President & CEO, Cleveland Foundation
Fiduciary Duty
Mission investments follow the same principles as conventional investment as it relates to exercising prudence in underwriting and sourcing deals. The discipline to evaluate these transactions follows a rigorous investment philosophy—as with any other conventional investment made with the endowment funds.
With mission investments there is simply an additional lens of “mission-alignment” that does not compromise fiduciary duty or standards. Legal or fiduciary parameters have not barred any members of the Leadership Circle from making these investments. Some even argue that foundations have a financial responsibility, in line with prudent financial management practices, to pay attention to mission-related factors in their investments.
A prudent fiduciary will ultimately choose to analyze not just risk and return but how an investment aligns with the foundation's mission and values. Reasonable care will encompass not just risk but social impact.
Doug Stamm, CEO, Meyer Memorial Trust, Alliance Magazine Article, Where Does the Responsibility Lie?
A redefinition of fiduciary duty for the 21st century is emerging that will more holistically foster the financial health and well-being of those whose interests fiduciaries are duty-bound to protect. This is our opportunity.
Steve Viederman, Finance Committee Member, Christopher Reynolds Foundation
[B]oard members may have a duty to consider the effect on program of their investment decisions…in order to fulfill their responsibility to see that the [nonprofit] corporation meets its charitable purposes, they may have a duty to consider whether their investment decisions will further those charitable purposes, or at least not run counter to them.
William B. McKeown, On Being True to Your Mission: Social Investments for Endowments, from the Foundation Partnership on Corporate Responsibility.
Furthering the charitable purposes as defined by the donor is the foundation fiduciary’s ultimate responsibility. If a foundation board, after due deliberation, chooses to sacrifice financial return (for example, by making a low-interest loan) or increase risk (for example, by taking an equity position in a social entrepreneurship venture) that will genuinely serve the charitable objectives of the foundation, then the foundation board has still obeyed the fiduciary duties of loyalty and care, even if it has not maximized the financial returns.
Mark Kramer and Anne Stetson of FSG Social Impact Advisors in the Guides to the Law of Mission Investing for U.S. Foundations (October 2008).