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Are You Managing Your Assets Properly?
7 Steps to Protect You and Your Ministry from Loss and Liability| posted 11/02/2007
Leaders of nonprofit organizations face difficult choices when trying to determine how best to manage their accumulated institutional assets. Many organizations are comfortable with an informal approach. But new market realities and legal liabilities require more principled, disciplined procedures. This article presents seven essential steps organizations should follow if they want to make the right choices and demonstrate to stakeholders that they're doing so.
Many board members and ministry leaders are unaware of the personal liability they incur if investment responsibilities aren't handled properly. "Prudent Investor" rules are rapidly becoming the law of the land, as many states adopt them as their standards for nonprofit boards. Ministries that take stewardship seriously should seek to stay "ahead of the curve" by establishing their own solid asset management practices.
When followed properly, "Prudent Investor" rules actually help organizational leaders address both long- and short-term objectives, while relieving staff and board members of liability for investment decisions. The following seven steps will help you establish the guidelines and procedures that will enable your organization to reduce liability and create a solid footing for future growth and stability.
Step One: Create an Investment Committee
The Investment Committee, appointed by the board, assumes oversight responsibility for the ministry's assets. Typically, its members should include a board representative, the ministry's finance or management departments, and ideally, a knowledgeable outsider possessing specialized experience in asset management and a sensitivity to your ministry's purpose and objectives.
Make sure no committee member stands to benefit personally from its deliberations. Supportive investment insiders can contribute valuable insight, advice and accountability, but should not be managing your assets. Conflicts of interest can cloud people's judgment, hinder investment effectiveness, and subject your ministry to legal liability.
The board should give the committee clear marching orders concerning the scope of its work and its authority to act. The board should also specify how often the committee should meet, how often and in what manner it should report back to the board, and how it should keep written minutes of its meetings and document its deliberations.
Step Two: Assess Your Financial Situation
What assets does your ministry currently control? How has it historically managed them? How has the performance of those assets compared to basic market indexes? What policies or procedures govern your investment practices? Has your ministry been a good steward of the assets it currently controls? And do its asset management practices align with ministry values and objectives?
