With an unpredictable marketplace and pressure to achieve goals with fewer resources, taking a look at investment committee makeup can play a role in the foundation of your success. And that might mean making changes within your committee to better align your team and your goals. In a recent article, Nonprofit News agrees, “nonprofits are focusing on governance and best practices within their investment committees as a means to better achieve their overall missions.”1 In fact, our recent survey uncovered that 73% of polled nonprofits were likely to add or replace a member of the investment committee in the next 12 months. 

“Building a board that includes a wide variety of perspectives can help your nonprofit make smarter decisions” Chronicles of Philanthropy*

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So how should you assemble your investment committee?

Diversification is key. IC member backgrounds, knowledge, skills, abilities, personalities, attitudes and demographics can lead to smarter decision-making and attract a greater variety of donors.  The Chronicles of Philanthropy remarks, Building a board that includes a wide variety of perspectives can help your nonprofit make smarter decisions, diversify its donors & even better serve your community.”* Ensuring you have the right makeup can be tricky. Some nonprofits with a more advanced governance structure have implemented checklists or profile criteria that IC members should meet. The Chronicle of Philanthropy points out one example of this process with the Consumer Health Foundation. The foundation has a matrix of policies that should be considered for committee participation. Some policies include:

  • Require trustees to sit on at least one committee meeting, to ensure that all members participate meaningfully in governing
  • Participate in media events or activities
  • Rate each member's knowledge and background in various investment areas like impact investing/social investing, accounting and budgeting

Size and Term

What’s the magic number? While there’s no official size, nonprofit best practices3 aim for 5-10 investment committee members to bring diversity without losing coordination. A very small group may find that they lack needed resources and knowledge. Members could also feel overly exposed and uncomfortable expressing disagreement. For larger groups, beyond loss of coordination, some folks might not carry their weight, relying on other members to handle day-to-day operations. 

Establishing a regular replacement or rotation of investment committee members supports the goal of diversity. Some nonprofits believe replacing one investment committee member at a time can help alleviate knowledge transfer issues. This way, at least a few members will be able to recall why a decision was made. Others believe a fresh start every few years brings a new point of view and less residual decisions. A successful investment committee should withstand, plan and welcome turnover among members. Nonprofits and IC members will agree that excessive change can lead to an inconsistent investment approach, but turnover is helpful to reduce the risk of dominant members influencing voting and decision-making outcomes. 

An investment committee with a formalized governance process can be the perfect stepping stone to more productive meetings, and in turn, better decisions for the organization.

Legal Note

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.

In 2Q2019 the Nonprofit Management Research Panel surveyed 101 nonprofits with assets ranging from $25 million to over $1 billion, none of which are SEI clients, to learn how their committees are constructed and some of the challenges they face. This information is for educational purposes only.

1 https://www.fin-news.com/2020/01/09/nonprofit-investment-committees-and-portfolios-adjusting-with-a-complex-investment-market-sei/#investmentcommittee
* https://www.philanthropy.com/resources/toolkit/how-to-diversify-your-nonprofi/226?cid=nanl&source=ams&sourceId=491427
3 https://www.bfsinvest.com/our-clients/best-practices-for-non-profits/

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Maryjane Bobyock, author of Nonprofit Committee Connection