Shaking up Investing

Why would the decision by the Ford Foundation’s Board of Directors to take up to $1 billion of its $12 billion over the next 10 years to make mission related investments be “shaking up the board rooms” of any nonprofit, be it foundation or otherwise?  After all, the Rockefeller Foundation started doing this a while ago, and currently has $68 million (1.8% of its dollars) in mission related investments.

Other foundations have been doing it as well.  So, what’s all of the fuss?  Yes, I get that $1 billion is a lot of money!  But, shouldn’t these organizations have been doing this all along?  Haven’t these foundations’ investment policies always stipulated the kinds of investments they can make?  Haven’t their investments always been guided by their mission and core values?  And, if not, why not?

In foundation parlance, there are MRIs (that’s mission-related investments, the radiologic test) and there are PRIs (program related investments).  Too few foundations have been making PRIs and, apparently, so have too few been making MRIs.  Perhaps one source of confusion is that one would think all nonprofit investing has always have been guided by their missions?  Apparently that hasn’t always been the case and it is therefore big news when the Ford Foundation gets on board and hopes to spark others to follow suit.

I do believe that all the hubbub is the result of things being made far more complicated than necessary.  Thousands, if not millions, of private investors have been making socially responsible investments for decades, aligning their personal values with those of the companies in which they invest.  The campus protests of the ‘60s and ‘70s were done by socially conscious students who wanted their colleges and universities to align their investing with those of the students by pulling their investments out of countries and companies that trampled on civil rights, made weaponry, etc.  I would have thought that every mission driven organization, which includes foundations, would have been doing the same thing:  making investment decisions aligned with their mission and core values.  At least that’s what we’ve been instructing our clients to do for our entire 36 year existence.

Whenever I tell boards that their Gift Acceptance Policy must specify not just the kinds of gifts they will and won’t accept, but also from whom they will and won’t accept gifts, I get laughed at and told, “We will take anyone’s money.”  So, why should I expect that an Investment Policy does any better?  Why should I expect them to specify their organization’s risk tolerance, investment goals and the kinds of companies in which they will and won’t invest?  All they want is to maximize their return and grow the corpus.  After all, that is their fiduciary duty, no?  No.  A fiduciary is someone who holds something in trust for another.  In our case, the board is holding the mission in trust for the public, which includes clients, donors, partners, etc.  So, when it comes to money and investments, a board’s fiduciary responsibility is all about being good stewards and protectors of the money—and, simultaneously, the mission.  Maximizing market returns while investing in companies that are in contradiction with the nonprofit’s mission and core values is not being a good fiduciary.

Enter the concept of mission-related investing, an unquestionable win win.  The Center for Corporate Citizenship’s Center for Responsible Investment created the “Handbook on Responsible Investment Across Asset Classes” (which was funded by the F. B. Heron Foundation), to explain that mission-related investing is achieving market rate financial returns while investing in socially responsible companies.  The Mission Investors Exchange acknowledges that in the world of investing, mission-related investing, which must still meet prudent investor standards, “is referred to as socially responsible investing, investing in emerging domestic markets, double/triple bottom line investing, green investing or impact investing.”  See?  Obfuscating to make things seem new, cutting edge, all the while confusing and making what is simple seem something that it is not, while spending lots of grant dollars on something so obvious.  How much money was spent defining socially responsible investing?!

While making money is judged by the industry standard, the doing good bit is judged by the ESG criteria:  environment, social, governance.  The first should be self-evident:  is the company a good steward of the environment?  The second is how the company treats its community—employees, customers, suppliers, and the general community in which it operates.  And governance, contrary to what we think of in the nonprofit sector when we hear governance, is about executive leadership and its compensation, organizational financial security and transparency, conflicts of interest, and the organization’s relationship with its stakeholders.  While not all nonprofits would run with alacrity to embrace this triple bottom line, most would.  So why is it such a remarkable event when one nonprofit, even a grand dame like the Ford Foundation, directs its investments accordingly?  Shouldn’t this be the norm for our sector?

But the sad thing is that the news outlet that wrote the headline cited at the beginning, got it wrong; it wrote the wrong story.  The real news story is that the Ford Foundation’s Board decided to use only one-twelfth of its corpus for mission-related investing while the remainder—and bulk—continues to support companies that could be gutting the environment, trampling on employee’s rights, paying the C suite exorbitant salaries in an absolute sense and in comparison to the rest of the organizational chart, and more.  Isn’t the real news story about how many (or how few) of the thousands of nonprofits with investments have investment policies that align with their missions and core values are doing it right?