Nonprofit Boards are responsible for exercising sound judgement while providing guidance and oversight. The goal is to ensure the nonprofit can continue to perform its mission and service its clients and to do this, Boards must effectively deal with risk. Unfortunately, many Boards struggle to face the reality that there can be no progress without risk. This article addresses the difference between risk avoidance and risk leadership.
Click link to listen to my discussion on Risk Leadership for PICPA’s CPA Conversations podcast: No More Half Measures
To remain vital, nonprofit organizations need to be able to lead and react to changes in their operating environment. The changes can be regulatory, driven by funders or be impacts to the organization’s clients. The changes can be internal or external and can occur as a continuation of a trend or as a sudden event.
Boards should look for ways to prepare the organization for these changes while allowing for progress. Responding to these issues often requires innovative forward thinking. Dealing with a potential future issue is always a guess and even as a well-educated guess it is not based in certainty. Unfortunately, Boards often bristle at untested innovative ideas and educated guesses. Investing in a new initiative to address an issue that does not fully exist yet is a hard sell. The Board is commonly focused on current results and this focus can lead Board to avoid risk as a way to exercise their Duty of Care.
Avoiding risk is a very simple way for Board members to check the box on their Duty of Care. By not approving an uncertain course of action, they believe that they are using good judgement. Unfortunately, the less certain course of action may have been the right course and by avoiding it, the Board may be stifling the organization’s ability to progress.
Lack of progress leads to the slow and painful decline of an organization’s relevance.
Risk Management – A Step Between
Organizations that have embraced the concepts of risk management have a more sophisticated view of risk. Risk management techniques can provide a comprehensive view of the organizations risk environment. This deeper perspective on risk can help frame conversations about how the nonprofit prepares or reacts to risk. However, just as with risk avoidance, the process tends to focus on the downside of risk by often focusing on what can go wrong.
This leads back to the concept of avoidance by placing emphasis on resolving risk via a set of processes that control or limit exposure. This limiting factor can have the impact of slowing or stopping the organization’s progress much like that of risk avoidance.
Risk leadership is an approach that takes the rigor of risk management a step further. The assessment includes impacts of perceived risks as well as an assessment of the opportunities to help the organization get ahead of the risk. Instead of preparing for the worst, instigate changes that allow the organization to thrive in a new future state, in short, grow beyond the risk.
This technique requires initiatives that are based on uncertainties of the future but also provides more information for better decision making. Risk leadership considers the downside of threats, as well as, the downside of not embracing opportunities. It produces a balanced approach that can permit progress without abandoning care.
Five Risk Leadership Techniques for Progress
- Honestly recognize and assess existing risks and opportunities. The key word here is honestly since it is very hard to view your own organization without filters and preconceptions.
- Regularly identify trends and events that impact risk profile. Risk leadership is not just about existing issues and threats, but also includes understanding and in some cases leading changes and trends. The organization must periodically consider what is going on with regulators, funders, competitor/partners, technology, the sector in general and clients.
- Embrace risk as a tool to help ensure the future of the organization. Use risk discussions to drive new innovative thinking and broaden the scope of ideas. Here is where boldness is born. Do not address individual issues with separate narrow initiatives, find ways to bundle issues and opportunities into a larger solution.
- Challenge strategies and initiatives that are not bold. Half measures are often worse than no actions at all. If discussions are moving toward breaking issues down into smaller parts to address, then boldness is lost. At the Board level, the issues should be complex enough to warrant bold solutions. If the issue is simple, then management should be dealing with it.
- Vectoring. The bold plan is never fixed, as it must be able to flex to realities that are learned along the way. Be prepared to alter course without blame or negative consequences. Remember that progress can be reached by many paths and picking the best one may require that you try a few lesser paths first.
For more ideas on risk leadership check out this article from the Forbes Nonprofit Council
Fun article on risk from Nonprofit Risk Management Center What Star Trek Taught Me about Risk Leadership
For a nonprofit to thrive it must be prepared for the future and it must be able to progress. Unfortunately, risk avoidance can drive Boards refuse innovative approaches. Risk management is a step in the right direction, but can focus on avoiding the bad instead of embracing opportunities. Risk leadership combines assessments of risks and opportunities leading to solutions aimed at driving progress and keeping the nonprofit viable and relevant.
For more on nonprofit risks, check out this post; Major Types of Risks for Nonprofits
For more NFP topics, check out the nonprofit leadership blog: Not for Profit Beyond the Numbers
If you have questions or would like a consultation on a nonprofit leadership issue, contact me at: email@example.com
For more about the author, follow this link: Michael F. Cade, CPA, CGMA