doi: 10.1111/j.1467-9299.2010.01853.x BEWARE OF MANAGERS NOT BEARING GIFTS: HOW MANAGEMENT CAPACITY AUGMENTS THE IMPACT OF MANAGERIAL NETWORKING KENNETH J. MEIER AND LAURENCE J. O’TOOLE, JR Networks and managing in the network have been central concerns of public management scholars for years (Provan and Milward 1991; O’Toole 1997; Agranoff and McGuire 2003; Herranz 2008). The literature has investigated the extent of networks (Hall and O’Toole 2004), the appropriate way to measure networks and networking behaviour (McGuire 2002; Meier and O’Toole 2005), and the role that networking plays in improving organizational performance (O’Toole and Meier 2003). Although there are qualifications in the literature to the rosy scenario that managing in the network is always a good thing (O’Toole and Meier 2004), and although the benefits of managerial networking show diminishing returns (Hicklin et al. 2008), there has not been much investigation of the factors that enhance or detract from networking’s impact on performance. This study examines the interactive relationship between management capacity and managerial networking using a panel of several hundred public organizations over an 8-year period. The empirical results show that managerial capacity does interact with networking and enhances the positive impact of networking over an array of performance indicators. At the same time, building managerial capacity is a central management choice, and that decision has ramifications for organizations that are not always positive. The paper concludes with the managerial implications of the strategic choice to build management capacity. Public organizations are open systems; they operate in environments with other organi- zations and institutions that can help or hinder the organization in attaining its policy goals (Thompson 1967). In many cases, public programmes are implemented in loose networks of organizations and programmes where no one institution has the power to act independently (O’Toole 1997). In other cases, programmes can be implemented by single organizations, but those organizations need the support of other actors in the organiza- tion’s environment. Managing in this network of environmental actors, as a result, is a central concern of the contemporary public manager. In recent years a substantial liter- ature has demonstrated the benefits of managing the network (for example, Provan and Milward 1995; Agranoff and McGuire 2003). Despite the general admonition to network with external actors, some recent findings suggest that such actions are not always an unmitigated blessing. At times networking benefits some agency clientele at the expense of others (O’Toole and Meier 2004); and networking itself is subject to diminishing marginal returns, a pattern recognized by the best managers (Hicklin et al. 2008). The implications of this recent work are that the effect of managing in the network is contingent on other factors and that managers need to recognize these contingencies to generate optimal performance. Investigating the contingencies of managing in the networked setting is crucial for several reasons. Public programmes generally operate with scarce resources, so that the failure to recognize limits on managerial actions means at best inefficiencies and at worst wasted public resources. Managerial networking is a particular candidate for such examinations because it is sometimes portrayed in the literature as a universally positive contributor to performance, even though some recent evidence suggests otherwise. The- oretically, focusing on the contingencies that affect managerial networking is important Kenneth J. Meier is in the Department of Political Science, Texas A&M University, and Cardiff University School of Business. Laurence J. O’Toole, Jr is in the Department of Public Administration and Policy, School of Public and International Affairs, University of Georgia. Public Administration Vol. 88, No. 4, 2010 (1025–1044)  2010 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.