Recent high profile press coverage has, once again, shone a light on governance in the voluntary sector. While the specific details of each case differ, 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 mistakes and perhaps, be a little risk averse.
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 we agree wholeheartedly that every trustee must understand their responsibilities and that they must always act in the best interest of the charity’s beneficiaries and other stakeholders. However, there is a crucial question…
Does avoiding personal liability and minimising risk always act in the best interest of these parties?
We 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 we recall that have achieved sustained success through focusing on avoiding mistakes? To grow 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 we believe 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 the 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, terrorism and of course, pandemic. For these, trustees should undertake scenario planning and aim to be ready, or as ready as we can be.
When considering risk, trustees must understand the different categories and plan accordingly. We need to be aware that focusing too much on compliance and not enough on strategy and performance could reduce rather than enhance the impact the 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?
An excellent question for each trustee to ask is:
What kind of charity will you hand back at the end of your tenure? A safe charity or a better charity?