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Vol. 30, No. 2

Taking care of business: Managing assets

by Robert Salkin

Times are tough for those managing the financial assets of bar associations. The recent economic downturn has led to a drop in revenues and a tendency for funds to go to more specialized groups. Furthermore, high-profile scandals in the business community have led to increased scrutiny of organizational finances—even for nonprofits. For the time being, Sarbanes-Oxley only applies to for-profit ventures, but the odds are good that similar legislation will be aimed at nonprofits in the next few years.

In this challenging environment, what should be the approach of those charged with overseeing bar assets? Above all, stay involved and focused on the organization’s goals. That was the message to NABE, NCBP, and NCBF members at “Taking Care of Business: Managing the Bar Association’s Assets,” a presentation during the Annual Meeting in Chicago this past August.

According to Jack Wildermuth, principal and senior consultant with the Stratford Advisory Group in Chicago, you don’t need to be an investment expert in order to meet your fiduciary responsibilities. Even under the “prudent expert” standard of the Employee Retirement Security Act (ERISA), you are permitted to outsource this expertise. The key is to remember that you can delegate authority, but you cannot abrogate responsibility. You have the responsibility to oversee the work of the investment management personnel, consulting firms, bank trustees, accountants, etc., that you hire. And you must make sure none of these experts carries with them any conflicts that could jeopardize their work.

Don’t just “rubber-stamp” the recommendations of your experts, urged Mitchell Bryan, senior litigation partner in the Chicago law firm of Levenfeld Pearlstein. It’s up to you to make real judgments. Bar executives overseeing the organization’s assets have a “duty of care” to remain informed and actively involved in the management of those assets. And in this era of closer scrutiny, with its implied threat of legal ramifications for fiduciary violations, there are more selfish reasons for managers to stay actively involved: The “business judgment rule” will protect you from unforeseen financial outcomes but only if you make actual judgments and stay involved in the decision-making process.

Closely related to this duty of care are the fiduciary duties of loyalty and obedience. Nonprofits have missions. Managers need to keep in mind the objectives of their organizations. In tight economic times, organizations must focus increasingly on what they can do for their members.

But in good times or bad, basic fiduciary requirements never change, reminded Abe Eshkenazi, Managing Director for American Express Tax and Business Services in Chicago. Investment is always a tradeoff between risks and rewards. Managers and board members must be aware of the financial risks that threaten an organization’s abilities to achieve its mission.

One key element of risk management is maintaining an ongoing, periodic system of review. The optimal time frame for these reviews will vary from organization to organization. In all cases, however, these reviews must do more than simply assess financial success or failure; at a more basic level, they must asses how well the system of financial management itself is functioning. Abe Eshkenazi suggests several key questions to ask: | Are resources and systems used efficiently and are their costs being managed? | Are the internal controls effective? | Have the best practices for other organizations been examined? | Are appropriate monitoring systems in place and operating as designed? | Have responsible parties been identified? | Can communication be improved?

Such reviews themselves can be outsourced, and they should always remain independent of management, donors, and other constituents within the organization. Be wary of any interaction with or influence over your auditors—even if they were outsourced.

The management of bar assets must involve an integrated process, moving from planning to implementation to review and back again to planning. At every stage, you must remain involved. You can outsource expertise but not responsibility.