Three ways to govern

Foundations and charities can govern the investment process in one of three ways – board, finance committee or investment committee. We will explore each of these structures, suggesting when each one might be most appropriate.

1) Board

At small organizations, say with less than $1 million of long-term assets, investments are often governed by the board, since there might not be an audit, finance or investment committee. The involvement of the board is not without its advantages, as this enables the organization to consider finance and investment as it relates to the organization and its objectives, rather than as a discrete area of activity. Yet there are also several drawbacks to this approach. The lack of a dedicated finance or investment committee can mean that financial matters are not routinely discussed on the board agenda and are considered reactively with an eye to audits and filings rather than proactively with an eye to the future. It can also create challenges in recruiting accountants, bankers or corporate executives as board members, many of whom would expect to serve on a finance or investment committee.

2) Finance committee

When organizations grow beyond a small size, they often choose to govern their investments by a finance committee or investment committee. The existence of a finance committee tends to make finance a standing item on the board agenda and also helps with the recruitment of board members. However, this approach still has its challenges. When payroll, invoices, procurements and investments are all part of the same agenda, it can be difficult to dedicate time and focus for long-term capital planning. In the space of a single meeting, committee members might jump from approving a contract signed last month to considering an investment policy statement for the next five years.

3) Investment committee

When organizations reach a large size, they generally establish an investment committee. In some cases, this is a stand-alone committee reporting directly to the board, while in others it is a sub-committee of finance or audit. This enables the recruitment of highly skilled board members and a dedicated focus for long-term capital planning. Yet an investment committee is not always appropriate for medium organizations. Non-profits have to balance the potential advantages of an investment committee against increased complexity, including the time involved recruiting board members and running additional meetings.


As a rule of thumb, small organizations, especially very small ones, often go with board oversight, while medium and large ones often choose between finance committee and investment committee. Even so, it is not just the size of investments that matter but also the complexity of the organization. Non-profits with highly visible mandates (e.g. conservation) or highly engaged donors (e.g. hospitals) might wisely err on the side of more rather than less governance for their investments.

Regardless of governance structure, the board’s fiduciary responsibility is the same – to ensure that the funds are managed appropriately to meet the needs of the organization’s beneficiaries over the short and long term. Foundations and charities should consider partnering with a portfolio manager who is held to a fiduciary standard, like their board. By way of comparison, many bank advisors are not fiduciary investors (advisors are only held to a “suitability” standard), while hedge funds are lightly regulated and not held to any professional standard.