The Board and Risk Management

Risk is a land trust leader’s indispensable companion. There is no progress without some element of risk. Yet, there is no need to fear what the future holds. Effective land trust leaders must cultivate their risk-aware natures, while still paying adequate attention to the innate instinct for risk aversion, which helps protect the organization from catastrophic loss or harm. If you lay the foundation for a strong risk management program—by creating a risk-savvy culture, incorporating the perspectives of important stakeholders and recognizing that risk management should be strategic — your risk management program can be a driver of success in your land trust.

The Land Trust Alliance, in its materials on Land Trust Standards and Practices, notes how every land trust should regularly assess its risks and evaluate risk management options. This may involve inventorying potential hazards on and potential uses of land trust properties, reviewing state liability and protective laws, setting up a procedure to document and review every injury or near miss and deciding what steps need to be taken to avoid similar events in the future and other actions.

However, the best risk assessment and management program, the best state recreational use statutes and the best lawyers cannot prevent all lawsuits. Thus insurance (commercial general liability, nonowned automobile liability, property and coverage, directors and officers, liability and other, as appropriate) is important for every land trust, including consideration of joining Terrafirma, the member-owned conservation defense liability insurance created by the Alliance.

Also, following the guidelines contained within Land Trust Standards and Practices could help reduce the land trust’s risk. If a land trust is involved in litigation, a court would be likely to look at the specifics of the issue at hand — for instance, if the land trust had the proper documentation or employed standard business procedures, or if the easement was well drafted and contained language related to estoppel and waiver of defenses. Accreditation can help, too. Actuarial data from Terrafirma participants show that accredited land trusts are 18% less likely to experience a legal challenge on a parcel. If your land trust becomes involved in litigation, it should always seek outside legal counsel to guide its actions.

Risk Management Responsibility

The board of directors of a land trust has ultimate responsibility to protect the land an organization owns or cares for. The board also has a legal duty to protect the organization’s other assets and resources, such as its people and reputation. The terms ultimate responsibility and legal responsibility are synonymous in this context. They remind us that land trust boards must exercise care in determining how they will
steward the land they conserve, while also ensuring the proper use and protection of financial, human and other assets essential to advance the mission of the land trust. The discipline of risk management offers principles, tools, frameworks and strategies that land trust boards can employ to fulfill their “ultimate” and “legal” responsibilities. The discipline also offers guidance that can be helpful to landowners and community leaders who share the board’s desire and commitment to protect the mission and assets of the land trust.

Embracing risk management as a discipline to protect the land trust’s assets involves:

• Understanding basic risk management terms and concepts
• Learning to recognize and evaluate the special risks that arise as a result of land trusts’ work
• Recognizing the potential risk management roles of land trust personnel
• Formulating practical risk management plans and strategies suited to a land trust’s circumstances, current operations and long-term goals

The book A Guide to Risk Management for Land Trusts provides an introduction to risk management in order to equip land trusts with information, resources and suggested strategies for designing and implementing a practical risk management program. It’s important to recognize that there are many methods and approaches to understanding and managing risk. The approach best suited to one organization may be impractical, inappropriate or ineffective in another.

Utilizing the Board Effectively

The board of directors is critical to the success of a risk management effort for several reasons. First, the governing body has responsibility for determining the direction of the organization. Second, the board has ultimate legal responsibility for the well-being and sustainability of the land trust. Finally, effective boards bring diverse points of view, biases, interests and levels of commitment to their deliberations.

To ensure that you are tapping the unique perspective of the board to its fullest, consider the following strategies:

• If your land trust has staff, include at least one board member on the organization’s risk management committee to ensure that the board’s perspectives are represented. This board member will represent the governing body in meetings and act as a liaison to update the board on the committee’s work. While board members with professional backgrounds in law, insurance or finance may be obvious candidates, a better approach might be to invite the board member who has expressed the most concern about the organization’s risk exposures to serve.
• If necessary, educate the board on the risks that arise from governance activities. Too often, boards focus on the operational risks facing their organizations but overlook the risks in their own work. Failing to follow the organization’s policies, including its bylaws, is a common misstep that can be avoided when the board is specifically charged with appreciating and managing governance risks. For example, the decision of a board could be overturned or vacated if challenged by a member and if a quorum, as required by the bylaws, was not achieved before the vote was taken.
• Position the board as the champion of the land trust’s risk management program even if your land trust has staff or your all-volunteer land trust has extensive volunteer networks administering programs. When staff is left to handle risk management without the board’s involvement, it is likely that risk awareness will be limited to those areas that concern staff, and the risk management program may not focus on issues that are of concern to the board.
• Actively solicit all board members’ opinions on the organization’s strategies to deliver its mission and manage its risks and follow up on their ideas. Always close the loop on feedback by looking for ways to integrate the board’s insights and wisdom in the organization’s risk management program.

Seven Risk Questions for Your Board

Too many nonprofit board meetings are structured around relatively “safe” agendas, comprising routine reports from staff members and board committee chairs and feeding the board answers to questions about mundane operational issues. Little time remains for open-ended questions about strategy and risk taking. In truth, many board chairs and CEOs are uncomfortable scheduling time to contemplate questions for which there are no easy answers.

Don’t allow your discomfort with uncertainty to dampen your commitment to engage the board in a discussion on the crucial strategic risks facing your land trust. If you’re working on your next board agenda, consider the questions below. Invite the board to discuss these questions as a way to engage in a high-level conversation about risk taking and risk management.

• Risk taking: What big risks are worth embracing this year or next to advance our mission?
• Risk landscape: What mission-related risks are starting to emerge on our horizon? What additional information do we need to understand and act?
• Lemonade from lemons: What seeds of opportunity exist in the risks we fear the most?
• Progressive lens: Are we using our collective, progressive lenses to reflect on our past, appreciate our present and anticipate our future, or are we only seeing risk through a single lens?
• Risk oversight: Is the board contributing to a shared understanding of the organization’s top risks?
• Lessons learned: During the past year, what important lessons did we learn from our “crowning achievement” and from our biggest disappointment?
• Risk resources: Have we made an appropriate commitment in terms of personnel time and financial resources to understand the risks we face and make adjustments as needed?

Do not waste time talking about only the simple questions and decisions facing your land trust; capitalize on the board’s time and talents. Reflect on key strategies and building the resilience your land trust will need to conquer tomorrow’s surprises.

Land Trust Standards and Practices on Risk

Practice 6I. Risk Management and Insurance

The land trust assesses and manages its risks and carries liability, property and other insurance appropriate to its risk exposure and state law. The land trust exercises caution before using its land to secure debt and in these circumstances takes into account any legal or implied donor restrictions on the land, the land trust’s mission and protection criteria, and public relations impact.

Practice 8K. Evaluating Risks

The land trust examines the project for risks to the protection of important conservation values (such as surrounding land uses, extraction leases or other encumbrances, water rights, potential credibility issues or other threats) and evaluates whether it can reduce the risks. The land trust modifies the project or turns it down if the risks outweigh the benefits.