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The PricewaterhouseCoopers Endowment for

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Thomas H. StantonFellow, Center for the Study of American GovernmentJohns Hopkins University

Moving Toward More CapableGovernment: A Guide toOrganizational Design

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Moving Toward More CapableGovernment: A Guide toOrganizational Design

N E W W A Y S T O M A N A G E S E R I E S

Thomas H. StantonFellow, Center for the Study of American GovernmentJohns Hopkins University

June 2002

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T A B L E O F C O N T E N T S

Foreword ..............................................................................................5

Executive Summary ..............................................................................6

Introduction ........................................................................................8

Government Organizations under Continuing Stress ........................10

The Decision to Change Organizational Structure ............................12Deciding When a New Structure Is Appropriate ............................12Fitting the Solution to the Problem ................................................15Selecting an Appropriate Organizational Form ..............................17The Costs of Reorganization ..........................................................17

Finding Organizational Solutions: The Creation or Redesign of Government Departments and Agencies........................................19

1. What operational flexibilities does the organization require?......................................................................................20

2. If the organization is governmental, where should it be located? ................................................................................20

3. What governance structure is appropriate? ................................214. If a single administrator heads an agency, should there

be a fixed term? ........................................................................225. If the organization is a government agency, should it

be a government corporation? ..................................................236. If the agency is not a government corporation, should

its funding be changed in any other way? ..................................237. Should the organization be part of government or private? ........24

Finding Organizational Solutions: The Creation or Use of Private Instrumentalities of Government ..........................................26

1. Does the organization carry out public purposes or only private ones? ......................................................................28

2. Is the organization likely to be financially self-sustaining? ........293. Does the government plan to provide support (i.e.,

a subsidy) for the organization? If so, what form is appropriate for the public purposes to be served?......................29

4. Should the organization have shareholders, or should it be a nonprofit?........................................................................30

5. What governance structure is appropriate? ................................316. What types of accountability are appropriate?............................317. Which agency of government should be responsible

for holding the organization accountable? ................................328. What should happen when the organization ceases to

serve a high-priority public purpose? ........................................33

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Enhancing the Government’s Capacity to Design EffectiveOrganizations and Public-Private Relationships ................................35

Appendix: Selected Readings on Organizations and Organizational Design ......................................................................37

Endnotes ............................................................................................38

About the Author ..............................................................................40

Key Contact Information....................................................................41

MOVING TOWARD MORE CAPABLE GOVERNMENT

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F O R E W O R D


The Business of Government

F O R E W O R DF O R E W O R DF O R E W O R DF O R E W O R D

June 2002

On behalf of The PricewaterhouseCoopers Endowment for The Business of Government, we are pleased to present this report by Thomas H. Stanton, “Moving Toward More Capable Government: A Guide toOrganizational Design.”

This important report serves as an excellent companion piece to another recently published Endowmentreport, “Applying 21st-Century Government to the Challenge of Homeland Security,” by Elaine C. Kamarckof Harvard University. The Stanton report examines the organizational dilemma frequently faced by govern-ment: when to create or restructure a government agency or instrumentality. The Kamarck report examinesthree new forms of government that do not involve the creation of new government organizations or instru-mentalities: reinvented government, government by network, and government by market. Read together,these two new reports provide valuable insights to public sector executives on how various tools andchanges in government organizations can be applied to developing creative solutions and interventions to national problems.

The Stanton report is indeed timely. Recent days have seen the creation of a new government agency, theTransportation Security Administration, and the President’s proposal to create a Department of HomelandSecurity. In addition, the Federal Bureau of Investigation recently went through its own restructuring. Othergovernment organizational changes have also been proposed by a variety of congressional committees andcommissions to enhance the nation’s capacity to respond more effectively in the area of homeland security.Future days will clearly see increased interest in the important topic of government organization. We trustthat the Stanton report will stimulate enlightened discussion about the creation or restructuring of govern-ment agencies and government instrumentalities in the years ahead.

Paul Lawrence Ian LittmanPartner, PricewaterhouseCoopers Partner, PricewaterhouseCoopersCo-Chair, Endowment Advisory Board Co-Chair, Endowment Advisory [email protected] [email protected]

F O R E W O R D

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This is a guide to design of public and private orga-nizations that carry out public purposes. Whenorganizational change is appropriate, restructuringcan have a profound and beneficial impact on per-formance. There are a number of sound reasons tocreate a new organization or to reorganize. Theseinclude the need to: (1) combine related programsfrom disparate governmental units to provide anorganizational focus and accountability for carryingout high-priority public purposes, (2) help assurethat information flows to the proper level of gov-ernment for consideration and possible action, (3)change policy emphasis and assure that resourcesare more properly allocated to support high-priorityactivities, and (4) determine who controls and isaccountable for certain governmental activities.

In organizational design, the key is to fit the appro-priate organizational form to the purposes to beachieved. This is not always easy. Policy makers fre-quently reach for organizational answers that maycompound rather than alleviate issues of capacity,including the creation of governing boards. Thishappened to the Internal Revenue Service in 1998,for example. Many problems do not have solutionsthat involve organizational design. Elements suchas leadership, quality of personnel and systems,level of funding, and freedom from unwise legaland regulatory constraints may be as important asorganizational structure in the search for solutionsto many problems that confront government agen-cies and programs. Also, reorganization can becostly and disruptive.

Experience provides some lessons about preferredorganizational forms. As a general rule, it is betterto link a governmental organization to a cabinetdepartment than to leave it independent. An inde-pendent agency cannot call on a larger departmentto try to offset the pull of influential narrow inter-ests. Also as a general rule, a single administratorrather than a multi-member board best governs afederal agency with operating responsibilities. Aboard generally reduces such an agency’s capacityand accountability.

The government corporation is an organizationalform that can be quite helpful in supporting theoperations of an agency that provides business-typeservices. The government corporation can keep itsaccounts and manage its affairs on a businesslikebasis. A government corporation that is financiallyself-sustaining does not need annual appropriationsof scarce taxpayer dollars; instead it can fund itselffrom revenues that it generates from its activities.

Sometimes policy makers may find it attractive todelegate performance of public purposes to a privateorganization. The instrumentality of government isan organizational category that includes a varietyof nongovernmental organizations that carry outpublic purposes as defined by law.

Most companies and other private organizations donot conduct activities that are considered to involvepublic purposes. By contrast, an instrumentality is a private organization whose activities federal lawdirects so that it serves public purposes. Federal

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instrumentalities tend to be prevalent in the finan-cial sector. They include Federal Reserve Banks, theSecurities Investor Protection Corporation, govern-ment sponsored enterprises (GSEs), and commercialbanks. Nonfinancial instrumentalities of governmentinclude the Corporation for Public Broadcasting, theLegal Services Corporation, the American NationalRed Cross, and the National Park Foundation.

Some inherently governmental functions, and espe-cially those that involve the exercise of discretionin applying government authority or making deci-sions for the government, are not suitable candi-dates for delegation to a private organization. Also,if government turns an activity over to the privatesector, the performance of that activity will changein response to the incentives created by privateownership. Investor-owned companies will seek to carry out only those activities that are profitable.Any instrumentality, whether for-profit, cooperative,or nonprofit, must be designed with careful atten-tion to accountability if it is to succeed in servingits public purposes.

Assuming that a decision is made to create a privategovernment instrumentality to carry out public pur-poses, the next question is whether that organiza-tion can earn enough revenues to cover its costs.Only then can it be financially viable. The govern-ment needs to assure: (1) that the instrumentalitycarries out high-priority public purposes, and (2)that it does so in a prudent financial manner. Thelatter issue is especially important for depositoryinstitutions and GSEs because of the governmentbacking of insured deposits and the perception ofimplicit government backing for GSE obligations.

Once instrumentalities have become established,both the executive branch and the Congress canfind it difficult to influence their activities, eitherwith respect to serving high-priority public pur-poses or with respect to reducing financial expo-sure from their activities. When an organization has served its public purposes, or when those purposes no longer have a high public priority,then an end to instrumentality status is called for.Instrumentalities that have completed the transitionto completely private companies include theNational Consumer Cooperative Bank and theCollege Construction Loan Insurance Corporation

(Connie Lee). Sallie Mae, a GSE, is in the processof giving up its government sponsorship and instru-mentality status.

The events of September 11 have brought into sharpfocus the limitations on the federal government’sability to design effective organizations and work-ing relationships with other federal agencies, withstate and local governments, and with private sectororganizations. The government once had substan-tial capacity, both in the Executive Office of thePresident and on Capitol Hill, to design effectivegovernmental organizations. Such capacity must berestored—to improve the capability of governmentgenerally and of agencies responsible for nationalhomeland security in particular. It is likely thatdemand for solid analysis of executive organizationand management issues will continue to be strongfor quite some time. We have far to go in dealingwith the organizational challenges that we face.

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The September 11 attack on the United States hasturned issues of government capacity and organiza-tional design into national priorities. Almost imme-diately after September 11, proposals to create anational Homeland Security Office and a neworganization to take charge of airport security com-manded the attention of policy makers. These offi-cials faced urgent questions including: (1) whetherto create new entities, (2) whether these entitiesmight be agencies or offices or nongovernmentalorganizations, and (3) how best to design the orga-nization once the larger questions had beenanswered.

This guide for organizational design attempts toprovide a framework to assist policy makers andothers who may face such questions. As the dustsettles after September 11, it is likely that Americanswill press for a more effective government than wasrequired earlier. Sound organizational design is animportant part of the movement toward more capa-ble government.

When organizational change is appropriate, restruc-turing can have a profound and beneficial impacton the performance of an organization. On theother hand, many of the problems that beset federalagencies may not be susceptible to being solved byorganizational redesign. Reorganization alone willnot solve many problems of interagency coordina-tion. Poor leadership, unmotivated staff, insufficientresources, and glacial or irrational procedures alsowill not be overcome just by restructuring.

There are six basic means to improve the performanceof organizations that carry out public purposes:

• Redesign program components

• Redesign administrative systems

• Provide additional resources

• Improve the organization’s leadership

• Improve coordination of activities of multipleorganizations

• Design or restructure the organization

This report addresses only the issue of the design andrestructuring of an organization. Other approachesmay prove more valuable in solving the particulartypes of problems that many agencies now face—and may be less disruptive than reorganization.

The next section presents the context for the needfor redesigning many parts of government. It looksat the nature and causes of stress on governmentorganizations and programs that can make theircurrent organizational structure inappropriate. Thatis followed by a discussion of a basic premise oforganizational design: The key is to identify theorganizational problem or problems that need tobe remedied, and then to determine whether or notthere is a beneficial and achievable organizationalsolution to that set of problems. This section identi-fies when reorganization might be helpful and alsonotes the shortcomings of reorganization. The focushere is on the structure of the overall governmentagency or bureau rather than on the organizationalstructure within agencies or bureaus.

This is followed by a guide to levels of analysis,from the need to obtain added managerial flexibility

Introduction1

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to the desire to change the form of governmentorganization to the consideration of creating a pri-vate organization to carry out the intended publicpurposes. As a general rule, lower-level changesare easier to implement in less time.

The next section presents a guide to analysis of pri-vate organizations that carry out public purposes. Itintroduces the concept of the federal instrumental-ity, an organization that is not part of the federalgovernment and that carries out public purposes.Instrumentalities can take a variety of forms,including the for-profit company, the cooperative,and the nonprofit organization. For-profit instru-mentalities include large shareholder-owned com-panies such as Fannie Mae and Freddie Mac,cooperatives such as the Farm Credit System, andnonprofits such as the American National RedCross. Although these are private organizations,they carry out public purposes that are defined infederal law. If capacity has been a major issue con-fronting many government agencies, the questionof accountability is critical for instrumentalities.

Unfortunately, government has lost much of its former capacity to improve the design of organiza-tions and programs so that they might operate moreeffectively. Neither the executive branch nor theCongress currently possesses the wealth of designtalent that once existed to help policy makers andlegislators create or update the legal structures thatsupport effective administration and delivery of public services. The final section recommends thatthe government take steps to improve its capacity to design effective organizations and programs as an essential step in improving the capacity ofgovernment.

Organizational design in government is often apolitical process, and a growing body of literatureexists concerning the politics of organizationaldesign.2 As Harold Seidman states, “[D]ecisions onprogram design, institutional type, organizationaljurisdiction, and management systems may welldetermine who will control and benefit from a pro-gram and, ultimately, whether national objectivesare achieved.”3

This report does not deal with the politics of gov-ernment design, except to note that the scope ofany intended organizational transformation will

involve considerations of the constituencies thatfavor or oppose particular changes. Instead, thepurpose of the report is more modest: to assure thatpolicy makers have access to a conceptual frame-work that helps them to make wise decisions aboutorganizational changes to enhance the capacity ofgovernment to perform well.

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Many government organizations today are fallingbehind in the effort to keep up with demand fortheir services. A mere mention of some of theseservices, such as medical care for the elderly, taxcollection, and financing for low-income housing,helps validate the observation that many govern-ment agencies are being asked to meet increasingpublic needs with fewer resources. Not all agenciesand programs are in decline, and some wouldargue that, to the extent the private sector is takingup the slack, not all of the decline is bad. Nonethe-less, the trend is disturbing, especially in light ofthe new demands for increased national securitysince September 11.

In architecture, form follows function. Similarly, inorganizational design, form should follow purpose.Many government agencies and programs areunder stress because government must carry outnew purposes and functions while many old activi-ties no longer appear appropriate. Issues of purposeare in flux in three different dimensions: (1) politi-cal disagreements about the proper role of govern-ment that can call into question the currentpurposes of a program or agency, (2) technologicaldevelopments that can change the way that pur-poses are carried out, and (3) economic develop-ments that can affect the need for government tocarry out some purposes in the old ways.

Each of these effects makes itself felt differently.Issues of the proper role of government arereflected in the many pieces of legislation thathave sought to increase government’s capacity torespond to the September 11 attacks. These newproposals follow a quite different period from the

1980s and 1990s, when many policy makers hadsuggested that the Congress should zero out or pri-vatize or devolve some or all of many agencies’existing program activities.

As of this writing, the public purposes of manyagencies remain in flux. Policy makers still do notknow, for example, exactly how many agencies orprograms have a significant role to play in assuring the national defense against a new form of warfare.For an agency with security responsibilities, such as the Immigration and Naturalization Service, theincreased priority placed on homeland security hascalled its current organizational form into question.For an agency without a clear security role, themere fact that its purposes are called into questioncan have significant consequences, especially inthe budgeting and appropriations process. If theOffice of Management and Budget and congres-sional appropriators begin to question certain activ-ities, they are likely to try to reduce their funding infavor of higher-priority programs such as those thatrelate directly to national security.

Technology acts to take apart old purposes andways of doing business, and put them backtogether in new ways. The driving forces of sometechnology-based systems include new economiesof scale and the superiority of information-basedtechnologies over older approaches. The economyof the Internet and toll-free (800) numbers meansthat government agencies often can provide moreextensive service from centralized service centerscompared to traditional face-to-face meetings at alocal federal office; the availability of optical imag-ing and electronic data interchange similarly can

Government Organizations under Continuing Stress

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make many paper filing systems—and the tasks ofthe people who maintain them—obsolete.

Finally, the economic context for many governmentactivities is changing at a rapid pace. Many ser-vices that the federal government provides nowfind themselves threatened by new forms of com-petition. Thus, increased consumer use of elec-tronic transactions is eroding the Postal Service’sonce profitable service in delivering bills and finan-cial payments by mail. In one area of service deliv-ery after another, private companies are able to usenew technologies to obtain customers who wouldhave been part of the government’s customer basein earlier years.

The private sector also is adept at screening cus-tomers to attract the most profitable segmentsamong consumers of power, housing, or financialservices. Thus, automated underwriting systemsallow private mortgage companies to attract bor-rowers who formerly might have been served bythe Federal Housing Administration through anFHA mortgage. The screening process leaves gov-ernment with a smaller customer base composed ofpeople and firms that the private sector considerstoo costly to serve. For the agencies and programsthat bear the brunt of such adverse selection, adownward spiral is possible, with diminishedresources available to serve an increasingly needysegment of the population.

If an organization’s form should follow its purposes,and purposes are up for grabs in several major dimen-sions—political, technological, and economic—theresults can be devastating for government agenciesand programs that had been organized around oldways of doing business. It is not surprising that depart-ments such as Housing and Urban Development(HUD) and agencies such as the Centers forMedicare and Medicaid Services (CMS, formerlyHCFA) have been hammered by waves of change.The questions then become: (1) whether redesignof the organization will solve the agency’s mostimportant problems, and (2) if so, what type oforganizational redesign would be most beneficial.

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Deciding When a New Structure IsAppropriateThere are a number of sound reasons to create anew organization or to reorganize. These includethe need to:

• Combine related programs from disparate gov-ernmental units to provide an organizationalfocus and accountability for carrying out high-priority public purposes

• Help assure that information flows to theproper level of government for considerationand possible action

• Change policy emphasis and assure thatresources are more properly allocated to support high-priority activities

• Determine who controls and is accountable for certain governmental activities.

Combine Related ProgramsA panel study of the National Academy of PublicAdministration presented a useful set of questionsto help decide when it might be beneficial to com-bine programs into a single department or agency4:

• Are the agency’s programs, along with otherprograms that might be added from other agen-cies, closely related in terms of achievingbroad national goals?

• Would the combination of related programsimprove service delivery? Would it save money,either for the taxpayers or for those affected

by the programs? Would it prevent one con-stituency group or profession from dominatingthe agency?

• Does the agency warrant independent status,whether in the cabinet or not, as compared toother agencies?

• Would cabinet status improve the leadership,visibility, and public support of the programs?

• Does the public interest require that it remainin the government (even if many of its functionsare contracted), or should it be devolved or privatized?

There are a number of success stories in this regard,including the creation of the Department of Housingand Urban Development (HUD) and the Departmentof Transportation (DOT). The creation of DOT as acabinet agency was the result of careful analysisand 20 years of waiting until the conditions wereright to bring together disparate programs fromdepartments including Commerce (e.g., the CivilAeronautics Administration) and Treasury (the CoastGuard), independent agencies (the Federal AviationAdministration) and commissions (the CivilAeronautics Board and the Interstate CommerceCommission), and one government corporation (theSt. Lawrence Seaway Development Corporation).While the reorganization was a large-scale effort,the sound design of the new department (see “TheU.S. Department of Transportation: A Well-DesignedDepartment” on page 14) mitigated the disruptioncaused by the change. Alan Dean writes, “An executive department is usually called for when

The Decision to ChangeOrganizational Structure

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programs related to some definable governmentpurpose become so numerous, so large, and socomplex that an official of secretarial rank withenhanced access to the president is needed to provide effective oversight and coordination of program management.”5

Assure That Information Flows to the Proper Levelof GovernmentThe creation of the position of director of theOffice of Homeland Security in the White House is a classic example of this type of reorganization.The president sought to create in one place a focusfor the information that would flow from severaldozen federal agencies that, until September 11,had not necessarily emphasized issues of nationalhomeland security.

Many observers have urged that the director’s posi-tion be established formally by law to assure theaccountability of the office to the Congress andalso to give it more strength in the inevitable turfbattles that arise when government begins to focuson new urgent priorities. In this regard, the Officeof Homeland Security could come to resemble theOffice of National Drug Control Policy (ONDCP),which was established by law to help focus theefforts of numerous agencies on the issue of drugcontrol. Besides its position in the White House, theONDCP has authority to review budgets of federalagencies to determine the extent that they are con-sistent with the antidrug policies of the president.

Place Policy Emphasis on High-Priority ActivitiesMany times, the creation of a major new programmay be accompanied by a proposed change inorganization. Thus, the Clinton administration successfully sought creation of the Corporation for National and Community Service as part of theproposal to create AmeriCorps. The Bush admin-istration sought creation of the new TransportationSecurity Administration in DOT as a response tothe events of September 11 and the weaknessesrevealed in aviation security. It is not certain that a new organization was needed in either instance;however, the creation of a new organization was apart of the emphasis given to the new activities anda way to demonstrate the administration’s commit-ment to assuring that resources would supportthose activities.

The creation of the Office of Federal HousingEnterprises Oversight (OFHEO) as the safety andsoundness regulator of Fannie Mae and FreddieMac took place in part to demonstrate a new gov-ernment priority on safety and soundness in theaftermath of the savings and loan debacle and alsoas an implicit statement that the regulatory respon-sibilities of the new office would have a higher pri-ority and would gain greater resources than hadbeen the case earlier.

Determine Control and AccountabilityThe creation of the Transportation SecurityAdministration represented a significant shift incontrol and responsibility for aviation security, from the airlines that had hired low-cost low-performance contractors to direct federal adminis-tration of the airport and airplane security functionsof some 28,000 officials in a newly created organi-zation. The debate in the Congress concernedwhether the government should contract for secu-rity services or whether federal employees shouldcarry them out. In either event, there was substan-tial agreement on creating a Transportation SecurityAdministration to assure that the government,rather than private airlines, controlled and wasaccountable for aviation security.

The reorganization of the U.S. Post OfficeDepartment also represented a change in controland accountability of important aspects of adminis-tration. The Postal Reorganization Act of 1970 trans-formed the organization from a cabinet departmentinto an organization with the attributes of a wholly owned government corporation. Thischanged the method of financing and allowed the United States Postal Service (USPS) to exerciseincreased control over funding and operations. The new law also ended congressional control over appointments of postmasters. It depoliticizedappointments, promotions, and management deci-sions, thereby allowing the USPS to increase itscontrol over personnel and to make significant gainsin productivity. The law also created a postal ratemaking process that, with all of its faults, is superiorto the congressional rate making that was in placebefore 1970. The reorganization thus shiftedaccountability for major decisions concerning ratesand appointments from the Congress to the USPSand the new Postal Rate Commission. Even thoughthe reorganization was flawed in some respects,

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After World War II, the Office of Management andOrganization in the Bureau of the Budget and theHoover Commission began to consider the idea of creating a single department to consolidatetransportation activities that were spread acrossnumerous cabinet departments and independentagencies. When President Lyndon Johnson becameinterested in a legislative initiative to improve trans-portation, the political context was right for cre-ation of the new department.6

The Department of Transportation Act of 1966embodied a carefully designed structure that builtupon many of the constituent units that were trans-ferred from other parts of the government. Thestatutory constituents were largely based on modesof transportation. They originally included theFederal Aviation Administration, the Coast Guard,the Federal Highway Administration, the FederalRailroad Administration, and the St. LawrenceSeaway Development Corporation. Later additionsincluded the Federal Transit Administration and theFederal Maritime Administration. Also, the NationalHighway Transportation Safety Administration wasseparated from the Federal Highway Administration,where it had been located for a short time. Principaloperations of the Department of Transportation areconducted through these administrations.7

The secretary of transportation is the president’schief adviser on transportation policy. The secretarysets policies for the administrations, supported bythe deputy secretary and by several assistant secre-taries. Currently there are assistant secretaries fortransportation policy, aviation and internationalaffairs, governmental affairs, budget and programs,and administration. While the law specifies theresponsibilities and powers of the modal adminis-trations, the assistant secretaries function solely in a staff capacity; they do not have authority to directthe administrators who head each administration.

The secretary is free to change the duties and func-tions of the assistant secretaries. This allows thedepartment to adjust to changing circumstancesand priorities over the years. The statutory structureof DOT conforms to the precepts urged by theNational Academy of Public AdministrationStanding Panel on Executive Organization andManagement:

Legislation establishing executive depart-ments or agencies or addressing aspects ofgeneral management should to the maximumfeasible extent avoid the prescription of statu-tory detail and should empower the agencyhead to make the internal arrangements bestsuited to the effective execution of the laws.8

The strength of the administration-based operatingstructure of the department is that each of theadministrations possesses the staff and budgetresources to carry out its mission. By contrast tosome other departments, notably the Department of Energy with its tightly centralized structure, eachof the larger DOT administrations has the ability to manage its own systems for personnel, procure-ment, and legal support, for example, according topolicies that often may be set by the parent depart-ment. The missions of the modal administrationsare different enough to merit operations throughdistinct organizational units. For example, theFederal Aviation Administration has quite differentresponsibilities and activities from the FederalTransit Administration or the Coast Guard.

On the other hand, the autonomy of the modaladministrations has had disadvantages, too. It hastaken years to improve intermodal transportationactivities so that, for example, rail and urban transitsystems link with airports in a manner that is famil-iar to travelers in Europe. Successive intermodaltransportation acts have helped to address this con-cern, especially by promoting cooperation betweenthe Federal Highway Administration and theFederal Transit Administration.

After September 11, the government enacted theTransportation and Airport Security Act, creating anew Transportation Security Administration headedby an under secretary of transportation for security.Closer study of the structure of the departmentwould have led instead to creation of an adminis-trator for transportation security in DOT, and thelodging of greater power in the secretary, withauthority to delegate. This provides a useful lessonin organizational design: Be sure to study the organizational context before proposing changes.Knowledge of the context can help to prevent confusion and problems in implementing orga-nizational changes.

The U.S. Department of Transportation: A Well-Designed Department

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notably the creation of the Postal Rate Commission,it did provide a substantial increase in capacity forthe USPS that served the public well for many years.

A very difficult reorganization to accomplish politi-cally was the Goldwater-Nichols Department ofDefense Reorganization Act of 1986. That act trans-formed the Joint Chiefs of Staff (JCS) from a weakcoordinating body into a source of influence thatcould promote serious interservice cooperation.The act accomplished this by: (1) increasing theauthority of the JCS chairman, (2) improving thequality of the JCS staff by requiring joint service forpromotion to flag or general officer rank, and (3)granting commanders in chief of unified and specifiedcombatant commands (CINCs) increased autonomyand authority over their joint field commands.Observers attribute a significant increase in UnitedStates military capabilities, including combined ser-vice operations in the Persian Gulf War, to the 1986Goldwater-Nichols Act and the reform of the JCS.9

In summary then, while creation of new organiza-tions such as DOT and reorganizations such as thePostal Reorganization Act of 1970 or the 1986Goldwater-Nichols Act sometimes may be difficultto enact, they can have substantial positive benefitsas long as the change in organizational structuresolves a real problem that had been impeding moreeffective performance.

Fitting the Solution to the Problem In organizational design, the key is to fit the appro-priate organizational form to the purposes to beachieved. This is not always easy. Policy makers fre-quently reach for organizational answers that maycompound rather than alleviate issues of capacity,including the creation of governing boards. Thishappened to the Internal Revenue Service in 1998,for example. The problem is compounded becauseof the ease with which policy makers are able toadopt such organizational “quick fixes” that cancomplicate rather than solve the fundamental prob-lems that beset an agency or program. Alan Deanand others have pointed out that there is no organi-zation that cannot be made worse through a poorreorganization.

Many problems do not have solutions that involveorganizational design. Elements such as leadership,

quality of personnel and systems, level of funding,and freedom from unwise legal and regulatory con-straints may be as important as organizational struc-ture in the search for solutions to many problemsthat confront government agencies and programs.

For example, problems of interagency coordination,in an operational sense, sometimes may requirequite different solutions from a consolidation orinteragency reorganization. Thus, a major concernbehind the recommendation to create a nationalhomeland security department is the fact that so many of our border agencies—includingCustoms, the Coast Guard, and the Immigrationand Naturalization Service—do not share commoncommunications systems or databases with oneanother, or with the FBI, the CIA, and otherinvolved agencies, that would allow them toexchange information promptly and to assemblethat information into patterns that could signal thelikely entry into the United States of dangerous people or cargo.10 The creation of a commondepartment to contain some but not all of theseorganizations is likely to be much less effective thana concerted effort to design the appropriate systemsalong with the provision of adequate resources,over a period of years, develop the needed systems,and integrate them into the day-to-day operations of all of the relevant frontline agencies.

Agencies also may seek to reorganize in the beliefthat they can increase their ability to carry out theirresponsibilities. Budget and staff cuts have turnedmany agencies into hollow organizations. TheUnited States Commission on National Security/21st Century found that the Department of Statewas “starved for resources.”11 Moreover, the com-mission reported, “The Customs Service, the BorderPatrol, and the Coast Guard are all on the verge ofbeing overwhelmed by the mismatch between theirgrowing duties and their mostly static resources.”12

The problem is not confined to agencies anddepartments with national security responsibilities.In 1999, a bipartisan group of 14 health-careexperts published an open letter calling forincreased resources to be devoted to the HealthCare Financing Administration (now renamed theCenters for Medicare and Medicaid Services):“[N]o private insurer, after subtracting its marketingcosts and profit, would ever attempt to manage

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such large and complex insurance programs withso small an administrative budget.”13

The United States Commission on National Security/21st Century stated the general problem in starkterms: “As it enters the 21st century, the UnitedStates finds itself on the brink of an unprecedentedcrisis in competence in government…. Both civilianand military institutions face growing challenges …in recruiting and retaining America’s most promis-ing talent.”14

Reorganization is not a substitute for inadequateresources in areas such as budget, staffing, or sys-tems. Consolidation of activities into a new, largerorganization, for example, may not help an agencyobtain greater resources. On the other hand, care-fully targeted organizational redesign sometimescan enhance the capacity of a governmental orga-nization by fitting the structure more closely to anagency’s mission and changing the method offinancing. That was the case with the change infinancing of the U.S. Postal Service that resultedfrom the Postal Reorganization Act of 1970 and itsestablishment as an organization with the attributesof a wholly owned government corporation.

Organizational redesign also may make a substan-tial contribution to enhancing an agency’s flexibil-ity, for example, by removing layers of review anddelegating responsibility for personnel, contracting,and budgeting to subordinate organizational units.In the mid-1990s, the Federal Housing Administrationsought to become more autonomous through transformation into a wholly owned governmentcorporation. That initiative failed because of theopposition of key constituencies. Had it gone intoeffect, the FHA might have gained substantial flexi-bility in its operations. Indeed, as is discussedbelow, the government corporation is an especiallyflexible organizational form that is intended to beable to respond to market demand for an agency’sservices.

On the other hand, many issues of flexibility canbe addressed without going through a process ofmajor organizational redesign. Simple delegationsof authority, for example from a department to itsmajor subordinate organizations, can relieve manyagencies of layers of review that add little value tothe quality of staffing, procurement, or budget deci-

sions. The President’s Management Agenda adoptsa focused approach. It calls upon agencies todesign and implement removal of redundant layersfrom their organizational hierarchies.

Life cycle is also an important issue to consider inthe design or redesign of government organizations.One issue is capture. As Marver Bernstein and others have pointed out, some agencies (Bernsteinwrote about independent regulatory commissions)are susceptible to capture by particular constituen-cies. The result can be to direct the activities of anagency or program to serve selected purposes in adifferent manner than if underrepresented interestshad a more effective voice. Thus, as Harold Seidmanobserves, when designing an organization it is use-ful to consider whether its constituency is likely tobe broad based, or whether it will represent narrowinterests potentially antithetical to some of the pub-lic purposes to be accomplished.

Another life-cycle issue might be called ossification.Some agencies gain and maintain so much auton-omy that they lose sensitivity to their external envi-ronment. Robert Mueller, the new head of the FBI,has been actively addressing this issue early in histenure. Much of the frustration of the United StatesCommission on National Security/21st Century atthe lack of coordination among agencies with secu-rity responsibilities would seem to relate to thisissue. Amy Zegart, who studied the organizationaldesign of the CIA, Joint Chiefs of Staff, and NationalSecurity Council, argues that national security orga-nizations may find themselves beset by issues ofbureaucratic “turf” that can be even more substantialthan those among domestic agencies of government.

Harold Seidman notes the importance of organiza-tional culture in organizational design. He asks twoquestions: (1) What is the culture and tradition ofthe administering department or agency?, and (2)Will it provide an environment favorable to pro-gram growth, or will it stunt development?

It can be difficult to anticipate and address issuesof life cycle when creating or redesigning an orga-nization. Nonetheless, these issues can be essentialin determining the quality of an agency’s perfor-mance at critical moments such as the weeks andmonths after September 11. They deserve thoughtas part of the process of organizational design.

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Selecting an AppropriateOrganizational FormOnce policy makers have identified the intendedgoals and purposes of an agency, they can look toexisting organizations for possible models that theymight adapt as a goal for the agency’s transforma-tion. A range of organizational forms can be con-structed, from the usual government department oragency at one end to the completely private firmat the other.15 Intermediate points along the organi-zational range would include independent agen-cies, wholly owned government corporations, andprivate instrumentalities of government. Note,however, that precise distinctions sometimes canbe elusive. The political process tends to generatea variety of organizational types, such as theSmithsonian Institution or the Federal ReserveSystem, that do not fall clearly into any single organizational category.

Figure 1 presents a continuum of organizationalforms from public (i.e., governmental) to private.This continuum includes some of the intermediatetypes of organization, such as the government cor-poration and the government sponsored enterprise;other forms, and especially other forms of governmentinstrumentality, could have been included as well.

For officials of an agency that is enmeshed inrestrictive laws and regulations and limited byscarce resources, it is inviting to dream of the orga-nizational freedom enjoyed by entities such as theFederal Reserve or the Tennessee Valley Authority.Similarly, when a public priority such as airlinesecurity suddenly becomes urgent, some policymakers may grasp at the model of a governmentcorporation or even a government sponsored enter-prise to provide the organizational answers.However, caution is merited. Few federal purposesenjoy either the policy justification or the politicalconstituency to take on such organizational forms.

The Costs of ReorganizationBesides providing benefits, even a good reorganiza-tion can involve costs. Herbert N. Jasper, an experton government organization, has summarized someof those limitations16:

• Reorganization can be costly and disruptive; itmay immobilize an agency for one to three

years while the proposal is being formulated,debated, enacted, and implemented;

• Abolishing a government department or agencywithout terminating or consolidating the pro-grams administered by the organization maycost more than preserving it.

• While there may be benefits from reorganization,there may also be losses—not just costs. That is,reorganization is a way to emphasize certain val-ues or goals, but this means downgrading othervalues or goals. The Coast Guard, for example,has many responsibilities—for safety, search andrescue, maritime pollution, high-seas fishing,and oceanographic research, for example—thathave little to do with border security. Accordingto one rough estimate, only perhaps one-fifthof Coast Guard functions may relate directly to homeland security. The President’s proposalto merge the Coast Guard into a new cabinetdepartment for homeland security thus risksdowngrading the other important Coast Guardfunctions in the effort to upgrade border security.These issues require careful analysis and judg-ment before making an organizational change.

• Reorganization, per se, seldom saves money.For example, combining two executive depart-ments without other actions would save littlemore than the salaries of a handful of presiden-tial appointees and their immediate staffs.Often program redesign can be much morecost-effective than reorganization.

• Efficiency, cost savings, and improved servicemight best be accomplished by program simplification or consolidation, rather than by merely vesting the authorities of two ormore agencies in a single one. On the otherhand, vesting overlapping functions in a singleagency may permit the agency head to developsound legislative proposals to rationalize therelated functions.

• Executive reorganization proposals often failbecause they would lead some to propose cor-responding revisions in congressional commit-tee jurisdictions. On occasion, deference tojurisdictional issues has led to the need for anagency appointee to be confirmed by two dif-ferent Senate committees; this is preferable totrying to change lines of authority within theCongress.

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Figure 1: The Continuum of Organizational Forms

Public

Owned and controlled by the public sector

Private

Owned and controlled by the private sector

Governmentdepartment/

agency

Government corporation

• Funded by theU.S. government

• Strict adherence to federal statutesand regulationsthroughout operation

• Fully or partiallyfunded by the U.S.government

• Some flexibility in adherence to federal statutesand regulations

• Independent orpart of a govern-ment department/agency

• Generally created to serve apublic function ofa predominantly business nature

• Department ofCommerce

• Department ofEnergy

• Tennessee ValleyAuthority (TVA)

• Rural TelephoneBank (RTB)

Government sponsored enterprise

Private corporation

• Typically financedby privateinvestors

• Privately owned/controlled

• Credit markets perceive impliedfinancial backingby the U.S. government

• Regulated by U.S. government to protect the government’s interest

• Profit seeking

• Privately owned/controlled

• Profit seeking

• Federal NationalMortgageAssociation(Fannie Mae)

• Federal HomeLoan MortgageAssociation(Freddie Mac)

• InternationalBusiness Machines(IBM)

• Procter & Gamble

Public Private

Source: Government Corporation: Profiles of Existing Government Corporations (General Accounting Office, GAO/GGD-96-14).

Type

SelectedAttributes

Examples

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When initial analysis indicates that an organiza-tional solution may be appropriate for the problemat hand, it may be useful to continue the analysisthrough different levels of organizational concern.This report can only begin to highlight some of theissues that must be considered in finding solutionsto problems caused by flawed organizational struc-ture. However, accepting that this report mustadopt a high level of generality, some observationscan help to illuminate the issues and tradeoffs thatmust be considered.

Some problems are larger than others, and organi-zational design needs to take this into account. In many, but not all, cases, the smaller the organi-zational change that will solve the most pressingproblems, the easier the change may be to imple-ment. One useful approach is to consider a seriesof questions that can help guide the search for anappropriate organizational solution. As can be seenin Figure 2, the questions start with the most com-mon issues of lack of resources, capacity, and man-agerial flexibility, and move upwards to the highestlevel of question, whether the organization shouldbe located in the public or private sector. This sec-tion looks at organizational options for governmen-tal organizations. The section that follows looks atoptions for organizations in the private sector thatcarry out public purposes.

Finding Organizational Solutions: TheCreation or Redesign of GovernmentDepartments and Agencies

Figure 2: Design Questions—GovernmentDepartments and Agencies

1. What operational flexibilities does theorganization require?

2. If the organization is governmental,where should it be located?

3. What governance structure is appropriate?

4. If a single administrator heads an agency,should there be a fixed term?

5. If the organization is a governmentagency, should it be a government corporation?

6. If the agency is not a government corpo-ration, should its funding be changed inany other way?

7. Should the organization be part of gov-ernment or private?

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1. What operational flexibilitiesdoes the organization require?Over the years, governmental organizations havebecome enmeshed in a web of legal restrictionsthat combine to limit their ability to carry out theirmissions. Some of these restrictions result from pro-gram failures that policy makers then addressthrough tight financial controls that begin toimpede program operations far beyond the scopeof the original problem. Other restrictions comeabout when a crosscutting law inadvertently coversprograms for which it is not suitable. The FederalCredit Reform Act, which requires complexaccounting on the basis of annual appropriations,applies by its terms also to financially self-sustain-ing government corporations that are supposed toachieve operating flexibility through multiyear bud-geting. The result of this otherwise beneficial law isto force some government corporations into theconstraints of funding through the annual appropri-ations process.

The George W. Bush administration recognizes theimportance of addressing legal constraints that maynot add value to the operations of a particular orga-nization. The President’s Management Agenda forfiscal year 2002 proposed legislation that wouldcreate expedited procedures so that the administra-tion could submit requests for legislative relief thatcould be addressed promptly by the Congress.

The Clinton administration also recognized thisproblem. One proposal of Vice President Gore’sNational Performance Review was to create a neworganizational form, known as the performance-based organization, or PBO. Only two PBOs wereenacted into law, the Office of Federal Student Aidin the Department of Education and the Patent andTrademark Office in the Department of Commerce.In practical effect for many agencies, the considera-tion of PBO status involved an invitation to obtainneeded management flexibilities, especially in per-sonnel actions and contracting, in return for a com-mitment to achieving performance goals.

For the Office of Federal Student Aid, the conver-sion to PBO status has provided an opportunity toreorganize the office and to experiment with newcontracting approaches. On the other hand, thecreation of a PBO has proved tricky in one major

respect. The PBO concept is premised on theassumption that policy issues, which remain withthe larger department, can be separated from oper-ations, which are the province of the PBO. Unlessdesigned correctly, the details of a PBO statute cancreate bureaucratic fault lines between the PBOand its parent department that create tensions andconfuse rather than streamline organizational rela-tionships. Both current PBOs would seem to mani-fest this difficulty.

For many government agencies, the achievement ofoperating flexibilities will not require such a large-scale redesign of the organization. Again the solu-tion must fit the problem. An organizationalsolution is not appropriate merely to alleviate somestatutory or departmental constraint that impedeseffective operations. Rather, as the President’sManagement Agenda for FY 2002 suggests, a moretargeted solution is called for, such as specificimprovements in administrative or program deliverysystems or perhaps some form of delayering of thedepartment to remove redundancies in tasksbetween the larger department and the subordinateagency. The Congress recently has shown itselfopen to providing increasing numbers of exceptedservice positions for agencies that otherwise mightnot be able to recruit needed specialists withimportant technical or financial skills, for example.In obtaining such relief, it is wise to consider theadmonition of public administration expert RonaldMoe, who counsels that—as with organizationalredesign—targeted relief should rest upon well-considered principles rather than a simple desire torid oneself of constraints that may have beenintended to promote accountability in the opera-tions of government as a whole.

2. If the organization is governmen-tal, where should it be located?As a general rule, it is preferable to link a govern-mental organization to a cabinet department, ratherthan leaving it independent. That said, organiza-tional change might be appropriate when an activitybecomes an orphan within its cabinet department.Competition among organizations within a depart-ment can deprive an agency or activity of access tofunding, personnel, contracts, or other neededresources. This was a problem for the U.S. CoastGuard, for example, when it was part of the

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Treasury Department. Once the agency transferredto the new Department of Transportation, the CoastGuard underwent a significant transformation inrole and mission. As the United States Commissionon National Security/21st Century properly pointedout, after some years the Coast Guard once againbecame neglected in the competition for resources,this time within the Department of Transportation.

A strong cabinet secretary can defend the depart-ment against encroachment from outside forces. Bycontrast, an independent agency cannot call on alarger department to try to offset the pull of narrowinterests that may have influence over the relevantcongressional subcommittees. Independent agenciesmay have other difficulties as well. With exceptions,such as the Social Security Administration, theNational Aeronautics and Space Administration, and the Small Business Administration, the Congressmay place a board structure at the top of an inde-pendent agency. Thus, independent agencies withoperating responsibilities, such as the Export-ImportBank of the United States, the Tennessee ValleyAuthority, the Pension Benefit Guaranty Corporation,and the Federal Retirement Thrift Investment Board,all are governed by boards of directors. In mostcases, as will be discussed below, the creation of aboard reduces rather than enhances the capacityand accountability of a government agency.

3. What governance structure isappropriate?As a general rule, a single administrator rather than a multi-member board best governs a federalagency. An agency governed by a board can losecapacity in several ways. The process of fillingpolitical appointments can be very slow. Whenseats on a board remain vacant, an agency can findits activities constrained by the inability to obtain aquorum to vote on important matters.

Harmful vacancies also can occur if a board con-sists of ex officio members who are too busy toattend regular board meetings. Alternatively, ex officio members of a government board will send subordinates who may lack the authority toact on their own. The Pension Benefit GuarantyCorporation (PBGC), for example, is supposed tobe governed by a board consisting of three cabinet

Governance of an Operating Agency: The Choice Between a SingleAdministrator and a Board

The National Academy of Public Administrationsubmitted a report to the Congressional Panel onSocial Security Organization in which it stated that:

[T]o the extent that management needsdictate the form of leadership, it is stronglyadvocated that a single commissioner beappointed and that the use of a board beavoided as neither necessary nor desirable.

The report made the following points about thechoice between a single administrator and aboard:

1. In management terms, the most importantpoint is that it is almost universally agreedthat single administrators are far more effectiveand accountable than multi-person boards orcommissions, bipartisan or otherwise.

2. Again in management terms, a board is not a necessity and is not desirable. Even if aboard’s role is carefully defined and its mem-bership carefully selected, history strongly sug-gests that it is almost impossible to keep sucha board from interjecting itself into the man-agement of the organization which it stewards.While such interjections are occasionally use-ful, the likelihood is that they would end upconfusing and debilitating the authority of theagency head, creating conflict for the staff, andbecoming another layer of management whichadds little and detracts much. Furthermore, thecomposition of such boards becomes an issuein itself, and all too often breeds preoccupationwith diversionary issues of balance, represen-tativeness, or political fairness, rather than theability of such boards to contribute to the suc-cess of the program.

3. Where boards attempt to manage programsdirectly without an authoritative manager(administrator, executive director) they haveproved most often to be ineffective.

Source: National Academy of Public Administration,Management Reforms as a Part of OrganizationalIndependence, report to the Congressional Panel on Social Security Administration, May 1984, pp. 1-2.

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secretaries. Virtually none of these secretaries hasthe time or inclination to attend meetings of thePBGC board. Instead, the secretaries routinely sendsubordinates who lack the power to vote or other-wise act for the PBGC without obtaining guidancefrom their individual departments. This can greatlyimpair the ability of a board to serve as a forum forexchanging views to arrive at a consensus on anissue of importance to the organization that theboard is supposed to guide.

As a general rule, the board structure in governmentfunctions much less effectively than a board ofdirectors in the private sector, as will be discussedbelow. Members of the board of directors of a pri-vate corporation have a fiduciary responsibility torepresent the interests of shareholders, and oftenhold a financial stake in the company. This createsa significant incentive to come to agreement aboutthe desired direction for the organization. By con-trast, members of a government board have no suchincentive to act in a collaborative fashion. Indeed,the appointees to a government board are likely tohave divergent views on some major issues. Thelack of a working consensus can create delay andimpede the ability of agency managers to act in thebest interests of the organization and its mission.

Problems also can arise if appointments to a gov-ernment board do not possess the requisite back-grounds, experience, or stature. This issue can beaddressed by writing some minimal qualificationsinto the authorizing statute, but such language stilldoes not assure high-quality appointments.

The board structure can impede accountability of agovernment organization. Without any one personwho is fully responsible for decisions, board mem-bers and the agency’s senior managers all canassign blame to each other for parts of a discred-ited decision or for inaction.

This said, there are some times when a board struc-ture is appropriate or even necessary for a govern-ment agency. Multi-member boards are found insome regulatory agencies. For regulatory agencies,and in contrast to operating agencies, some con-sider the fact of divergent opinions among boardmembers to be helpful in assuring the fairness of adecision.

Multi-member boards also are helpful in insulatingsome agencies from potential political interferencein their operations. Here the Board of Governors ofthe U.S. Postal Service and the Federal RetirementThrift Investment Board come to mind. In bothcases, the board is charged with appointing thechief executive of the agency. The insertion of amulti-member board between the chief executiveofficer and the political process is considered valu-able in helping to insulate the agency’s operationsfrom the kind of untoward political interventionthat characterized the Post Office Department, forexample, before its reorganization.

4. If a single administrator heads an agency, should there be a fixedterm? Generally, the preferred choice is to allow the pres-ident of the United States to appoint the agencyhead and to have the appointee serve at the plea-sure of the president. The key issue in deciding ona fixed term is whether the position involves signifi-cant policy decisions or whether its functions tendto be more technical and nonpartisan in nature. Ifthe position involves issues of policy, then there arecosts to keeping someone in office who has no rap-port with a new administration. Thus, the currenthead of one organization, who nominally serves fora fixed term of years, was asked to resign severaltimes since the administration came into office.Although the position is a presidential appointmentand therefore the president could dismiss theincumbent, the person has declined to depart ami-cably; this has contributed to a state of consider-able friction between the organization and theleadership of the larger department.

On the other hand, if a position is largely technicaland nonpartisan—for example, in a position relat-ing to national security—then there may be somebenefits to a fixed term. Most important, the gov-ernment doesn’t lose a skilled professional justbecause a new president takes office. There is timeto arrange a more careful transition or to reappointthe incumbent.

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5. If the organization is a governmentagency, should it be a governmentcorporation? One kind of government agency deserves specialattention. The government corporation is an organi-zational form that can be quite helpful in support-ing the operations of an agency that providesbusiness-type services (similar to the U.S. PostalService, mentioned earlier). President HarryTruman, in his 1948 budget message, stated the criteria for creating a government corporation:

Experience indicates that the corporateform of organization is peculiarly adaptedto the administration of government pro-grams which are predominately of a com-mercial character—those which arerevenue producing, are at least potentiallyself-sustaining and involve a large numberof business-type transactions with the pub-lic. In their business operations such pro-grams require greater flexibility than thecustomary type of appropriations budgetordinarily permits.

The essence of the government corporation is itsability to keep its accounts and manage its affairson a businesslike basis. In other words, a govern-ment corporation that is financially self-sustainingdoes not need annual appropriations; it funds itselfinstead from revenues that it generates from itsactivities. The U.S. Postal Service sells mail deliveryservices, the Tennessee Valley Authority sells power,and the Government National Mortgage Association(Ginnie Mae) charges a fee for guaranteeing mort-gage-backed securities. The General AccountingOffice has issued a legal opinion indicating thatwholly owned government corporations are exemptfrom the limitations imposed by many of the lawsthat apply to agencies funded by appropriations.

Some government corporations, such as the FederalDeposit Insurance Corporation (FDIC) and the Tennessee Valley Authority, benefit from considerableautonomy.17 Other government corporations, suchas Ginnie Mae, the Pension Benefit Guaranty Corpo-ration, and the St. Lawrence Seaway DevelopmentCorporation, have less autonomy in their operations.Even these less autonomous corporations benefit

from some management flexibilities that noncorpo-rate government agencies would envy.

When a government corporation is appropriate forthe intended mission, the organization is able todevelop an institutional culture that can be quitebusinesslike. For example, a survey in the early1990s of federal agencies that provide loans andguarantees showed that government corporationshad established a practice of obtaining clean auditopinions year after year. These corporations—Ginnie Mae, the Overseas Private InvestmentCorporation (OPIC), and the Export-Import Bank of the United States (ExImBank)—achieved an orga-nizational tone and operational effectiveness thatallowed them to use relatively small staffs to man-age significant programs. By contrast, other federalcredit agencies at the time were unable to generateauditable financial statements and often wereunable to achieve the businesslike culture thatcharacterized the government corporations.

On the other hand, when a government corpora-tion is an inappropriate organizational form, theresult can be confusion. Inappropriate designationas a government corporation complicated account-ing, budgeting, and reporting for the Corporationfor National and Community Service, which doesnot conduct commercial activities and is not finan-cially self-sustaining. Rather, it is a governmentagency that funds itself entirely from annual appro-priations. The designation of the agency as a gov-ernment corporation was intended to give theorganization a corporate aura, not because thedesign was appropriate. As a result of the designa-tion, however, the agency was forced to keep itsbooks both as a federal agency based upon appro-priated funds and also as a government corporation.

6. If the agency is not a governmentcorporation, should its funding bechanged in any other way?Especially for agencies that obtain revenues fromtheir activities, changes in funding present anattractive way to obtain management flexibility. Onthe other hand, annual budget and appropriationsrules provide accountability; policy makers must becareful that they do not free an agency from muchof its accountability if they change the funding rules.

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Agencies have obtained a variety of fundingchanges. The United States Mint obtained authorityto retain its revenues and make its expenditures outof a special public enterprise fund. This fund, simi-lar to the authority of government corporations toretain and utilize revenues without regard to fiscalyear limitation, has provided the Mint with signifi-cant flexibility. The Mint may pay major expensesfrom the fund, including the cost of metals used incoin production, fabrication and transportationcosts, costs related to research and development,purchases of equipment, and capital improvements.This is a form of flexibility not available to mostagencies.

Some other federal agencies have managed toobtain more extensive exemptions from federalbudget and appropriations rules. The federal bankregulators, for example, obtain their funding fromfees that are imposed by law on the banks that theysupervise. The bank regulatory agencies are autho-rized to deposit these fees in accounts outside ofthe Treasury and to retain and use them withoutregard to annual limitations. The U.S. Constitutionstates, in Article I, Section 9, “ No money shall bedrawn from the Treasury, but in consequence ofappropriations made by law....” The ability to keepand use their funds outside of the Treasury thushelps to exempt the federal bank regulators fromthe annual appropriations process.

Budget considerations have driven a number oforganizational transformations. In 1968, FannieMae was converted from a government corporationinto a government sponsored enterprise, in largepart as a way to remove the corporation from the“vagaries” of the budget situation.18 Given the waythat many federal agencies today find themselvessqueezed for administrative expenses such assalaries, overhead, travel and training, one canimagine that off-budget funding is very attractive.

On the other hand, the appropriations processserves the critical function of allocating scarce budget resources across competing public pur-poses. As some federal agencies obtain relief frombudget limitations, other agencies may find them-selves squeezed even more. This means that, inmany cases, proposals to remove agencies fromeither the budget or appropriations processes maybe bad public policy and may run into substantial

political resistance. Policy makers should notassume that changes in the funding structure for an agency would be easy to achieve.

7. Should the organization be partof government or private?From the perspective of organizational design, thechoice between creating a governmental or privateentity raises issues beyond pure economics. First,some inherently governmental functions, and espe-cially those that involve the exercise of discretionin applying government authority or making deci-sions for the government, are not suitable candi-dates for delegation to a private organization.19

Second, if the government turns an activity over tothe private sector, the performance of that activitywill change in response to the incentives createdby private ownership. Investor-owned companieswill seek to carry out only those activities that areprofitable. Thus, when the United States convertedthe U.S. Enrichment Corporation into a privateshareholder-owned company, that company behavedquite differently from a government agency inadopting economy measures that conflict withsome of the public policy commitments that theorganization made when it became private. As isdiscussed in the next section, policy considerationsmay suggest that some privatizations might betterbe turned over to nonprofit or cooperative organi-zations rather than to investor-owned companies;the performance of these organizations too will differ from government agencies.

Third, as attorney Daniel Guttman, an authority on public-private relationships and privatization,points out,20 the choice between a governmental or private entity to carry out public purposes deter-mines the rules that will apply to the organization.Most government agencies are subject to a range of procedural and due process requirements, forexample, that do not bind private organizations.

Thus, the choice between using a governmental orprivate entity to carry out public purposes involvestradeoffs. On the one hand, capacity could be significantly greater for the private organization.Government departments and agencies are subjectto a panoply of controls over organizational inputs.These controls include prescriptions about staffing

25


and personnel processes, procurement and con-tracting, and—above all—budget and otherresource limitations. Subjecting an agency to inputcontrols, especially over resources, means that,with exceptions such as some government corpora-tions, its capacity will be limited compared tomany private companies.

On the other hand, accountability of a governmentorganization to Congress and the executive branchis fairly direct; by contrast, the private organizationcan exert influence through the political process sothat private instrumentalities, authorized by govern-ment to carry out public purposes, are likely toplay a major role in determining the nature of their own authorized activities. Thus, Ginnie Mae,a government agency, is a subordinate part of theDepartment of Housing and Urban Development;by contrast, Fannie Mae, a privately owned com-pany, is one of the more influential financial institu-tions in the United States.

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The instrumentality of government is an organiza-tional category that includes a variety of non-governmental organizations that carry out publicpurposes as defined by law. The instrumentality isan important category for organizational designbecause efforts to privatize government functionscan involve creation of an instrumentality, or use ofan existing organization as an instrumentality, tocarry out purposes that previously were carried outby a government agency.

Private instrumentalities of the federal governmentare privately owned and managed. As with govern-ment organizations, the features of private instru-mentalities involve their capacity to carry outpublic purposes, their accountability for carryingout those purposes, and the life cycle of the organi-zation. Like government, and unlike ordinary pri-vate firms, private government instrumentalities arepermitted to engage only in those activities that areauthorized by their enabling legislation. Figure 3summarizes some of the distinctions among gov-ernment agencies, government instrumentalities,and completely private companies. The distinctionsare not always sharply drawn. As Ronald Moepoints out, the law creates many hybrid organiza-tions that resist easy categorization.21

For purposes of clarity, one should hasten to addthat the typical private firm that contracts with gov-ernment does not become an instrumentalitymerely because of the contractual relationship witha government agency. Rather, an instrumentality isa private company or cooperative or nonprofit thatis authorized by federal law or whose activities fed-

eral law directs so that it serves public purposes.Federal instrumentalities tend to be prevalent in thefinancial sector. They include Federal ReserveBanks, the Securities Investor ProtectionCorporation, government sponsored enterprises,and commercial banks. Nonfinancial instrumentali-ties have included the Communications SatelliteCorporation and some nonprofits such as theCorporation for Public Broadcasting, the LegalServices Corporation, the American National RedCross, and the National Park Foundation. Again,the importance of instrumentalities is that they rep-resent an important organizational alternative tocarrying out public purposes through a governmentdepartment or agency.

Another option should be noted. The federal gov-ernment may enact legislation that authorizes stateand local government organizations to carry outpublic purposes under federal law; these organiza-tions also then may become federal instrumentali-ties whose activities and powers are shaped byfederal law. The idea of devolution of federal activi-ties can involve arrangements with state or localgovernment organizations that, by virtue of theirresponsibilities under federal law, may become fed-eral instrumentalities. The devolution alternative isnot discussed further here.

As might be expected, given the quite differentlegal frameworks of government and private organi-zations, the questions for private instrumentalitiesare quite different from those for governmentdepartments or agencies. Government agencies fre-quently seek added managerial flexibility and orga-

Finding Organizational Solutions: The Creation or Use of PrivateInstrumentalities of Government

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Figure 3: Institutional Differences—Government Agencies, Private Instrumentalities, and Ordinary PrivateSector Companies

Government Agency

Political factors predominate;the market affects some gov-ernment corporations.

Subject to controls onresources that often includeannual appropriations limits; a tendency exists to maintainagency functions despite inad-equate resources or capacity.

Accountable to multiple parts of government and, invarying degrees, to influentialconstituencies.

Some public disclosure; oftenless financial disclosure than is required for private firms.

Heavy controls on inputs (e.g., budget and staffing) and procedures; government corporations may have greater autonomy.

Diffuse political pressures lead to serving multiple purposes that often may not be articulated.

May stagnate over time, as public priorities change,without ceasing to exist.

Private Instrumentality of Government

External environment includesthe market, but political factorstend to dominate.

Stream of revenues and federal subsidies generatesneeded resources to buildcapacity.

Accountable to private owners (except for nonprofits);often regulated by government as well.

Financial disclosure (less thanfor the ordinary private sectorcompany) to private ownersand possibly to governmentregulators.

Market-based external controlsmay be offset by federal subsi-dies; some regulatory controls.

Mix of profit-oriented goals and regulated service;cooperatives serve theirmembers.

Some have government backing at start-up; sometimesmay gain monopoly or marketpower; may stagnate over time;government backing, if present,can forestall easy exit.

Ordinary Private Sector Company

External environment is moremarket based than political.

Stream of profits generatesneeded resources to buildcapacity.

Accountable to private owners.

Financial disclosure to privateowners; if a publicly held firm, public disclosures alsorequired.

Market-based external controls based upon financialperformance.

Profit-oriented goals oftenforce focus upon particularactivities, market segmentsand strategies.

Life cycle: thrives or goes outof business; forced exit offailed firms.

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nizational capacity to carry out their programs. Bycontrast, private organizations that carry out publicpurposes often possess capacity, and the questionstend to focus more on promoting accountability tocarry out their public purposes. As Harold Seidmanwarns, “Intermingling of public and private purposesin a profit-making corporation almost inevitablymeans subordination of public responsibilities tocorporate goals. We run the danger of creating asystem in which we privatize profits and socializelosses.”22 Any instrumentality, whether for-profit,cooperative, or nonprofit, must be designed withcareful attention to accountability if it is to succeedin serving its public purposes.

Figure 4 presents a series of questions that can helppolicy makers to decide on the appropriate designof private organizations that are responsible for car-rying out public purposes.

1. Does the organization carry outpublic purposes or only privateones?The threshold question is whether the activities carried out by a private organization are deemed to embody public purposes. Most companies andother private organizations do not conduct activi-ties that are considered to involve public purposes.However, when the federal government charters orotherwise authorizes an organization to carry outspecified purposes under law and provides thatorganization with special benefits under law, thenthat organization takes on the status of a federalinstrumentality. Federal instrumentalities may beimmune from certain statutes such as the antitrustlaws, may benefit from preemption of some statelaws and taxes, and may receive special govern-ment support under applicable law.

The courts have long acknowledged the federalgovernment’s authority to use private institutions toserve public purposes. In an early case, the chiefjustice of the United States, John Marshall, explainedthe role of the privately owned Bank of the UnitedStates, the nation’s first central bank, as a federalinstrumentality as follows:

The bank is not considered as a privatecorporation, whose principal object is indi-vidual trade and individual profit; but as apublic corporation, created for public andnational purposes…. [T]he bank is aninstrument which is ‘‘necessary and properfor carrying into effect the powers vested inthe government of the United States.”23

From the perspective of organizational design, thefirst question is whether the purposes carried outby a private organization are considered to embodypublic purposes. Thus, with respect to the NationalConsumer Cooperative Bank, the governmentdecided that an organization that once was consid-ered an instrumentality that carried out public purposes should be converted to a purely privatecompany. The government allowed the bank torepay a low-interest federal loan, one of the formsof support that government may provide to aninstrumentality, over many years. The organizationchanged its name to National Cooperative Bank,

Figure 4: Design Questions—PrivateInstrumentalities

1. Does the organization carry out publicpurposes or only private ones?

2. Is the organization likely to be financiallyself-sustaining?

3. Does the government plan to providesupport (i.e., a subsidy) for the organiza-tion? If so, what form is appropriate forthe public purposes to be served?

4. Should the organization have share-holders, or should it be a nonprofit?

5. What governance structure is appropriate?

6. What types of accountability are appropriate?

7. Which agency of government should beresponsible for holding the organizationaccountable?

8. What should happen when the organiza-tion ceases to serve a high-priority publicpurpose?

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altered its focus to serve more profitable types ofcooperative such as larger producer cooperatives,and no longer functions as a federal instrumentality.

The question of whether an organization should be an instrumentality or not will face the RuralTelephone Bank (RTB) as it contemplates its transi-tion from being a government agency. The FY 2002federal budget called for privatization of the RTB.The question then becomes what type of financialservices charter would best allow the RTB to carryout its activities while satisfying the concerns ofstakeholders and the government. There a range ofalternatives might be explored, including taking acommercial bank charter and becoming a federalinstrumentality or becoming a completely privatecompany such as a general financial services com-pany, or possibly even a specially chartered privatecompany similar to the National Cooperative Bank.

2. Is the organization likely to befinancially self-sustaining?Assuming that a decision is made to create a privategovernment instrumentality to carry out public pur-poses, the next question is whether that organizationcan earn enough revenues to cover its costs. Onlythen can it be financially viable. If an organizationis expected to be profitable—i.e., to cover itsexpenses, be able to pay taxes, and provide returnsto investors—then it can be structured as a for-profit company or (as will be discussed below) acooperative. If an organization is expected to earna surplus, but not necessarily enough to pay taxesand provide returns to shareholders, then it mightbe structured as a nonprofit. If the organization isnot expected to earn a surplus, then it will not beviable unless the government provides a subsidy.

3. Does the government plan toprovide support (i.e., a subsidy) forthe organization? If so, what form isappropriate for the public purposesto be served?The nature of government subsidy, if any, for privateorganizations deserves careful consideration. Thisinvolves considerations of both the amount of the

subsidy and the form of the subsidy. If the govern-ment provides too little subsidy, then some organi-zations may not be willing or able to carry outpublic purposes. On the other hand, if the subsidyis too large, then the subsidized organization cangrow at the expense of private organizations thatare not favored with government support.

If the government does provide a subsidy, it shouldnot provide so much that the favored organizationdisplaces its competitors. This is not an easy bal-ance to strike.

The other issue that deserves careful thought is theform that the subsidy should take. For many institu-tions, the form of government support helps todefine the organizational form. Insured depositoryinstitutions—banks, thrift institutions, and creditunions—are defined by their access to federaldeposit insurance. Each of these institutions is con-sidered to serve an important public purpose byproviding people with access to place their moneysafely in federally insured deposits.

GSEs are defined by their access to a unique bun-dle of attributes that creates a perception of implicitgovernment backing. They are expected to use theirbenefits to serve the public purposes defined intheir charters. For Fannie Mae and Freddie Mac,the two largest GSEs, the institutions can use theirpreferential borrowing costs to lower mortgagerates for home buyers.

Nonprofits, and categories of nonprofits such ascharities and foundations, are defined by their taxexemptions. To the extent that a nonprofit such asthe American National Red Cross or a nonprofithospital or health insurance company is consideredto have a public purpose, it is supposed to use itsspecial benefits to lower costs and permit access toservices that otherwise might not be available onaffordable terms. Some nonprofit instrumentalities,such as the Corporation for Public Broadcastingand the Legal Services Corporation, receive federalappropriations to carry out their work.

When policy makers contemplate an organizationaltransformation—for example, when a 1968 lawauthorized Fannie Mae to convert from a govern-ment corporation into a GSE or if the Rural

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Telephone Bank today contemplates convertingfrom a federal agency to a private instrumentality—the choice of whether to have a subsidy and, if so,what type is very important in determining how theorganization will develop and how it will servepublic purposes in addition to its private interests.

4. Should the organization haveshareholders, or should it be a nonprofit?Private instrumentalities fall into three basic organi-zational types: (1) the investor-owned for-profitcompany, (2) the cooperative, and (3) the nonprofitorganization. Examples for each category would becommercial banks, the Farm Credit System, and theAmerican National Red Cross, respectively.

Each organizational type has strengths and limita-tions. Profit-seeking investor-owned companies aresubject to the discipline and incentives of a finan-cial bottom line by which to measure success. Theadvantages of using an investor-owned firm to carryout public purposes relate to their ability to useresources efficiently in search of profits. When nec-essary to achieve profitability, private firms caninvest in high-quality personnel and systems thatmay be far more productive than those found ingovernment. A disadvantage of using profit-seekingcompanies is the principal-agent problem and theneed to deal with the divergent interests of privateowners vis-à-vis the government’s interests in pro-moting service for public purposes.

The distinguishing design feature of the cooperativeis that it is owned and controlled by the people orinstitutions that use its services. That means that thebenefits of a cooperative organization flow to itsmembers in the form of services and, generally to a lesser extent, as dividends. To coin a phrase,investor-owners of a private company want to cre-ate a racehorse—to perform well and return divi-dends to the shareholders. By contrast, the ownersof a cooperative want to create a milk cow—topass through benefits to the owners, even at thecost of its own performance in the marketplace. Inparticular, cooperatives are unlikely to competewith their user-owners.

These unusual characteristics make the cooperativea distinctive instrument for carrying out public purposes. To the extent that government provides a subsidy through a cooperative, those subsidy benefits will flow through to the member-owners.On the one hand, this makes it possible to use thecooperative to target selected constituencies, e.g.,farmers, rural communities, or certain kinds offinancial institutions. On the other hand, targetingof benefits to the most needy constituents can bedifficult; some cooperative organizations may endup serving primarily their strongest members, i.e.,those that are the most affluent and influential, withtheir government-supported benefits.

Nonprofit organizations are a distinct organiza-tional type. Nonprofit instrumentalities vary consid-erably in size and purpose. The common elementsof all nonprofit organizations are tax-exempt statusunder the Internal Revenue Code and the absenceof shareholders or other owners of the organiza-tion.24 Not all nonprofits are government instrumen-talities; the distinction again rests on whether theorganization is carrying out activities that aredeemed to involve a public purpose.

Unlike investor-owned companies or cooperatives,nonprofits do not have shareholders. This plays arole in the behavior of nonprofits. On the onehand, the absence of investors means that nonprof-its can save money that otherwise would be paid asreturns to shareholders. On the other hand, theabsence of shareholder returns may make it diffi-cult for nonprofits to raise capital needed to assurethe financing of the organization’s objectives.Indeed, many nonprofits have established for-profitaffiliates to provide a source of income beyonddonations and the remuneration from services pro-vided. Like government agencies, nonprofit organi-zations can be torn between trying to do good andtrying to do well enough to survive and grow.

In terms of capacity and flexibility, nonprofit orga-nizations sometimes may lag their investor-ownedcounterparts. Thus, many nonprofit hospitals orhealth insurance plans justify their conversion tofor-profit status on the grounds that they need thegreater access to the capital markets that is availableto private firms, and also that they need to be ableto pay greater compensation to highly skilled profes-sionals than is possible in a nonprofit organization.

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5. What governance structure isappropriate?All three types of instrumentality use a board ofdirectors to govern the organization. Directors andofficers of each have a fiduciary responsibility ofcare and loyalty to the organization and—exceptfor nonprofits—to shareholders. However, the dif-ferent ownership structure does have implicationsfor the performance of the organization.

The officers and directors of shareholder-controlledinstrumentalities are expected to owe their primaryallegiance to shareholders rather than to the federalgovernment that charters them. In other words, asin a private company, the interests of the privateowners come first in the minds of company direc-tors and officers. Unlike the ordinary private com-pany, service to public purposes arises from thelaws and regulations that government uses toassure that the institution serves public interests aswell as private ones. This creates a significant ten-sion between private profits and the public pur-poses that the instrumentalities are supposed toserve, discussed further below.

Sometimes, the enabling legislation for an instru-mentality will prescribe that there be a minority ofpublicly appointed directors on the board. This wastrue for Comsat, the Communications SatelliteCorporation, and for the boards of most of theGSEs. Often the president of the United Statesappoints the minority of public directors. Suchappointments are unlikely to greatly change thebehavior of a private instrumentality. Like theshareholder-elected directors, the publiclyappointed directors owe a fiduciary responsibilityto the organization and its owners. Often aninvestor-owned instrumentality may reinforce theidentification of interests between the directors andowners by awarding generous stock options thatbenefit the directors to the extent that the organiza-tion is a financial success.

For the cooperative, governance by a board ofdirectors means attention to the needs of the ownersthat use the cooperative’s services. Thus, a coopera-tive such as the Farm Credit System has shown atendency to underprice its services to members,compared to the pricing that would be expected if the instrumentality had been structured to be

investor owned. Another distinctive feature is thatsome cooperative boards of directors may be verylarge as a way to promote shareholder involve-ment. This can lead to overhead expenses that arelarge compared to the investor-owned company;also, the cooperative board may find it difficult tohave the focus and flexibility that may be found ina comparable investor-owned company.

Nonprofits are different from the other two organi-zational types. While directors and officers of anonprofit do have a fiduciary responsibility of careand loyalty to the organization, there are no share-holders to enforce property rights that might beinfringed by any violation of that responsibility. Theabsence of shareholders can mean that board over-sight of the managers of a nonprofit can be weak orunfocused, and that board members may lack ade-quate independence from management. Without theneed to serve shareholders, the officers and directorsof a nonprofit are free to guide the organization toserve their conceptions of the public interest.

6. What types of accountability areappropriate?The government tends to have two interests in theinstrumentalities that it uses to carry out public purposes: (1) to assure that high-priority public purposes are carried out, and (2) to assure that the organization operates in a prudent financialmanner. The latter issue is especially important for depository institutions and GSEs because of the government backing of insured deposits andthe perception of government backing for GSEobligations.

Figure 5 shows some of the approaches that gov-ernment has used to try to promote accountabilityof instrumentalities. Under applicable legislation,government has a number of ways to try to assurethat instrumentalities serve public purposes. Theseinclude provisions that limit the scope of autho-rized powers that an instrumentality may carry out,governance or organizational requirements, andgovernment oversight of the activities that instru-mentalities carry out under their enabling legislation.Some of these approaches, such as the supervisionof safety and soundness of banks, seem to workfairly well; others, such as the government’s powerto appoint directors of some private instrumentalities,

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add little if anything to the accountability of theorganization to serving its public purposes.

When a cooperative is an instrument for providingpublic services, the issue of accountability to gov-ernment is quite similar to the issues raised byinvestor-owned companies. If the government lacksthe capacity to protect its own interests, then thecooperative will go its own way. At the time theFarm Credit System failed in the mid-1980s, forexample, in a period of ruinous agricultural condi-tions, the government had largely lost control overthe safety and soundness of the system and itsmember financial institutions. In the aftermath oftaxpayer assistance, the government restructuredthe cooperative’s federal regulator to have powerscomparable to those of a federal bank regulator.

The issue of accountability of nonprofits is com-plex. On the one hand, nonprofits may have a service ethos that allows them to serve less prof-itable people and public purposes than would be

expected from a for-profit firm. On the other hand,some nonprofits (and Medicare contractors cometo mind here) may require careful supervision to tryto assure good performance and financial integrity,much as if they were investor-owned firms.

Some government agencies, especially the Departmentof Defense, have improved the accountability ofnonprofits by developing long-term relationships.Thus, federally funded research and developmentcenters (FFRDCs) such as the units of RAND andMitre Corporations operate under special long-termcontracts that allow for an especially close relation-ship between the agency and its nonprofit partner.25

Because of the long-term relationship, an agencytraditionally was able to insist that the FFRDC dedicate itself primarily to the interests of the gov-ernment. To the extent that an FFRDC has relation-ships, such as interlocking directors, with a privatefor-profit firm with a range of other clients andinterests, its accountability to the government inthis respect may diminish.

Once instrumentalities have become established,both the executive branch and the Congress canfind it difficult to influence their activities, eitherwith respect to serving new and evolving publicpriorities or with respect to reducing financialexposure from their activities. Because privateinstrumentalities can live or die according to theterms of their enabling legislation, they have anincentive to use resources to influence the Congress,their designated regulators, and others in govern-ment who might threaten their legal franchise orotherwise impose policies at variance with theinterests of the private owners or, in the case ofnonprofits, the managers.26

7. Which agency of governmentshould be responsible for holdingthe organization accountable?The congressional committee structure is likely todetermine which federal agency is responsible foroverseeing the public purposes served by a federalinstrumentality. Thus, during the congressionaldeliberations that led to creation of the Office ofFederal Housing Enterprise Oversight (OFHEO)—a regulator of Fannie Mae and Freddie Mac—theHouse Ways and Means Committee preferred that

Figure 5: Approaches to Promote Accountability ofPrivate Instrumentalities That Serve Public Purposes

• Limitations in the Enabling Legislation onAuthorized Powers

— Permitted functions

— Limited market segments

— Restricted members or borrowers

— Requirement to serve designated market segments

• Governance/Organization Requirements

— Inclusion of directors appointed bygovernment

— Inclusion of directors to represent particular constituencies

— Specification of investor or coopera-tive or nonprofit structure

• Supervision by a Government Agency

— Oversight and regulation of activities

— Required approval of new activities

— Supervision of safety and soundness

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the Treasury Department, with which the commit-tee had a close working relationship, should under-take this role. By contrast, the congressionalhousing subcommittees insisted that OFHEO bepart of HUD, the department whose activities theyauthorize.

Sometimes, as in the case of OFHEO or the federalbank regulators, supervisory authority may be splitamong two or more agencies. In the case of OFHEO,HUD was left with responsibility for overseeing thetwo GSEs’ service to affordable housing goals andother public purposes, while OFHEO is responsiblefor overseeing financial soundness. The history offederal bank regulation has led to a convolutedregulatory structure involving the federal or stateagency that charters commercial banks, the FederalDeposit Insurance Corporation, and the FederalReserve.

Once a regulatory agency has been selected, animportant organizational issue relates to the capac-ity of the agency to carry out its responsibilities.This raises the question of funding for the regulator.On the one hand, many financial regulators arefunded from fees assessed on the regulated institu-tions. This has the advantage of freeing the regula-tor from the vagaries of the appropriations processand the possibility that unexpected budget cutscould hamper the agency’s effectiveness. On theother hand, an agency needs some way to funditself in case the regulated companies get intofinancial trouble, which could reduce availablefees just at a time when the regulator needs to bemost active.

8. What should happen when theorganization ceases to serve a high-priority public purpose?Sallie Mae is a government sponsored enterprisethat has decided to give up its government sponsor-ship in favor of obtaining a broader array of autho-rized activities. A Sallie Mae report discusses the lifecycle of GSEs; the report could just as well refer toother instrumentalities of government in its sugges-tion that when an organization has served its publicpurposes, or when those purposes no longer have ahigh public priority, then a transition is called for:

The Government SponsoredEnterprise

One type of federal instrumentality deservesspecial mention. This is the government spon-sored enterprise, or GSE. The government spon-sored enterprise, as distinct from the whollyowned government corporation, is a govern-ment chartered, privately owned, and privatelycontrolled institution that, while lacking anexpress government guarantee, benefits fromthe perception that the government standsbehind its financial obligations. In return forstatutory privileges, including tax benefits andregulatory exemptions, as well as reduced bor-rowing costs, the GSE is confined by its charterto serving specified market segments through alimited range of services.

GSEs are some of the largest financial institu-tions in the United States. Fannie Mae andFreddie Mac each fund over 1 trillion dollars of home mortgages. The Federal Home LoanBank System, a half-trillion dollar group of 12cooperative institutions, provides inexpensivefunds to the banks and thrift institutions thatown the individual banks. The smaller GSEs are multibillion-dollar financial institutions. TheFarm Credit System and a small GSE known asFarmer Mac provide loans to agricultural bor-rowers, and Sallie Mae funds student loans.

Most of the GSEs—Fannie Mae, Freddie Mac,Sallie Mae, and Farmer Mac—are investorowned. The other two—the Farm Credit Systemand the Federal Home Loan Bank System—are structured as systems of cooperative organizations.

Thanks to their federal support, GSEs can growrapidly. Taken together, GSEs have more thandoubled in size every five years since FreddieMac was chartered in 1970. Two GSEs becametroubled in the 1980s and one of them, theFarm Credit System, required direct governmentassistance. One GSE, Sallie Mae, is making thetransition to becoming a completely privatecompany without the status or public purposesassociated with a federal instrumentality.

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In creating the various GSEs, Congress didnot contemplate the need at some point tounwind or terminate their federal charters.However, Congress did not assume theperpetual existence (and continual expan-sion) of individual GSEs in the context ofchanging social and economic priorities.The missing element in the GSE concept isthe notion of a life cycle for governmentsponsorship. GSEs are created to increasethe flow of funds to socially desirableactivities. If successful, they grow andmature as the market develops. At somepoint, the private sector may be able tomeet the funding needs of the particularmarket segment. If so, a sunset may beappropriate.27

A few organizations have outlived the perceivedneed for their services as a federal instrumentality.In 1981, the government arranged for a transition ofthe National Consumer Cooperative Bank from aninstrumentality of government to an ordinary privatecompany that does not carry out public purposes. In 1996, legislation was passed which removedinstrumentality status from the College ConstructionLoan Insurance Association (Connie Lee).

Nonprofits raise special issues with respect to thetransition to private status. Some seek to convert toor merge with for-profit companies that may not beinstrumentalities. Managers of a nonprofit organiza-tion may have very personal incentives to convertinto a for-profit company. Yet, attractive as conver-sion may be for some stakeholders, conversions infields such as health care often can leave a gap inpublic purposes that had been served by a non-profit. The track record of such nonprofit conver-sions shows that the potential of this life cycleevent deserves more consideration from organiza-tional designers than it has received so far.

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The events of September 11 have brought intosharp focus the limitations on the federal govern-ment’s ability to design effective organizations and working relationships with other partners,whether in the private sector or among state andlocal governments. Many years ago, the ExecutiveOffice of the President (EOP) included an Office ofManagement and Organization (earlier a part of theAdministrative Management Division), housed firstin the Bureau of the Budget and then in the newOMB, with responsibility for enhancing the man-agement and organization of government organiza-tions and programs.

That office had responsibility for enhancing theinstitutional capacity of the presidency and, byextension, the rest of the executive branch. Onissues of interagency coordination, for example, theoffice had the capacity to develop a cognitive mapof a problem, overlay a map of the available juris-dictions of constituent organizations, and then helpthose organizations to plug the gaps. In cases suchas housing and community development, the scopeof analysis also included the relationship of federalagencies and programs with state and local govern-ments. Today, the capacity of such an office couldhelp to address homeland security issues.

The danger of many urgent proposals in the after-math of September 11 is that they seek to applythis salutary analytic approach to homeland secu-rity, but generally leave the rest of the government’sprograms in the same sorry state of neglect that was the case for many security functions beforeSeptember 11. The federal government needs to

restore its strategic organization and managementcapability to provide help for agencies and pro-grams across the government, from provision ofMedicare services to an improved organizationalstructure for energy programs to federal housingprograms to any of a number of other major gov-ernment commitments that are being implementedby troubled agencies or departments.

A new office might have the following generalresponsibilities:

• Government Organization: Review government-wide organizational structure on a continuingbasis, periodically reporting to the presidentand Congress on the state of government orga-nization and proposals to improve the perfor-mance and efficiency of federal programs.

• Cooperation and Coordination: Facilitate inter-agency and intergovernmental cooperation andassist in developing effective coordinatingmechanisms throughout the government.

• Systems Improvement: Provide leadership forimprovement of agencies’ administrative andprogram delivery systems, including those thatcan help to make the Government Performanceand Results Act a success. Administrative sys-tems include personnel, procurement, andinformation resources, for example.

• Early Warning: Analyze agency capacity andoperations—for example, with respect tonational homeland security, public health, orfinancial vulnerabilities—to detect potentiallydamaging gaps and shortcomings.

Enhancing the Government’s Capacityto Design Effective Organizations andPublic-Private Relationships

36


• Special Organizations: Oversee the overalloperations and management of governmentcorporations, government sponsored enter-prises, quasi-governmental entities, and otherinstitutions with a governmental interest.

• Reorganization and Management Legislation:Develop criteria and standards to be met priorto the submission of legislation to establishnew or reorganize existing government corpo-rations, enterprises, and other entities with agovernment interest; provide advice on theworkability of proposed programs and legisla-tion as they are being developed.

• Management Analysis Capacity: Help depart-ments and agencies to develop internal man-agement analysis capabilities.

It can be seen that, if such an office existed today,it would greatly add to the president’s capacity toaddress the critical issues of organization, manage-ment, and coordination that are a national prioritywith respect to assuring homeland security.

To some extent, the effectiveness of the new officewill depend on actions on Capitol Hill. In recentyears, the governmental affairs and governmentreform committees of both houses have lost muchof their traditional capacity to deal with issues ofgovernment organization and management. In theaftermath of September 11, this could change.Especially if the Congress restores provisions forpresidentially initiated reorganizations under a gen-eral executive branch reorganization act, the gov-ernmental affairs committees will gain clearjurisdiction over many of these matters.

Expanded authority and capability among the com-mittees, in turn, is likely to prompt the U.S.General Accounting Office to enhance its ability todeal with these issues. As the congressional com-mittees and GAO begin to generate hearings,inquiries, and reports that highlight shortcomingsand solutions with respect to executive organiza-tion and management, the role of the new officewill increase as well. It is likely that demand forsolid analysis of executive organization and man-agement issues will continue to be strong for quitesome time. We have far to go in dealing with themajor issues before us.

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Organizational DesignSeidman, Harold. Politics, Position and Power, fifthedition. New York: Oxford University Press-USA,1998.

Standing Panel on Executive Organization andManagement of the National Academy of PublicAdministration. Washington, D.C: Webpage,www.napawash.org/eom

Szanton, Peter, ed. Federal Reorganization: WhatHave We Learned? Chatham, N.J.: Chatham HousePublishers, 1981.

U.S. General Accounting Office, GovernmentReorganization: Issues and Principles, GAO/T-GGD/AIMD-95-166.

Particular Organizational Types Boris, Elizabeth T., and C. Eugene Steuerle, eds.Nonprofits & Government: Collaboration andConflict. Washington, D.C.: Urban Institute Press,1999.

Dean, Alan. Organization and Management ofExecutive Departments. Washington, D.C.: NationalAcademy of Public Administration, March 2001.

Stanton, Thomas H. Government SponsoredEnterprises: Mercantilist Companies in the ModernWorld. Washington, D.C.: AEI Press, 2002.

Stanton, Thomas H., and Ronald C. Moe,“Government Corporations and GovernmentSponsored Enterprises.” Chapter 3 in Tools ofGovernment: A Guide to the New Governance,Lester M. Salamon, ed. New York: OxfordUniversity Press-USA, 2002.

The Politics of GovernmentOrganizationMoe, Terry M. “The Politics of BureaucraticStructure.” In John E. Chubb and Paul E. Peterson,eds., Can the Government Govern? Washington,D.C.: Brookings Institution Press, 1989.

Zegart, Amy B. Flawed by Design: The Evolution ofthe CIA, JCS, and NSC. Stanford, Calif.: StanfordUniversity Press, 1999.

Appendix: Selected Readings on Organizationsand Organizational Design

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1. The author would like to acknowledge the consid-erable assistance he received in preparing this guide toorganizational design. Mark Abramson and John Kamenskyof The PricewaterhouseCoopers Endowment for TheBusiness of Government helped to shape the conceptionand provided valuable comments on an earlier draft.Members of the Standing Panel on Executive Organizationand Management contributed extensively to the author’sunderstanding of these issues. Special gratitude is owed toreviewers of earlier drafts of this report, includingJonathan Breul, Murray Comarow, Alan Dean, HerbertJasper, Dwight Ink, Bernard Martin, and Harold Seidman.Others who contributed insights include Daniel Guttman,Ronald Moe, and Charles Kause. While the author bene-fited immeasurably from these contributions, he remainssolely responsible for the contents of this report.

2. For two particularly good analyses, see Amy B.Zegart, Flawed by Design: The Evolution of the CIA, JCS,and NSC, Stanford, Calif.: Stanford University Press,1999; and Terry M. Moe, “The Politics of BureaucraticStructure,” in John E. Chubb and Paul E. Peterson, eds.,Can the Government Govern? Washington, D.C.:Brookings Institution Press, 1989.

3. Harold Seidman, Politics, Position and Power: TheDynamics of Federal Organization, fifth edition, NewYork, Oxford University Press-USA, 1998, p. 219.

4. Summarized in Herbert N. Jasper, “MakingReorganization of the Executive Branch Work,” NationalAcademy of Public Administration, Standing Panel onExecutive Organization and Management, workingpaper, January 1997.

5. Alan Dean, “The Organization and Managementof Executive Departments,” National Academy of PublicAdministration, 2001, p. 5.

6. Emmette S. Redford and Marlan Blisset, “TheDepartment of Transportation: Integration of OldFunctions,” chapter 3 in Organizing the ExecutiveBranch: The Johnson Presidency, Chicago: University ofChicago Press, 1981, pp. 46-76; and Alan Dean, AHistory of the Department of Transportation, NationalAcademy of Public Administration [date].

7. Alan Dean, “The Organization and Managementof Executive Departments,” National Academy of PublicAdministration, 2001, pp. 9-10.

8. Standing Panel on Executive Organization andManagement, National Academy of PublicAdministration, “Principles of Federal Organization,”January 1997.

9. Amy B. Zegart, Flawed by Design: The Evolutionof the CIA, JCS, and NSC, Stanford, Calif.: StanfordUniversity Press, 1999, pp. 140-151.

10. See, e.g., Statement of Stephen E. Flynn, Ph.D.,Council on Foreign Relations, before the Committee onGovernmental Affairs, United States Senate, October 12,2001.

11. United States Commission on NationalSecurity/21st Century, Road Map for National Security:Imperative for Change, February 15, 2001, p. 47.

12. Ibid., p. 16.13. “Crisis Facing HCFA & Millions of Americans, an

open letter to Congress and the Executive, Health Affairs,Vol. 18, No. 1, pp. 8-10.

14. United States Commission on NationalSecurity/21st Century, Road Map for National Security:Imperative for Change, February 15, 2001, p. xiv.

15. The author is indebted to Alan Dean, one of thenation’s leading authorities on government organization,for this insight.

Endnotes

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16. Adapted from Herbert N. Jasper, “MakingReorganization of the Executive Branch Work,” NationalAcademy of Public Administration, Standing Panel onExecutive Organization and Management, workingpaper, January 1997.

17. Under the Government Corporation Control Act,the FDIC is a so-called “mixed ownership” governmentcorporation, an organizational form with even greaterstatutory autonomy than is provided for wholly ownedgovernment corporations. See 31 U.S.C. chapter 91.

18. HUD Secretary Robert Weaver, quoted inRichard Bartke, “Fannie Mae and the SecondaryMortgage Market,” Northwestern University Law Review,Vol. 66, March/April 1971, pp. 833-864, at p. 32, fn. 123.

19. See, U.S. General Accounting Office, Opinion ofthe Comptroller General, B-237356, December 29, 1989.

20. Daniel Guttman, “Public Purpose and PrivateService: The Twentieth Century Culture of ContractingOut and the Evolving Law of Diffused Sovereignty,”Administrative Law Review, Vol. 52, pp. 859-926(Summer 2000).

21. Ronald C. Moe, “The Emerging Federal QuasiGovernment: Issues of Management and Accountability,”Public Administration Review, Vol. 61, No. 3, May/June2001, pp. 290-312.

22. Harold Seidman, Politics, Position and Power:The Dynamics of Federal Organization, fifth edition,New York, Oxford University Press-USA, 1998, p. 213.

23. Osborn v. Bank of the United States, 22 U.S. (9 Wheat.), 738, at 860 (1824).

24. Good overviews of nonprofit organizationsinclude Elizabeth T. Boris and C. Eugene Steuerle, 1999,Nonprofits & Government, Washington, D.C.: UrbanInstitute Press; and Harold Orlans, ed., 1980, NonprofitOrganizations: A Government Management Tool, NewYork: Praeger Publishers.

25. For a recent discussion of FFRDCs, see RonaldC. Moe, “The Emerging Federal Quasi Government:Issues of Management and Accountability,” PublicAdministration Review, Vol. 61, No. 3, May/June 2001,pp. 290-312, at pp. 295-6; and U.S. General AccountingOffice, Federally Funded R&D Centers: Issues Relating to the Management of DOD-Sponsored Centers,GAO/NSIAD-96-112 (August 1996).

26. States can have similar problems trying to keepaccountable the instrumentalities that they create, suchas public authorities. See, e.g., Donald Alelrod, ShadowGovernment, New York: John Wiley & Sons, 1992.

27. Sallie Mae, The Restructuring of Sallie Mae:Rationale and Feasibility, March 1994, pp. 13-14(emphasis in original).

40


Thomas H. Stanton is a Washington, D.C. attorney. He is a Fellow of theCenter for the Study of American Government at the Johns HopkinsUniversity, where he teaches graduate seminars on the law of public insti-tutions, government and the American economy, and government and thecredit markets.

Mr. Stanton’s academic, legal, and policy experience relates to the capac-ity of public institutions to deliver services effectively, with specialtiesrelating to federal credit and benefits programs, government corporations,implementation of federal programs, and regulatory oversight. Mr. Stantonis the chair of the Standing Panel on Executive Organization andManagement of the National Academy of Public Administration and a for-mer member of the Senior Executive Service. He also is a member of theStudy Panel on Medicare Governance and Management of the NationalAcademy of Social Insurance.

Mr. Stanton’s writings on government and organizations include a new book, Government SponsoredEnterprises: Mercantilist Companies in the Modern World (AEI Press, 2002). The concerns expressed in hisearlier book on government sponsored enterprises, A State of Risk (HarperCollins, 1991), helped lead toenactment of several pieces of legislation and the creation of a new federal financial regulator in 1992. Hehas been an invited witness before many congressional committees and subcommittees, and has testifiedon legislative proposals to create an Office of Homeland Security.

Mr. Stanton earned his B.A. degree from the University of California at Davis, M.A. from Yale University,and J.D. from the Harvard Law School. The National Association of Counties has awarded him itsDistinguished Service Award for his advocacy on behalf of intergovernmental partnership.

A B O U T T H E A U T H O R

41


To contact the author:

Thomas H. Stanton801 Pennsylvania Avenue, NWSuite 625Washington, DC 20004(202) 965-2200

e-mail: [email protected]

K E Y C O N T A C T I N F O R M A T I O N

42

ENDOWMENT REPORTS AVAILABLE

To download or order a copy of a grant or special report, visit the Endowment website at: endowment.pwcglobal.com

GRANT REPORTS

E-Government

Managing Telecommuting in theFederal Government: An InterimReport (June 2000)

Gina VegaLouis Brennan

Using Virtual Teams to ManageComplex Projects: A Case Study ofthe Radioactive Waste ManagementProject (August 2000)

Samuel M. DeMarie

The Auction Model: How the Public Sector Can Leverage thePower of E-Commerce ThroughDynamic Pricing (October 2000)

David C. Wyld

Supercharging the EmploymentAgency: An Investigation of the Useof Information and CommunicationTechnology to Improve the Serviceof State Employment Agencies(December 2000)

Anthony M. Townsend

Assessing a State’s Readiness forGlobal Electronic Commerce:Lessons from the Ohio Experience(January 2001)

J. Pari SabetySteven I. Gordon

Privacy Strategies for ElectronicGovernment (January 2001)

Janine S. HillerFrance Bélanger

Commerce Comes to Governmenton the Desktop: E-CommerceApplications in the Public Sector(February 2001)

Genie N. L. Stowers

The Use of the Internet inGovernment Service Delivery(February 2001)

Steven CohenWilliam Eimicke

State Web Portals: Delivering andFinancing E-Service (January 2002)

Diana Burley GantJon P. GantCraig L. Johnson

Internet Voting: Bringing Electionsto the Desktop (February 2002)

Robert S. Done

Leveraging Technology in theService of Diplomacy: Innovation in the Department of State(March 2002)

Barry Fulton

Federal Intranet Work Sites: AnInterim Assessment (June 2002)

Julianne G. MahlerPriscilla M. Regan

Financia lManagement

Credit Scoring and Loan Scoring:Tools for Improved Management ofFederal Credit Programs (July 1999)

Thomas H. Stanton

Using Activity-Based Costing to Manage More Effectively(January 2000)

Michael H. GranofDavid E. PlattIgor Vaysman

Audited Financial Statements:Getting and Sustaining “Clean”Opinions (July 2001)

Douglas A. Brook

An Introduction to Financial RiskManagement in Government(August 2001)

Richard J. Buttimer, Jr.

Human Capita l

Profiles in Excellence: Conversationswith the Best of America’s CareerExecutive Service (November 1999)

Mark W. Huddleston

Leaders Growing Leaders: Preparingthe Next Generation of PublicService Executives (May 2000)

Ray Blunt

Reflections on Mobility: CaseStudies of Six Federal Executives(May 2000)

Michael D. Serlin

A Learning-Based Approach toLeading Change (December 2000)

Barry Sugarman

Labor-Management Partnerships:A New Approach to CollaborativeManagement (July 2001)

Barry RubinRichard Rubin

Winning the Best and Brightest:Increasing the Attraction of PublicService (July 2001)

Carol Chetkovich

Organizations Growing Leaders:Best Practices and Principles in thePublic Service (December 2001)

Ray Blunt

A Weapon in the War for Talent:Using Special Authorities to RecruitCrucial Personnel (December 2001)

Hal G. Rainey

A Changing Workforce:Understanding Diversity Programs in the Federal Government(December 2001)

Katherine C. NaffJ. Edward Kellough

Managing for Resul ts

Corporate Strategic Planning in Government: Lessons from the United States Air Force(November 2000)

Colin Campbell

43To download or order a copy of a grant or special report, visit the Endowment website at: endowment.pwcglobal.com

Using Evaluation to SupportPerformance Management:A Guide for Federal Executives(January 2001)

Kathryn NewcomerMary Ann Scheirer

Managing for Outcomes:Milestone Contracting in Oklahoma (January 2001)

Peter Frumkin

The Challenge of Developing Cross-Agency Measures: A CaseStudy of the Office of National DrugControl Policy (August 2001)

Patrick J. MurphyJohn Carnevale

The Potential of the GovernmentPerformance and Results Act as a Tool to Manage Third-PartyGovernment (August 2001)

David G. Frederickson

Using Performance Data forAccountability: The New York CityPolice Department’s CompStatModel of Police Management(August 2001)

Paul E. O’Connell

New Ways to Manage

Managing Workfare: The Case of the Work Experience Program in the New York City ParksDepartment (June 1999)

Steven Cohen

New Tools for ImprovingGovernment Regulation: AnAssessment of Emissions Trading and Other Market-Based RegulatoryTools (October 1999)

Gary C. Bryner

Religious Organizations, Anti-Poverty Relief, and CharitableChoice: A Feasibility Study of Faith-Based Welfare Reform inMississippi (November 1999)

John P. BartkowskiHelen A. Regis

Business Improvement Districts and Innovative Service Delivery(November 1999)

Jerry Mitchell

An Assessment of BrownfieldRedevelopment Policies: The Michigan Experience(November 1999)

Richard C. Hula

Determining a Level Playing Fieldfor Public-Private Competition(November 1999)

Lawrence L. Martin

San Diego County’s InnovationProgram: Using Competition and aWhole Lot More to Improve PublicServices (January 2000)

William B. Eimicke

Innovation in the Administration of Public Airports (March 2000)

Scott E. Tarry

Entrepreneurial Government:Bureaucrats as Businesspeople (May 2000)

Anne Laurent

Implementing State Contracts forSocial Services: An Assessment ofthe Kansas Experience (May 2000)

Jocelyn M. JohnstonBarbara S. Romzek

Rethinking U.S. EnvironmentalProtection Policy: ManagementChallenges for a NewAdministration (November 2000)

Dennis A. Rondinelli

The Challenge of Innovating inGovernment (February 2001)

Sandford Borins

Understanding Innovation:What Inspires It? What Makes ItSuccessful? (December 2001)

Jonathan Walters

A Vision of the Government as a World-Class Buyer: MajorProcurement Issues for the Coming Decade (January 2002)

Jacques S. Gansler

Contracting for the 21st Century: A Partnership Model (January 2002)

Wendell C. Lawther

Franchise Funds in the FederalGovernment: Ending the Monopolyin Service Provision (February 2002)

John J. Callahan

Managing “Big Science”: A CaseStudy of the Human GenomeProject (March 2002)

W. Henry Lambright

Leveraging Networks to MeetNational Goals: FEMA and the Safe Construction Networks(March 2002)

William L. Waugh, Jr.

Government Management ofInformation Mega-Technology:Lessons from the Internal RevenueService’s Tax Systems Modernization(March 2002)

Barry Bozeman

Making Performance-BasedContracting Perform: What theFederal Government Can Learn from State and Local Governments(June 2002)

Lawrence L. Martin

Applying 21st-Century Governmentto the Challenge of HomelandSecurity (June 2002)

Elaine C. Kamarck

Moving Toward More CapableGovernment: A Guide toOrganizational Design (June 2002)

Thomas H. Stanton

44 To download or order a copy of a grant or special report, visit the Endowment website at: endowment.pwcglobal.com

TransformingOrganizat ions

The Importance of Leadership:The Role of School Principals(September 1999)

Paul TeskeMark Schneider

Leadership for Change: Case Studies in American LocalGovernment (September 1999)

Robert B. DenhardtJanet Vinzant Denhardt

Managing DecentralizedDepartments: The Case of the U.S. Department of Health andHuman Services (October 1999)

Beryl A. Radin

Transforming Government: TheRenewal and Revitalization of theFederal Emergency ManagementAgency (April 2000)

R. Steven DanielsCarolyn L. Clark-Daniels

Transforming Government: Creatingthe New Defense ProcurementSystem (April 2000)

Kimberly A. Harokopus

Trans-Atlantic Experiences in HealthReform: The United Kingdom’sNational Health Service and theUnited States Veterans HealthAdministration (May 2000)

Marilyn A. DeLuca

Transforming Government: TheRevitalization of the Veterans Health Administration (June 2000)

Gary J. Young

The Challenge of Managing Across Boundaries: The Case of the Office of the Secretary in theU.S. Department of Health andHuman Services (November 2000)

Beryl A. Radin

Creating a Culture of Innovation:10 Lessons from America’s Best Run City (January 2001)

Janet Vinzant DenhardtRobert B. Denhardt

Transforming Government:Dan Goldin and the Remaking of NASA (March 2001)

W. Henry Lambright

Managing Across Boundaries: ACase Study of Dr. Helene Gayleand the AIDS Epidemic (January 2002)

Norma M. Riccucci

SPECIAL REPORTS

Government in the 21st Century

David M. Walker

Results of the GovernmentLeadership Survey: A 1999 Surveyof Federal Executives (June 1999)

Mark A. AbramsonSteven A. ClyburnElizabeth Mercier

Creating a Government for the 21st Century (March 2000)

Stephen Goldsmith

The President’s ManagementCouncil: An Important ManagementInnovation (December 2000)

Margaret L. Yao

Toward a 21st Century PublicService: Reports from Four Forums (January 2001)

Mark A. Abramson, Editor

Becoming an Effective PoliticalExecutive: 7 Lessons fromExperienced Appointees (January 2001)

Judith E. Michaels

The Changing Role of Government:Implications for Managing in a NewWorld (December 2001)

David Halberstam

BOOKS*

E-Government 2001(Rowman & Littlefield Publishers, Inc., 2001)

Mark A. Abramson and Grady E. Means, editors

Human Capital 2002(Rowman & Littlefield Publishers, Inc., 2002)

Mark A. Abramson andNicole Willenz Gardner, editors

Innovation(Rowman & Littlefield Publishers, Inc., 2002)

Mark A. Abramson andIan Littman, editors

Leaders(Rowman & Littlefield Publishers, Inc., 2002

Mark A. Abramson and Kevin M. Bacon, editors

Managing for Results 2002(Rowman & Littlefield Publishers, Inc., 2001)

Mark A. Abramson and John Kamensky, editors

Memos to the President:Management Advice from the Nation’s Top PublicAdministrators (Rowman & Littlefield Publishers, Inc., 2001)

Mark A. Abramson, editor

Transforming Organizations(Rowman & Littlefield Publishers, Inc., 2001)

Mark A. Abramson and Paul R. Lawrence, editors

* Available at bookstores, online booksellers, and from the publisher (www.rowmanlittlefield.comor 800-462-6420).

To download or order a copy of a grant or special report, visit the Endowment website at: endowment.pwcglobal.com

For additional information, contact:Mark A. AbramsonExecutive DirectorThe PricewaterhouseCoopers Endowment for The Business of Government1616 North Fort Myer DriveArlington, VA 22209(703) 741-1077, fax: (703) 741-1076

e-mail: [email protected]: endowment.pwcglobal.com

About PricewaterhouseCoopersThe Management Consulting Services practice of PricewaterhouseCoopers helps clients maximize theirbusiness performance by integrating strategic change, performance improvement and technology solutions.Through a worldwide network of skills and resources, consultants manage complex projects with globalcapabilities and local knowledge, from strategy through implementation. PricewaterhouseCoopers(www.pwcglobal.com) is the world’s largest professional services organization. Drawing on the knowledgeand skills of more than 150,000 people in 150 countries, we help our clients solve complex business prob-lems and measurably enhance their ability to build value, manage risk and improve performance in anInternet-enabled world. PricewaterhouseCoopers refers to the member firms of the worldwidePricewaterhouseCoopers organization.

About The EndowmentThrough grants for Research and Thought Leadership Forums, The PricewaterhouseCoopers Endowment forThe Business of Government stimulates research and facilitates discussion on new approaches to improvingthe effectiveness of government at the federal, state, local, and international levels.

Founded in 1998 by PricewaterhouseCoopers, The Endowment is one of the ways that PricewaterhouseCoopersseeks to advance knowledge on how to improve public sector effectiveness. The PricewaterhouseCoopersEndowment focuses on the future of the operation and management of the public sector.

1616 North Fort Myer DriveArlington, VA 22209-3195


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