Fiduciary Responsibility: Does the investment side know (or care) what the grantmaking side is doing?

The debate continues over whether grant making organizations should be satisfied that they are performing their fiduciary responsibilities by making mission-related grants and maximizing returns on the invested “corpus,” or whether the goal of the investment side should be something greater than maximizing returns. This past week’s Chronicle of Philanthropy highlights a recent debate on whether grant makers should align their investments with their missions—an issue brought to light recently in the criticism of the Gates Foundation investments, some of which seem to be at odds with their program-related grantmaking. Apparently the debate got quite heated, with arguments on both sides questioning the veracity and indeed credibility of the other's approach.

This debate is not new. Six years ago, the board of directors of The F. B. Heron Foundation asked itself this question: “Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes?” While recognizing that six years do not constitute a “longitudinal study,” the Foundation has released a white paper titled, “New Frontiers in Mission-Related Investing, “sharing what it has learned from six years of doing the hard work of aligning investments with mission. The bottom line is that despite the increased demands incurred to commit to mission-related investing, the Foundation has been able to both maintain its traditional asset allocation mix, enjoy an investment return “at or above the median for foundations and endowments,” and to keep its total investment fees at 38 basis points. While it admits that this type of investing is “not without risks,” the Heron Foundation recognizes that “if taking well-considered risks for public benefit is not the role of philanthropy, then what is?”

What, indeed?

Submitted by Caroline Heine

Caroline Heine