Investing funds for the future – What is the responsibility of nonprofit boards?
Three years ago, a nonprofit we know and love received a generous, six-figure gift to its endowment fund. This created a happy dilemma for the board of directors: what to do with all that money? But everyone was still rattled from the recession, and the market remained volatile. Patting themselves on the back for managing risk, the board deposited 100 percent of the funds into short-term CDs. The thinking was, “We’ll wait to invest this money until the market begins to turn around.”
Well, the market did turn around. So what did the board do? Nothing. No loss, it’s true, but also no gain or improvement in the organization’s position. The failure to act is still an act: it’s a decision that has consequences. Perhaps more importantly, it has opportunity costs.
Managing a permanently invested fund, or endowment, always pushes the question of risk tolerance. At every extreme, the issue is easy – neither the shoe box nor the lottery ticket is appropriate.
All nonprofit boards hold fiduciary responsibility for the organizations they lead. That entails a lot of things, including the ability to assess and manage risk. There are many tools available to help, including financial policies and procedures and financial plans that include an honest analysis of time horizons and current and future uses of funds.
Here are some things to keep in mind:
- Smart nonprofit leaders think about managing their finances just as strategically as they think about managing their staff, systems, and office space. You can make your financial assets work for your organization.
- Investing is a long-term business decision. The choices you make today are critical to the sustainability of your organization over time. Successful groups develop a team comprising employees, board members, and trusted financial professionals to make investment decisions on behalf of the organization.
- Groups need to be deliberate about adding people to the board who know something about assessing and managing risk, and investing.
- It helps to have an up-front conversation about your appetite for risk and your short- and long-term investment goals, so that your investment strategy fits your organizational culture.
The bottom line? When it comes to managing their financial resources, nonprofits have to strike a balance between being too cautious and too aggressive. The payoff is that smart investing has the potential to make scarce resources go a heck of a lot further.
– Bill Long, Helena, MT