Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 46

Budgeting: Not-for-Profit Context (contributed by Helen M. Savage) Catholic Charities Regional Agency serves several contiguous counties in Ohio. The finance committee of its board of directors monitors financial activity for the agency. This oversight includes decisions regarding the investment of excess funds and the management of endowment funds. These decisions are relevant to the annual budget preparation since the investment accounts serve as a source of needed funds and/or a use of excess funds.

As a Catholic Charities agency, the regional organization must adhere to guidelines adopted by the U.S. Council of Catholic Bishops. Visit the council’s Web site at http://www.usccb.org/finance/ srig.htm and review its Socially Responsible Investment Guidelines, which discuss basic principles for investments and the stated Investment policy of the organization.

Required

1. What is the meaning of the word stewardship? Should the religious or philosophical position of an organization affect decisions that are made as part of the budgeting process?

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2. How should a board of directors for this organization apply these principles in making investment decisions tied to the annual budget?

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3. Would you, as a board member, ignore such principles to increase investment gains? Why or why not?

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4. If the agency’s monies are managed by an investment firm, should the board request information about the stocks included in individual investment funds to verify compliance with the stated investment policy of the organization?

Step 1 of 4

1.      Stewardship is defined by Merriam-Webster Online Dictionary as “the conducting, supervising, or managing of something; especially: the careful and responsible management of something entrusted to one's care.”  

The Socially Responsible Investment Guidelines cited states: “Although it is a moral and legal fiduciary responsibility of the trustees to ensure an adequate return on investment for the support of the work of the church, their stewardship embraces broader moral concerns.”  Also, the principles of stewardship lists two fundamental and interdependent principles: “The Conference should exercise responsible financial stewardship over its economic resources.” and “The Conference should exercise ethical and social stewardship in its investment policy.”

The latter states: “Socially responsible investment involves investment strategies based on Catholic moral principles. These strategies are based on the moral demands posed by the virtues of prudence and justice. They recognize the reality that socially beneficial activities and socially undesirable or even immoral activities are often inextricably linked in the products produced and the policies followed by individual corporations. Given the realities of mergers, buyouts and conglomeration, it is increasingly likely that investments will be in companies whose policies or products make the holding of their stock a "mixed investment" from a moral and social point of view. Nevertheless, by prudently applying traditional Catholic moral teaching, and employing traditional principles on cooperation and toleration, as well as the duty to avoid scandal, the Conference can reflect moral and social teaching in investments.”