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QUESTION 2: Are We Addressing the Risks That Could Send Our Organization Over the Cliff?

By John Pearson

The Seemingly Improbable 100-Year Flood!

During this COVID-19 marathon, I’m encouraging board members to address 14 critical boardroom questions from the savvy wisdom of Ram Charan’s must-read governance book, Owning Up. (Click here to read my review.) The second chapter (just 13 pages) is so, so timely. Wow.

Ram Charan urges boards to look at risk through five different lenses. He notes, “…keeping in mind that the seemingly improbable hundred-year flood might well occur during your board’s tenure.”

QUESTION 2 of 14: Are We Addressing the Risks That Could Send Our [Organization] Over the Cliff?
Owning Up: The 14 Questions Every Board Member Needs to Ask (Order from Amazon)

1. The Financial Vulnerability Lens. “The board should watch cash flows—everybody knows cash is king—as an early warning signal of distress.” (Raise your hand if you agree that having more cash on hand would have better prepared you for this COVID-19 marathon.)

#2. The Strategy and Operations Lens. “Monitoring is not just about making the numbers, but also about talking through the risks.” The author adds, “If you have no appetite for risk, you shouldn’t be on a board; it will inhibit the CEO from making bold and necessary moves and potentially company-saving bets.” Yet he also warns that boards must watch both ends of this continuum: CEOs who tilt toward greater risk and CEOs who are risk-averse.

#3. The Political and Geopolitical Risk. Here, Charan recommends assembling advisory boards to ensure there is expertise where needed. If your ministry operates internationally—or depends on people or resources from another country—are you prepared for the what-ifs?

Do local, state, and national politicians understand the important work you do? Does someone on your team have relationships with these decision-makers? As Dan Heath writes in Upstream“You don’t want to be exchanging business cards in the middle of an emergency.”

#4. The Reputation Lens. Ram Charan is prophetic! “In this age of transparency, an idea or rumor can spread instantly across the Internet like a virus.” He adds that some boards and organizations “have been blind to the factors that caused their reputations to fade, even though they had plenty of time to do something about it.” Do you have an action plan for addressing Internet rumors?

#5. The People and Culture Lens. The author warns, “Boards must also watch for a toxic culture that enables ethical lapses throughout the organization.” To check the temperature of your culture, Charan suggests boards follow the lead of General Electric and conduct periodic “pulse surveys.” ECFA, for example, participates in the “Certified Best Christian Workplace” process—and is one of many ministries that have earned that certification.

So how is your board assessing risk? Charan suggests you establish a “stand-alone risk committee, which would work with the audit committee.” And consider this: if you’re “climbing out of hot water, the board might even suggest that the CEO hire a chief risk officer.”

I urge your board to delegate their reading so at least one board member and one senior team member dives deep into this important book—and, especially, this important chapter. Then, set aside time at your next board meeting—or even between board meetings with a Zoom call—for special prayer and discernment, as you trust God on how best to prepare for the next crisis. It will come.

BOARD DISCUSSION: Is “risk assessment” on your board’s agenda—at least once a year?

MORE RESOURCES: Check out these helpful ECFA resources:

BLOG: Click here to read the guest blog by Danny de Armas from Lesson 35, “Is Your Board Color-Blind to Hazardous Conditions? What color is your boardroom flag?” in Lessons From the Nonprofit Boardroom. (Click here to read the chapter online.)
TOOL: “The Board’s Annual Financial Management Audit: 20 True/False Statements the Board Must Address Annually (Tool #6),” from the book, ECFA Tools and Templates for Effective Board Governance: Time-Saving Solutions for Your Board.

 

This article was originally posted on the “Governance of Christ-Centered Organizations” blog, hosted by ECFA.
John Pearson, a board governance consultant and author, was ECFA’s governance blogger from 2011 to 2020.
© 2021, ECFA and John Pearson. All rights reserved.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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