By Anne Marie Ashworth
To create an environment for good governance, endowments should assess whether they have the appropriate models for optimal long-term portfolio management, oversight and management, fiduciary responsibility, and best practices. The more efficiently and strategically a board functions, the bigger the potential for success. The following list offers four important self-assessment questions for creating successful endowment management.
1. Is our fiduciary responsibility being met?
Fiduciary responsibilities encompass regulatory compliance, ethical considerations, and legal requirements. Three key fiduciary duties include: duty of care, duty of loyalty, and duty of obedience/mission.
The trustee(s) must exercise sufficient “care” to identify and educate, utilizing both internal and external resources, concerns of the endowment board while completing due diligence.
The duty of loyalty incorporates avoiding, minimizing, and/or managing conflicts of interest within the board, organization, and community.
The duty of obedience/mission means guiding decision making as a board that is consistent with upholding and perpetuating the mission of the institution without personal considerations or objectives.
A high performing, successful board will continue to place the mission and goals of the board ahead of their own while also challenging members to uphold the same level of fiduciary responsibility.
2. Do we have the right people making the best decisions?
Members must possess the will, skill, and knowledge for a board role, but, equally as important, strong boards/committees should bring diversity of thought through different backgrounds, life experiences, and perspectives.
A diverse set of board members can provide perspectives of multiple stakeholders who affect (and are affected by) the organization. Difficult issues and problems are considered less likely to be ignored or brushed aside when a board is comprised of members from diverse backgrounds. Diversity can foster open and collaborate boardroom dynamics, which in turn helps management hear the board’s concerns without defensiveness.
Boards and committees should ask whether they have the right people making the best decisions during self-assessment processes on an annual basis. Increasing evidence has shown that diversity and inclusion create successful outcomes.
3. Does our Investment Board/Committee focus on issues that can measurably impact our mission?
Goals, risk tolerance, and spending formulas are some of the factors that drive an endowment’s asset allocation and liquidity—all while considering diversification and costs. The focus of most is risk-adjusted returns, or maximizing returns for a given level of risk. An investment committee’s time may be spent (in part) overseeing an outsourced investment advisor in order to allow the board to spend more time on decision making that impacts the vision and mission of the organization. One example could be the impact of a spending policy change related to an increased demand for charitable grants services.
4. Is our organization in line with best practices at similar organizations?
Important areas of best practice are structure, process, governing policies, and how the portfolio services the broader organization.
Structure (e.g, size and composition) can fluctuate over time. Ensuring new perspective and continuity is important, particularly in situations where the investment environment has changed (or the assets within the organization have substantially grown or shrunk).
Process is not only an important structure within organizations but is also a driver of duty of care. Without a well-functioning process, diligence, education, and perspective can fall short during decision making. For example, it is important to set processes including term limits and recruiting new talent (while maintaining institutional knowledge and internal board knowledge and experience) to ensure that the board remains strong as well as diverse. Best practices concerning governance processes include investment policy, spending policy, and conflict of interest policy.
Best practices also ensure an internal system of checks and balances while expanding opportunities to learn from peers. Without a well-functioning process, diligence, education, and perspective proper management and oversight can fall short during decision making.
No two institutions are exactly alike, but following guidelines for improving, reviewing, and maintaining proper governance of an endowment management board can provide a strong foundation for successful oversight while remaining fluid during necessary periods of change.
About Anne Marie Ashworth
Anne Marie E. Ashworth, CFP® is a 2015 graduate of Virginia Tech with a BS in Business, where she majored in Finance with a financial planning concentration. She joined Abacus in June of 2015 and earned the CFP® designation in May of 2017. As a member of the financial planning team, Anne Marie works closely with clients to understand their objectives in order to develop, implement and monitor a comprehensive financial plan to achieve those goals. Anne Marie also leads Abacus’ People and Organizational Development Team.
Abacus is a financial advisory and investment counsel firm focused on serving families with shared assets from businesses to commercial real estate to oil and gas holdings. Managing over $1.7 billion on behalf of its 250-plus families, Abacus consists of a team of multi-disciplinary experts who work collaboratively to serve its clients.