Estimated Reading Time: 11 minutes
By Melanie Lockwood Herman
When considering the myriad risks facing a nonprofit organization, one could identify many risks that should be safeguarded against, mitigated, or prevented if possible. Strategic risks are another animal altogether, or more appropriately, a garden of risks that—if properly tended to—will grow to fruition and advance the nonprofit’s mission and vision. Strategic risks are risks worth taking because they have the potential to offer a nonprofit team a significant return.
Who better to scope out and sketch strategy than a nonprofit’s board of directors—the mission stewards who possess a broad and top-down perspective of the organization? Board members shouldn’t be planting seeds and pulling weeds in the mission garden; they should be anticipating garden predators, changing weather conditions, and market conditions that affect demand for the programs and impact sown by your mission. To nurture desired outcomes of strategy, boards must tend to risk oversight; if this key duty is discharged, boards have the power to cultivate informed strategic risk-taking that will help a nonprofit’s mission flourish.
Nonprofit boards are increasingly keen to talk about the possibility of risk threatening—or bolstering—a charitable mission. At NRMC we are witnessing the evolution of board interest in the world of risk in breadth and depth. With respect to the breadth of risks a nonprofit faces, boards are stepping up to ask questions about strategic and enterprise-level risks—topics that extend far beyond the familiar garden walls of operational or preventable risks. On the subject of depth, a growing number of boards are requesting—if not insisting—that management teams engage with the board to understand their organization’s risk landscape and also provide periodic assurance that risks in the purview of staff have been assessed and addressed.
Garden variety risks facing nonprofits include accidents involving agency vehicles and drivers, injuries suffered by participants and volunteers, and employee theft. But truly forward-focused boards now understand that strategic risks pose the greatest threats and opportunities to their missions they support. Boardroom conversations about risks are less about the costs of safety measures, and more about the costs and rewards of making—or not making—bold moves.
Risk oversight refers to the responsibility for overseeing an organization’s approach to identifying and responding to critical risks, against a backdrop of ever-present uncertainty. While ‘management’ refers to the process of controlling things, processes or people, ‘oversight’ is a better fit for an evolved, governing board committed to keeping its ‘nose in’ and ‘fingers out.’
Risk oversight activities by the board may include:
Boards are mission custodians who must be outwardly—as well as inwardly—focused. As an outwardly focused stakeholder group, a nonprofit board is in an ideal position to see and report back on a changing risk landscape that may be obscured to internally focused staff. As an inwardly facing stakeholder group, Boards bring a deep connection to the mission of a nonprofit and a sense of responsibility for its success. This connection extends the problem-identification and problem-solving capabilities of the staff team in various ways. For example, diverse boards can offer rich strategic discourse that integrates lessons learned across many industries, which staff members may not be privy to during their day-to-day work.
The board’s participation in the discussion of strategic risks is especially important given the tendency of managers to hesitate before poking holes in the strategies for which they are responsible. In their thoughtful article, “Managing Risks: A New Framework” featured in the Harvard Business Review, Robert Kaplan and Anette Mikes explain that “Managers may find it antithetical to their culture to champion processes that identify the risks to the strategies they helped to formulate.”
Boards that embrace their risk oversight responsibilities demonstrate the courage to reveal and discuss difficult challenges, and the resolve to consider multiple strategies—and even poke holes in existing strategies—in order to address issues that potentially threaten or bolster the nonprofit’s mission.
Once the board accepts and embraces its responsibility for risk oversight, how do you turn the commitment into action? What information is needed? What steps must be taken to help board members perform their duties and perform risk oversight responsibilities with skill and confidence? What support will guide the board into the less familiar territory of strategic risks?
Some nonprofit boards naively believe that receipt of an annual report or brief presentation describing the status of various insurance coverages is risk oversight. Although a component of oversight is receipt and review of information attesting that certain processes are in place, developing effective risk oversight capabilities at a nonprofit requires far more. At NRMC, we believe that boards effectively meet their responsibility for risk oversight by ruminating about a range of issues related to risk-taking and risk management in the organization.
Cultivate risk oversight at your nonprofit by identifying where the board should focus its risk attention span. Some of our favorite themes and questions for the board include 1. risk-taking, 2. risk culture and responsibilities, 3. risk breadth and depth, and 4. risk landscape.
Finally, do we spend time thinking about the unthinkable and preparing our organization to adapt to unimaginable surprises? Take a moment to reflect on the great questions your board asks about strategic risk—and the questions your board has never asked but should.
More than ever before, board members desire information about risks facing the organization and staff’s risk management capabilities. For a board to answer the challenging risk oversight questions listed above, the appropriate risk information must flow openly between board and staff. In a recent Enterprise Risk Management engagement for an international nonprofit, our team asked individual board members, “what information would you want to see in a periodic board report on risk?” The answers we received were as varied as the professional backgrounds and lives of members of the board! The individual board members’ risk reporting ‘wants’ included:
Satisfying the individual risk information ‘wants’ of a diverse board is a daunting, if not impossible task. Some board members prefer a filtered, short list—the weeds emerging from or just below the rich soil—while others want to see risk in every layer of soil and every corner of the garden. Ultimately, a responsive board risk report offers insights on top-of-mind risk concerns, but also inspires confidence in the day-to-day risk management work being championed by the staff. The report invites questions focused on direction and strategy, without asking board members to wield a gardening tool or get their hands too dirty. Here are a few tips for creating a memorable, action-inspiring risk report that will enable your board to fulfill its risk oversight duty:
Practice the following tips to empower your board members to grow a lush garden of conversation and effective decisions around strategic risks.
Melanie Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your questions about boards and risk oversight at Melanie@nonprofitrisk.org or 703.777.3504.
“First let me congratulate you on a conference well done. I had a great time at the Nonprofit Employee Benefits Conference and walked away with some valuable tools and questions that we’ll need to be addressing in both the short and long term. Thanks to you and your staff for all you do to provide us with quality resources in support of our missions.”
“BBYO’s engagement of the Center to conduct a risk assessment was one of the most valuable processes undertaken over the past five years. Numerous programmatic and procedural changes were recommended and have since been implemented. Additionally, dozens (literally) of insurance coverage gaps were identified that would never have been without the work of the Center. This assessment led to a broker bidding process that resulted in BBYO’s selection of a new broker that we have been extremely satisfied with. I unconditionally recommend the Center for their consultative services.
“Melanie Herman has provided expert, insightful, timely and well resourced information to our Executive Team and Board of Directors. Our corporation recently experienced massive growth through merger and the Board has been working to better integrate their expanded set of roles and responsibilities. Melanie presented at our Annual Board of Director’s Retreat and captured the interest of our Board members. As a result of her excellent presentation the Board has engaged in focused review which is having immediate effects on governance.”
“The Nonprofit Risk Management Center has been an outstanding partner for us. They are attentive to our needs, and work hard to successfully meet our requests for information. Being an Affiliate member gave us access to so many time- and money-saving resources that it easily paid for itself! Nonprofit Risk Management Center is truly a valued partner of The Community Foundation of Elkhart County and we are continuously able to optimize staff time with the support given by their team.”
“The board and staff of the Prince George’s Child Resource Center are extremely pleased with the results of the risk assessment conducted by the Nonprofit Risk Management Center. A thorough scan revealed that while we are a well run organization, we had risks that we never imagined. We are grateful to know that we have now minimized our organizational risks and we recommend the Center to other nonprofits.”
Great American Insurance Group’s Specialty Human Services is committed to protecting those who improve your communities. The Center team has committed to delivering dynamic risk management solutions tailored to nonprofit organizations. These organizations have many and varied risk issues, hence the need for specialized coverage and expert knowledge for their protection. We’ve had Melanie speak on several occasions to employees and our agents. She is always on point and delivers such great value. Thank you for the terrific partnership and allowing our nonprofits to focus on their mission!