Many non-profit Boards establish committees to deal with certain aspects of the Board’s overall responsibilities – an Investment Committee is a common example. This practice allows for some specialization and reduces the time and effort required of Board members. Some smaller organizations perform these functions at the Board, rather than at the committee, level.
In both cases, the Board or Investment Committee Members responsible for overseeing the investment of the organization’s endowment assets must understand and execute their fiduciary duties to the organization. They have duties of care and loyalty they must fulfill. The duty of care requires each of the Members to put in sufficient effort to carry out their responsibilities effectively. Members are not required to be investment experts and may delegate responsibility to investment experts but they must be diligent, informed, and objective when doing so. The duty of loyalty requires each Member to put the interests of the organization first and to avoid real, as well as potential, conflicts of interest.
In addition, Members should:
- Meet periodically as a Board or Investment Committee.
- Review periodically the portfolio to insure compliance with the organization’s investment policy statement and guidelines.
- Review periodically the organization’s investment policy statement to assure it continues to be consistent with the organization’s current needs and long term goals and objectives.
- Establish a process for selecting an investment manager.
- Meet at least annually with the investment manager.
- Evaluate the investment manager’s overall performance, including measuring investment performance using benchmarks contained in the organization’s investment policy statement.
If the Board has delegated, or intends to delegate, its responsibility for overseeing the investment of the organization’s endowment assets to an Investment Committee of the Board, the composition of the Investment Committee should be given careful consideration. Some Investment Committees include members who are considered investment experts. Some Investment Committees include individuals who are not members of the organization’s Board of Directors. Most studies on group decision making support the notion that committees with members with broad backgrounds and experience make better decisions. As such, Investment Committees should strive for member diversity in knowledge, skills, abilities, personality, attitudes, and demographics.
There is no ideal size for Investment Committees, but groups between five and ten can reap the benefits of diverse membership without suffering the loss of coordination and decrease in motivation often associated with larger groups.