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Key Investment Responsibilities and Decisions That Board Members Must Make

Corporations, including nonprofit corporations, face key decisions in supervising investment funds. The legal requirement to ensure the fiduciary management of a corporation’s investment funds rests solely with the corporation’s board of directors.

 

 

Regardless of the size of the corporation or its investments, every board of directors must, at a minimum, start with the three steps detailed below. These actions can help create a board culture focused on the fiduciary responsibility to manage corporate assets in the best interest of the company.

1. Determine the Rules of the Game—Adopting an Investment Policy Statement

It has been said that one should not “play any game if you don’t understand the rules.” A corporation’s Investment Policy Statement, or IPS, is the formative document that every board of directors should start with to set the rules, goals, and policies of the corporation’s investments.

It is the primary document governing how corporate funds will be invested and spent together with the roadmap to guide either an outside investment manager or the internal committee charged with the preservation of corporate assets.

Without properly crafted rules governing goals, risks, and restrictions on investments, a board of directors cannot properly make the decisions necessary to meet their fiduciary obligations. While the development of an IPS is the first decision the board should make, the IPS must also be regularly reviewed and revised to keep up with the changing economic conditions and needs of the corporation.

2. Hire the Right Advisors

Even if a board of directors has members with significant investment experience, someone has to manage the day-to-day responsibilities of supervising and directing the investment of corporate assets consistent with the IPS. Delegating this responsibility should be done carefully and competitively, preferably through the issuance of requests for proposals (RFPs) from multiple financial advisors to ensure competitive options.

We recommend selecting an advisor or firm that has the same fiduciary responsibility as the board of directors, like a fee-only, full-time fiduciary advisor. Finally, the board should set a time frame to review and re-issue an RFP to the public at least every five to seven years to review the competitive pricing of its advisor compared with other firms.

3. Forming the Investment Committee

Early on, the board of directors should create within its governing documents (and the IPS) an investment or finance committee to meet more regularly to review and supervise the investments and performance of any retained financial advisor. The committee’s primary purpose is to review and make recommendations to the board of directors regarding the direction of corporate assets and investments strategy.

Any investment committee should have board members with investment experience who can understand and interpret the vocabulary used by investment advisors. It may, and often does, include members of staff who may be involved in the day-to-day financial operations of the corporation, like a chief financial officer.

Investment committee members must also stay informed and aware of current market and economic conditions, and be prepared to make recommendations based on changing conditions in consultation with the retained advisor.

Responsibly managing corporate assets is at the core of any board of director’s fiduciary responsibility. Creating a proper IPS, hiring the right advisor, and forming and developing an investment committee are the key decisions that help create a culture of adherence to that fiduciary responsibility.

Contact us for a complimentary needs assessment phone call.

Clint Patty, J.D.

As Managing Partner, Clint serves on the management team providing leadership, supporting business development efforts and providing client consultation.
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