Behaviour

Managing risk without becoming risk averse

Governance | 1 Jan 2008

In this series, a guest writer is asked to challenge current thinking. Simon Thorrington urges trustees to be less risk averse.

We urge our children to develop and learn by ‘having a go’. Mistakes help them to learn and to achieve their full potential. Why are we much more cautious when it comes to the charities we lead? As responsible leaders of our charity, do we share the same aspirations for our charities, and more importantly for the beneficiaries of our mission as we do for our children? Or are we perhaps less inclined in our professional and working lives to take the risks we do in our personal lives? 

Minimising the potential negative impacts of internal and external risks is the right and proper exercise of a trustee’s duties of compliance, prudence and care. Genuinely developing strategies for responding to the occurrence of risk are an essential element of both the management and governance functions, and we should not merely be paying lip-service to the required task. 

But we should also see in risk the positive opportunities for development, enabling us to stretch the goals and ambitions for our mission and perhaps find solutions to some intractable social issues. Risk can actually be harnessed to develop and grow an organisation, through the mechanisms of sound strategic planning; strong governance and management; monitoring of accurate, reliable and regular information; and performance management and accountability at all levels.  

Seizing the opportunity

Risk is not only about the possibility of something negative occurring. It is also about opportunities, much like in business where companies succeed by taking calculated risks after assessing the potential market through research and consultation.  

Can charities be accused at times of not taking enough risk with their reserves, perhaps not fulfilling their fiduciary duties to use their assets for the benefit of current and potential beneficiaries? 

Perhaps trustees should be thinking about investing reserves in new, perhaps untried, unproven initiatives and accepting that some of them will fail. And if we do, how can we ensure that if things start to go wrong we can respond appropriately?  

Good governance, teamed with good management, is essential for taking calculated risks. Ultimately it is the trustees who are responsible, and who must monitor the major risks, ensuring that they are being managed and being prepared to handle the aftermath of a calculated risk not working.  

Reputational failure occurs generally when risk is not effectively managed. This is not ‘risk management’, this is simply mis-management. Risk is either: not identified; identified but the impact is not properly evaluated; identified and evaluated, but not managed; or identified, evaluated and managed but when it occurs there is an inadequate response plan. 

Mission management

Clearly, managed risk in any organisation is good, and unmanaged risk is bad. Managing, not avoiding risk, can create opportunities. Trustees tend naturally to want to shield or protect themselves from risk. Yet with that approach, how many opportunities for the greater achievement of mission are lost? By identifying the right tools and putting the right financial, human and operational resources in place, how many more of society’s needs could be met? 

Profile

Simon Thorrington is a Regional Manager for Charity Bank, the UK’s only regulated bank and registered charity offering loans to charities. Also involved in forming a new homelessness charity in Preston, he has worked for HSBC, the Church and successfully established a £5m regeneration charity. His approach to life, which he hopes is rubbing off on his four children, three of whom are passing through university (and are very expensive!), is such that he hopes he never has to say “I wish I’d…”. For sanity he runs, and walks the Cumbrian hills.

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