The Role of a Nonprofit Board of Trustees: Taking Risks & Avoiding Risks

Michele moderating a panel at the NFP Summit 5-18

I like to say that for effective programming, management has to “get everyone on board.”  That is, in a successful organization all members (employees & volunteers) know their roles and understand how they contribute.  This particularly applies to effective risk management, as risks are everywhere… as are opportunities to help the organization successfully meet its mission.  On May 7, 2018, the Manhattanville School of Business asked a panel of experts at the NFP Leadership Summit to share their thoughts on “Risk Management Hot Topics for Nonprofit Board Members and Executives” with a room full of not-for-profit executives.

The panelists highlighted a number of current issues and on-going topics that should be discussed with nonprofit board members at least annually.  Nancy May, President and CEO of Board Bench Companies, LLC, emphasized the importance of being clear about the roles and purview of the board vs. those of the executive director and senior management, particularly for organizations that rely on volunteers’ expertise.  Michael Santocki, Managing Director of Crystal & Company, spoke to the need to stay up to date on laws that effect all employers, whether for-profit or not-for-profit.  Current examples include “ban the box” in hiring, compensation rules, and potential ramifications of legalized marijuana.  Liz Gousse, Senior Manager at PKF O’Connor Davies, LLP, addressed succession planning and reputational risk.  I talked about how organizational culture helps manage or increase risks and the importance of updating board members on routine procedures as well as on significant emerging issues.

Panelists contributed the following Successful Strategies and Recommended Practices.  Join our conversation by emailing me your organization’s risk priorities, lessons, and questions (michele.braun@mville.edu) and I will discuss them and experts’ responses in a future article. 

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Michele Braun, Director

Institute for Managing Risk, Manhattanville School of Business

michele.braun@mville.edu

Explicit discussion of risks and risk management will help your organization assess risks that will help it achieve its mission as well as those to avoid. 

Accordingly, three questions for members of nonprofit boards to ask:

What risks does our group face that could derail our mission?

What risks could our group take that would help us accomplish our mission?

What processes do we currently have in place for assessing and managing risks? 

Elizabeth G. Gousse, Consulting Services Senior Manager
PKF O'Connor Davies, LLP

egousse@pkfod.com    

  

Conflicts of Interest.    While the majority of Boards have conflict of interest policies, most do not require annual disclosure of these conflicts (88% according to National Council of Nonprofits).  Discuss with the entire Board the types of situations where a conflict can arise and what would happen if one of the board members disclosed that s/he had a conflict of interest.

Whistleblower Protection.      A written policy is critical to managing risk.  And, IRS Form 990 (Part VI, Section B, line 13) requires NFPs to confirm the existence of such a policy.

Self-assessment process.        Annually, the Board should compare its own practices to industry best practices, assess areas where there are “holes” in Board members’ expertise, and use this information when recruiting new members.

Diversity.         The Board should focus on inclusion and sensitivity to the people that the not-for-profit serves.  [In a diversity survey conducted by BoardSource 25% of respondents Boards were all white.]

Nancy A. May, President and CEO

Board Bench Companies, LLC 

nmay@boardbench.com

NFP boards should periodically discuss strategic and enterprise-wide risks, as well as day-to-day operational risks.  Examples for a board to explore include

·         The ramifications of poor program delivery/outcomes that impact the “customer” or constituents served,

·         Risks of not having enough or the right talent on the board to support the mission,

·         How a board’s collective and individual liability is covered, if at all,

·         Financial risks arising from donors’ restrictions on how monies can be used, 

·         Reputational risks such as

o   What happens if a board member is held liable for actions outside the boardroom?

o   What happens if the organization is impacted by political implications? 

o   Unexpected negative publicity following policy or operational actions or decisions, or inaction.

Michael Santocki, Esq., Managing Director

Management and Professional Risk Group, Crystal & Company

Michael.Santocki@crystalco.com

Nonprofits face increasingly unpredictable and costly exposure to the growing impact of employment claims, cyber exposures and government scrutiny into NFPs (particularly in NYS). 

These exposures (greed, lust etc.) can be hard to analyze, anticipate, and mitigate.  Other exposures are actively evolving – e.g., Ban the Box, Pay Equity laws, rise in marijuana smokers in the workplace (and legal in some states).

Although risk elimination is impossible, these exposures can be transferred through an insurance product.  Cyber, D&O, Crime, and Employment Practices insurance are all readily available.

Senior NFP staff members should look closely at their insurance policies and at the broker used to procure those policies to ensure that the organization is getting the coverage it needs and wants.