Investments and Governing Boards

The current economic crisis has created for many nonprofits in the United States and untenable situation for many of our country’s small to medium size nonprofits that have some sort of endowment. Endowment funds come in all sizes and shapes. Some are created by donors who actually restrict the use of the money; others are created by an organization’s board. The ones created by donors are truly restricted. When a board sets aside money, the board is in actuality temporarily restricting the use of the money, but it can re direct its use at any time by a vote of the board. Where and how the money is invested is a fiduciary responsibility of the board. This usually falls into the purview of the finance committee, which usually appoints an investment committee. Members of the investment committee may be board members and/or individuals who are not board members. These individuals ought to be chosen based on their interest in the organization and the expertise they bring to it. The investment committee, like the entire board, has a responsibility to make prudent decisions about the investment vehicles chosen. Decisions should focus on the conservative side with a balanced package of investment tools. To avoid what I now refer to as the’ Madoff Syndrome’, a major nationally known brokerage firm should be used. Fidelity and Schwab are examples. Whatever the size of the organization, the CEO must not take responsibility for directing the investment strategy…no matter how knowledgeable the individual is. The best known example of a CEO trying to steer the investment strategy is that of Harvard University’s president, Lawrence Summers taking the investment wheel from Jack Meyer, head of the university’s endowment. Despite warnings, Summers insisted that 100% of the university’s cash be invested with the endowment. And the economic crash came, leaving Harvard with a shortfall of $1.8 billion. The investment team should be guided by certain principles. These should be laid out in a policy that the board reviews and votes on. The guidelines should be spelled out within a dated policy entitled, Investment Policy. To begin developing an investment policy, contact a variety of nonprofits and ask them to share their investment policy with your organization. Read them carefully. Sort out what is applicable to your organization. Included in the policy ought to be a provision that authorizes the board to sell gifts of stock unless the gift has a specific restriction. Begin outlining an investment policy today. Don’t put this off. Do it today!