Managing risk in charities means building up your reputational capital

The treatment of charity finance has received a lot of high profile attention from the media. It us undeniable that the absence of appropriate systems to manage risk in charities, leads to the integrity of an organisation being pulled into question. Let’s explore what that really means.

What is reputation capital?

The negative press coverage of charities is hard to take when you have dedicated your working life to charity and sacrificed salary and time. Of course, it is hard to hear endless criticism and it is a natural reaction to say “but you don’t understand”, especially when it comes to charity finance. One charity chief executive recently told me that all her conversations with her team started with those words – which is a concern. It means the person is not actually listening to the critical points being made. None of us likes criticism, but it is worth trying to detach yourself emotionally and stop to think: perhaps the critics have a point?

We need to appreciate that a reputation is what other people think about you or your organisation. The risks to your reputation that you need to manage as an organisation are twofold: first, people expect more of your organisation and you disappoint them; second, people’s expectations change.

For both of these, you need to have a good understanding of people’s expectations, so you should engage regularly with your stakeholders. You might be acting in accordance with your values, but still be out of touch with your stakeholders. Society and attitudes change, so it is easy to be caught out. It feels like this has happened to the charity sector recently: we thought we were all good people trying to do our best, and that that was enough. It turns out that other people don’t actually think like that and we appear to be out of touch with the rest of society.

How do we make a change to manage risk in charities?

Risks to an organisation’s reputation are relevant to every member of staff and every volunteer. Everyone can have an impact on the organisation’s reputation, so you need to find ways to engage people at all levels with this type of risk in a way that means something to them.

In some sense, this is conveyed through the organisational culture and the values you hold as a charity. You will certainly be helping to raise awareness of this issue if you communicate your values effectively to everyone in the organisation.

Managing risks to your reputation is not simply about reacting to adverse publicity. If you are to manage these risks, you need to consider building up your reputation capital.

Ways in which you can pay into your reputation account are mostly about raising awareness of what your charity does and whom it helps. The publicity and communications of charities are often aimed at potential donors, but this is not just about marketing. You should consider ways of communicating the impact of your work and how you help your beneficiaries.

You can also achieve an increase in reputational capital by being honest about failure and problems. For example, your charity might experience significant fraud in a branch. This is not a killer blow to your reputation, but an opportunity to demonstrate openness and honesty with your stakeholders and of course manages risk in charities.

For more information on managing risk and charity finance, book a place on this years Charity Accountants’ Conference on 15-16 September