Guiding Principles for Effective Stewards

Posted by on 10/01/10 in Ethics, Governance, Philanthropy

The libertarian in us would like to believe that all industries—including the nonprofit sector—can reliably self-regulate. In our regard for individual responsibility, we expect that organizations should have the insightful leadership, altruistic ideals, and financial security necessary to control behaviors which most deem to be unethical. Our freedom loving selves believe that organizations can and will conduct themselves in a manner which betters society through the pursuit of enlightened organizational self-interest.

The federalist in us would like to believe that the US government—through its statues, regulations, and agencies—provides for-profit and nonprofit organizations with a mature, thoughtful guiding hand. We expect that government crafts a legal framework in which competent agents of the state clearly define and reward appropriate behavior, thereby effectively balancing the tension between social good and individual freedoms.

However, neither our libertarian nor our federalist extremes live in the real world where the nonprofit sector and investment industry meet. Both nonprofits and investment professionals struggle mightily to define appropriate behavior and best practices in the absence of clear, definitive legal or cultural guidance. One can reference the Uniform Prudent Management of Institutional Funds Act (UPMIFA) but it does not define how to be a responsible steward. The SEC, FINRA, and other investment regulatory bodies issue many regulations yet leave an extensive gray area where definitions of “ethical,” “suitable,” and “appropriate,” vary considerably.

Even though the intersection where the nonprofit sector and investment industries meet is clear, too many nonprofit organizations perceive their finances as isolated from their mission and program. This perceived division between social and financial is common in the nonprofit world, yet false. Sustainable change requires prudent stewardship. For nonprofit organizations, programmatic mission and finance are interdependent, not mutually exclusive.

In our experience, the separation stems from those nonprofit leaders who see money as a necessary evil rather than as a necessary good. They did not get in the nonprofit business because they cared about money and so approach it reluctantly and perhaps even with animosity. If they see capitalism as a source of poverty rather than as a source of potential enrichment, then the situation is all the more difficult. This difference in perspective is profound and explains in part why so many nonprofits with inspiring missions and phenomenal programs do a poor job of managing the financial resources in which they have been entrusted. Ultimately, they are forced to constrain their programming and limit their long-term impact.

With this in mind, Syntrinsic has crafted the following seven Guiding Principles for Effective Stewards. Our hope is that the Boards and staffs of more and more nonprofit organizations will embrace these Principles and improve the practice of nonprofit stewardship.

Guiding Principles for Effective Stewards of Nonprofit Financial Resources:

1. We strive to make the most effective use of the financial resources to which we have been entrusted by the broader community.

2. We conduct financial affairs in a manner that is transparent and that avoids taking any action which may be perceived as self-dealing or otherwise conflicted.

3. We demand that our financial advisors also conduct their business in a manner consistent with our Guiding Principles.

4. We dedicate the time and energy necessary to develop, implement, and monitor the strategy for prudently managing our organization’s finances.

5. We ensure that our board members, committee members and senior staff understand and fulfill their responsibilities as they relate to financial management and oversight.

6. We integrate our financial management into our overall strategic planning so that our mission and our stewardship are aligned.

7. We promote effective stewardship throughout our organization and amongst our stakeholders, vendors, and other strategic partners.

Those who have spent considerable time in the nonprofit sector know that many organizations would have difficulty enacting these Principles in a meaningful way. Those who are steeped in the investment industry know that some of these principles directly conflict with common industry practices (e.g. transparency, conflicted relationships, etc.).

We are not naïve. Posting these Principles will not cause radical change to sweep through the nonprofit community making prudent stewardship a primary driving force in nonprofit decision making. Nor are we jaded. There are phenomenal professionals and volunteers who already shepherd nonprofit resources in an exemplary manner.

At the end of the day, our hope is that those who serve and support nonprofit organizations will set the highest standards of fiscal stewardship regardless of the decisions of nonprofit and financial market regulators. In so doing, these organizations will better be able to feed, shelter, educate, protect, guide, and empower those most in need. That would be something both libertarians and federalists could celebrate.