Three governance best practices for nonprofits

Hi, I'm MJ Bobyock, my role at SEI is to work with our non-profit clients on issues like investment policy, asset allocations, spending and governance. I'm here to talk to you today about the important subject of governance and best practices for highly performing boards and investment committees. As a fiduciary, your primary duties include the duty of loyalty the duty of care, and the duty of obedience consistent with the goals and objectives of your organization. In this video we are focusing more on the three best practices that can help build a strong base for good governance.

The first, while seemingly obvious, is worth emphasizing and that is all about effective and supportive communication. This allows for more open, trusting and engaging relationships that carry over into developing strategy and decision making. It's important that we allow for behavioral differences and varying opinions. If, for example you are discussing adding alternative asset classes to your portfolio, like private equity, do you first solicit opinions on a one-on-one basis or do you start with a group discussion? Either is really fine. It just depends on the behavioral biases and levels of expertise of the committee or board. Perhaps one or two people have a deeper understanding of the subject and are more vocal but others need more education. You might not uncover that without one-on-one conversation first. This also builds trust and support, which improves communication going forward on whatever the topics might be on the agenda. And there are plenty, risk preferences, tactical strategies, environmental, social and governance investing or DEI considerations to name a few. By having a better understanding of your peer's preferences and expertise, you can better build consensus and unity when making important decisions and that delivers a much stronger message no matter what the topic.

A second best practice is as simple as being prepared. Part of our duty of care is being informed so that we have to do our homework. When we hit the ground running in meetings, we can take action quickly and efficiently. Be sure to share meeting materials in advance to give members time to review and form an opinion. Follow up with them, see if they have any questions or concerns prior to the meeting so that the discussion at the meeting can be engaging and decisive. Many committees I work with find having a dashboard tool with key facts readily available helps them get grounded with the macro scenario before diving into more tactical decisions.

A third best practice is ongoing education, whether it be around topics like the quickly changing financial market, a deep dive into alternatives, communication or governance training. Having everyone on the same page in a forum where there's not decision making helps build mutual understanding as a basis for future discussions. Maybe start with a self-assessment tool to see where everyone stands on a subject. Tap into the individual strengths of members to share their experience and expertise with the collective group. Encourage members to attend industry conferences to learn the latest trends and strategies. Have conversations with peer organizations to broaden their expertise. Offer opportunities for committee and board members to interact outside of a meeting schedule, like a board retreat or an occasional social gathering. This allows for a more informal setting and more personal connections can be made. Also, having regular policy reviews on your agenda as part of the ongoing education training or a separate session is a good idea to refamiliarize members with these important documents like your investment policy and allows for an opportunity to update them as the environment changes. It's worth mentioning that it's important to document these governance reviews in your meeting minutes.

Through incorporating these best practices, you are well on your way to establishing characteristics of highly performing boards and committees. The benefits of applying these practices are greater trust and respect, stronger relationships and committee engagement as a result of effective communication, constructive dialogue and cohesive decision making thanks to being prepared and providing detailed and transparent information and mutual understanding of topics from ongoing education, which builds confidence and conviction among members. While these best practices may seem intuitive to some, they are relevant and effective ways to manage behavioral differences and worth refreshing among committee members and especially committee chairs. Taking inventory and reevaluating your committee structure may allow you to make subtle changes that generate stronger outcomes for your institution.