Last year I was introduced to a member of the Investment Committee of one of the largest foundations in the mid-Atlantic area. With over $400 million in assets, the foundation’s Vice Chairman was interested in our conducting a fiduciary assessment. Early on in the discussions we came across what was to be a very difficult issue that prevented us from continuing the relationship with the Committee.
As in all of our assessments, the intial step we took was to gather the necessary documents, including the Investment and Spending Policy Statements, recent asset allocation charts, list of assets and a copy of the most up-to-date investment performance report. The first issue that stood out was the presence of the President of the investment firm on the Investment Committee. It was, in our minds, a clear conflict of interest.
Section S-1.4 of the Global Fiduciary Standard of Excellence (GFSE) states: “The Investment Steward identifies conflicts of interest and addresses conflicts in a manner consistent with the duty of loyalty. “. Further, fi360, the governing body of the GFSE, writes: “It is important to understand that it is the circumstance itself that creates a conflict; there is no such thing as a “potential” conflict. The conflict either exists or it doesn’t; whether a conflicted party’s conduct changes as a result of the conflict is a separate matter. The very suspicion of a conflict of interest usually means that one does, in fact, exist. “
The Global Fiduciary Standard of Excellence was developed to help board members and trustees see the bigger picture and help them minimize the risks associated with their vendors. With a foundation of this size, no matter how talented the manager may be, or how comfortable the board is with his being on the Investment Committee, it is imprudent, in my opinion, to have the manager on the investment committee.