During late 2003, National Public Radio (NPR) announced a $200 million bequest from the estate of Joan B. Kroc. Mrs. Kroc, widow of McDonald’s founder Ray A. Kroc, was a long-time supporter of public radio. NPR is a not-for-profit organization that produces and distributes news, talk, and entertainment programming for a worldwide network of over 770 independent public radio stations. At the time of the announcement, NPR management stated that most of the bequest would be placed in an endowment fund and only the annual earnings would be spent. However, NPR’s board of directors had not yet made specific plans about how the funds would be used. The bequest would significantly affect NPR’s finances. The current endowment fund contained $35 million, and the organization’s annual budget was around $104 million. NPR and its affiliate stations were continually faced with tight operating budgets.

The announcement triggered speculations about how NPR would spend the money. Some people argued that NPR should reevaluate its major strategies, with possible expansion into the Internet or other platforms. A number of public radio station managers wanted part of the funds to support their operations, perhaps through a reduction in NPR programming fees. Approximately half of NPR’s annual budget was financed through programming fees. An independent producer wanted to see pay increases for the freelance workers who create NPR programming. Various groups voiced opinions about ways to improve the quality of NPR programming. Some observers were concerned that the large bequest might cause the organization’s management to become overly conservative, reducing the likelihood of innovative new programming.

Some people were concerned that the bequest would discourage listener and other support to NPR and its affiliate stations. Others believed that the bequest would have the opposite effect.

SOURCE S: “What Is NPR?” available at www.npr.org, click About NPR; NPR news release, “NPR Receives a Record Bequest of More Than $200 Million,” November 6, 2003, available at www.npr.org/about/press/031106.kroc.html; M. Jurkowitz, ‘Extraordinary’ $200M Bequest Stuns, Elates NPR Staff,” The Boston Globe, November 7, 2003; M. Janssen, “Kroc’s $200 Million Gift Frees PubRadio’s Dreams,” Current.org, November 17, 2003, available at www.current.org/npr/npr0309kroc.shtml; and T. Lowry, J. Weber, and C. Yang, “Can NPR Bear the Burden of Wealth?” Business Week, December 15, 2003, p. 77.

REQUIRED

A. Discuss why NPR’s management should clarify the organization’s vision, core competencies, and strategies before deciding how to budget the bequest funds.

B. Explain how NPR’s budget plans for the bequest could relate to each of the four levers of control: beliefs, boundaries, diagnostic controls, and interactive controls.

C. Participative budgeting usually relates only to participation within an organization; however, it might also apply to NPR’s negotiations with affiliate stations and freelance workers. Discuss the pros and cons of a participative budgeting approach for NPR’s use of the bequest.

D. Suppose NPR decides to use the funds primarily to improve programming quality. Describe how this strategy might be translated into specific items in an annual master budget.