Organizational Risk Management

Last week, I examined essential inquiry around assessing Strategic Risk Management in a complex nonprofit. It’s equally important for senior leadership to assess and establish a protocol for managing day-to-day Organizational Risk Management. Successful organizational risk management requires its own set of analysis as described below.

1. Do we have an integrated, firm-wide, risk management process?

Effective risk management is achieved through comprehensive risk reporting, governance policies and limits, escalation procedures, action triggers, and dynamic and integrated firm-wide processes.  As a pre-requisite to all of these issues, nonprofits must possess an analytical system capable of properly identifying, measuring, and aggregating all risks across the enterprise.

Equally importantly, an appropriate, “risk mindset” must be adopted throughout the organization. The goal should be that every employee feels they are a risk manager and are responsible to manage the risks that occur on their jobs every day. Once this mindset is in place, risk exposures and the risk analysis of key business initiatives must be routinely and intentionally discussed. Senior Management must also ensure that relevant risk measures are among the key metrics monitored by program managers on a daily basis. Finally, senior management must ensure that risk issues are handled proactively, and communications across program units are open and effective. Red flags to be watched and immediately addressed include 1) excuses that specific risks do not lend themselves to quantitative measurement, 2) that certain risks are the “nature of the business” and therefore should not be monitored or managed, and 3) phrases like “don’t worry,” “this is a low probability event,” or “local managers have it all under control,” need to be stricken from the organization’s vocabulary.  Instituting a rigorous firm-wide risk process also ensures that directors do not start questioning senior managers about risks that the corporation has undertaken only after it is too late.

 

2. Are professionals at all levels empowered and expected to manage risk?

 For the risk management of a large, complex nonprofit to be effective, it must be built not only into every part of the decision-making process, but also every into control mechanism throughout the organization. Common risk management language must be established throughout the organization, along with clearly delegated responsibilities for managing risk at all levels. Finally, leadership and risk management structures must be correctly aligned with the not-for-profit’s business model, and the right balance established between competing priorities and constituencies.

 

3. Do we have an appropriate risk management culture?

There are specific signs that we are on the right track, and that risk management has become part and parcel of a nonprofit’s DNA.  First, leadership must assume the ultimate responsibility for risk oversight responsibility, clear measures of success, using well-understood metrics for risk appetite, and risk limits.

Risk training and awareness programs must also be in place throughout an organization, with senior line managers and risk professionals responsible for formal postmortems of major mistakes. Senior management ensure that management incentives encourage responsible and value-added risk taking, and emphasize the importance of embedded risk management processes in the organization’s decision-making and communications.

With such a risk culture in place, silos will be broken down, open communication will be encouraged, and risk successes will be publicized and imitated. And when this happens, employees will make better decisions, keep their not-for-profit out of harm’s way, and reduce potential legal liabilities and reputational risks.

What is your protocol for both strategic and organizational risk? As always, I welcome your comments.

Risk Management

In the past few decades, the business landscape for the larger, more complex, nonprofits that provide social services has changed dramatically.

In addition, the integration of social values within for-profit companies has further blurred the line between for-profit and nonprofit organizations, resulting in greater competition in the social services sector.

Equally as important, there has been a major philosophical shift away from contracts that pay for services rendered, and toward contracts that pay based on achieved goals, outcomes, or measurable impact. If, for example, your agency was once paid to provide job training skills, it is now more likely to be paid based on how many clients in your program actually secure employment. Thus, the need to achieve measurable objectives—whether those objectives are commercial or social—is now as much a requirement for nonprofit as it has long been for for-profit organizations. This, in turn, has exponentially increased not only the day-to-day risks of not-for-profits, but in some cases threatened their very survival.

As a result, senior management of nonprofits is faced with a somewhat new and daunting challenge—i.e., the need to create an infrastructure capable of synthesizing vast amounts of information, connecting the dots across myriad of programs, and simultaneously integrating business strategy, goals, and risk management. The failure to do so—at least historically—was usually due to a pervasive fear-based approach that was primarily backward-looking and focused on flat financial metrics and ratios. As a result, hidden risks were often left uncovered, problems that kept organizations from achieving their goals were not anticipated, and risk mitigation strategies, if any, were ineffective. Risk management, in fact, whether adapted to for-profit or not-for-profit enterprises, requires a forward-looking approach—one that is integrated with business strategies and goals to achieve measurable results in a continually changing environment.

Therefore, the new risk paradigm for nonprofits forces management to consider two separate aspects of risk management—the first strategic, and the second organizational. Succeeding in the former requires thinking about risks throughout the organization.  Succeeding in the latter entails the creation of a risk-centric culture, both empowering management and employees to effectively deal with risk and demanding that they execute enterprise-wide initiatives related to those risks.

Turning first to Strategic Risks, management must begin with a short inquiry:

 

1. Do we fully understand our risk exposures?

Senior managers need to ensure that all risks facing the enterprise have been properly identified and measured, beginning at the business unit level where program managers intimately familiar with their individual landscapes can adopt an appropriate risk management framework and establish an ongoing risk-based dialogue with the senior management. Together they can then discuss current and emerging risks in detail, establish risk limits, and put specific action triggers into place.

From there, it is critical to establish an enterprise-wide view of risk. Once defined, the strategic implications must be contrasted with resource adequacy and availability, leading to a clear understanding of how risk can and ought to be managed.

Given the complexity of the modern world, senior management must also regularly devote time to discussing the so-called unknown unknowns—events and risks beyond the scope of traditional discovery processes and systems. For example, an acknowledged but unknowable unknown in a not-for-profit might involve apolitical or philosophical change in the way state and local governments view their funding, emerging business models, or changes in the competitive environment (including for-profit service providers).

 

2. Are our risk exposures appropriate to our objectives, our appetite for risk, our resource levels, and our desire for long-term sustainability?

In addition to proper risk identification and measurement, senior management must establish an explicit link between risk, resources, and strategy. To avoid surprises and ensure that a not-for-profit does not respond to pressures through blind risk and leverage, the organization’s risk appetite must be fully aligned with funding and service targets. Senior management must fully understand and approve the amount of risk required to achieve the organization’s stated objectives and goals.

 

3. Is our organization adequately dynamic from the viewpoint of risk management?

The lack of organizational dynamism—a company’s ability to detect coming crises and environmental changes, understand their potential impact, and develop the agility to react in a timely fashion—was a common feature of for-profit companies that failed during the recent financial crisis, and not-for-profit companies whose traditional approach no longer worked in the post-crisis environment.

Senior management can and should play an important role in ensuring that a company is well-prepared to withstand volatility, crises, disruptive technologies, and the changes in the market, and in its competitors. An integrated risk management framework, early warning systems, and comprehensive contingency plans must be continually reviewed by senior management and the board of directors and included in all strategic discussions.

4. How do risk and uncertainty factor into our strategic decisions?

Strategic decisions—again, in the public as well as the private sectors—have often been focused on business and customer strategies, new product development, and pursuit of market share, with risk management remaining an afterthought—that is, a sort of police function used to check on safety and soundness only after strategic and investment decisions had already been made. To remedy this after-the-fact approach, the role of risk in a not-for-profit’s business model must be continually reevaluated by senior management, thus making risk management an input into strategic decisions and governance.

Continually asking fundamental questions in rigorous yet practical ways vastly improves the effectiveness of senior management, helping them steer their not-for-profits through the ever more difficult conditions of the modern global environment.

 

Next week we will explore Organizational Risk.

As always I look forward to your comments

Pathways Out of Poverty

The United States is considered one of the richest nations in the world, yet we rank below 16 developing countries in terms of poverty. Only four other countries rank below the U.S.

As of 2018, 42.6 million Americans were living in poverty. Of those, 13.4 million are children—nearly the total populations of New York City and Los Angeles combined.

The consequences for children born in and living in poverty do not disappear as they age. The impact of their poverty extends beyond their immediate family and seeps into every sector of the community, from education to service and product business to government and charitable entities.

Children who are poor are hungry. They have problems with memory and concentration. Their sleep patterns can be disrupted. Their brain development can be stalled or stagnated. They are more susceptible to illness. They are more prone to anxiety, depression, and withdrawal. They tend to behavioral issues, which may well have consequences in the classroom and in the community. As they grow up, these consequences take their toll on society as these children default to crime, substance use, or other mental illness based on inadequate means from birth.

At The Fedcap Group, we know that education and employment are the pathway out of poverty. Every one of the top-tier companies that are part of The Fedcap Group are building and delivering tactical, practical, and precise innovations to improve economic well-being.

  • We are creating aspirational environments within educational settings—encouraging children of all abilities to dream big dreams and then helping them succeed.
  • We are providing the tools, information and the supports so that youth transitioning from foster care can enter college and helping them graduate.
  • We are providing training and building networks of healthy support so that individuals in prison re-entering society have the skills and supports to succeed.
  • We are creating job opportunities in the community for those with intellectual and developmental disabilities.
  • We are assisting those with mental illness and substance use disorders in their recovery and participation in the workforce.
  • We are assisting individuals over age 55 to re-enter the workforce.

We are working hard to solve—not serve—the problem of poverty. 

Ultimately, the goal is to create a healthier society, where children and adults of all abilities thrive.  This is the work we do every day.

How might your business or social enterprise join our mission in creating a truly better world?

As always, I welcome your thoughts.

Creating a Sustainable Future: The Power of Impact Investing

Last Tuesday, The Fedcap Group convened our bi-annual Solution Series: Socially Responsible Investing: The Moral Case for Impact Investing.   Socially Responsible Investing (SRI), is an investment strategy which seeks to consider both financial return and social/environmental good to bring about a positive change. SRI has potential in mitigating the toughest issues challenging the world today, including climate change, access to health care, and poverty.

Today, more than one out of every four dollars under management in the United States is invested in socially responsible investments. The number in the U.S. alone amounts to $12 trillion dollars.

Our panelists last week included Christina L Alfandary, Managing Director of ESG (Environmental, Social, and Governance) and Sustainable Investments at GAMCO Investors, Inc.; Robert Brown, Senior Partner and Founder of Atlas Impact Partners; and Martin Whittaker, CEO of JUST Capital. While each of our guests had a different lens on the topic, they had in common the clear precept that socially responsible investing is good for business, must keep growing as a concept and as a reality, and must be a catalyzing mechanism for ensuring the future of our planet and our society.

As the Fedcap Group refines its work in the area of Economic Development, establishing Community Development Financial Institutions as vehicles for helping individuals with barriers establish their own small business and contribute to the economy of their community, the concept of SRI is of great interest.  There is tremendous potential for investors to partner with non profits like The Fedcap Group to impact the economic well-being of people in impoverished communities.

Our Solution Series is intended to tackle topics of importance to business in the 21st century, to generate discussions on issues that require thoughtful solutions.

If you would like to watch our Solution Series on Socially Responsible Investing, you can view it by clicking here.

 

Enjoy!

Why We Must Challenge Assumptions to Solve Tough Problems

At The Fedcap Group, we are in the business of solving tough problems—not just serving them.

As we work to solve problems, we spend a significant amount of time ensuring that we are clear about the actual problem we are trying to solve and we question our own assumptions about the problem, the people we are serving and the solution.

A critical component of these conversations is examining the service pathway, seeking to understand where along the pathway we might intervene to change the outcomes.  Where would a different and precise intervention make a measurable difference?  What about the current design of service systems is actually contributing to the problem?  For example, how might we change our service delivery for children with disabilities that would impact long term outcomes such as college attendance and graduation, employment, self-sufficiency?

Also incorporated into our culture, are deliberate conversations around our own assumptions, biases, and judgments that are informing our approach to problem solving. This transparency is imperative if we are to be successful.  For example, what assumptions about the capacity of people with intellectual or developmental disabilities led us to believe that sheltered workshops instead of competitive, community- based employ was the best solution?

Being transparent and inviting our biases to the table means we clear them out and we can work together to find not just an answer, but the right answer to solve, not just serve the problem.

What assumptions do you have the might get in the way of finding the best answer?

As always, I welcome your thoughts.

Paving the Way to What’s Possible

So many of our dreams at first seem impossible, then they seem improbable, and then, when we summon the will, they soon become inevitable.” – Christopher Reeve

In 1987, Ronald Reagan declared March as National Disabilities Awareness Month. Since that time, there have been huge advances made—both theoretically and practically—around integrating individuals  with disabilities into the workforce and into the community. It has been a long, evolutionary process that included passage of the Americans with Disabilities Act (ADA) in 1990, and the Individuals with Disabilities Education Act (IDEA), that ensures students with a disability are provided with Free Appropriate Public Education that is tailored to their individual needs.

And yet, there is much more work to be done. Stereotypes, stigma, and assumptions remain.  The number of unemployed among those with disabilities still remains way too high.  And possibly the most problematic—there remains a pervasive underestimation in all that people with disabilities can achieve.

Can you imagine how different the lives of adults with disabilities would be if, as children, their circle of support including educators, the medical community, clinicians, encouraged aspirational thinking? Encouraged them to dream?  To strive to achieve what others called impossible?  How different would their lives be if we helped their families also believe in all that was possible?   If, instead of limiting expectations we fed them?  If instead of hinting at no, we shouted an unequivocal yes!

Every day we at The Fedcap Group are working to change the long-term outcomes for people with disabilities.   Our work is founded on the following principles:

  • We believe in the Power of Possible–that people of all abilities can contribute in profound ways to making this world a better place;
  • We believe that it is our responsibility to help those we serve dream big dreams—to aspire to greatness;
  • We believe that it is our responsibility to provide tools and resources to support these aspirations; and
  • We believe that it is our responsibility to help parents and other caregivers develop the skills to advocate for and encourage their loved ones to achieve their dreams;

Every day, I have the opportunity to interact with people with a diverse array of abilities. I see the contributions and I hear story after story of how diversity of skills and abilities in the workplace increases productivity, perspective, creativity, and innovation.

I believe that we are better when we surround ourselves with people who had their eye on a dream, had to work hard to get where they are and are seeing their dream become a reality.  I find this inspirational and it motivates me to keep striving.

Let’s be the one who paves the way, not the one who creates the road blocks.   

The Case for Socially Responsible Investing

Ten years ago, The Fedcap Group launched our first Solution Series—dedicated to addressing issues important to Business in the 21st Century.  These sessions have brought together over 2000 representatives from business, academia, foundations, government and advocates.

On Tuesday morning, March 26, from 8-9:30 a.m. at the Westin NY Grand Central Madison Ballroom, The Fedcap Group will be hosting what I believe will be one of our most compelling and topical Solution Series to date: Socially Responsible Investing: The Moral Case for Impact Investing.

As a society, it is clear we can no longer ignore the pressing social, economic, and environmental challenges that threaten the future of our generation and those to come. In my own lifetime, the world’s population has grown by billions; our climate has grown warmer and is subject to unpredictable disasters; poverty, starvation, and economic inequity are plagues that affect many more communities than just a short generation ago.

As business leaders, as investors, and as stewards of public funding, it is in our collective best interests to mobilize our capital for the long term public good. This investment approach—known as Socially Responsible Investing—or Impact Investing—provides a vehicle to make a sound and tangible difference.

One socially responsible investment framework that is gaining momentum as a system and as a structure integrates Environmental, Social, and Governance (ESG) considerations into institutional and private investing. ESG evaluates and measures the impact of how a company manages its various resources and the relative risks inherent in business operations—including environmental factors such as water, energy, and air quality, social factors such as diversity and human capital, and governance issues around ethics and integrity.

More and more businesses are investing in socially responsible ventures with favorable returns. Google, for example, invested recently $1billion in renewable energy products. Coca-Cola in investing $1 billion in help support and develop business skills in women and minority-owned suppliers.

On March 26, we will be hearing more about the case for Socially Responsible Investing from three nationally recognized experts at the forefront of this investment framework.  I invite you to register for this free forum that will lay out the foundation for the moral, the practical, and the profitable case for Socially Responsible Investing.

Click here or on the date saver below to register now.

I look forward to seeing you there.

Solution Series SavetheDate

Good Mistakes are Good for Business

Mistakes are the portals of discovery.  –James Joyce

Most people fear making mistakes at work. They worry they will be seen and judged as incompetent or unintelligent or they worry they may lose their job. This fear keeps people from experimenting and trying new, bold things. In contrast, as a leader, one of the things I count on from the people who work with me is that they make mistakes. And, I count on them to make really good mistakes, not bad ones.

  • Good Mistakes are ones that are the result of bold action.
  • Good Mistakes lead to better solutions and ultimately, better outcomes.
  • Good Mistakes are the result of creative thinking and innovative ideas.
  • A Good Mistake is not a failure, it is part of an incremental path to success.
  • Admitting a Good Mistake makes you able to tell great stories to your colleagues—it makes you interesting. And the telling of it  demonstrates humility and vulnerability.
  • A Good Mistake provides one with a lens of compassion for others who too, have tried mightily and failed.

Surrounding myself by people who are bold, who take action, and who learn from their mistakes means the organization never stagnates—we never accept status quo.

Bad mistakes are ones that are the result of lazy or sloppy thinking. They reflect poor critical thinking, inattention to detail or simply lack of caring.  Bad mistakes are the ones people should be very concerned about making.  They are  avoidable, and they can indeed cost people their job.

Key to transforming mistakes into good learning is the willingness to admit the mistake. This is essential to differentiating good and bad mistakes. When an individual is willing to admit their mistake and grow from it, it betters the team and the entire organization.

As a leader, I invite my staff to share their mistakes, as certainly, they hear mine all the time.

What do you do with your mistakes? How do you handle those of your staff?

Beyond Motivation: Inspiration as a Deliberate Practice

Great companies don’t hire skilled people and motivate them, they hire already motivated people and inspire them.               –Simon Sinek

There is no question that the individuals who work in the companies of The Fedcap Group are motivated. Embedded in their desire to work is a drive to serve the mission by creating opportunities for those we serve to achieve their dreams.

The challenge for those of us who are leaders is to inspire our motivated workforce to greatness. 

I believe that inspiration is contagious.  When people hear the authentic conviction of their leaders—they trust it and want to emulate it.  For me, inspiration comes from a number of sources. I consider plumbing these sources an intentional practice, a deliberate part of every day. In turn, I consider the practice of inspiring others as a critical aspect of my job.

I am inspired by reading, by learning.  I am inspired by the experiences of others.  I am inspired by intellectually stimulating conversations.  I am inspired by stories of grit and determination.  I am inspired when I see someone accomplish something they never thought possible.

When inspired, I look for ways to channel this sense of possibility.  I challenge staff to think bigger.  I invite them to stretch their skill set, their knowledge, and their practices.

Each year I spend time with our Leadership Academy Class in order to inspire them to develop a bold vision for their careers.

We established Wednesday Morning Buzz as a forum to share with every staff member in the agency, articles that I find interesting and inspirational.

We launched Fed Talks as a way to inspire staff to step out of their comfort zones and see risk as an avenue for learning and innovation.

We established a virtual Innovation Garage as a platform for inspirational thinking.

We developed monthly Brown Bag Lunches to share inspirational approaches to our day to day work.

Inspiration is how people stay motivated and strive to realize their best work, build their skills, and innovate new solutions for tough problems.

What inspires you? How do you ensure that you stay inspired? How do you inspire your staff—even those you may not see every day?

As always, I welcome your thoughts.