It is an irony that the only thing you don’t see on a risk register is risk management. Yet managing risk is not just a process but an art, and charity chairs should ask themselves if they are getting right.
The two biggest polar-opposite risks with risk management are either that we become desensitised to risk and cavalier in our decisions or that risk turns into fear and we accomplish nothing.
Risk is an everyday part of charitable activity. Identifying and managing the risks the charity might face now and in the future are a key part of effective governance. Too often, however, it is seen as a perfunctory tick-box exercise or as a necessary evil, rather than as a core part of the board’s role.
Sometimes there is over-reliance on risk registers. Scoring and ranking risk becomes an end in itself and can create a false sense of control and security – it gets harder to spot the most serious risks. The traffic-light system is a help, but it encourages you to focus on the red lights when the ambers might carry hidden problems. In some of the recent charity crises, boards have been blindsided by aspects of their risk vulnerability that they did not spot or properly address.
Some boards get bogged down in the detail or become excessively cautious. The result can be that the charity fails to grasp and manage the risks that really matter, avoids taking decisions and misses the opportunities that could take the charity forward.
So what is the right balance between caution and boldness? Well, to help chairs and boards steer their way through those rocks, we have produced the latest in our Chair’s Challenge Series, Navigating Risk.
As ever, there is no perfect answer, but we seek to give a few tips and insights to guide chairs and boards.
Perhaps the most important point is that context changes – there is a time to be bold and a time to be cautious. Risk management requires as much agility as every aspect of the charity’s work.
The guide addresses the role the chair has to play, from facilitating meaningful and challenging conversations on the charity’s strategic risks to ensuring that, in the first place, the board’s diversity offers a wide enough range of perspectives and experiences. Trustees who have "lived experience" of the new areas the charity wants to explore or different types of crisis and challenge are invaluable.
The importance of the right culture
A crucial role the chair plays here is to ensure there is a culture that takes risk seriously and gives risk assessment sufficient time and space on the board’s agenda. Good risk management is an attitude. Our briefing sets out four tasks for chairs to get the culture right:
1 Encourage open dialogue and learning
A critical risk here is that boards have not been given the information they need about the risks they face, and this leads to poor decision-making and increased vulnerability to risk and failure. Staff must feel able to communicate bad news to the board without the fear of blame. It’s important there is a culture that supports reporting of issues and respects whistleblowing, and encourages learning from mistakes and "near misses".
2 Foster constructive challenge
It’s important to promote a productive culture on the board that values inquiry and constructive challenge. This includes testing and debating key assumptions. Scenario planning to assess what could go wrong is a useful tool here. Chairs should also check they have sufficient experience in the staff and on the board, and bring in external advisers where needed to add specific expertise to inform the board’s decisions.
3 Engage staff
Senior staff may have a risk appetite that’s different from the board’s. Involve them in discussion about risks and the charity’s risk culture, and listen to their perspective. This joint working helps you to guard against senior staff becoming too protective of their own positions and hiding risks from scrutiny by the board for fear of interference or lack of support.
4 Think opportunity as well as risk
When thinking about risk, it’s easy to focus only on things that can go wrong. Excessive caution is itself is a kind of risk – every opportunity carries some risk. Conversely, emerging risks usually offer opportunities too. For example, the rapidly changing digital environment presents many risks, but it also offers huge opportunities. Thinking about how, as a board, you can ensure success is as important as focusing on what might go wrong. There are times when the board’s role is to encourage boldness and not caution.
The final piece of the culture challenge is to accept that however well identified and mitigated the risk has been, sometimes things will go wrong. Stuff happens. The challenge then is to go into a professional crisis mode, avoiding blame and denial, deploying your well-tested crisis-management plan and fixing the problem. That’s a whole other column, but the inevitability of a crisis is another reminder that risk is for navigating, not avoiding.
John Williams is vice chair of the Association of Chairs. You can download Navigating Risk on the Association of Chairs’ website