Recently there was an interesting article in the Financial Times called “Spotlight on ethics for new rankings” (Alison Smith, Companies section, UK edition, April 6, 2011). The crux of the article is the relevance of companies’ social, environmental, and governance concerns and efforts for asset owners and managers. However, a few quotes highlight a key issue that should be of parallel concern for non-profit organisations: the identification, management and communication of risks. One quote states that despite the increasing attention to rating companies in these three social responsibility areas, investors are “concerned with two things: getting a return as good as they possibly can, and managing risks as well as they can” (Financial Times quoting Patrick Connolly of AWD Chase de Vere). Another quote focuses on “identifying companies at risk that aren’t managing that risk” (Craig Mackenzie of Scottish Widows Investment Partnership).

Presumably “a return as good as they possibly can” in the non-profit arena relates to efficacy of programs and delivery of services to beneficiaries. It clearly does not mean financial return to donors. The latter, risk management, should be of concern to all donors. If an investor expecting a financial return cares about corporate risk, certainly a donor expecting no return should be treated with at least this much care.  Yet non-profit organisations even in this era of extreme focus on accountability and   transparency are notoriously week in assessing, managing, and above all communicating risks. Specifically, transparency to donors and the public can be all but non-existent, even in the most renowned organisations’ annual reports and web sites.

The following are suggestions to ensure transparency of risks:

  • Did you cover the full gamut of risks: internal risks (legal, financial, human security, programmatic, human resources, environmental impact, governance, ethics, strategic) and external threats (competition, regulation, political instability, governmental funding, climate change, etc.)?
  • Did you convey a sense of the degree of risk? The expected duration of the risk?
  • Did you convey strategies you are considering or have implemented for mitigating risk? For example, do you have policies in place for corruption and bribery? Do you have a diversified funding base in case one major donor backs out?
  • Have there been trends in any of the major risk areas?
  • Is your transparency relevant to stakeholders? Do donors have the information they need (which I would describe as any information important enough to influence the decision to give or how and when to give)? Do the beneficiaries of services have the information they need (which I would describe as information that allows them to plan how, when, and how much they will be able to avail themselves of your services – i.e., to rely on your organisation)? Note: It is assumed that with a well-functioning board, the Board is fully apprised of risks and addresses risk management on a regular basis.
  • Did you check that you did not assume readers of your materials would “just know” (as one client told me) that Country X involves significant corruption or Country Y is facing a drought? Donors and the public are not, nor should they be expected to be, experts in your field. Most importantly, they should not be expected to be willing or able to link the risks to the specific implications for your organisation – and therefore to their gift. Transparency requires connecting the dots for them.

In many cases this can be a few sentences. With more complex, international organisations it may be a matrix or other explanation that can be easily updated. Finally, I am not in any way an advocate of transferring corporate practices without modification to non-profit organisations. However, risk assessment, management, and communication is essential common for-profit/non-profit ground in terms of distinguishing an organisation’s excellence in accountability and governance.

Copyright 2011 Susan Liautaud. All rights reserved