Boards as Partner in Risk-Taking
Effective boards partner with the executive director in making decisions about risk assessment, risk management, strategic direction, and new opportunities. How do boards balance their responsibilities to ensure due diligence and prudent use of resources while remaining appropriately opportunistic? How can your board build capacity for this important work? We will talk about some of the elements of good decision-making, and the roles played by board structure and culture. Participants will share their own experiences and lessons learned.
Led by Nancy Lee, independent consultant, affiliated with LarsonAllen.
Lee began her presentation asking what the elements of decision-making are and how one increases the capacity for good decision-making. She then defined “risk” as both hazard and opportunity. She outlined the legal duties of a board of directors as care, loyalty, and obedience. Every board has a different profile, and with constant rotation those profiles are always changing. The risk profile of a board should rest somewhere between maintaining and protecting the organization and dreaming and being decisive. Both ends of the spectrum have advantages and disadvantages.
Lee listed six elements of good decision-making. The first of her non-hierarchical or chronological elements is to build a decision-friendly board and management team. This requires having a diverse membership that fosters a culture of trust and respect. This team must have regular discussions about their internal and external environment. In addition to the board, there should be a network that provides additional information and perspectives.
Gathering information from many credible sources is the second element. Key to this element is the willingness to get help as needed. Lee saw this information coming from three groups: the inner circle (informed, unbiased supporters), the outer circle (those with which the organization has weaker ties), and oracles (those that are exceptionally clear minded about their field). The board should look into the future, rather than dwelling on the past when addressing this information.
Lee’s third element is to break decisions into smaller steps. The board or management team should outline the questions that need to be answered. They should then set intermediate goals and tangible targets that add up to larger targets. Lee believes that this is where boards often find themselves paralyzed.
The board must establish shared values about the organization’s mission. The first step in this element is aligning the leaders’ understandings of the organization’s mission, core values, and risk areas. The board should set self-interest aside and stay away from opportunities where decisions are improperly constrained.
The board must also be clear about who makes what decisions. Authority must be clarifies among all leaders. Members should also appreciate the decision-making capabilities of others, including front-line staff. This is a great way to build one’s staff, but the board should not be afraid to pull back if it becomes necessary.
The final element of good decision-making is to be proactive, responsive, and action-oriented. Members should only trust their intuition if it is well informed. But that said, the board must be willing and able to take swift action when necessary.
The full PowerPoint presentation is included below: Boards as Partner in Risk-Taking-LA