Get Your Board Comfortable With Taking Calculated Risks

In this article:
Many boards try to play it safe, but there is no risk-free path in today’s world. With the pandemic and economy in flux, decisions won’t be easy, so CEOs must encourage their boards to risk failure, create a decision-making process, and be adaptable.

Because of their fiduciary responsibilities to their associations, board members can often be overly cautious. But in the current environment, experts say, boards must be willing to take calculated risks to help their organizations thrive.

“What our associations are operating in now is what I refer to as the ‘discontinuous next,’ which is an ongoing period of uncertainty, volatility, and risk that’s not going away,” said Jeff De Cagna, FASAE, executive advisor for Foresight First, LLC. “Every decision, therefore, is higher stakes, and every board needs to change its perspective on risk from the idea that something is either risky or not, but rather to say that every decision involves risk.”

More importantly, today’s climate of rapid change means a risk-averse board often stifles organizational growth and puts an association at a disadvantage. “When boards are slow to react, they really miss opportunities,” said Barbara Arango, CAE, executive director of the Illinois Parks and Recreation Association.

That’s why CEOs must encourage their boards to adapt quickly to the changing landscape and embrace risks.

“Every board needs to change its perspective on risk from the idea that something is either risky or not, but rather to say that every decision involves risk.” — Jeff De Cagna, FASAE, Foresight First, LLC

Leaning Into Risk

De Cagna said the first step for boards looking to take calculated risks that improve their association’s long-term future is to understand the risk might not pay off.

“We often hear people say, ‘Failure is not an option,’” he said. “Failure is always on the table, and until we get comfortable with that, we are always going to struggle with these kinds of choices.”

Allowing failure as a possibility widens a board’s view so it considers all its options, rather than immediately disregarding suggestions it thinks could fail. Once all the options are presented, De Cagna says, boards should follow a four-step process: understanding, or “making sense of,” the issue of concern; “making meaning” of it—figuring out how it applies to your members or industry; deciding whether and how to move forward; and evaluating the outcome.

“That process of sense-making, meaning-making, decision-making, it’s circular,” De Cagna said. “How that system works together is it enables the decision-making process to not avoid risk—because those things really can’t be avoided—but to make sure we are doing our level best to come out with the right outcomes rather than outcomes that are ill-considered and ultimately detrimental to the organization.”

Of course, the CEO and other staff are an important information source for that process.

“Staff is going to be really important to making sure that [the board is] only risking what can be risked,” Arango said. “They can’t be risking so much that they’re risking the entire association, but risking enough to hopefully provide a reward back to the association.”

In addition, giving the board a chance to evaluate a decision lets them assess whether the risk paid off or it needs to set a new course.

“Even if it is a success, there are always things that can be improved,” Arango said. “It’s important for boards to not look at something that didn’t work out as a complete failure. There is always something that you learn from it. Usually, it’s going to be something that maybe works, but didn’t work as well as hoped. There is always something that can be taken back and refined for the next time.”

Speeding Up Adaptability

Arango said one reason boards have historically been slow to act is because they meet infrequently. With virtual meetings, many have met more often and were able to quickly handle pandemic-related changes.

“It’s provided a great opportunity for boards to speed up that process and be able to take advantage of the opportunities as they came up, rather than being very slow and somebody else takes advantage of those opportunities,” she said.

More frequent meetings can also provide boards with more fluidity. While boards love to create plans, De Cagna urges a more flexible approach.

“I know everyone says the plan is dynamic, and the plan can change,” he said. “In my experience, when a plan is set, that is what people do: They follow the plan. We need to ask, ‘How do we navigate this by observing and listening and learning and seeing what’s happening and making course corrections, instead of committing ourselves to an A to B to C to D kind of plan?’”

Whatever tools organizations put in place for their boards, the choices won’t be easy. “It’s not about a choice between risk or no risk,” De Cagna said. “All the decisions from this point forward are going to be hard. It’s a question of, do we make the right hard decisions?”

Rasheeda Childress

Rasheeda Childress is a senior editor at Associations Now. She covers money and business.