Board GEMs

Strategic planning is usually invigorating, but there was a heaviness this time around. You could almost feel the weight of a wall plastered mostly with trends that were viewed as threats to the company. As we wrapped up for the day we were reminded that “adversity is the mother of invention”, and encouraged to “sleep on it and see what creative ideas we could come up with for tomorrow.”

The next morning we launched into a risk assessment of the key threats identified by the group. We agreed upon a numerical scale that would help in sizing up whether the impact of the threat, if it came to pass, would be high, low or somewhere in between. The group made their estimate of the probability that each threat would occur. It’s an educated guess when you tackle risk assessment. We almost never have the data that the actuaries in the commercials seem to rhyme off with ease (e.g. there’s .025% chance that a starfish will wash up onto the shore while we’re sitting here).

Here’s what happened in this situation. Almost all of the risks that we analyzed turned out to be both ‘low probability of occurrence’ and ‘low impact if they occurred’. Not only had we begun the risk assessment process in a meaningful way but the dark clouds we’d imagined the day before had parted and optimism replaced the pessimism.
Sometimes we view risk assessment like taking off a bandage. We’re pretty sure it’s going to hurt and we’re not sure if we will like what we see. Take heart – you might get some nice surprises including, as other companies have experienced, optimization of operational efficiency and improvement of decision making processes. And if you don’t, you’ll feel much better when you’ve sized-up the impact of threats and have decided on the risk management method that makes sense for your business. But it’s not about how we feel. Our job as board members is to protect the interests of the organization and its owners* by balancing opportunities and risks… whether we get happy surprises or not… whether it is uncomfortable or not. That’s leadership.

What Can You Do?

1. Agree to schedule a block of board time for a comprehensive risk review. Too often we take a patchwork approach to risk management rather than identifying the most important risks to our organization, their relative weight, and the appropriateness of the risk treatment staff have put in place to manage them.
2. Expand your scope of risk awareness beyond internal controls and financials. The very existence of a board structure was designed to bring varied and strategic perspectives to the table. Good boards wrestle with questions such as, “What environmental and business trends do we see that might impact our organization’s operations or business model within the next 2 to 5 years?”
3. If it is not already clear, confirm your organization’s process for risk oversight. Some companies have a department or individual dedicated to risk assessment while smaller organizations might task this function to the audit committee. The board needs to exercise oversight by ensuring there are appropriate procedures in place at the operational level to satisfy the board policies that are designed to limit organizational risk.
4. An important risk factor in board-led organizations is the health of the board itself. A valuable risk management technique is for your board to evaluate how effectively it is fulfilling its duties to lead the organization. One way you can do this to complete an on-line GEM Assessment and then discuss the board’s strengths, weaknesses, and diverse perspectives. This sets the scene for your board to continue effective governance practices and to enhance its performance in areas that are currently weak.

* Owners refers to owner members in the case of cooperatives, shareholders in the case of companies, members in the case of associations or purpose-centred citizens in the case of community benefit organizations.