I have been helping companies with their financial assets for more than 20 years. Helping board members understand investment results instead of reacting defensively to them has always been my goal. This approach has revolutionized how nonprofit executives steward their funds, releasing more resources for their mission.
Here are questions chief financial officers should ask:
• Do you have a conflicted board? It is a bad idea for a board member to manage all or part of the investments. We all too often read about embezzlements, fraud, etc. Unfortunately, it happens way too often. Usually it is done because the board member is willing to do it for free. But that complicates the situation as there is no accountability or ability to fire the person.
Other potential conflicts exist if a board member is receiving compensation from the mutual funds in the portfolio.
• Are you monitoring the investment policy? Do you have one? Is it up to date? Board members need to regularly ask if they are adhering to the policy they have embraced. Many times nonprofits do not want a clear, objective policy so they do not have to be as accountable.
• Are you using floating benchmarks? Are they designed to help you achieve your goals? Did you or your money manager devise them? Working with static benchmarks empowers the board to be proactive yet accountable to their constituency.
• Are you objectively evaluating your adviser? The adviser must perform against certain benchmarks or be fired. Knowing and liking the money manager is not the members of the board’s job. We are very relationship-oriented and love people. But if we are not performing to certain benchmarks, you must fire us.
When we ask nonprofits why they do not fire underperforming money managers, they often say it is because they like the money manager or the money manager is a loyal donor.