144. Is your Church Board Paying Enough Attention to Risk Management?

In recent months I have read several articles that emphasized the importance of risk management for corporate board members. One was posted on the Harvard Law School Forum on Corporate Governance and Financial Regulation by Matteo Tonello (August 23, 2012) and another is an earlier article published by KPMG’s Spring 2012 Roundtable Report entitled “Is Governance Keeping Pace?” I appreciate the various distinctions between corporate governance and faith-based nonprofit governance, but the issue of risk management cuts across this divide. This report identified the following risk “hot spots:”  emerging technology/pace of change, disruption of business model, cyber-security, globalization and systemic risk, extended organization (vendors, suppliers, partners, outsourcing), business transformations, innovation and compliance/government regulation.

Tthe KPMG article urges corporations to understand “the company’s risk ‘hot spots,’ and how they are monitored and managed.” There is no doubt that nonprofit organizations, including churches, also have “risk hot spots” that need careful monitoring and management. While each church board will managing a different constellation of risk factors, some are common, i.e. financial integrity, personnel issues (e.g. harassment), facility safety, privacy of information, oversight of volunteers, compliance with local and national government regulations, etc. As well in today’s world of social media cyber-security and cyber-management are becoming more significant as risk hot spots for churches. Other kinds of “risk hot spots” will be specific to churches, such as member discipline issues, theological controversy leading to division, moral failure, failure to implement board decisions/policy, etc.

Helping the board to govern effectively forms a primary responsibility of a board chairperson. If the board is not attending to risk management judiciously and prudently then it is not governing responsibly or effectively. At some point its failure to manage risk will place the congregation in jeopardy and mar any ability to advance the congregation’s mission and vision. A chairperson may be facilitating the board’s work well in many ways, but if the chair fails to keep the board’s attention on risk management much of this good work may be lost.

Theologically church boards are not used to identifying risk and managing it appropriately, in my opinion. Our belief in divine providence, divine power and the wisdom of the Holy Spirit, as important as these principles are, condition us to ignore or treat too lightly elements of risk which we know are present. This leads to overoptimism and overconfidence, failure to ask the hard questions, and attributing the results of poor decisions and implementation to Satan’s work. Don’t get me wrong! I do believe that Satan is active in church board rooms, but let’s own up to our own spiritual responsibilities and take full advantage of the divine resources God provides to discern risk and act responsibly to mitigate it.

How might a chairperson begin to provide leadership for a church board in dealing prudently with risk?

1. When you next have opportunity to lead the board in worship, select some stories from Scripture that illustrates how leaders responded to and handled risk — citing good and bad examples. For example, how did Gideon handle the risk embodied in the Midianite attacks? How did Jeremiah counsel the king to handle the risk of the Babylonian invasion? How did Joseph advise Pharaoh to deal with the risk of famine? How did the Jerusalem church respond to the risk of division over the matter of Gentile believers? Identify the reality of risk and the important role that spiritual leaders play in discerning godly responses to such risks.

2. It may well be that your board recently has had to face a serious situation which they did not anticipate and which presented considerable risk to the congregation. Write this up as a case study and invite the board to reflect on why they did not discern this risk, how prepared were they to deal with it, what changes they now should make having worked through this crisis, etc.

3. Build into one of the upcoming board agendas a thirty minute discussion about potential risks that your congregation may face in the next two to three years. Perhaps divide the board into triads to generate more discussion and then have the groups report. Compile a list of the risks identified. Then invite the board to prioritize them according to imminence, seriousness and category (e.g. financial, facility, staffing, false teaching, community-based, demographics, etc.).

4. Take the top three risks that your board identifies and do some research. Define the risk more specifically and what its consequences might be. Then evaluate how prepared in your opinion your board and congregation might be to respond to this risk. Share your report with the board and invite their discussion.

5. Discipline the board to evaluate risk whenever key decisions are before them. In other words decision briefs should include a section on potential risks to the congregation if the proposal is accepted and how the board should ensure that such risks are mitigated.

6. When you schedule the next major discussion regarding strategic planning, make sure you build into this discussion strategic responses to potential risks. In other words strategic planning has to incorporate planning to manage discerned and perhaps expected risks.

7. A board will not be able to anticipate every risk. Sometimes “black swan” events occur and blind side the board. However, even in these situations if the board has developed its ability to deal with risk and respond effectively to crisis, then it will be well-positioned to lead effectively in these situations as well.

It is impossible to avoid crisis. However, there is much a board can do to equip itself to work through any crisis well. This includes developing and implementing good policies and procedures, encouraging management to lead with excellence, and forming a united, proactive, wise board. The board shows its leadership excellence by guiding the congregation through any crisis with discernment and courage. When the crisis has passed, it is always good procedure to give the board members time to debrief. Undoubtedly some policies and procedures will need to be adjusted, management and board may identify new competencies they need to nurture, and the board members need opportunity to thank God for his protective guidance.

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