Shareholder Activism on the Budget!

In one of those interesting twists of Episcopal Church polity, the corporate name of the church is actually the Domestic and Foreign Missionary Society. Founded in 1821 as a member-based organization, funded by dues and subscriptions, the DFMS worked to promote missionary work. It did not go well, to put it mildly, so in 1835 the DFMS was kind of re-founded. It got a new charter, stating, in part, that all members of the Episcopal Church were considered members of the missionary society. Later, other mission organizations of church were folded into the DFMS (like the Board of Missions) and the constitution of the DFMS was embedded into the Canons of the Episcopal Church: as a noted sage once wrote, the DFMS became the legal entity the Episcopal Church scuttled into like an ecclesial hermit crab. When COD worked out of 815, the name on his paychecks was DFMS. In the old days of the internet, www.dfms.org redirected you to the Episcopal Church website. The legal incorporation of the DFMS, and thus of The Episcopal Church, is in the state of New York.

Thus we are all members of the DFMS -- shareholders, in a sense. Perhaps that is fitting.

It has been noted that the proposed 2013-2015 budget includes a proposal for almost a $3.8 million draw from endowment principal - not interest, from the principal -- to fund a development office. You can see the details from Episcopal Cafe here.

Crusty Old Dean raised an eyebrow at this as he himself looked over the 2013-2015 budget, for one major reason: Bexley Hall Seminary, where COD is D, is legally incorporated in the state of New York as well as Ohio due to its 40-year sojourn from 1968-2008 as part of the Colgate-Rochester-Crozier Divinity School consortium. In 2010, New York state passed its version of the Universal Prudent Management of Institutional Funds Acts (NY-UPMIFA) which lays down guidelines for how nonprofits should manage and spend from endowed funds. As dean of an institution incorporated in New York, COD has been spending hours working to be in compliance with this act, in partnership with our Investment Committee. We have been updating our investment policies, examining what funds may have restrictions based on the intent of the donor, what funds are unrestricted, and so on.

There are many provisions to UPMIFA which keeps COD busy, but one which is sticking in COD's head is the question of "prudence." The Act presumes "prudent" management and spending of endowed funds and requires non-profit organizations to demonstrate prudence.  One is apparently not required to play "Dear Prudence" by the Beatles while demonstrating compliance.   However, there is an 8-step process organizations are *formally* supposed to go through when appropriating funds from endowments. Here is a checklist organizations need to show that they have gone through and discussed; we at Bexley have made sure that the Executive Committee of this seminary and the Board of Trustees have documented our efforts to be in compliance with all eight of these steps when making draws from endowments to fulfill the standard of financial "prudence" mentioned in the Act. The governing body of the organization must consider the following:

1) the duration and preservation of the endowment fund,
2) the purposes of the organization and the endowment fund,
3) general economic conditions,
4) the possible effect of inflation or deflation,
5) the expected total return from income and the appreciation of investments,
6) other resources of the organization,
7) the investment policy of the organization, and
8) alternatives to expenditure of the endowment fund, giving due consideration to the effect that such alternatives may have on the organization.

One could ask whether drawing from principal funds of an endowment to fund a staff position outside of the normal budgetary process meets this standard of "prudence," especially number 8 on the list.  This begs the larger question: has the Episcopal Church shown it is in compliance with UPMIFA standards? Can it document the process it has gone through in appropriating endowment funds? Has it, in fact, explored alternatives to this expenditure, and examined other resources of the organization? How to deal with the fact that a subcommittee of its Executive Council recommended against establishing a development office (though apparently this report was never adopted by the Executive Council)? Is this principal draw from restricted assets or unrestricted assets? Are there any donor intents which need to be taken into account?  What, exactly, is the train of decision making processes that go into requesting endowment draws?  Given the recent implosions at Executive Council, pardon COD if "trust us" isn't really a good enough answer.

Crusty Old Dean has been demanding more accountability, transparency, and consultation as part of our budgetary process. The recent debacle and apology issued by the co-chairs of PB&F, acknowledging gross errors in the budget adopted by Executive Council, is even more evidence of a budget system which simply is not working.

As part of a process of transparency and accountability, maybe it's time for some corporate shareholder activism in our DFMS.

Bishops and Deputies, who can propose resolutions: draft one that demands demonstrated compliance with NY UPMIFA, especially before drawing principal from an endowment, with a description of the process and procedures documented to show how we are in compliance.  If the DFMS is in compliance, COD will be thrilled, pleased, grateful, and relieved. Otherwise, there is some explaining to do.

Let's remember WE are the Domestic and Foreign Missionary Society, every Episcopalian, by virtue of our membership in this Church. This is OUR budget funded by OUR money and OUR endowment given by OUR forebears. Let's begin demanding accountability and transparency, and UPMIFA compliance is a good first step.