Tip of the Month - November 2003

GET YOUR BOARD ON BOARD: UNDERSTANDING AND MANAGING THE BOARD'S ROLE IN RISK MANAGEMENT

The boards of nonprofit organizations have wide-ranging responsibilities. Of the nation's 1.5 million nonprofit organizations, a large number continue to rely on volunteers exclusively. In a small organization, the members of the board often establish and carry out policy. As a nonprofit organization grows and matures, the board often hires staff to implement its policy directives. 

While the boards of nonprofit organizations delegate appropriately the daily management responsibilities to paid and other volunteer staff, truly effective and healthy boards retain ultimate responsibility for those functions and activities that are related directly to the nonprofit organization’s accountability. A board’s role in risk management reflects its commitment to the proper and successful operation of the nonprofit organization.

Ten Steps

1. Start with Policy. The board’s responsibility for protecting people, preserving assets, and conserving resources begins logically with establishing a risk management policy.

2. Take It From the Top Down. A nonprofit board not only establishes policies that govern operations, it models behavior for the organization’s paid and volunteer staff, clients and other constituencies.

3. Control Your Destiny. The board appoints a Risk Management (or Safety) Committee, which works in all-volunteer, small and midsize nonprofits. The board approves the overall risk management policy and reviews an annual risk management report from the committee.

4. Preserve Financial Resources. Financial mismanagement is a critical risk facing community-serving organizations. Thus, one of the most important functions of a nonprofit board is the proper oversight of the organization’s finances.

5. Be Careful What You Wish For. The board retains overall responsibility for fund-raising policy, while it delegates day-to-day fund-raising activities to the staff.

6. Be Compassionate but Cautious. The nonprofit board plays a critical role in establishing appropriate employment policies and ensuring that the organization follows its policies.

7. Walk Your Talk. Nonprofit boards must answer to various constituencies, including members, donors, regulatory agencies, service recipients, community at large, employees, contractual third parties.

8. It’s All About Money. Prevention activities are very important and may be quite effective, but no nonprofit can eliminate risk altogether. Every board needs to focus some attention on risk financing: management of the sources and uses of funds needed to recover from a potential loss.

9. Accountability Begins at Home. A nonprofit board has specific legal duties of care, loyalty and obedience. To help the directors commit to being effective members, you can provide a manual with the basic documents and information on the organization’s history, structure and activities; a board orientation program to help bring new board members up-to-date quickly; and board minutes to document the board’s actions. 

10. Everybody Needs Somebody. Frequently, start-up nonprofit organizations rely heavily individual board members with legal, accounting, and insurance expertise to help get the organization off the ground. An accountable, responsible nonprofit organization moves away from relying on “insiders” for professional advice as soon as possible.

For more information on the board’s role in a nonprofit risk management program, see Leaving Nothing to Chance, available from the Nonprofit Risk Management Center, www.nonprofitrisk.org.

View Past Tips of the Month

May 2004 - One Million Minnesotans Can See Your Form 990
April 2004 - Avoid Unexpected Cost of Directors, Officers, and Organizational Liability
March 2004 - Strategies for Reducing Operating Costs
February 2004 - What Can Nonprofits Due During an Election Cycle
January 2004 - Celebrate Your Nonprofit
November 2003 -Get Your Board on Board
October 2003- Take a Walk-About for Safety
September 2003- Exit Interviews-Learn from those who Leave
August 2003 - Participant Waivers: The Good the Bad and the Ugly
July 2003 - Practical Tips for Reference Checking
June 2003 - Evaluating Your Insurance Professional 
May 2003 - Supervising Volunteers
April 2003 - Protect Your Assets with Sound Internal Controls
March 2003 - Teaching Computer Users to Surf Safely
February 2003 - Involve Clients in Protecting Their Own Safety
January 2003- Managing the Risk of Board Discontent

Learn how to manage your organization's risk.
More about the Nonprofit Risk Management Center
View the Top 10 Signs Your Nonprofit Needs to Start Doing Something about Risk Management