Incentives can go both ways

I recently had a conversation with a mother who decided to pay here children for getting A’s on their report cards. She was not clear enough as the child was making A’s or high B’s on 9 of 11 subjects. $10 per A and and very pleased with B’s. What she wished she had done was do some take away for D or F as 2 of the 11 subjects were likely to get D or F. We want a certain result and fail to see the bigger picture of overall picture of learning and aligning with values requires more than a few processes. Outcome was to place consequences on grades of C or lower.

Compensation experts are quick to point out faults of various types of incentive pay structures and having the “why” understood upfront helps all parities to perform and not overlook important issues. One money manager told me about a group of business leaders that met to share tricks of juicing up earnings and ways to get more money to the bottom line strategies regardless of risk and mission. A new type of risk evaluation is being applied to stocks that looks at sustainable practices and has ratings applied by outside parities like GMI. Governance Metrics International has some very cool ways of addressing risk and risk often overlooked by traditional methods. Some mutual fund companies utilize GMI as an added feature to contain or even predict risk in a stock. Even some the mainstream companies as addressing ESG as part of the appropriate incentives for corporations and it’s pay structure. Like the frustrated mother working to apply incentives for their children so we could all use help to get the right incentives for the right result. A properly aligned incentive is good for all. Do not be surprised as you read a lot more on incentive pay and bonus based on sustainable practices. Maybe if the post office had this in place decades ago we would have surpluses each year instead of current system? Maybe if we would actually hold boards responsible for actions then maybe the boards would do more to hold corporate leaders responsible.

Screened Investments: Questions & Perspective

Who determines the values? Who monitors the companies ongoing? Who writes the policies and procedures to implement the screening process? Is the one behind the screen going to profit directly or indirectly and will that be disclosed? Will screening become just another marketing gimeck to sell money management services? Will the process start off and fail to go back and test and re-test the screening process to keep the investments clean and true to the objectives? Why are most advisors not talking about screening investments? If you invest into the market or an index are you really supporting the companies and industries in that index? What break through in screening process has been achieved in the past few years? Are there values in screening that are more difficult to detect and if so how are professional screening doing in performing their tasks? If a perfect world of screening what would we use to monitor and detect violations against a stated value? What will is costs to monitor and screen my investments? Will the returns suffer as a result of screening for a specific value? What would be an example of “best of class” screen? What would be a “strict” screen and who sets the values? Are there processes for advisors to determine risk and overlay a screening process together? Are there agencies and credible groups not looking to sell asset management to perform such screening processes? What would it take to review a current portfolio of holdings and how would I know if there was real and defined processes for digging out the truth as stated in a process? When do you know that you have the right fit with ones’ personal values?

These are some of the questions I have encountered and I can say the answers are not always black and white clear. The process for screening is newer and it takes skill, energy, patience and special understanding of personal values and process for applying a screen properly. Ok are you ready to give up and accept your current investments are fine if they pollute, rape, kill, mame or destroy the things you cherish the most in this world? If you are passionate about your favorite sports team are you likely to leave the game early? Well not unless something else is more important usually. Do you like the sense that when you and others cheer on the team that it really gives a boast to the outcome and could actually be the game changer. No wonder stats show home team advantage really does work as an advantage. What if you could see and learn the impact of your screened investments? It’s possible and many are seeking more and more ways to do just that- make impact with their purchases and investments. You determine what you want for your life and what values you deem important. Intentional Investing is growing and expected to continue as more investors find out the 5 Myths are in fact Myths of morally, socially and environmentally screened investments.

Ask us about our free assessment and to see if you or your nonprofit is a good fit for intentional investing. We will address the questions raised over time and invite you to come back and ask your questions so we may better address your concerns and challenges as it relates to screened investments.

US Green Chamber of Commerce

There is a national movement to consider the impact on the environment as we do business and utilize resources personally. The traditional chamber of commence is not equipped nor positioned to address fully the educational needs and unifying values for whom the environment is a core value. I was less that excited about yet another chamber until I visited and met the people. What I was expecting to see was highly overpriced products and services being hawked as the only green product within that products scope and if you buy today you will get this bonus deal. What I found were very passionate and educated business leaders and community advocates that actually care and do something for the community to improve all of our lives. I found professionals and service people glad to be around others that are also seeking to make a next right step in environmental stewardship. It is not enough to simply want to make a right choice as it relates to less toxins and more clean solutions, rather it takes some action to actual open your wallet and make choices. If you want to be around others that act on similar core values as you then find those communities and connect.

Here in Florida water is a precious resource that is being threaten and potentially compromised with rising population and increased demands. If we keep doing business as usual and not taking intentional steps to secure our water sources better we will pay dearly. So how would a membership in US Green Chamber or other groups concerned for environment help you? Education, Better Choices, Actions to take and make a difference. Being around others that share values and gaining their perspective is valuable to process and confirm or reject ideas. What you do with your life matters. With whom you spend time with matters. If you love learning about both positive and negative affects on the environment then consider checking out US Green Chamber as one of your options.

If you are not near a Green Chamber but would like to engage into some advocacy conversations. Simply some research and structure and suggestions to impact corporations and governmental rules. Wilburforce the great Parliament force to help end human slave trade and animal right advocate of 18th century had it right. He wrote to leaders in other countries and educated and influenced them to not support slave traders actions with money or investment. Lots of associations have advocacy leaders you can tap into their knowledge and connections and you do not have to start a movement (unless you want to and feel called to do so) but utilize the structures and people in place already doing great work. Green America is one environmental group I would suggest you check out www.greenamerica.org they are impressive group led by Alisa Gravitz.

Good Stewardship Helps Prevent Fraud

Whenever I talk with CPA’s and they find out I have worked with boards and nonprofits within a short period either a question or comment goes like this… Isn’t it amazing how much fraud goes on with nonprofits?

Why is that? Sloppy books, underpaid workers, not a check and balance system, too much trust on one or a few, unchecked process for banking and deposits.

According to a 2006 Report to the Nation on Occupational Fraud & Abuse, ACFE: “The medium loss for a business with fewer than 100 employees was $190,000 per fraud scheme.” The report goes on to say tha an estimated 5% of annual revenues are lost to fraud. This report was not specific to nonprofits rather to all businesses.

According to my CPA friends almost all of these loses can be prevented and should going a few things.

1) Set the tone at the top.

2) Create anonymous fraud hotline and publicly emphasize to your staff how important it is for everyone to join the fight against fraud. Assure employees that the hotline is anonymous and that they will be protected from retaliation.

3) Communicate your intentions to strengthen internal controls (then do it and get expert help).

4) Host fraud training sessions to emphasize that fraud will not be tolerated and that the consequences of fraud impact everyone.

5) Be the first person to open bank statements. Scan the transactions that have cleared the bank and review the enclosed check for unusual activity.

6) Consider personally signing all checks or having a cosigner for checks above a determined threshold.

7) Take note of what is happening both inside the office and outside. Look for odd work schedules, staying late or coming in early where there may be opportunities where no one else around and access to mail, credit cards or banking information. Is someone experiencing significant stress like divorce or spouse’s job loss or serious medical problems?

These seven steps can and should help greatly reduce the potential for fraud within your organization. If you suspect any of this it is much better to deal with it quickly and get help. My CPA friend tell me that few are punished and are usually let go only to go do it to another company or nonprofit and do it again. Do not expect to hear about the billions of dollars lost each year due to lack of controls and misuse by a few in both nonprofits and for profits. I have seen in it in lots of different types of businesses it happens wherever the opportunity presents itself with poor stewardship principles. Stewardship for your own financial security as well as stewardship of the donors for the trust put in you and your organization. If you have had experience with this and would like to add comments please share with us.

If your organization has cash receipts received in mail or collected that is 90%+ of the fraud according to ACFE. While most of it is small stuff it add up to be big dollars. Work to avoid cash or at the least have two or more handle it together for accountability and then secure it quickly in drop box with time lock like the convenience stores do. My CPA friends tell me that having outside pair of eye balls on receivables to look for odd changes or odd write offs may be good place to start. Misplaced stock or other certificates of investments are common for small nonprofits and it would easy to create a statement to look like an investment was that wasn’t. Investment committees should verify with custodians outside of the statement provided by the bookkeeper or admin person.

Community Investment Notes

What are “Community Investment Notes”? Some call this impact investing, others call is community banking. Some simply refer to it as social impact investing. According to Social Investment Forum this category is one of the fastest growing. See the figures on their website tell the trend is here and getting real traction even in tougher market conditions. While Socially Responsible Investing tries to change or reward corporate practices, community investing or imp[act investing looks to affect society, community, or micro level by helping small business, families or building housing. A friend of mine works for Florida Community Loan Fund and it was funded by nonprofit partnering with investors wishing to make a real difference in access to capital and helping lower income families get housing loans not available in traditional banking. The access is through nonprofits specialized in housing and overseeing the operations and servicing.

One of the larger groups in this space is Calvert Foundations notes program launched in 1995. It invest into hundreds of nonprofits and micro finance projects. Several mutual fund companies and foundations have also entered into this space. The primary objective is to impact the community and families represented . There are resources on community or impact investing. There are credit unions that also offer an opportunity to invest into the community and some specialize in such offerings. Some Community Foundations offer training and guidance on working with these types of investments. Another resource is book Impact Investing:Transforming How We Make Money While Making a Difference. There is a professional rating service on how community investment program doing and how well or poorly they are meeting the mission of the organization. www.carsratingsystem.net and the annual cost is about $1500 to use the service. Expect to see and hear more on this unique place to engage change with money. This is less about the financial returns and more about making an impact locally. Other terms you may hear about are L3C low profit LLC or B Labs partnership of for profits and nonprofits.

My purpose is not to convince you to invest here rather as general information about what is community or impact investing. I get only about one call a month regarding making impact over the past year and 3 years ago I never got a single call. The trend is rising and community advocates are often finding this as one way to give back and preserve assets. If you have general or specific questions in regards to community investing I would happy to help you gain perspective and seek out a next right step. It matters.

Biblical perspective on life planning

Ron Blue is my go to guy for life planning as he has made it his passion to understand and educate others on life planning as a process skill that is core component of financial leadership. Ephesians 5:15-17 “Look carefully then how you walk! Live purposefully and worthily and accurately, not as the unwise and witless, but as wise. Making the very most of the time because the days are evil. Therefore do not be vague and thoughtless and foolish, but understanding and firmly grasping that the will of the Lord is.”

So we are to be intentional and have proper perspective. Money is a tool and it is a test. How we handle it speaks volumes about us and our beliefs. Money is not a measure of self-worth. Money does not guarantee contentment- don’t we all know someone rich and unhappy?

The issues of life : World, Church, Family, Work, Government and you and God and how that is positioned in your head and heart make a huge difference in sorting out the issues. From work we derive income and from there have lots of choices to balance: Giving, Taxes, Living and Debt. Beyond that is the margin for now and future to manage. In the end of our lives we have Financial Capital, Social Capital and Spiritual Capital to distribute. Roy Williams author and consultant once told me that to give financial capital without values training it is all in vain. Teach your heirs and have conversations with them and train them in proper decision making. Roy should know a thing about this as he as studied for decades post estate planning for wealthy families 3000+ family extensive survey and follow up interviews.

The results of purposeful planning according to Ron Blue are the following: Make financial capital a non-issue so focus on the eternal. Context for decision making giving greater balance. Importance of investing not only in financial instrument but also social and spiritual capital. Simplify life. Helps with accountability, which leads to peace of mind.

Apostle Paul in Phil chapter 1 says this “I pray that your love may abound still more and more in knowledge and all discernment, that you may approve the things that are excellent…”

Proverbs 18:16 is a wonderful verse on self development. “A man’s gift makes room for him And brings him before great men.” My take way is become more to be more for others in your life. Do not wish for life to be easy rather work to be better able to handle the stress and challenges.

Consider getting some coaching and get accountable to someone in regards to your life and financial planning.

Myth #5 Your Money Does Not Matter

Let’s first begin by highlighting 4 ways you money does matter.

1) More money managers are doing investment screening for values.

2) Letter writing to help affect change.

3) Advocacy or proxy voting put real pressure on corporate management.

4) Do not harm.

I have heard financial advisors bad mouth social, moral or ethical investing a lot over the years. A friend of mine called yesterday and asked what I was doing at Stewardship Matters and what my story was. I quickly told him I help individual investors and nonprofits align their money with their values. There are 17 Core values that I screen for positive and negative screenings. He laughed and and told me that values don’t matter. To the financial community, as a whole, they look at values investing as another marketing gimmick and they explain this by saying, “any little bit of money does nothing to impact true change.”

I believe Martin Luther was one of the earliest advocates for social and moral investing. He said there were three conversions: conversion of head, conversion of heart, and conversion of wallet – and the wallet being the toughest. He also went on to say, “what good would it do me if I make a 10% return and yet harmed my neighbor 10 times over.” Think about that for a moment. Does that sound familiar?

William Wilberforce rallied many advocates over his 26 year battle to end human slavery and the trading of African slaves for profit. He wrote to several country leaders as a member of Parliament asking them not to support nor invest into traders connected with slavery. Just like past advocates have had an impact in history, you too can affect change on several levels today. You can align your investments with your core values of environmental, social, ethical, moral or faith matters. You can also choose passive indexes that screen out the negative or invest into industries or companies that align with your values. There is also another level of shareholder advocacy in terms of getting issues addressed like toxic waste, child labor, or moral issues like porn or abortion. Letter writing, proxy votes, and money managers that handle millions of dollars in a company can carry significant clout on issues if you align with them properly.

Do no harm may mean doing nothing in medicine, however in the world of investing, you need to determine the items you deem harmful or that go against your core values and then act intentionally and with purpose to address your active funding and participation with such companies and industries. You have a choice and you can affect change as you and others gather together, demand and advocate such changes be made.

Did you know that, according to Social Investment Forum and Europe Social Investment Forum, in Europe there were over $5 Trillion+ of screened investments in 2010 as compared to over $3 Trillion+ in the United States in screened investments? In Europe there are now laws in 27 of the States of Europe to meeting environmental laws. Many of the pensions are required now to address social and environmental investing as part of the prudent investment allocation.

Expect to see sustainable investing and business sustainable practices covered in the press more in the next few years. European Universities often have studies done on sustainability and impact of social and environmental and other screened investment methods as the normal course of financial research. Europe is paying attention to these issues and I expect we will too. Water and waste and energy are the three hot topics in global investing according to PAX World director Ian Simm. Expect more on water, waste and energy from me soon.

Why do this? We want you to experience more joy, love and contentment in your life.