How do you build an investment committee, and who should be on it? A recent post from the Vanguard blog for Institutional Investors offers some ideas.
1. First, consider selecting a committee leader based on their unique skills, not their title. While the Chief Financial Officer may appear to be a logical choice, there may be someone else in your organization much more qualified — perhaps someone who doesn’t even hold an official leadership position. Leadership skills such as time management, delegation and team building will help keep the committee on track and on task to make sound decisions while fulfilling its fiduciary duties.
2. A “skills first” mindset is also important when choosing committee members. Again, title isn’t always indicative of skill set. Select members with a diverse mix of skills, whose strengths are complementary. This approach ensures expertise and knowledge is spread across disciplines. Further, diversification of ethnicities, genders, ages and backgrounds where possible can help avoid pitfalls such as herd mentality or confirmation bias.
3. The committee’s size is another consideration. Generally, 6 to 9 is about right, as it allows for a broad enough skillset, and prevents gridlock in decision-making. However, size is often dependent on the organization and the types of decisions being made. For example, straightforward portfolios may require a smaller committee, whereas more complex investment strategies may require input from a larger group containing members with more specialized knowledge.
4. Finally, think about how long committee members should serve in their roles. Vanguard suggests that “managed turnover” makes for better committees. Establish clear term lengths and detailed bylaws for electing, re-electing, or when necessary, terminating members.
All that said, keep in mind that committees and the rules that govern them may evolve as your organization’s investment oversight needs change. New challenges will arise requiring different skill sets, and the committee’s dynamic will change as members join and depart. So it’s important to stay flexible and make adjustments as needed. Nonetheless, these considerations will help keep your committee focused on fulfilling its fiduciary duties and improve its decision-making capacity, even in times of transition.
