawbacks (repayment) and loss of future funding. Foundations talk to each other. One bad audit can quietly close doors across a whole funding network.
Nonprofits answer to state charity regulators (often the attorney general's office) and to the IRS, which grants tax-exempt status under section 501(c)(3) of the tax code. Government grant agreements add compliance rules. In the United States, federal awards follow the Uniform Guidance, a standardized rulebook for spending federal money. You can read the plain-language basics at grants.gov's learning resources.
Taxpayers fund much of this work, so they claim a stake. A city council hearing is public by law. Sunshine laws (open-meeting and open-records statutes) mean documents and testimony can be requested and published. Reputation is your currency, and it is exposed.
Often the least powerful stakeholders in the room hold the strongest moral claim. If the housing nonprofit loses funding, tenants lose services. Good leaders keep this group visible when other stakeholders fight over process.
Return to our scene. The finding was not fraud. The organization moved funds between two program lines to cover a staffing gap, and did not get prior written approval as the grant required. In accounting terms, this is a compliance finding, a breach of the rules governing how money is used, not theft.
This distinction is everything, and it is the executive director's first job to make it clear without sounding defensive.
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Each wants something slightly different. Satisfy one carelessly and you inflame another. Promise the council a firing to look decisive, and you may trigger a wrongful-termination issue and demoralize staff. Downplay the finding to donors, and you risk looking evasive when the record becomes public.
In the hearing, the executive director opens by stating the finding plainly, accepting responsibility for the process failure, and describing the corrective action already underway. Acknowledging a problem early almost always beats being cornered into admitting it.
A strong response reframes without dodging: "We made a documentation error. We did not misuse a dollar of public money, and here is the reconciliation that proves it." Then pivot to outcomes: families housed, beds filled, waitlist reduced. Numbers must be real and verifiable, never invented on the spot.
You cannot say everything to everyone in one room. So:
Same truth, different framing for each audience's legitimate concern.
Public leaders often over-promise to end a bad meeting. "We will implement a full external review by next month." Then they cannot deliver, and the second failure is worse than the first. Promise only what you can execute.
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The best time to manage a hearing is months before it happens. Organizations that survive scrutiny build habits early.
Transparency as default. Post your annual report, audited financials, and IRS Form 990 (the public financial disclosure every US nonprofit files) where anyone can find them. You can look up almost any US nonprofit's 990 for free on ProPublica's Nonprofit Explorer. If your numbers are already public, no reporter gets a scoop by finding them.
Internal controls. These are the checks that prevent errors: requiring two signatures on large payments, documenting grant approvals in writing, reconciling books monthly. The housing nonprofit's whole problem was a missing written approval. A basic control would have caught it.
Board fluency. Boards that understand the finances ask hard questions in private, so leaders are never surprised in public. A board that rubber-stamps is a liability.
Stakeholder relationships in calm times. The council member who trusts you from three years of straight answers is far easier to face than a stranger. Relationship equity is built before you need to spend it.
Knowledge check
1. According to the lesson, what is the fundamental reason public accountability is more complex than private-sector accountability?
2. Based on the lesson's definition, which situation best illustrates 'accountability' in this sector?
3. The lesson advises that when mapping stakeholders, a leader should prioritize based on 'leverage, not volume.' What does this principle mean?
4. Select ALL correct answers. Based on the lesson's definition of a stakeholder, which of the following qualify as stakeholders of a community housing nonprofit?
Select all the correct answers.
5. Select ALL correct answers. What distinguishes the board of directors as a stakeholder in a nonprofit?
Select all the correct answers.
Sometimes stakeholders genuinely cannot all be satisfied, and the leader must choose.
Suppose the funder demands you cut a program to repay disputed funds, but cutting it would strand vulnerable clients mid-service. There is no clean answer. The disciplined approach:
1. Name the conflict openly rather than pretending it away.
2. Return to the mission and legal duties as the tiebreaker.
3. Document your reasoning, so your choice can be defended later.
This is where public leadership diverges most sharply from private management. A private CEO optimizes for one bottom line. A public or nonprofit leader manages a portfolio of competing legitimate claims, and the skill is not making everyone happy. It is making defensible choices and explaining them credibly to each audience.
Our executive director survived the hearing. Not by winning the room, but by being the calmest, most factual, most prepared person in it, and by having already posted the numbers that told the true story.