Keep a close eye on budgets and bank balances? Check.
Spread the word about the organization’s mission? Check.
Keep professional staff on their toes? Check.
Write checks? Check.
Develop a comprehensive risk management plan? Wait…what?
For all the good that nonprofit board members accomplish, most are not very experienced at anticipating the bad.
Whether it’s site safety, cyber security, financial exposure or executive director succession, too many members of volunteer boards are dangerously blind to factors that present existential peril to their favorite causes.
10%Of nonprofit board conversations deal with risk
This ignorance is to some extent due to psychology; the decision to serve on a nonprofit board is, after all, a fundamentally optimistic one. But most board members are clueless about organizational risk for other reasons, chief among them a failure to discuss such issues formally or often enough. This is understandable. Executive directors and board presidents want to inspire board members, the better to leverage their bank accounts and contact lists for the greater good. As a result, discussions about what could go wrong that do get scheduled generally land far down most meeting agendas, which means little time is devoted to them: Only 10% of nonprofit board conversations even deal with risk, according to a report by Oliver Wyman and SeaChange Capital Partners.
But as the world becomes ever more perilous, nonprofits must engage their full boards in their risk management processes. Here are four ways to engage your board members in risk oversight and management.
Present risk management as a learning opportunity.
Chances are high your board is stocked with members who have joined for the experience as much as the mission. (Google “career benefits of nonprofit board membership” if you doubt it.) Given the growing focus on risk management in Corporate America, few areas of organizational governance are—pardon the expression—sexier at the moment. Position risk management as a job-skills opportunity and you’d be surprised at how many board members suddenly become interested. Bring in subject matter experts to coach board members on the finer points of risk—investment oversight, business continuity plans, site safety, etc.—and you’ll be surprised how many stay interested.
Present risk management as money saving opportunity.
For good or for bad, maximum cost efficiency is a trope for most boards and board members. A formalized approach to risk management—permanent committee, rotating membership among the full board, expert instruction—will not only increase your organization’s chances of avoiding untold dollars of liability; it might also lower your insurance premiums.
Lower the stakes.
In forming a risk management committee, you will encounter resistance to joining from board members who don’t have formal training in the law, finance or other seemingly relevant areas of expertise. You can overcome this by emphasizing that the role of the committee is less about finding solutions than identifying problems—and some of the best questions are asked by people not beholden to the assumptions of a particular discipline. Remind reluctant board members also that the best risk management processes benefit from the holistic knowledge and far afield experience that a well-diversified board offers.
Raise the stakes.
It never hurts to remind board members about the personal consequences of a poor risk management policy. Director and officers insurance may transfer some (or all) financial risk, but deploying it will have a negative effect on liability limits and premiums for the organization. Moreover, there’s no policy to insure oneself against reputational risk. Remind board members that they can be permanently tarnished—personally and/or professionally—for failing to deal with points of exposure.
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