Case Study: Better Process Improves Oversight

Once again, we’re sharing best practices for nonprofits based on our 23 years of experience. In this example, we’re demonstrating one of the many ways that a prudent governance structure can help a nonprofit or foundation meet their long-term goals.

Challenge

Innovest was retained by a highly respected nonprofit organization to provide investment consulting services. As we began our engagement, we discovered that the client’s Board of Directors was very effective in furthering the mission of the organization and raising funds, yet the proper governance structure was not in place to allow the Board to effectively serve as fiduciaries of the investment portfolio. The Board was less engaged in investment discussions, yet had retained the authority to make all investment decisions. While the Investment Committee was engaged, it lacked the authority to implement any changes. As a result, The Committee’s recommended portfolio changes were hard to implement in a timely manner, causing frustration among the Board and Investment Committee.

Background

Nonprofit boards of directors and their investment committees are accountable for overseeing funds they receive and making sure that those funds are used for their intended purposes as outlined in the organization’s investment policy statement. Their fiduciary responsibilities include the duty of care and the duty of loyalty. An appropriate governance model includes effective structuring of the governing entities, prudent processes, well-documented policies and ongoing reporting to facilitate decision making.

Solution

In order to improve oversight and the decision-making process, Innovest worked with the Board to:

• Determine what portfolio actions they should retain authority over and what actions they felt comfortable delegating to the Investment Committee

• Establish custom reporting and a formal communication plan between the Investment Committee and the Board to ensure the Board is fully informed

The responsibilities of the Board and the Investment Committee were memorialized in the organization’s Investment Policy Statement so future Board members clearly understand their obligations.

End Result

The delegation of authority and ongoing communication resulted in improved meeting efficiency, more timely changes to the investment portfolio and a reduction in frustration among the Board and Investment Committee. These changes resulted in helping the organization meet overall investment objectives and the Board was empowered to focus more on their fundraising efforts and granting strategies.

Innovest serves boards, committees and trustees by creating comprehensive and custom investment solutions that instill confidence in donors. We serve all aspects of nonprofit organizations, including foundations, endowments, operating reserves and other funds. Contact us today to learn more.