SOUND investment strategies and board governance can be the difference between ongoing operational success and failure for all organisations, regardless of status.
That was the message at a Giving West hosted event last week, where Jackson McDonald special counsel Dorothy Collins and Morgan Stanley Smith Barney head of investment strategy Malcolm Wood outlined the structures crucial to an organisation’s ongoing success.
Ms Collins said when it came to spending money on developing an organisation, it was best spent to form the pillars of governance.
“If you are going to spend any money on getting good advice, get it at this stage on how you actually get the structure of your board and committees right, how your strategic planning will operate,” she said.
Ms Collins said a not-for-profit’s board needed to be structured in the same way as for-profits’ boards in that diversity and due diligence were integral, as were committees to cover and monitor governance issues, and rules concerning board appointments.
“If a person is coming to a meeting and not adding value and being actively involved in a robust discussion at all levels, not just having read the papers, but questioning all the time, then they shouldn’t be there, basically,” she said.
Furthermore, the more robust a board, the more attractive the organisation it was concerned for would be to funders.
“That is one of the basic things they will want to see, a robust board that is vibrant and dynamic, that there isn’t too much dead wood there, that people aren’t just there because no-one else wanted to do the role,” Ms Collins told the event.
“I would say from a philanthropist’s or funder’s perspective, I would look at an entity and say ‘is this a robust entity that will be able to manage the funds to be able to carry out the project we are
funding’?”
Investing in a way that can provide a secure self-funding mechanism for an organisation’s operational and administrative costs was another issue raised at the event.
Mr Wood outlined the importance of investment strategies for not for profits. He said managing investment portfolios and balancing spending needs and investment requirements could break the turbulent nature of cyclical funding patterns.
“There are two important trade-offs we are talking about here, current versus future spending,” Mr Wood said.
“In the immediate you are talking about cash, keeping something in the money market or in term deposits. In the two- to five-year range depending on the yield curve you would be talking term deposits, maybe bonds of some form.
“Longer term you need some growth assets, which would include equities, real estate, alternative investments.”
He said investment strategies of today would affect future spending possibilities.
“Imagine you had a million dollars to invest in 1972. You put 65 per cent in the stock market and 35 per cent in bonds and each year you are taking 5 per cent out to fund part of your operations,” Mr Wood said.
“At the low of the stock market, in early 2009, if you were taking 5 per cent out that was worth $530,000. If you had been taking 7 per cent out, that would be worth $256,000.”
He said investment policy statements were a crucial element to dealing with the tension between current spending, future spending, investment return and investment risk and the volatility currently typical of world markets.
“It is wise to be able to demonstrate procedural prudence given the fiduciary duties as board members,” he said.
