Risk aversion: what’s holding charity boards back?

Two recent research projects offer valuable insights. The first, conducted by the University of Bath and sponsored by Charity Finance Group (CFG), explores board composition and psychological bias. The second, by CFG and The Risk Collaborative for the Charity Commission, examines how regulation shapes risk management, specifically referencing the Commission’s CC26 guidance. Together, they offer practical lessons on strengthening decision-making and viewing risk as a strategic opportunity, which we will explore in the webinar ‘Risk aversion: what's holding boards back?’ on 25 November.

The University of Bath study investigated how ‘groupthink’ and bias, such as confirmation bias, authority bias and expertise bias, detract from good governance. By surveying the sector and applying behavioural science, the researchers unearthed two critical paradoxes:

• The mission alignment paradox: while boards highly value ‘mission alignment’ in current trustees, very few actively recruit for it. This prized personal quality is frequently left to chance.
• The specialisation trap: counter-intuitively, adding specialists to broaden skills can deepen behavioural biases. It often leads to seniority deference and a reluctance to challenge peers in their respective domains. Consequently, more expertise does not automatically yield better scrutiny. The research also noted that the propensity for bias increases with larger board sizes.

Underpinning these findings is the issue of psychological safety, the shared confidence to disagree without penalty. While most trustees feel personally comfortable challenging ideas, they simultaneously report that a willingness to challenge is exactly what their board lacks. Individual confidence does not equal a collective culture of challenge. Without safety, even diverse boards drift toward premature consensus.

To combat these biases, the researchers developed the DREAM framework, which defines five elements of a high-quality board decision:

• Duration-aware: balancing short-term needs with long-term impacts
• Risk-considered: thoroughly weighing downsides, potential failures and upsides of risk
• Evidence-based: grounding decisions in adequate information
• Alternatives considered: surfacing real options before voting
• Mission-aligned: prioritising beneficiaries above all else

Rather than acting as a simple checklist, each criterion maps to a measurable trait that can be assessed during trustee recruitment using free, signposted tools.

The second research project, led by The Risk Collaborative for CFG, informed the Charity Commission’s review of its risk management guidance (CC26). Sector leaders have long worried that current guidelines frame risk purely as something to avoid, rather than a necessary catalyst for innovation. This ‘risk is bad’ mindset fosters risk aversion, ultimately limiting a charity's social impact.

The study engaged over 300 charity leaders and 45 roundtable participants. While charities actively manage risk as a ‘habit of mind,’ the structural tools to do so remain disconnected from governance.

Crucially, 55% of respondents using a risk register stated its role in decision-making is limited. Decisions are typically made through separate processes that rarely reference the register.

To address this, the report recommends that refreshed regulatory guidance serves as an active aid to decision-making rather than a rigid compliance tool. It advocates for a modernised definition of risk and calls for the CC26 guidance to be made more visible and usable for charities of all sizes.

The research also highlighted funder relationships as a structural barrier to healthy risk-taking. While 76% of grant-funded respondents reported that funder risk requirements are increasing, fewer than half (49%) have regular conversations with funders about risk thresholds.

As one CEO noted, a fear of failure among large grant-awarding bodies distorts their risk appetite, which negatively impacts the broader sector. The authors recommend that the updated CC26 guidance explicitly incorporate the concept of ‘risk-sharing’ between funders and charities.

Together, these research projects provide essential insights into board effectiveness. Psychological bias can silence diverse perspectives, while outdated regulatory mindsets encourage risk aversion. By fostering internal psychological safety and embracing an active, decision-focused approach to risk, charity boards can overcome these barriers and safely unlock greater social impact. To find out more, join our webinar ‘Risk aversion: what's holding boards back?’

• Access the report from Bath University
• Access the CFG report on CC26

Nigel Kippax is an advisor on charity board effectiveness and an associate of Charity Finance Group.

^{*the views expressed are the author's and not ICAEW's}