Abstract
The Asili di Carità was a non-profit educational institution established for very young children by the Catholic Church in 1836 in the City of Milan. This study shows how the First World War, changes in political ideology and economic developments in northern Italy directly impacted upon the, sometimes precarious, financial position of the Asili. Within the context of such change, the Board of the Asili enacted accountability through the maintenance and presentation of accounting records and meetings with stakeholders. This study draws from both public and private archives to examine the decisions made by the Board in response to change. The study focuses on the Asili’s relations with its most economically powerful stakeholders in the period from 1913 to 1926 as it transitioned from a privately funded organisation to one that was funded predominantly by the Municipality of Milan, before reverting to private hands.
Introduction
Educational institutions play a significant societal role in shaping the formative years in the lives of most people. This is because, for most, educational background will impact upon their social status and overall life chances. The rise and expansion of educational institutions are often directly linked to the rise of particular groups or classes within a locale as they gain power or influence (Boli et al., 1985). Historically, religious, charitable, economic and political mobilisation have been the driving forces behind the establishment of educational institutions, alongside broader national regulations and laws. Regardless of their origins, such institutions are seen as a common good established to initiate the socialisation of the next generation, whether they are publicly funded or privately funded, more selective, institutions. Despite their historical heritage, significance to society and the variety of forms of funding available to them, educational institutions remain relatively under-researched in the accounting history literature. 1 Accountability and its enactment and discharge through the provision of accounting information has an important role, since such institutions can have a diverse array of stakeholders and diverse sources of funding (such as charities, religious orders, private benefactors and the public purse). Ultimately, such institutions are an interesting subject for study because the provision of financial information is not only a means of discharging accountability but can also impact upon relations between stakeholders and the educational establishment itself as well as having wider social implications.
As educational institutions, kindergartens have a very specific role in the daytime mass care of young children and emerged in nineteenth-century Europe alongside increasing employment of female labour in cities and factories. 2 In Italy, prior to unification, the French crèche model was adopted (translated in Italian as the presepi) as a means of providing care for the babies and infants of working women until the children were able to attend a pre-school institution (Caroli, 2017). Both France and Italy have strong Catholic roots, and in the nineteenth century the Catholic Church provided charitable funding for childcare as a means of combatting poverty and the high levels of infant mortality. The case of Italy is particularly interesting, because as they became more widespread, these institutions became an important part of the public healthcare system and integral to national government policies regarding social provision, which had until then been dependent on charitable organisations. 3
In this study, we examine the turning fortunes of one such educational institution in the city of Milan, Italy: the Asili di Carità (kindergartens of the Charity for Children), the first private infant school 4 in the city. When originally established, in 1836, the kindergarten was funded by the Santa Maria Segreta Church and through donations from local Milanese benefactors that included entrepreneurs, traders and nobles. Other kindergartens were later established throughout the city, under the umbrella of the Asili di Carità. The non-profit organisation was managed by a Board (originally a commission), which was accountable to a number of stakeholders as represented by the General Assembly. Accountability to its stakeholders was discharged by the Board through the production of financial records and statements showing how the funding and donations were used, whether the organisation was in surplus or deficit and its net asset position. These statements were presented at Assembly meetings. In the nineteenth century, in times of financial distress, the Board occasionally turned to the Municipality of Milan for financial assistance and later in the twentieth century this source of funding became more significant. We focus our analysis on the period between 1913 and 1926. In this period the Asili di Carità went from relying mainly on private donations to becoming largely dependent on contributions from the Municipality of Milan. As the Municipality became a more powerful stakeholder, it sought representation on the Board in exchange for an increase in its stake. However, in 1926 the representatives of the Municipality were expelled by the Asili di Carità and it reverted to relying on donations from private benefactors.
This is a historical case study that draws on data gathered from archival records from the Municipality of Milan’s Public Archive and the financial documents relating to the Asili held at the Istituto Assistenza minori e anziani Onlus (Assistance Institute to Children and Elderly Onlus). The latter is a private archive that has not been open to the general public and therefore this material has not previously been available to other historians. 5 The sources include the minutes of the Assembly meetings of the Asili di Carità for the period 1900–1926, plus annual budgets and financial reports for the period under study. The annual Assembly meeting minutes provide extensive information about the debates concerning the activities and governance of the organisation. The Board of Directors met once a month and their reports were an important source of information. We also examined relevant legislation 6 and spent time carefully translating the information in both the records and the legislation. The historical accounting-related information that we examined not only provided a record of the financial operations of the organisation, but also provided information about the economic and social contexts within which events occurred (also noted by Riccaboni et al., 2006). However, for a more comprehensive contextualisation (Yin, 2014), we also turned to various secondary sources, including historical books and articles concerned with the history of Asili di Carità in Milan (Audoin-Rouzeau and Becker, 2014; Baldi, 2003; Chabod, 1961; Gibelli, 2014; Minesso, 2011; Molinari, 2014; Rebora and Sideri, 2007).
The data source for this study was also the basis of a study published by Magli and Nobolo (2014) in Italian in the Spanish Journal of Accounting History (which accepts papers written in any major European language). We suggest that this study is different in a number of ways. First, it is aimed at an English-speaking audience but we have drawn on the 2014 paper to provide relevant historical context and background material that will aid the understanding of readers not proficient in Italian. Second, the two studies are set in different time periods. This study covers the period 1913–1926, whereas Magli and Nobolo (2014) examined the financial statements and the ‘‘moral and administrative’’ management reports of the Asili between 1836 and 1892. Third, the stated aims are different: the 2014 study focused on the historical evolution of both the structure and the organisation of the documents and a stated goal of the study was to analyse how accounting theories of the time penetrated as the accounting practice of the institution in the period under study. In this study we examine how the First World War, changes in political ideology and economic developments in northern Italy directly impacted upon the financial position of the Asili and how the Board’s decisions and accountability changed over time.
The study makes a contribution to the extant literature at both the empirical and theoretical levels. At the empirical level, we present an original historical narrative introducing the case of the Asili di Carità. We align this work with other key historical investigative studies that have made a connection between accounting, accountability and governance in non-profit organisations (Bracci et al., 2010; Cordery, 2006; Fowler, 2010; Jacobs and Walker, 2004; Moggi et al., 2016; Prieto et al., 2006; Riccaboni et al., 2006; Sargiacomo, 2009). 7 This study also responds to calls for more accounting history studies in non-Anglo-Saxon settings (Carmona, 2004) as well as calls to move the accounting history research from a focus on for-profit entities to incorporate the non-profit sector (Carnegie and Napier, 1996). In order to present this case, we draw upon primary accounting data which has not thus far been presented in an English-language journal. Our analysis of the data allowed us to piece together the history of this kindergarten and explain, in narrative form, why particular decisions were made by the Board regarding both the operations of the Asili and its own composition in response to wider economic and socio-political change. It also highlights the role that accounting information played in helping the Board to successfully extract ever-greater resources from both the benefactors and the Municipality.
We also make a contribution to the burgeoning accountability-related literature. We adopt an ethical stakeholder theory approach to examine a case in which accounting information influences the Board to make decisions that have wider social implications. The application of ethical stakeholder theory to this case enables us to examine the enactment of accountability within the Asili and explain how the Board’s decision-making and accountability changed over time. In particular, we draw attention to what can happen when a Board adopts a strict ethical stance and is adamant in its refusal to be coerced or swayed by the economic power exerted by individual stakeholders. In this case, the Board was determined to fulfil the original charitable mission of the organisation despite other financial incentives and considerations. In adopting this approach we also respond to general calls for a greater understanding of the social roles of accounting (Hopwood, 1985; Walker, 2016) and for research that will show that accounting is not just a technical practice but also a social one (Sargiacomo and Gomes, 2011). Specifically, we note Bisman’s comments in her examination of the state of accounting history research, where she identifies stakeholder theory as one of several potentially rich frameworks which have ‘been either comparatively under-utilised or completely overlooked and could be mobilised (whether supportively or critically) in explorations of accounting’s past’ (Bisman, 2012: 10).
The study continues as follows. In the next section, we present a framework for theorising the case of the Asili and review other studies that have set a precedent for and inform this study. We then present a background section detailing the history of the Asili, its growth and structure. This is followed by a contextualised examination of the financial fortunes and Board–stakeholder relations of the Asili over the aforementioned time period. Drawing from the archival data and historical accounting information, we present an analysis of the events that occurred as the Asili transformed from a privately funded organisation to a part-publicly funded one and then reverted to a private organisation again. Finally, we provide a conclusion.
Ethical stakeholder theory and accountability
The Asili was a non-profit organisation that provided early education for very young children. The governing Board was accountable to those that held a stake in the organisation and while this included the employees and the beneficiaries of charity, the most significant and vocal stakeholders were the private benefactors and, later, the Municipality that provided donations and funding to facilitate the charitable work. The Board enacted accountability to its stakeholders through the production of financial records, financial statements and ethical statements. Guided by the features of this case and the accounting-related data unearthed, we now examine the potential for adopting an ethical stakeholder framework for the study.
The ethical (or moral/normative) branch of stakeholder theory 8 suggests that the organisation has social responsibility at the heart of its operations and that all stakeholders 9 have the right to be treated fairly. Within this framework, the impact of the organisation on the life experiences of those that it seeks to serve (Donaldson and Preston, 1995) and its moral role in achieving social good are paramount rather than the extent of economic power exerted by individual stakeholders (Deegan and Unerman, 2006; Dhanani and Connolly, 2012; Ebrahim, 2003). However, in the event of conflict between competing stakeholders’ interests, this framework suggests that the organisation should strike an appropriate balance. Such organisations are often non-profit entities established to further or forward a particular social or charitable cause or common view. They are driven by ethical, moral or philosophical causes rather than being motivated by profits and they tend to be mission-oriented with a view to driving social change (Ryan et al., 2014). 10
Unlike commercial organisations that seek a return for their investors through profits, accountability to a much wider group of stakeholders lies at the very heart of the non-profit organisation. There are many definitions of accountability (see Ebrahim, 2003), but in its most basic form, accountability has been defined as the ‘way in which an organisation is held to account for its actions’ (Tacon et al., 2017: 687), or ‘the giving and demanding of reasons for conduct’ (Roberts and Scapens, 1985: 47) or ‘the main purpose of accountability is to provide mechanisms through which all those affected by an organisation’s (or person’s) actions can demand an account from the managers of that organisation (or from that person) regarding how and why the organisation (or person) has acted in the manner it has’ (Unerman and O’Dwyer, 2006: 351). In this simple form, the meaning implies an interaction between the organisation that provides the account of its activity and the stakeholder to whom the account is provided.
More nuanced typologies of accountability are to be found in the non-profit governance literature (Ebrahim, 2003); for instance, O’Dwyer and Unerman (2008) suggest that: ‘a hierarchical conception of accountability privileging a narrow range of (potentially) powerful stakeholders, has begun to dominate external accountability discourse and practice’ (O’Dwyer and Unerman, 2008: 801). Although a non-profit organisation may be accountable to multiple stakeholders, the literature shows that these relationships are not equivalent. Thus, upward accountability (to funders, donors and oversight agencies) can often take priority over downward and lateral accountability (to communities and staff) (Ebrahim, 2003; Knutsen and Brower, 2010). Ebrahim (2003) further highlights the dual perspectives of the external and internal dimensions of accountability, the former as a means of satisfying prescribed standards of behaviour and the latter motivated by individual responsibility and organisational mission.
Thus in their study of a microfinance non-profit organisation in Zambia, Dixon et al. (2006) highlight tensions between ‘vertical and horizontal’ accountability in practice. O’Dwyer and Unerman (2008) adopt the broader concept of ‘mission critical stakeholders’; that is, those stakeholders who are in the best position to progress the non-profit organisation’s achievement of its mission. Others have advocated an alternative approach to the multiple accountability relationships that an organisation can be party to. Thus, Mitchell et al.’s (1997) theory of ‘stakeholder salience’ refers to the prominence of particular stakeholders who take priority over others in terms of the attention managers afford them and the accountability demanded by them. 11 More recently, Costa et al. (2018) have also advanced the concept of differential treatment of stakeholders. They examine the discharge of accountability in the voluntarily delivered reports of cooperative banks in Italy based on different levels of ‘empathy’ towards different stakeholders.
A key mechanism through which non-profit organisations are held to account and operationalise or enact accountability is the production of financial reports and ethical/disclosure statements which are intended to offer transparency (Brennan and Solomon, 2008; Laughlin, 1990). Such reports and statements provide information regarding the use of donated funding as well as demonstrating that a moral obligation has been fulfilled. The production of financial reports can be either the result of legal and regulatory requirements or an entirely voluntary action guided by the moral and ethical code of the organisation (Cordery and Baskerville, 2011; Moggi et al., 2016; Ryan et al., 2014). 12 These financial reports and/or ethical statements are the main channel of communication with stakeholders and provide information enabling them to understand and monitor the activities and operations of the organisation. They also offer transparency and evidence enabling the stakeholders to monitor decisions made by the Board and help the organisation to keep track of its spending and to explain how surpluses or losses are generated (Dhanani and Connolly, 2012; Ebrahim, 2003). Ebrahim (2003) notes that accountability mechanisms such as financial records and statements also serve the purpose of allowing non-profit organisations to publicise their projects and in the process leverage new forms of funding and attract new donors – a ‘resource interdependence’. In the ethical branch of stakeholder theory, the requirement for such reporting is assumed to be responsibility-driven (through the moral obligations of the Board) rather than demand-driven (resulting from the demands of stakeholders). 13 In their development of a conceptual framework specific to non-profit organisations, Ryan et al. (2014) suggest that the main imperative for financial reporting is mission-oriented accountability to stakeholders 14 and that private sector non-profit organisations are ‘motivated by their mission, which is formulated at their inception and is strategised in accordance with political imperatives’ (p. 393).
In this section, we examine how stakeholder theory has been employed in the accounting-related literature to study accountability and its discharge in non-profit organisations. In her 2010 archive-based study, Fowler uses a stakeholder framework 15 to examine the case of the Nelson School Society (NSS), which was a non-profit organisation that established and operated local schools funded by the Nelson settlers in New Zealand between 1842 and 1852. The study focuses on the role of audited accounting information as a means of not only record-keeping but also as evidence presented to providers of funding, such as the government. Perhaps more akin to this study, and building on Fowler (2010), Fowler and Cordery (2015) studied changes in accountability as the provision and control of education moved from private non-profit organisations to a public sector provider within the context of the Nelson settlement. Their data show that, in the private non-profit phase of the primary schools, the input of the local community stakeholders may have been sufficient for the short-term survival of the school but only when the NSS schools taken over by local government was longer-term financial sustainability secured.
In an adaptation of stakeholder theory, Moggi et al. (2016) apply Mitchell’s delineated, three-dimensional model of stakeholder saliency to explore how the accountability of confraternities in the City of Verona was influenced by the relationships between charities and others based on power (from religious and local authorities) or moral obligations to donors or the beneficiaries of charitable actions. 16 In a more modern context, Cordery and Baskerville (2011) also utilise this extended model of stakeholder theory to study two charities (The Methodist Mission Northern (MMN) in New Zealand and The National Kidney Foundation (NKF) in Singapore). They suggest that not only can the salient stakeholder demand accountability from the organisation (Cordery and Baskerville, 2011) but that ‘the pull of powerful stakeholders may (also) marginalise those who share values with the charity’ (p. 202). Finally, Dhanani and Connolly (2012) developed a framework based on ethical stakeholder theory to study non-profit accountability in the UK charity sector. Interestingly, within a more modern context, they find that ‘contrary to the ethical model of stakeholder theory, the sample charities’ accountability practices are motivated by a desire to legitimise their activities and present their organisations’ activities in a positive light’ (Connolly, 2012: 1140).
What these studies show is that, for non-profit organisations, ethical stakeholder theory offers a relevant and useful framework within which to study the discharge of accountability in the case of the Asili di Carità. The role and raison d’etre for such charitable organisations is to serve and aid those sections of the community that may be marginalised in some way, to ‘do good’ within the community and enhance social well-being. As non-profit organisations are often founded on high moral standards, ethics, philanthropy and the generosity of benefactors, their accountability to stakeholders and relations with them is integral and lies at the very heart of such organisations.
Background and history of the Asili di Carità
In this section, we draw upon secondary historical sources and Magli and Nobolo (2014) to contextualise the study. We examine the conditions under which the Asili was originally created, how it operated on a day-to-day basis, how it was funded and how accountability was discharged. This examination is significant because it allows us to understand how changing economic conditions in the period covered in this study (1913–1926) affected this model and why it had such an impact on the discharge of accountability.
The origins and funding of the Asili in Milan
The earliest records in Italy relating to kindergartens date back to 1828 when Ferrante Aporti, a Catholic priest from Cremona, opened the first kindergarten (asilo). 17 News of Aporti’s work had been published in an influential periodical Antologia in October 1832 and the model quickly spread across northern Italy. The Catholic Church was involved in charity work and establishing the Asili was a means of extending that charity in the city of Milan, offering education for children aged between the ages of two and a half and six (Baldi, 2003; Rebora and Sideri, 2007). The Asili di Carità was established by the priest Don Pietro Zezi in the Santa Maria Segreta Church (Milan) in 1836 to house the increasing number of abandoned infants following the Napoleonic campaigns (Baldi, 2003: 84). 18 The Asili began as a private non-profit institution, obtained legal status as a charitable foundation after two years and gained authorisation via royal assent.
The Asili hosted 70 children from poor families of different parishes. 19 Milan had 24 parishes and each parish was divided into eight districts (Magli and Nobolo, 2014). Based on the original model, local priests throughout Milan sought to open kindergartens in each parish. This expansion could only be achieved through the involvement and generosity of local benefactors, who not only contributed to the creation of the kindergartens but also their subsequent management. For example, the local parish priest of the church of San Francesco da Paola, Ambrogio Ambrosoli, founded the second of these kindergartens in the home of the nobleman Mr De Cristoforis. The benefactors were mainly philanthropic nobles of the City of Milan (such as Guiseppe Sacchi and Gaetano Melzi) and entrepreneurs (such as Giandomenico Falciola and Enrico Mylius), who donated money or buildings and rooms to the Asili (Caroli, 2017). Within one year, three such kindergartens had been established in Milan – the third being the San Filippo Oratory in San Celso.
Although private benefactors 20 were originally the main providers of funding, the Municipality of Milan also provided the Asili di Carità with occasional financial support, as it was a private institution that provided a public service for children (see also Guarini et al., 2018). For example, in 1861 the Municipality contributed 4,000 Lire to inaugurate the first memorial party of the Kingdom Statute (Municipality of Milan, 1862). 21 In the following years the Municipality of Milan made other occasional contributions to cover various extraordinary expenses, for instance, the maintenance of buildings where the nurseries were housed (Municipality of Milan, 1902). We will later show how changes in funding and, in particular, the private/public balance impacted upon the decision-making of the Board over the time period of our study.
The organisation and operation of the Asili di Carità
The Board of the Asili di Carità (originally called the Commission) was established at the first general meeting held on 11 February in 1836. The responsibilities of the Board were defined within the Mission Statement of the Asili, and included: to permanently ‘ensure the foundation of this Pia Cause’; to ‘spread from hand to hand, and consistent with available financial resources, Infant Child Care in the most populous and poorest neighbourhoods of the city’; and to ‘direct and administer the children as one institution – based around the foundation of the Asili di Carità per l’infanzia in Milan’ (Translated from source: Tipografia G.B. Bianchi e C. 1837, Milano, p. 1). The Board consisted of seven seats and its responsibility included overseeing the institution’s mission, its financial viability, autonomy and continuity over time. Board members were obliged to act responsibly and in accordance with the ethical principles of the organisation. Representations of the interests of stakeholders, such as private benefactors, were made within the Assembly, which ultimately appointed the Board. As shown in Magli and Nobolo (2014), the Municipality of Milan also made financial contributions to the Asili from 1861. Article 5 of the 1836 statute set out the responsibilities of the Board as follows: ‘every year a list of benefactors is published, the task of the Asili will be to divulge the annual administration report and the statistical data of the children who will be hosted at the kindergartens to the Assembly’ (translated from Article 5:1836 Statute of the Asili).
All of the Asili in the Asili di Carità in Milan operated along similar lines. Each kindergarten employed a teacher with an assistant who would take care of the growth and education of the hosted children in each asilo. An Inspector was appointed by the Assembly and had an operational role controlling all of the Asili. In each parish-based asilo, the local parish priest was required to draw up a certificate that stated the age of the children and the state of poverty of their families. 22 Applications for the creation of a new asilo under the Asili di Carità umbrella had to be submitted to the Inspector and were reviewed by him together with the ‘Visitors’ before permission was granted. The ‘Visitors’ were female benefactors who not only made monetary donations, but also helped in the kindergartens by volunteering their time acting as teachers and nurses (Baldi, 2003). The ‘Visitors’ visited the various Asili di Carità kindergartens located in Milan but they had to be authorised and their names had to be declared in the Assembly. Each asilo was required to establish and teach rules of personal hygiene. In addition, they were required to provide the children with daily soup and access to a doctor, two pharmacists and two surgeons who provided healthcare on a voluntary basis.
The mission of the kindergartens was to host and guard the destitute and poor children between the ages of two and a half and six (Statute of Asili, 1836). The children attended during the day, receiving food and a uniform and, in addition to learning to read, write and count, they received a civic education and training for work in industry and domestic life (Baldi, 2003: 87). Religious and moral education was considered to be paramount 23 and the children were indoctrinated from an early age and taught the ‘importance of love and fear of God, respect for property, docility and obedience’ (Asili di Carità, Resoconto 1836–1872 (reports of 1836–1872), Tipografia G.B. Bianchi e C.; Magli and Nobolo, 2014). Albisetti (2009) suggests, perhaps surprisingly, that despite the teaching of Christianity in the Asili, many conservative Catholics opposed them on the grounds that they were seen as ‘foreign’ institutions (Aporti’s model was based on similar institutions in Germany); others opposed the co-education of three- and four-year-old children and some opposed the role of the lady ‘Visitors’. Others criticised the long hours spent in prayer and the time devoted to academic learning taking priority over play and physical activity, and industrialists bemoaned the fact that the children were not taught to work. However, in a report to the King in 1869, the Minister of Public Education praised the Asili, stating that, in addition to the intellectual, moral and physical advantage they bestowed upon children from poor families, these children could ‘bring home the good influence of the discipline, morality and good habits that they have acquired’ (Albisetti, 2009: 162). In addition to the kindergartens, the Asili di Carità also operated three Conservatori, which were private primary schools aimed at providing education and training to children aged from six to nine. The Conservatori were established after a Government regulation in 1872 which banned factories from hiring children younger than nine years old. 24
Another new national law in 1911 (law No 487 of 4 June 1911) required the State to assume responsibility for the education of children in primary schools (Report of 1906 Asili di Carità per l’Infanzia e la Puerizia in Milan, 1872–1909). 25 The Conservatori, therefore, became less popular as more parents sent their older children to the state-run schools and fewer children in this age range attended. 26 Although the number of primary school children in Conservatori run by the Asili di Carità was reducing (in 1906 there were only 197 children attending the Conservatori), overall more than 4,000 children were at the Asili di Carità (Report of 1906: Asili di Carità per l’Infanzia e la Puerizia in Milan, 1872–1909). The overall numbers increased because the children were required to have a kindergarten education before entering compulsory state education at the age of six.
The changes noted in this section are important because the growth in the number of children and related requirements for funding are key to what happened in the period of study (1913–1926). Although the growing organisation was managed and run by the Board, the Asili di Carità had a number of stakeholders. These included the private benefactors, the employees, the beneficiaries (poor families and children), the ‘Visitors’, the church (through local parish connections) and later the Municipality of Milan. The Board discharged its accountability to these stakeholders through the production of financial records and it is to this that we now turn.
Discharging accountability: the ethical and financial reports
The literature suggests that non-profit organisations are accountable to multiple stakeholders and subject to competing stakeholder demands. There are obligations of upward accountability to their patrons, the providers of funding, because the organisation must account for how and where the donated funds are spent. Non-profit organisations are accountable to those that they provide services to, to communities and also to the individuals whose lives are impacted by their activities – downward accountability. In addition, the literature also identifies a further dimension of accountability for a non-profit organisation – to its own ethical mission and staff (see Ebrahim, 2003). This accountability is discharged through the employment of accountability tools such as financial reports showing how sources of income are spent and also other disclosure statements. Such reports and disclosure statements are often legal requirements imposed by local or national authorities.
The requirements for the Asili Board to report back to the stakeholders represented within the Assembly date back to Article 5 of the 1836 Statute. In practice, the financial records were prepared by the chief accountant and they were presented by the Board to the Assembly. Further legislation (17 July 1890, n. 6972) was issued by the national government 27 on public welfare and charitable institutions to regulate the following:
The directors of public welfare and charitable institutions (Articles 4–17);
The administration and accounting (Articles 18–34) of charitable institutions;
The protection (Articles 35–43) of charitable institutions;
The supervision (Articles 44–53) of charitable institutions.
As a result, charitable institutions were required to report on the financial situation on a yearly basis and would have to include the ‘account of the treasurer’ (a cash statement). The financial statements of Asili di Carità were audited and approved by the provincial government of Milan (Art. 21 Law 6,972, 17 July 1890). 28 In addition, a report on non-financial performance was also required – the Relazione Morale, literally translated as the ‘ethical report’. The Relazione Morale was about 20 pages long and was composed of four parts: the status of the Asili di Carità in the year; the health status of children admitted to kindergartens; the state of education provision; and the religious and moral improvement of hosted children (Magli and Nobolo, 2014).
Examination of the annual reports show that from around 1900 the form of the reports changed and were focused more on the financial disclosure of assets, liabilities and the items of income and financial performance rather than ethical considerations – perhaps due to the fact that the financial situation was beginning to worsen (Report of 1902, n. 384 1903 and ‘Resoconto 1872–1909 e notizie sulle gestioni 1910–1911; Report 1872–1909 and management news of 1910–1911; Tipografia Luigi di G. Pirola di Enrico Rubini). 29 The financial report was composed of two segments: one dedicated to the Asili dell’infanzia (the kindergartens) and the other dedicated to Conservatori (the primary schools). The overall financial statement, which today might be called the ‘consolidated’ account, was split into the final result of the financial account; the difference between receipts and payments; income and expenditure; and assets and liabilities (Magli and Nobolo, 2014). The preparation and presentation of this accounting information played a significant role in decisions taken by the Board over time and it is to this that we now turn.
Changes in funding: managing stakeholder relations
Although accounting reports are a key tool for the discharge of accountability, this is just one dimension of accountability. Unlike the private sector, non-profit organisations are also driven by their mission, the desire to do good and the ethical dimensions of their activities. In such cases, accountability is not just about ‘being held responsible’ (i.e. externally driven) but also about ‘taking responsibility’ (i.e. internally driven) (Ebrahim, 2003: 13). In this section, we examine how accounting information played an important role in the decisions made by the Board with respect to funding and governance, but also how, ultimately, the moral stance taken by the Board dictated events. As noted earlier, in ethical stakeholder theory the moral goal of achieving social good supersedes the persuasive power of economically powerful individual stakeholders (Deegan and Unerman, 2006; Dhanani and Connolly, 2012; Ebrahim, 2003).
Analysis of the minutes of meetings and other archival data gathered shows that there were many discussions within the Board of Directors and in the Assembly regarding funding. Over the years, there had been various requests for occasional financial assistance and funds had been forthcoming from the Municipality. 30 As the Asili di Carità experienced greater financial distress in the early twentieth century, the role of the Municipality as a funding source became more significant. This section draws from the accounting information and other archival evidence to examine the specific changes that occurred with respect to funding in the period between 1913 and 1926 and, in particular, it draws attention to the decisions made by the Board over this time period and relations with its most economically powerful stakeholders.
Merger with suburban kindergartens: from private to public funding
The early twentieth century was a period of economic change and industrial growth in Italian cities such as Milan. The population of the city grew, as people were attracted by the prospects of new employment opportunities (Molinari, 2014). Former peasants and women joined the workforce and were employed in the factories and the major industries (Gibelli, 2014). 31 In Milan, the political scene also changed as the socialists came to power and remained in power throughout the period of the First World War. This is significant because it meant that the Municipality of Milan was driven by socialist ideology in the period under study.
Major changes were also taking place at the Asili di Carità, and in 1912 they were required by the Municipality of Milan to merge with suburban kindergartens (Rebora and Sideri, 2007: 114). 32 These mergers, which actually occurred in 1913, caused organisational tensions and financial stress at the Asili di Carità: first, because of the increased number of children to be hosted and, second because of a stagnation in contributions from the benefactors. This is shown in Table 1: the number of children housed in the kindergartens increased after the merger, while the ‘income per number of children’ ratio reduced.
Changes in numbers post-merger.
Source: Annual Reports of Asili di Carità.
The accounting information provided in the financial statements had a direct impact on the decisions made by the Asili di Carità Board after the amalgamation (Minutes of Asili of Milan held on 18 February 1917: 3a). The Asili Board prepared new administrative and educational regulations for the former Urban Asili and Suburban Asili, as requested by the Municipality. The cost of these new regulations was met by an increase of the annual subsidy provided by the Municipality, as it became an increasingly important stakeholder. The changing relationship between the Asili and the Municipality also resulted in increased costs resulting from the need to standardise the salaries of educational and housing staff of the merged kindergartens (which had previously been different in the urban and suburban Asili), serving soup in the summer months at suburban kindergartens and improving the training of educational staff (Minutes of the Assembly of Asili of Milan held on 18 February 1917: 3b).
In 1915, a request was made to the Municipality by the Board of the Asili to increase its contributions because they argued that it was the Municipality that had initiated the merger with the suburban kindergartens, which had resulted in increased expenses, as now there were over 14,000 children. The Municipality of Milan agreed to a five-year service agreement with the Asili di Carità in 1915, in which the City Council agreed to contribute 50 per cent of the costs incurred for services (see Figure 1).
Details of Municipality of Milan subsidy, 1915.
The intention was for the agreement to run from 1915 to 1919, with a commitment by the Municipality to pay 283,000 Lire to be increased over time according to the emerging needs of the entity (Minutes of Assembly Meeting of 15 May 1919). In particular, the monies would cover an increase in the salaries of the Asili’s teachers and the fact that it was due to accept responsibility for seven new kindergartens from Ente Autonomo case popolari (a public housing institution) following an agreement between the Municipality and the Asili. Whereas previously the most powerful voice had been that of the private benefactors in the Assembly and on the Board, as the contributions of the Municipality increased it, too, had an increasingly powerful voice.
The war years: seats for the municipality
The period of the First World War brought change to Milan, as Italy entered the war in 1915. The Municipality of Milan played an important support role for the military during the war and Milan became a centre for the production of war munitions. 33 During the war period, there was a growing movement across Europe advocating social protection. In Italy, forms of social protection of minors were on the rise, ranging from new hygiene regulations to the protection of migrant minors and assistance to illegitimate children born during the war (Minesso, 2011: 151). In Milan, the Municipality provided shelter for wounded, convalescing soldiers and assumed charge of the increasing numbers of orphans. Under the Socialist rule of Emilio Caldara (Mayor of Milan in the period 1916–1922), the Council set out to improve hygiene and overcrowding in the City of Milan and developed a tram system. By 1918, women constituted 25 per cent of labour in Turin’s factories, 31 per cent in Milan and 11 per cent in Genoa. As the women worked, young children were either placed in kindergartens or cared for by extended family or in some cases simply abandoned. This population growth in the cities, increasing numbers of working women and child abandonment during the war years resulted in a corresponding increase in the demand for nursery care and directly impacted the Asili di Carità (Gibelli, 2014).
However, the First World War also created increased costs for the Asili, including repairs following the destruction of some of the buildings in which the kindergartens were housed and a general rise in the cost of living and food in particular – for example, the cost of soup quadrupled. Our review of the financial statements suggests that in 1917, motivated by excessive cost increases, the members of the Assembly of Asili di Carità asked for the contributions of the Municipality of Milan, earmarked for 283,000 Lire for each of the five years from 1915 to 1919 as per the service agreement, to be increased further still to cover several extraordinary expenses. They also requested the training of educational staff (resulting from the Law of 25 May 1913), the distribution of additional meals in the summer months to children of suburban kindergartens, expansion by creating five new kindergartens to meet the rising demand for places and hospitality for 2,250 children of war soldiers in accordance with the Government’s Child Care Regulations (Minutes of Assembly Meeting of 15 May 1919).
This was also a period of marked change for the relations between the Board and its stakeholders, as the number of the Municipality’s representatives on the Board of Directors of Asili di Carità increased, primarily as a means of safeguarding their investment but also, perhaps, as a means of determining the use of their increased contributions (see Table 2). Under the terms of the agreement of 1915, and in return for the increased funding by Municipality, the number of seats occupied by the Municipality on Board of Directors of the Asili di Carità was set to increase over the five-year term. By 1917, municipal representation on the Board had increased from three seats to five seats (out of the 11 available), although private benefactors retained a majority with six seats.
Composition of board of directors.
Source: Annual reports, Asili di Carità.
Honouring the mission – expulsion of the municipality
Although little accounting information remains from the war years, we can ascertain from the archival data and, in particular, the minutes of the Assembly of 8 June 1919 (which relate to the financial statements of 1918) that there was an improvement in the financial health of the Asili and the new net equity of Asili was 6,000,000 Lire due to the sale of buildings and the operating surplus. In fact, the minutes provide evidence that the financial position had improved sufficiently for the benefactors to argue that the continuity of operations might be secure even without the contributions from the City of Milan. However, a year later the 1919 statements recorded a decrease in net equity that becomes 4.481 million Lire due to operating deficit. As it is, in fact, it seems that the operating deficit is 4.481 million Lire. In response, many of the benefactors increased their voluntary contributions and the Board was able to secure contributions from the ‘Committee of Support for the War’, 34 an important Milanese bank (Cassa di Risparmio delle Provincie Lombarde) and the Ministry of Education. These contributions left the books in a more healthy financial position, but only temporarily as the numbers of children were declining in the Asili di Carità and general poverty levels were increasing in the country in the aftermath of war.
In order to secure financial stability, the Municipality had also been asked to increase its financial assistance, but it insisted that any additional funding would be contingent upon securing a majority of seats on the Board of Directors. The Assembly refused the Municipality’s proposal and, in order to avoid a looming financial crisis, the Asili proposed that the Municipality buy three of their kindergartens and that they would rent the other six to them. 35 A key factor in the Municipality accepting this proposal was their declared social policy to take charge of childcare management (Convention of 7 June 1920, Baldi, 2003: 99). This new situation again provided some financial relief for the Asili di Carità, but it was only a short-term solution since, in the longer term, the decrease in the number of paying children led to further financial decline, exacerbated by the reduction from 20 to 11 kindergartens.
The minutes of the Assembly Meeting of 1919 provide us with details of the exchanges that took place regarding the Municipality’s request for a majority of the seats on the Board. Representatives of the Municipality argued that it had an obligation to provide public services with regard to childcare and, therefore, should lay claim to greater representation: We should look at the number of children, at children of people who have the right to have kindergartens as a large city should have. (Ms Malnati, Municipality of Milan’s representative, Minutes of Assembly Meeting of 8 June 1919: 6)
However, the Assembly members were opposed and many spoke against the prospect of the Municipality having a majority on the Board. Councillor Mezzanotte, a well-respected benefactor of the Asili, stated: As founders of Asili di Carità, we believe that claiming protection of our institution and opposing to this ‘municipalization’ of our kindergartens is our right … I find that kindergartens should have a continuity in their mission far from the political swirls and their consequences, because no one can deny that a turnover in the ruling party could have a negative effect on the Board of kindergartens and then on the entire institution. (Minutes of Assembly meeting of 8 June 1919: 4)
In the same Assembly minutes, another member-benefactor commented on the close links between the private benefactors and the Asili: The Asili are not a simple organization dedicated to a particular provision, but an association of many citizens aimed to integrate, with their sacrifices of time and money, the educational and charitable purposes of Asili, so that the institution is inseparable from its benefactors and cooperators. (Minutes of Assembly Meeting of 8 June 1919: 4)
The City of Milan was in the hands of the socialists at the time, whereas many of the benefactors of the Asili were Catholics. The Assembly were unwilling to accept the request for more seats from the Municipality as they were concerned about the risk of nationalisation and political interference in the decision-making process and were determined ‘not to hand the Asili over to socialism and (potentially also) their huge patrimony’ (Minutes of Assembly Meeting of 8 June 1919).
The Assembly members were determined to safeguard the capital of the Asili system of kindergartens, which at the time had reached 6,000,000 Lire. As the Marquis Cornaggia, a benefactor and Chairman of the Assembly Meeting of 8 June 1919, stated: A patrimony of 6 million is a sure guarantee of the vitality and firmness of the situation; recent sales have brought a remarkable improvement in its revenues … we have firm confidence in government bonds and we note that a recent test case made us confident that in any event, the interest of the charitable institutions will be always respected. (Minutes of Assembly Meeting of 8 June 1919: 4–5)
Furthermore, they were concerned about their own autonomy to manage the organisation and the potential for being overruled by a powerful stakeholder holding the majority of the seats on the Board in the future. The Marquis Cornaggia summed this up in his statement: This situation, in this way, would lead us to give up our autonomy, to allow others to dictate the future of our kindergarten. Will we allow the Municipality of Milan to change the mission of Asili? We know the scope and purpose of that change and it certainly does not correspond to the feelings of the vast majority of benefactors. (Translated from the Minutes of Assembly Meeting of 8 June 1919: 5)
However, not all benefactors agreed; some supported the continued involvement of the Municipality and pointed to the issue of financial sustainability and losses resulting from the withdrawal of the municipal subsidy (Figure 2). A Municipality representative (Vimercati) claimed that such losses would not leave enough to even cover the salaries of the custodial staff: the kindergartens should keep the 1919 year deficit (one million) out of 6 million in assets and then calculate the 4% of the remaining 5 million. The result is an amount of 200,000 Lire which is not even enough to pay the custodial staff (that is 8 Lire pay per day), therefore, for the financial health and continuity of the institution we need the municipal subsidy. (Vimercati, Minutes of Assembly Meeting of 8 June 1919: 12)
Details of charity item – 1920.
In the final analysis, the Municipality’s attempt to become the majority stakeholder was thwarted by the benefactors and it was unable to achieve the majority on the Board that it had sought – although it retained the five seats gained originally in 1917. The Assembly of Asili di Carità had voted and the minutes show that 330 votes were cast in favour of thwarting the Municipality and 233 votes against. Unfortunately, it is not known which of the benefactors voted in favour and agreed with Cornaggia (who was already a member of the Board of Directors) and which voted against and agreed with Vimercati (the representative of the Municipality).
Reverting to private funding and management
On 28 October 1922 the Fascist party, under the rule of Benito Mussolini, established itself in Rome and formed the new government. Between 1925 and 1926, a series of measures were enacted, which included the dissolution of all non-fascist trade unions, the abolition of the freedom of press and the restoration of the death penalty (Chabod, 1961). Politically motivated change was sweeping Italy. The more conservative Catholic members of the Asili Assembly were resistant to this change and concerned about the effects it might have on the Asili if the Municipality was given more seats on the Board.
The Minutes of the Assembly meeting in 1920 noted that the vote to deny the Municipality a majority on the Board resulted in a refusal by the Municipality to make further contributions. This was challenged by the Assembly and a member, lawyer Mariani, noted that there was a legal obligation to contribute: There is a legal provision in Art. 76 of the law on June 4, 1911, n. 222 on school patronage stating that all the subsidies granted as for the date of publication of the law in favor of kindergartens cannot be reduced. I checked the amount of the grant as to the date of the law, and I found the considerable sum of 154,000 Lire. So that amount is inflexible. (Lawyer Mariani, a benefactor, Minutes of Assembly meeting of 8 June 1919: 12)
However, the Municipality refused to make further contributions. The Assembly voted to expel them entirely from the Board in 1920 and became a fully privately funded non-profit organisation again: In 1913, and later in 1917, the Municipality of Milan was represented in the Board because of its contribution to Asili’s expenses, but today the Municipality refuses any financial contribution to the expenditures of Asili di Carità and, therefore, municipal representatives will no more sit on the Board. (Minutes of Assembly of Asili di Carità of 20 July 1920)
These events were significant for the Asili, not only for its Board and Assembly but also for other stakeholders, such as the community and the children it hosted and their families. The Board had made a commitment to these stakeholders to act in their interests and uphold the values in the Mission Statement of what was essentially a non-profit organisation with deeply religious roots. The changes in private and public contributions from the turn of the century to 1926 are summarised in Figure 3.
Contributions to the Asili di Carità.
To formalise this, in 1922 36 the Asili created a new regulation under which the Board of Directors would be composed of benefactors alone, who would remain in office for a period of four years. Thus, the Asili di Carità returned to entirely private funding and management. The most economically powerful stakeholder had not been successful in exercising power and taking control of the Board. Instead the majority of the Assembly members had listened to the passionate arguments made by some of the member-benefactors who were determined to remain true to the ethical mission of the organisation.
By 1926, the new Board of Asili di Carità was composed only of benefactors. From the archival evidence, we note that the financial performance resulted in a deficit of 116,969.95 Lire and that members of the Assembly decided to cover this deficit themselves with increased donations and increased fees for children, rather than turning back to the Municipality. In the minutes that we examined, there are comments made by members highlighting the fact that this deficit was much lower than that faced during the past four years – mainly due to rental receipts from the Municipality. However, competition from the services for children provided by the Municipality meant that numbers at the Asili continued to decline and in the following year, there was a deficit of 117,000 Lire out of revenues of 978,000 Lire, and expenses for 1,095,000 Lire as illustrated in Figures 4 and 5.
Financial Statement – Income Statement 1922.
Brief summary of the Income Statement – 1926.
Conclusion
This study has drawn from archival material to study the Asili di Carità, a non-profit educational organisation established in mid-nineteenth century Milan by the Santa Maria Segreta Church. Like many other charitable institutions at the time, the Asili originally relied upon its wealthy benefactors performing acts of Christian generosity for its operation and survival. The data show that not only did the benefactors wield a financial stake in the organisation, but many were also aligned with the organisation’s mission at a personal level through a moral desire to ‘do good’. As the organisation grew and the economic climate changed, so did the financial needs of the Asili and the demands placed upon stakeholders in terms of contributions. In times of financial distress, the Board turned to the Municipality of Milan, which was legally bound to establish and support public facilities for the education and care of not only orphaned and abandoned children but also those from poor families.
Several accounting history studies already exist on non-profit organisations with religious aims and our study adds to this literature by showcasing an organisation that has its roots strongly embedded within Catholicism and which established internal systems that enabled it to keep accounting records and produce financial statements in order to discharge accountability. Prior works in the accountability-related literature (Cordery and Baskerville, 2011; Moggi et al., 2016) have highlighted how organisations prioritise the demands of stakeholders depending on their ‘salience’. In this study we, too, have noted how the Municipality came to be a very powerful stakeholder within the Asili, as its contributions increased in the early twentieth century. Economic changes and the resulting financial distress forced changes in funding patterns for the Asili, as it went from being a fully privately funded organisation to being majority publicly funded and then reverted to private funding after 1919. This study contributes to the literature recognising the supremacy or salience of particular stakeholders by showing that as the primacy of stakeholders changes over time, how accountability is discharged also changes. The Directors of the Board were accountable to the Assembly for their actions and discharged their accountability through the production of financial statements and by presenting these to the assembly meeting. In addition, in line with their charitable mission, the Board also produced an ethical statement. Our evidence shows how the emphasis on the financial statements took precedence as the Asili turned to the Municipality when subjected to greater financial distress in the period under study.
Although stakeholder salience is one element of our story, the main thread of our study supports the assertion in ethical stakeholder theory that the moral role of the organisation in achieving social good is paramount and supersedes the exertion of economic power by individual stakeholders (Ebrahim, 2003). The data show that, in the nineteenth century, the Board was originally appointed from among the benefactors and that they were trusted to ensure the security of the mission. Even the periods in which the Assembly was made up of a small proportion of municipal representatives, directors appointed by the Municipality never appeared to hinder the will of the benefactors. As this study has shown, over the years ever-greater resources were requested from the Municipality, particularly in periods of financial distress. In return, the Municipality acquired a powerful voice through representation on the Board and as the Municipality sought a majority of seats on the Board in 1919, a backlash from the private benefactors thwarted their attempts. The latter argued that the very nature of the organisation would potentially be different under a socialist Municipality. Despite the economic power wielded by the Municipality, the Assembly and the Board were more inclined to risk future financial distress rather than allow the organisation to suffer a loss of autonomy or stray from its mission and its moral, ethical and charitable standing. In addition, many of the benefactors were themselves Catholic and more conservative and they were concerned about the political influence that a socialist-majority Board might exert.
Although analysis of the private archival data has allowed us to narrate the story of an interesting and eventful period in the history of the Asili, the study is not without limitations. First, there are missing records relating to the war years, which are significant in this story. We have attempted to overcome this limitation by reference to later records, many of which have allowed us to piece together the missing elements, although of course we cannot know exactly what remains excluded from the story as a result. Second, although the early records are written in a version of modern-day Italian, a degree of translation was required. Furthermore, all of the records had to be translated into English and, despite our best efforts to mitigate issues arising from this, it is possible that something might, at times, have been lost in translation.
This study has highlighted the complex Board–stakeholder relations that existed within the Asili di Carità and has shed light on the accountability system in a period of economic, social and political change. The discharge of accountability and the ethical mission of the organisation have been shown to be inextricably linked. We have presented a case in which the demands of a powerful individual stakeholder was not the only priority and instead the organisation decided to remain true to its original ethical and charitable mission – a key feature of ethical stakeholder theory. Although this is a single case study, set within a particular historical context, the case presented supports other prior works that have highlighted changes in accountability and the mechanisms for discharging it, as non-profit organisations transition from the private to the public sector and vice versa over time.
