Why Have an Endowment Policy?

Why Prepare Endowment Use and Management Policies?

• Policies improve communications with the public, members, and new appointees to boards and committees.

Endowment policies provide an opportunity for an organization to communicate how it uses the funds entrusted to it and to indicate how additional funds are used. When integrated with the strategic plan, well-defined policies will help with implementing the vision of the organization.

People are more sophisticated about how they want their charitable contributions used and managed. Universities and Colleges with their extensive promotional programs are the standard of comparison. These organizations are very adept at showing how contributions to endowments have helped or how additional contributions can help a variety of specific programs. They are making it easy for a person to identify with that which interests them. As donors seek more identity for their contributions, it will become difficult to promote those endowments that feed their income into general revenue accounts.

Endowment and investment policies also make it easier to explain to new committee members about how the funds are being managed and used. It is better to address the continuance of corporate knowledge with written policies than through the remembrances of a few individuals.

Concern that revealing details about endowments will confuse people is misdirected, particularly in the current changing environment. Confusion usually comes from not having enough information, not from having too much. In the absence of solid information, people have a tendency to suspect the worst.

• Policies assist an organization in meeting its fiduciary responsibilities.

Fiduciary issues are real. Charitable organizations are being sued for mismanagement of endowments and trusts. There was a time when an organization could meet its responsibilities by using outside managers and establishing conservative investment parameters. There was little or no concern about sound investment strategies, reasonable spending rates or the ravages of inflation on the principal.

This has changed. Organizations are now accountable for understanding sound spending rules, and the impact of inflation; and for establishing investment policies to balance the two. They must manage the managers with sound parameters and standards of performance. The management committees that I have worked with have spend time with their legal counsel understanding their responsibilities and establishing ground rules. This subject created so much discussion in NAEPC’s (National Association of Endowed Presbyterian Churches) conference last year that this year’s conference includes a repeat of the subject. This issue is becoming so important that one of the criteria for serving on a committee involved with managing funds should be whether it has addressed these areas or is willing to do so.

T. Bruce Weaver, Jr., Treasurer
The P.E.E.R. Network, formerly NAEPC