No matter how you slice it, non-profit governance is messy. As we continue to respond to the myriad challenges of our time, non-profit organizations need board members and management teams that can collaborate and strategize effectively.
One dynamic I see played out over and over again that holds organizations back from wise action—comes down to confusion on two fronts:
- Risk or Uncertainty: Is a topic or decision risky, or are we experiencing uncertainty and confusing it with real risk? And, how risky is it to the organization to be uncertain, but still go ahead with a decision?
- Strategy and Roles: What is the board’s role in strategy development?
Avoiding risk versus managing risk
I’m no expert on the highbrow, academic definitions of risk management, tolerance, appetite, and the like. Yet, all too often around the board governance table, I see decisions—or indecisions—made in the name of “managing risk.”
True, risk only exists in the presence of uncertainty. But as the authors of “Overseeing Strategy” suggest, reducing uncertainty by choosing conservative strategies can protect the downside, but may also limit the potential for better performance.
Even more profound is organizations ignoring the risks related to inaction.
We are at a time in the world when the status quo is rarely the safest choice.
The antidote to uncertainty
Retreat season is upon us. Boards and leadership teams are getting together to set strategy for the year ahead. High-performing boards understand that setting strategy is paramount to effective governance. To maximize your strategy setting AND because uncertainty can be paralyzing, may I suggest you define both the risk tolerance and risk appetite for your organization?
Risk tolerance sets the boundaries for strategy and may increase or decrease as conditions change.
Risk appetite is the level of risk your org is willing to accept to pursue its short and longer-term goals.
To paraphrase Hunter S. Thompson:
We must continuously redefine what it means to be better tomorrow than today, and make the choice at times to float with the tide or swim toward a goal.