Understanding Stewardship
concept of stewardship refers to the appropriate management
of resources which do not belong to you.
So, how does one demonstrate they are a good steward?
Consider a charitable organization like Habitat for Humanity.
In order to attract donations from the community, the
charitable organization must show the money they raise
goes to support the intended mission (in this case, affordable
housing). To maintain their donors’ goodwill, they must
show the success they have had supporting this mission. In
short, they must demonstrate the goals of the organization
are efficiently being served with the limited resources they
have been entrusted with.
There are behavioral aspects to stewardship which must
be accounted for, particularly in regards to the investment
selection. At some level, every investor is risk-averse and
must be compensated for adopting investment and market
risk with commensurate returns. Risk aversion is a healthy
and necessary component to investment behavior. However,
a steward often exhibits a heightened sense of risk-aversion
while directing the investments for other parties. This natural
conservatism of stewards can manifest itself positively as
a thoughtful and prudent investment lineup. For example,
good stewards avoid speculative or whimsical investments.
On the other hand, a steward’s cautious tendencies must be
balanced against the ultimate goal – the mission – of the
assets. Stewards are occasionally too conservative in their
approach and end up constructing an investment portfolio
which cannot reach the investment target returns even given
ideal circumstances.
Please read our “9 ½ Questions” feature for additional
perspective on good stewardship and how it applies to
different pools of assets, like pension or defined contribution
(i.e. 401(k)) retirement plans.
Moving forward
Stewardship is only one element towards understanding
fiduciary responsibility. Other elements - including
duty of loyalty, governance, transparency, prudence, and
diversification - should be discussed with your fiduciary
consultant. In future editions of Confero, we will explore
these concepts and provide more education and insight. n
www.conferomag.com | 21