Lawyers Financial

Risk-management policies a must for hospital foundations, charities

Hospital foundations and charitable boards should develop risk-management policies that prepare them for unseen crises both internally and outside their organizations, Toronto health lawyer Kathy O’Brien tells

"What I'm finding is the boards tend to be very focused on fundraising, it's a huge part of what they do," O’Brien, a partner with DDO Health Law, says. "But they are focusing on fundraising to the exclusion of all other risks that an organization like a foundation should be monitoring and taking into consideration."

O'Brien says she encourages board members to conduct a risk matrix exercise — an analysis of possible and potential issues they could face.

That means identifying the dangers both internally and externally and determining ways to mitigate them, as well as conducting regular monitoring of issues "to make sure you're keeping an eye on the prize," O’Brien says.

"I tell them they are a fairly complex organization that raises money and finds donors, which are very important, but they are also employers, and they have risks around that," she says, such as complying with employment law, developing a respectful work culture, and worrying about workplace harassment, human rights and discrimination.

"These foundations have significant assets, they have endowments and investments and they need to ensure it's done properly — as there are significant rules around charities — and that they are appropriately using the money they received from their donors," O’Brien says.

It's also advisable to conduct a financial management risk exercises as both investments and charities are governed by various regulatory bodies that oversee a foundation's financial transactions, she says.

"Where I have seen things go off the rails and real risk created, is when there is a change in senior staff and what was once a 20-year strong, functional relationship immediately disintegrates because a new personality enters the mix with a different expectation of the relationship between the hospital and the foundation," she says.

To help prevent that, O'Brien suggests the foundation document key expectations while the relationship between the two entities is good, outlining shared resources and how and when the organization will supply funds to the hospital, methods of communication, and the agreed-upon processes.

"When things are not going well, you can fall back on those documents," she says. "If it's not in writing and the dynamic shifts, you're in trouble. I've seen lawsuits arise when a new CEO comes into place with a very different view of what the relationship should be. It could be toxic."

Good oversight and procedures to deal with risks and crises helps maintain a foundation's reputation and image, in part by developing beneficial relationships within and outside the foundation, and managing stakeholders, O’Brien says. 

"You're only going to be successful doing what you do by avoiding bad press, unhappy donors and stakeholders, where everybody is conducting themselves properly and there's no social media blitz against you," she says.

"I've been talking with my clients about this, advising that when having board meetings and discussing what its oversight should be, they have to expand beyond raising money, they have look at these other elements as well," O'Brien says. 

Foundations are corporations and they have contracts to honour, regulators watching them, and employees dependent on them, "so they have to look at all those risks that every other corporation has, plus fundraising," she says.

"Some of them are doing it the other way around, they just ignore everything else assuming it's all going OK and only concentrate on fundraising," O'Brien says. "Part of that happens because some foundations, when recruiting people to the board,  focus on getting a philanthropist and those people who can get them into communities to raise funds.

"The people sitting around the board table think they're only there for one reason, fundraising," she says. "What they have to do is diversify so that not everyone is wearing a fundraising hat."

She says board members should have expertise in such fields as regulatory compliance and financial oversight. "They need diverse boards with different skill sets," O'Brien says.

Foundations often don't have a risk manager and it falls upon the CEO and the board to ensure the issues are on their radar, she says.

O'Brien suggests developing a checklist that the board can rely on to make certain they review issues throughout the year, "and checking in regularly on the risks that they collectively identified, enhanced with regular reporting from the CEO and senior managers."

The risk matrix is not only to identify issues, threats and potential peril but also to establish best practices and policies to mitigate those dangers, O'Brien points out. "Part of that is to have insurance, proper policies and communications plans in place," she says.

O'Brien says the matrix should also develop a sliding scale of how likely an event would occur and another scale to place a value on how bad damaging it would be to the organization. "This is to quantify what risks you need to focus on," she says. "Part of the risk matrix exercise is trying to prioritize the risks because you can't do everything at once.

"I've created a template for them to show that this is what your matrix can look like, and I start to fill it in, but it has to be customized because each of these organizations is unique and has different issues and challenges," O'Brien says.

But not all potential dangers are internal.

"You look at the risks within your organization which you presumably can control, and then you can blue sky and look at the outside risks that you can't control, and try to determine the ways to mitigate that," she says.

"If boards do this properly, it should create more trust with the public and donors, and a much more solid and well-rounded organization," O'Brien says.

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