The oversight of a charity’s investments can involve considerable fiduciary risk. How charities manage and mitigate this risk is probably the most important aspect of the investment management process.
The term “fiduciary” is a bit of a mouthful but the concept of fiduciary is a straightforward one.
WHAT IS A FIDUCIARY?
Fiduciary is a legal term. It typically refers to a person who has a responsibility to act for another’s benefit. While there are many different types of fiduciaries, one of the primary fiduciary responsibilities is as a director of a charity or non-profit organization.
A director is a person who participates in the oversight and guidance of an organization by virtue of being part of its governing body — the Board of Directors. Each director is part of the collective body which governs the organization and provides it with strategic direction. In most provinces, a charity or non-profit organization must have three directors (sometimes called governors, trustees or administrators).
Directors who act in a fiduciary capacity have the responsibility for the organization and for the fulfillment of its mission. Directors must understand the fundamentals of the organization that they govern — its mission, legal structure, stakeholders and risks. All directors should be aware of the wide range of fiduciary duties and responsibilities that they are required to fulfill.
Effective risk management starts with sound decision-making and strong governance.
Managing organizational risk is a key aspect of fiduciary duty. Reducing exposure to liability is important for any director. Through the development and implementation of good policies and processes, Boards of Directors can reduce risk exposure to an acceptable level.
Effective risk management starts with sound decision-making and strong governance. Committees, and the boards they serve must have clear accountability and a strong understanding of the context in which their decisions must be made. Yet many volunteers are unaware of the significant duties that are imposed on them and the resultant liability that accompanies these duties. It is critical that all directors must have a profound understanding of their unique role.