The price of doing anything that matters

Every board has a risk appetite statement and almost none of them use it. Read one and you will usually find careful sentences about tolerance for loss. They satisfy a funder. They rarely help anyone decide anything.

The trouble is the starting point. Treat risk as danger and you get a list of things to avoid. But risk is also the price of doing anything worth doing, and a board that only knows what it wants to avoid cannot say which bets it would take.

Four answers to one question.

In our third Governing Well workshop we put scenarios in front of the board, written for that organisation, one at a time. Directors place each on a simple spectrum. Never is a values boundary, and no case changes the answer. High threshold means a full case, deep diligence and time. Standard means a proposal with clear reasoning. Delegated means management has the authority and the board is told.

Each director places each scenario alone, and the placements go up at the same moment. That is the point of it. Ask ten directors about appetite in general and they will agree. Ask them about one specific partnership, one funder, one new market, and you will see ten different answers.

Ask a board about appetite in general and it agrees. Ask about one real decision and you find ten appetites.

The disagreement is the product.

The most useful question in the room is what would need to be true to move a scenario one step along the spectrum. The answers become the board's actual appetite, in its own words: the conditions, the evidence and the thresholds it expects before it says yes.

A statement built that way is short, specific and argued over. Management can read it and know, before a proposal is written, how good the thinking needs to be.

It will not stop a bad day arriving. It means the board has already agreed how it wants to think when one does.

Paul Steele