Recent high profile press coverage has, once again, shone a light on governance in the voluntary sector. While the specific details of each case differs, the reaction of trustees and chairs will inevitably focus on ‘strengthening’ governance practices. But what does this mean and is there a danger of over reacting? How can we address the short term challenges while protecting the longer term?
When bad stories abound we all have a tendency to play things safe, ensure we don’t make any mistakes and perhaps, be a little more risk averse. And with the front pages full of stories, most prominently featuring Kids Company, its work with children, its financial woes, its demise and its potential resurrection with new pop-star funding, this long list of negative press will have virtually every charity board focusing internally and asking itself if there’s anything the press can find on them too.
When it comes to governance, much of the advice we receive from the Charity Commission or from legal and accounting firms focuses on the roles, responsibilities and liabilities of trustees i.e. compliance. We are encouraged to understand how we could mess up and have the necessary control systems in place to help ensure that we don’t.
Of course I agree wholeheartedly that every trustee must understand their responsibilities and that they must always act in the best interest of the charity, its beneficiaries and other stakeholders. But there is a crucial question…
Does avoiding personal liability and minimising risk always act in the best interest of these parties?
I would argue that it does not. It’s a necessary activity but by no means sufficient to fulfil a trustee’s obligations. A broader understanding of risk is needed within the context of a charity board.
How many organisations can you recall that have achieved sustained success through focusing on avoiding mistakes? To grow their impact charities need to change, and with change comes risk. In his excellent article published in the Harvard Business Review in June 2012 Robert Kaplan describes three categories of risk which adapt well for the UK voluntary sector.
This is what many boards consider when they discuss risk and where the law and finance educated trustees shine. It covers issues such as fraud; safeguarding and financial reserves. Control systems need to be put in place to minimise these risks, but risk does not start and end here.
The more entrepreneurial leaders understand strategy risk very well. They accept that an organisation cannot change, improve and grow its impact without taking risks. The mind set required to address this category of risk will be different from preventable risk and may benefit from a different trustee leading this discussion.
What’s needed is a leader able to evaluate the upside versus the potential downside and make informed decisions within the context of the charity’s stated strategy. It is not possible to manage strategy risk on facts and data alone, a degree of ambiguity must exist and therefore a high level of judgement must be applied.
The third category includes those events that the trustees have no control over but never the less may put the charity at risk. This includes issues such as global warming, war or terrorism. For these, trustees need to undertake scenario planning and put in place mitigating planning and actions.
When reacting to recent press coverage and considering risk, trustees must understand the different categories and plan accordingly. They need to be aware that focusing too much on compliance and not enough on strategy and performance could reduce rather than enhance the impact their charity has on beneficiaries.
A board that minimises preventable risk may be creating a safer charity, but surely trustees should be aiming higher than this? Indeed, a complete focus on risk as opposed to leading the organisation is a material risk in itself.