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Winding Down: A Risk Management Checklist

The Nonprofit Risk Management Center has developed a ten-page narrative and “checklist” for leaders in the process of winding down their nonprofit organizations. This free resource offers an overview of the process of dissolution (which is an action governed by state law), as well as a list of issues that CEOs and board leaders should consider when planning to wrap up the operations of a nonprofit. The complete resource is available here.

One of the topics covered in the checklist is the subject of governance. There is likely to be great angst among board members who want to support the organization at this critical time, and loyal members may also express anger that the organization is closing its doors.

Some may have been present at the organization’s founding or be so closely aligned with the organization that they believe their own reputation is inextricably linked to the nonprofit’s and that dissolution equates to failure.
It is especially important for board members to remember their duty of loyalty to the organization and to make decisions that are in the best interests of the organization.
By the time the decision to close the nonprofit’s doors is made, several board members may have resigned.
State law determines the minimum number of board members for a nonprofit organization (it is generally two or three; a small minority of states permit single member nonprofit boards.)
Be mindful of the minimum number of board members required. If appropriate, and at the appropriate time, all board members except the minimum number may resign during the winding down period.
It is a violation of a board member’s legal duty of care to the nonprofit to resign if his/her resignation would leave fewer than the minimum number of board members in place.
Determining who stays and who leaves is an important decision for the nonprofit during this sensitive period.
Those remaining will have to ensure that all required filings are completed with the state and the IRS, and that correspondence with stakeholders, insurance carriers, and possibly vendors is handled professionally.
The winding down process may require several months. Those who remain may be involved in the nonprofit’s closure off and on for several months after the nonprofit ceases day-to-day operations.

We All Do It: Mistakes in Nonprofit Life

By Melanie Lockwood Herman

Human beings are prone to making mistakes. In his poem titled, “An Essay on Criticism,” eighteenth century English poet Alexander Pope reminds us that occasional screw ups are inevitable and rooted in our humanity. The best known line from the poem is “To err is human, to forgive divine.”

If mistakes are common and an inextricable part of the human condition, how can nonprofit leaders tap into the knowledge that paid employees, volunteers, and even clients are bound to make mistakes? A closer look at why mistakes occur and how leaders often respond offers potentially helpful insights.

Pulitzer Prize winning journalist Joseph T. Hallinan uses humor, science and research to explore “why we make mistakes” in his book, Why We Make Mistakes: How We Look Without Seeing, Forget Things in Seconds, and Are All Pretty Sure We are Way Above Average. Hallinan suggests that we’re too hard on ourselves when it comes to blaming ourselves and our fellow human beings for mistakes. He explains that biases in “the way we see, remember, and perceive the world around us” often lead us to commit various errors. One example is the hindsight bias. We experience the hindsight bias when something seems obvious to us after the accident, mistake or misstep. Yet too often we fail to fix the underlying cause, preferring instead to affix blame on a human being and move on. One of Hallinan’s tips for reducing mistakes is “…to be less optimistic, especially when making decisions. That’s because most of us tend to be overconfident and overconfidence is a leading cause of human error.”

In their book Surviving and Thriving in Uncertainty: Creating the Risk Intelligent Enterprise, authors Frederick Funston and Stephen Wagner emphasize the importance of surfacing mistakes quickly. They remind their readers that “If you shoot messengers and don’t tolerate dissent, you will not find many messengers or dissenters in your organization.” They remind us that too often when mistakes are discovered, an organization’s all too human leader looks for a human being to blame and punish rather than searching for the systemic issues that may have triggered the error. When the organizational culture assumes that humans are always to blame, a human “culprit” will be associated with every mistake. Funston and Wagner suggest a 180 degree reversal of the instinct to blame, suggesting that leaders “…consider punishing those who bury bad news and hide problems, and recognizing those who have the courage to speak the truth as they see it.”

Risk Management Tips for Reducing Mistakes

Consider the following tips as you reflect on how to change a “blame and shame” culture to one that is driven by the commitment to fix what needs fixing.

Encourage dissent. Bring employees who disagree with a proposed strategy to the front of the room. Explore the reasons for dissent and listen intently to those with the courage to speak up.
Resist the urge to bury mistakes. The fear of being blamed for a costly mistake leads to cover ups while increasing the odds that the mistake will be repeated. Praise, rather than punish employees who bring mistakes to the forefront, especially when they identify their own errors and do so in a timely basis.
Think risk. The optimism bias leads us to expect that things will turn out better than likely. Remember that it is possible (and advisable!) to consider downside risk without sinking into despair. By giving some thought to the possibility of a bumpy road, twists and turns and undesired outcomes, you’ll be in a stronger position to manage what happens, whatever happens.
Look for root causes. It’s easy to find fingerprints on mistakes. Instead of blaming Bob or Mary, look for systemic reasons and causes. It’s possible that Bob’s error resulted from convoluted or contradictory instructions. And Mary’s mistake may have been due to an unrealistic expectation that she follow a list of precise, sequential steps while multitasking.
Look for ways to simplify policies and procedures. Simplification is an inexpensive way to reduce mistakes and resistance. During risk assessments we often encounter policies that aren’t followed precisely because staff members have a hard time understanding what is expected. Enforceable policies do not need to be wordy and bureaucratic. Rewrite and rework policies so they are most likely to be understood by newcomers and veterans alike.
Add the topic of mistakes to the agenda. Consider exploring miscalculations at your next senior staff or board meeting. Possible questions to get the discussion going include:
- What was the biggest mistake or miscalculation we made this year?
- Do we have a clear understanding of what went wrong?
- What is required to better understand how, when and why things did not turn out as we hoped they would?
Recognize that culture change is required to shift from blaming human culprits to fixing broken systems and practices. It’s neither practical nor productive to terminate the employment or volunteer status of every human being who makes a mistake. A commitment to reflecting on how and why mistakes occur is less expensive in the long run.
Be an example. Leaders who willingly and honestly admit mistakes set the right tone in an organization, while executives who bury their own errors, or worse—blame scapegoats—send a potentially dangerous message to the rank and file. If you expect your staff and volunteers to step forward and admit their mistakes, you’ll need to step up first.

In many nonprofits, mistakes remain “dirty little secrets.” Yet research on human behavior and organizational culture teaches us that humans will always be prone to error. When we fail to look beyond the human face associated with a mistake we miss the opportunity to prevent its recurrence and fortify our organizations for the uncertainty that lies ahead.

Melanie Lockwood Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your feedback on this article and questions about the Center’s resources for nonprofit leaders. She can be reached at Melanie@nonprofitrisk.org.

Melanie’s most recent books include EXPOSED: A Legal Field Guide for Nonprofit Executives, which includes chapters on contracting risks, employment liability, and legal issues and the nonprofit board. Information on this book and other recently released publications can be found at: www.nonprofitrisk.org/store/hot.asp.