Recently I heard a commentary on an NPR radio station that board members ought not to be held responsible for their decision to turn their investment management over to Bernard
Madoff. I was amazed at the statement. I wondered don't board members understand their fiduciary responsibilities. In an earlier blog, I had outlines a board member's responsibilities as they appeared in my book,
Cardinal Principles of Governance: trengthening The Governance of Nonprofit Organizations In America's Communities. What I neglected to introduce in chapter 3, 'A Board Member's Guide to
Finduciary Responsibilities', were
recomendations regarding investment policies. I had seen a number of policies over the years; all geared to the size of the organization as well as its endowment. One of the best ones that I have read is one from a large nonprofit organization in the greater Boston area.
It is the board as a whole that approves investment policy. They ought not be influenced by board member who met someone on the golf course or at a dinner party. Due diligence must be employed in building a portfolio. Investments are usually
overseered by finance committees and their investment committees. Small organizations may relegate this responsibility to a few members of the finance committee. Whatever the committee format, it is important that it and its policies be approved by the entire board. Everyone, in turn, should understand that donors expect their donations to be handled with care, expertise, and dedication.
If one turns the donation over to a third party to manage and invest, the board must carefully investigate the management firm through the Securities and Exchange Commission as well as assuring themselves that the firm has a responsible auditing firm, ideally one of the big eight.
It is the investment committee's responsibility
to set and periodically review its long term investment policies and objectives. It is the board's responsibility to approve them. Here are some recommendations regarding policy:
- If the organization has retained a firm to manage and invest funds, make sure that they, in turn, use a well known brokerage firm, such as Fidelity, T. Rowe Price or Charles Schwab to handle the transactions and the related paper work.
- Make investments with a predetermined Asset Allocation plan that is based on generally accepted parameters of risk and return.
- To the extent possible, take care to implement an investment strategy, placing little, if any, emphasis on the current or near-term investment climate.
- Funds should be invested to ensure that principal is protected and enhanced over the long term.
- Cash should be held in checking and savings accounts as well as in certificates of deposits fully insured by the federal Deposit Insurance Corporation or the National Credit Union. obligations of the United States government or its agencies, and commercial paper with a rating of A1 from Standard and Poor's or P1 from Moody's.
- 'A fixed income portfolio should be well diversified with consideration to limiting no more than 50% in any sector, quality or maturity to the extent that it is both measurable and practical.'
- The investment committee, in agreement with the governing board, reserves the right to convert securities as gifts and bequests into investments; at times, it reserves the right to refuse gifts. Such actions should be approved by the full board.
To get copies of investment policies, contact other nonprofits or associations of nonprofits such as NACUBO, the National Association of University Business Officers. After the Madoff madness compounded by the economic crisis, it is time to be cognizant of our fiduciary responsibilities. I am sure we will.
