Despite the current economic environment, many companies still have healthy balance sheets and cash reserves to manage.  Corporate investment policies are something that come up from time to time among Board members, owners, firm partners, and financial departments of a wide range of companies.  But who’s really thinking about them?

It appears that not many professionals are.  At an event held by the Financial Management Association of NH on Monday, November 10th, less than a handful of financial professionals - out of a crowd of 100+ attendees - acknowledged implementing or being aware of any such policy within their organizations.  That so few of us were up to speed on the topic was a shocking realization to me.   Certainly the executives on hand are responsible leaders at the helms of successful organizations, therefore it stands to reason that such a fundamental step is more commonly deprioritized than it is taken to heart.  Here’s a primer on investment policies, courtesy of Morningstar.

Paul Miller of Axial Financial Group, who served on Monday’s panel along with Al Romero, SVP Business Banking at Bank of America and Matt Finn, VP Finance & Operations at Bradford Networks, highlighted two case studies that underscore the importance of using an investment policy.  One of the case studies  focused on a publicly-traded company that developed an investment policy stating that the “primary objective is preservation of capital and liquidity.”  This policy, which had been vetted by the management team and Board, was credited by that company’s CFO with helping them through the volatility of the past year and keeping them out of investment options such as auction rate securities.  Because of their policy, the company knew to immediately forego any goals of high yield in favor of keeping their cash in the safest vehicles available, and as a result were able to maintain the liquidity they needed.

An investment policy need not be overly complex, but I believe it is a fundamental building block for growing organizations, whether public or private.  And if the current economic climate does not convince us of that, perhaps nothing will!

This entry was posted on Wednesday, November 19th, 2008 at 8:00 am and is filed under Business consulting, General Business, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.