Giving Compass' Take:
- Nonprofit organizations can leverage four common assets - cash, fixed income, public equities, and private investments to become mission-aligned to their values.
- How can nonprofit boards help with mission alignment? How will this help nonprofits long-term?
- Learn more about nonprofit accounting.
What is Giving Compass?
We connect donors to learning resources and ways to support community-led solutions. Learn more about us.
Many in the nonprofit sector look at their income statements (also known as the “profit and loss” report), but unless you’re a chief financial officer or perform a similar role, you may spend far less time looking at your organization’s overall financial position.
Yet, hidden in those balance sheets, more often than you may think, are cash and other investable assets. These assets help nonprofits deliver on their missions by generating income. Developing a sound approach to managing these assets is part of the fiduciary responsibility of nonprofit boards. Often, investments are viewed separately from the programmatic work a nonprofit does. But should they be?
Traditionalists have argued that if an investment portfolio is aligned with mission, poor performance follows, sacrificing income that could be spent on operations and programs. However, along with academic and industry research to the contrary, this line of thinking ignores the fact that you may be undermining your mission through your investments.
A salient example is of organizations that are focused on community development but invest in mass incarceration. Thanks to prison privatization, corporations, many of whom, like CoreCivic, are publicly listed companies, have a perverse incentive to boost their stock prices and keep prisons full by lobbying for policies like harsher policing, longer sentencing, and incarceration for non-violent crimes. If organizations that, say, are campaigning for cash bail invest in corporations (perhaps through a major institutional investment intermediary like BlackRock) that profit from incarceration, how does that benefit their work, even if the financial returns are good?
Every nonprofit board should understand the importance of liquid assets like cash in carrying out their mission—no amount of investment will serve an organization if investments are tied up in a way that prevents the organization from having cash at the ready when needed. Liquidity policies help organizations understand the resources needed to carry out ongoing operating activities, but even liquid assets can be managed with an eye towards mission. Is your checking account at a local credit union or a bank that may invest in corporations you are campaigning against?
Read the full article about nonprofit missions by Anna Smukowski at Nonprofit Quarterly.