Sunday, February 26, 2017

Seminary PL36: Risk Management

This is the fifth post on church administration in my "Seminary in a Nutshell" series. In this series, I first did a section on the Person and Calling of a Minister. Now this is the thirty-sixth post in a section on the Pastor as a Leader (see at the bottom).

The previous post was on leading meetings. This post is on the topic of risk management.
1. Risk is part of human life, and the church is no exception. Our individual personalities vary in our propensity for risk. The young tend to take more risks, it sometimes seems. They are more resilient, better equipped to rebound from failure or tragedy, and often unaware of potential consequences.

We tend to get more conservative in our risk-taking as we get older. As we get older, we often have less to gain from risk and more to lose. We may also know more stories of failure and be more aware of danger.

"Nothing ventured, nothing gained," goes the quote by Benjamin Franklin, and the church is no different. A church that risks nothing is probably a dying church. Jonathan Haidt suggests that the majority of human beings probably fall on the more protectionist end of the spectrum, which suits our survival as a species. [1] At the same time, there is usually a minority of risk-takers in a culture who push the protectors out of their comfort zone. And of course sometimes the protectors kill the risk-takers.

2. Risk management is that part of an organization that calculates the risks associated with various practices, policies, or procedures. It is an important part of any organization, although it should only speak into the decisions of an organization. An organization run by those whose major focus is to avoid risk is probably an organization on the decline.

I heard a parable of two presidents of an organization once. The first president used lawyers to get the organization out of trouble. The second ran decisions through lawyers before making decisions. The organization experienced phenomenal growth under the first. It started a significant downward trend under the second.

Risk should not be taken lightly, but it should not be allowed to paralyze a church or organization. Small churches are notorious for change and risk avoidance. Meanwhile, growing churches and organizations can usually point to key moments when reasonable risks were taken. Mind you, we are probably not talking about crazy risks. Jim Collins and Morton Hansen disabuse us of the notion that successful businesses are run by leaders who are wild, intuitive risk takers. Rather, they are individuals who have good data-driven intuitions. [2]

3. What kinds of risks are there? Here are some areas of risk for a church:
  • legal risk - the major focus of this entry, risks relating to potential lawsuits or legal penalties
  • financial risk - risks to the financial health of the church
  • operational risk - risks to the healthy functioning of the church's operations
  • membership risk - risks to the attendance or participation of a church's attendees
  • impact risk - risks to the impact of the church on the community or the world
  • spiritual risk - risks to the church's relationship with God
Church boards and congregations weigh these sorts of risks all the time when making decisions. How will those who come to this church react to this decision? What impact will this decision have on the community around us? Will this decision improve the spiritual condition of the church or cause it to deteriorate? Will this decision help the church function better or worse? Do we have adequate finances to undertake this venture or will it have a negative impact? What will be the impact on morale if we make this decision?

4. Even though I classified this post in terms of legal risk, I don't mean to give the wrong impression. For the most part, the regulations of the law serve to protect and benefit the people in our churches, including the pastor and staff. Excesses here and there do not outweigh the general good of the law for the people in the church.

Local contexts often have laws that an individual congregation has to address. There are zoning laws, for example, that affect where a church can be located. I knew a church that had to make major changes to its landscaping when it entered into a building program because of local laws. Some contexts can be hostile to churches, making it increasingly difficult to advance. Others direct their prejudices toward other groups.

Perhaps 1 Peter 2:12 is relevant here: "Have such good conduct among the nations that, even when they slander you as bad people, they will be forced to glorify God on the Day of his visitation because they have seen your good conduct." Similarly, "Always be prepared to testify to those who ask about the reason for the hope that is in you" (1 Pet. 3:15). If Romans 13:1-7 means anything, it suggests that Christians and churches should abide by the laws of the land--whether they make sense or not--unless they come into direct conflict with serving God.

5. Some of the topics related to legal risk include:
  • contracts
  • background checks
  • taxes
  • insurance
  • financial audit
There are sites that go into much more detail with much more expertise on these sorts of matters than I possibly could. Here are a few:
6. Smaller churches have traditionally handled such things by way of someone who happens to be gifted with accounting or finance. Small churches often have individuals with such gifts in attendance and they often get elected church treasurer. Churches also usually have a small group of individuals appointed trustees to be the legal representatives of the church.

Being part of a denomination usually helps in these areas, as there are usually individuals within the larger organization who can create forms and inform about best practices. The larger organization usually has a legal structure within which it operates and the smaller church can simply fill in the blanks of that legal framework. Larger churches will typically hire someone to take care of these dimensions of the church.

7. So a church should have by-laws that establish who has legal authority within the church. For my church, The Wesleyan Church, our Discipline establishes the overall legal framework for churches in the denomination.

My denomination gives yearly tax advice to its pastors and churches. The tax situation of ministers is more complicated than for most people, and it is not uncommon for those who prepare taxes not to be familiar with the details. Ministers are usually considered to be self-employed, which means that they can deduct a housing allowance from their salary. They also then have to pay their social security directly (rather than the church paying it).

8. The ins and outs of such things can be rather complicated. For example, the Affordable Care Act and the Fair Labor Standards Act put restrictions on part time labor and require insurance for certain people. But these are moving targets, especially as presidential administrations change. Hopefully a local church is either part of a denomination tracking such things for them or it has one or more gifted individuals who can seek out the proper information.

The Affordable Care Act provided new means for pastors to have solid health care. Denominations use different insurance groups. Some pastors use groups like Brotherhood Mutual or Christian Healthcare Ministries. Some of these groups operate by reimbursing members after they have paid for an expense. In this way, their yearly cost depends on the actual amount of medical expense after the fact rather than on a calculation of a probability beforehand. The downside is that the insuree may be out of pocket some in the meantime.

9. A church's financial books should have a yearly audit by a third party that does not have conflicts of interest with the treasurer. Accountability is key to preventing and catching wrongdoing, as well as to making the broader congregation have confidence in the church.

10. Special care should be taken in relation to those who would work directly with children. A background check is in order. This should be a policy rather than a matter of special resource. No one should be singled out.

It is good practice for youth groups to have parents sign their permission for any special activities that may take place. Such permission usually asks for emergency contact information and perhaps permission to get medical treatment if necessary. Sometimes such permission forms ask the parent not to hold the church responsible for any accidents that may take place on the trip or outing. Such statements would not let the church off the hook for any gross negligence.

11. Confidentiality is not only loving and therefore Christ-like. It is wise. The private information of employees should be kept private. The biblical world was a shame culture but the Western world is not, and shaming does not have the same consequences that it had in the biblical world. "Discretion is the better part of valor."

12. I would hope that the church--of all institutions--would be an equal opportunity employer. Churches that do not hire women or people of color for those reasons are a disgrace and embarrassment to God and the kingdom. The composition of a church should at least look like the community in which it is located. Even better, it should move toward the kingdom of God in Revelation 7:9, where people of every nation, tribe, people, and language will be present on an equal footing.

13. When deciding whether to take a risk, there are a number of options:
  • Don't take the risk.
  • Reduce the risk in some way.
  • Share the risk with some other entity.
  • Fully take on the risk. [3]
Doing a risk assessment should be part of any new proposal. There will always be risk in any decision--including not making a decision. Doing nothing is often much riskier than taking a chance on some other course of action. This relates to the hats of Edward de Bono's Six Thinking Hats. In this tool, he suggests your group think through a decision by going through several "hats" in the process. You are not supposed to mix the hats but only use the way of thinking of each hat, one at a time (I have changed the hats from how he used the colors):
  • gray hat - facts and figures, data only
  • red hat - how are you feeling about it (no facts, just feelings)
  • yellow hat - what are the negatives (I am changing this to relate to caution)
  • orange hat - possibilities thinking, positive speculation (changed from his list)
  • green hat - creative thinking
So when you are wearing the yellow hat, as I am defining it, you consider risk and possible negatives. You get it all out of your system. Then you have to let the other hats have their full say when you are doing them. The yellow hat can be put on again but it is not allowed to infect the orange or green hat times as I am defining them. This limits naturally negative people to just those parts of the discussion when the negatives are being discussed, when the "yellow hat" is on.

Bottom line: "Be wise as serpents and harmless as doves" (Matt. 10:16).

Next Week: Pastor as Leader 37: Muzzling Oxen and Burying Talents

[1] The Righteous Mind.

[2] Great by Choice.

[3] See "Risk Management" in Wikipedia.

Leadership in General
Strategic Planning
Church Management
Conflict Management
Church Administration

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