managing risk.pdf

24 Chapter 2 - Good Governance: Managing Internal RiskIn executing its strategic responsibilities, the board must keep in mind all of its stakeholders. It is accountableto the MFI and its shareholders—and has a duty to act in their best interests—but should also consider theinterests of employees, creditors, customers, suppliers, and the local communities. Moreover, it should observerelevant environmental and social standards (OECD 2004) (see box 2.3).Box 2.3 The Board and Social Performance ManagementNearly all MFIs have social goals: their very existence—at least in part—is to serve a social purpose. An MFI’ssocial goals must be clearly expressed within its mission. “Mission dri” occurs when an MFI’s focus onsocial issues is lost because its purpose is vague or is neglected in pursuit of other goals (such as profitabilityor growth). One key role of an MFI’s board is to protect and balance social and financial goals and to guardagainst mission dri. This is no easy task.Social performance management (SPM) is an instuonalized process that involves seng clear socialobjecves, monitoring and assessing progress toward their achievement, and using this informaon toimprove overall organizaonal performance. SPM engages a wide spectrum of stakeholders into the MFI’soperaons, including board members.The key reference in SPM within microfinance is the global acon-research Imp-Act Programme, which hasworked with more than 30 organizaons worldwide to develop an overarching framework that promotesSPM as a core business funcon. The framework combines regular monitoring of client status, analysis andcommunicaon of findings, and corresponding adjustments to products or service delivery that will improvethe MFI’s program.Source: Campion, Linder, and Knos 2008.SupervisionThe board delegates operational and administrative responsibilities to the chief executive officer (CEO) andthe management team. However, it is responsible for monitoring management’s performance in executingapproved plans and for evaluating their performance against planned goals and timelines. For this reason, andto judge management impartially, the board should resist involving itself in the MFI’s management of dailyoperations. If it becomes a surrogate for the staff, it will fail in its supervisory capacity. In times of institutionalcrisis or succession of a CEO, a board may be required to assume temporary management. However, this roleshould be relinquished as soon as competent management is restored. Finally, the board should periodicallyevaluate its own performance and effectiveness (see box 2.4).