Nonprofit Risk and Crisis Management: Challenges for the 21st Century

The nonprofit leadership literature recommends that every nonprofit organization have a comprehensive crisis management plan, but it has little focus on risk. Perhaps nonprofit boards are too risk averse and are really unable to maximize their resources to assist clients? Is it that nonprofit boards see little personal gains from taking reasonable risks fearing potential reputation and financial losses? I reviewed over 300 nonprofit articles related to nonprofit crises and related risks; only a handful centered on how a nonprofit board can respond to handling risk and crises in a strategic manner. A great deal seemed to depend on the position of organization of the nonprofit board and its culture, provided in these principles:

* Risk must be the responsibility of the whole board, prepared by the audit committee. There is a danger in (having) multiple committees and losing focus.
* If (the board is) risk averse, the (organization) doesn’t go anywhere. The(nonprofit) of tomorrow (and the benefits it can offer clients) come from the risk taken today.
* Boards should push for the integration of risk sensitivity and consciousness into (organizational performance. http://bit.ly/1ulbwC1

The essential difference is the traditional nonprofit board, with its myriad of committees compared with the nonprofit version of the successful corporate board with few committees and its delegation of operational responsibility to the CEO.

Two responses to a scenario show the differentiation.

The nonprofit agency ABC has been criticized for not having enough minority staff members. Because ABC, a large well-known organization, primarily serves urban residents in a major U.S. city, board members are concerned about the criticism.

The Traditional Nonprofit Board

The executive committee is examining the critical articles appearing in newspapers and blog posts at a regular monthly session. Many board members think the criticism too harsh. Others are embarrassed, and fear a personal reputation loss. They are considering resigning.

The issue of hiring and training minority staff had at least been on the agenda three times in the last 18 months. It had been tabled each time for a lack of meeting time. As a result a special subcommittee of the standing board personnel group had been established and was scheduled to report in another month.

The committee spent most of the remaining meeting time discussing how to counteract the negative publicity and asked the executive director how they could use social media. Several suggested that if they had a board member with public relations experience, this wouldn’t have happened.

The Corporate Nonprofit Board

In this instance, the criticism surfaced in a report presented at the last meeting by the assessment committee, which as a result of evaluating the agency’s impact heard the criticism from several inner city community leaders. The president/ CEO agreed that the issue needed to have a higher priority on his operational agenda. He said he would discuss the topic again in four weeks. He also will update the personnel plan developed two years earlier.

Some critical takeaways

• It is evident that both organizations should have had a crisis management plan in place based upon the risk of a crisis occurring. If it did, the traditional board should have implemented it.
• The CEO of the corporate board is clearly at fault, but he/s is strong enough to acknowledge it. The system of checks and balances, via operational delegation with a robust assessment process, surfaced the problem early enough to take corrective action and to continually assess risk. Note that the only request of the CEO in the traditional situation was to report on the use of social media.
• It can take years for a nonprofit organization to develop a solid reputation. Even an unfounded rumor can cause a crisis, requiring the activation of a crisis management plan.
• The most likely crisis either of the nonprofit organizations will face is when the CEO is temporarily or permanently incapacitated. Human frailties always need to be assessed as a risk and a succession plan for such an occurrence always needs to be in place. In addition, the board will need a process to continually assess potential risks which can significantly disrupt the nonprofit.

Source:
Eugene Fram (2013) “Preventing & Managing Leadership Crises in Nonprofit Organizations,” in Handbook of Research Crisis Leadership in Organizations, edited by Andrew J. DuBrin, Northampton, MA. Edward Elgar.