Board competencies, network ties and risk management disclosure practices in non-profit organizations

Abstract

In the current challenging economic environment, non-profit organizations (NPOs) are exposed to an array of risks and some of these risks are unique due to the characteristics of the organizations. Understanding and managing these risks are crucial in ensuring sustainability of the NPOs and the responsibility lies with the board. However, risks management and disclosure of risks in NPOs is less well developed relative to for profit organizations and this may affect boards’ role in enhancing risk management practices of these organizations. As such, this study aims to examine the relationships between certain board characteristics: board competencies, network ties and risk management disclosure practices in NPOs. Information on these variables are obtained from content analysis of annual reports and Financial Information Forms of 219 NPOs registered with Companies Commission of Malaysia for the financial period 2011. Results of this study reveal that the overall extent of risk management disclosure practices is at a moderate level. In addition, only board competencies are significantly positively related to the extent of risk management disclosure practices while network ties are not. This infers that some board members acknowledge the importance of being engaged in risk management decision. However, lack of specific guide on risk management in NPOs may reduce the motivation of some board members to do so. The guidelines and relevant trainings to board members provided by relevant authorities may increase the understanding of key risks and management of these risks as part of good governance in NPOs.