Stewardship – what do I mean by that?

One of my favorite words for business and charitable organizations is stewardship. From a governance standpoint, people have entrusted leaders and board members with their money, time, business, livelihoods and lives (for those in need), so it is incumbent upon the leaders to be good stewards. From a charity’s standpoint, it solicits and collects donations from a variety of sources – governments, faith groups, businesses, foundation and individuals. The leadership of these charities owe it to these donors to use their funds wisely and achieve a good return on their investment. In other words, make a difference in the lives of people they help.

The same holds true for business leadership. Whether the business is publicly traded or not, the leaders and board members have a responsibility to its shareholders, customers and employees to govern the company wisely. With respect to retirement funds that are trusteed in 401(k) plans or pension plans, the leaders who are on committees to govern the plans have an ERISA fiduciary responsibility to prudently manage the assets or delegate such authority with instructions and guidelines to an investment consultant or manager such as Fidelity, Vanguard, Merrill Lynch, TIAA-CREF, etc. Yet, I think stewardship is more encompassing than the fiduciary requirement. The committee members need to make certain the participants understand and use the plan, the plan is aligned with the attraction, retention and reward strategy of the organization and that the plan remains in compliance with the various laws and accounting regulations.

Stewardship applies to our government officials, as well, as we taxpayers want them to provide services and investments into our communities, state and country that provide security, protection, infrastructure and services to our needs. Like businesses and charitable organizations, the cost of running the government needs to be sustainable. One of the dilemmas we are facing and will continue to face is the cost of an aging workforce and infrastructure. I have noted before the debt crisis that has impacted Europe will not be felt as much at the federal level in the US. It is being felt and will continue to be felt at the city levels, where significant obligations to former employees exist and the city’s revenue base may be level or retrenching. This has happened in Birmingham, Stockton, Harrisburg and is happening in Detroit. We will see other cities come close to and enter into bankruptcy.

The leaders of any organization owe it to their stakeholders to be as good a steward of the entity as possible. The revenue and expenses have to be modeled into the future to see where the pressure points exist. They need to explore what is being provided by the expenses and what is needed in the future. Certain infrastructure needs may require investments, which would also bring into the equation capitalized costs that need their own funding. Yet, they also need to be mindful of the revenue side and look for ways to improve that. One thing is for certain in business, you cannot shrink to greatness, so you have to grow your revenue. But, you can shrink certain expenses while you grow other investments.  This happens routinely in business and should happen more in government. You invest more in what is needed and shows an ROI, and you invest less in things that don’t. And, some costs are needed to provide expected services.

Governments need to do this as well. At every level of government, the leaders need to look at these same issues. We need to spend money wisely, but at some point, we need to step up and pay for things. One of the areas I have been troubled by is the desire to not consider revenue increases where needed. That was at the heart of the Simpson-Bowles Deficit Reduction Plan – revenue increases and expense cuts. While no one wants to pay more taxes, there are times when some is needed, especially when they were cut back too far as the Bush tax cuts did. This led to the firing of Bush’s Secretary of the Treasury who openly disagreed with the Bush tax cuts. Paul O’Neill is his name and all he did was turnaround Alcoa from the verge of oblivion as CEO, so his perspective is important.

The deficit has been coming down for several reasons and is actually lower than when Obama started in office. The recovery has helped greatly, but so have the measures to avoid the Fiscal Cliff – tax increases on the upper end taxpayers and the elimination of the FICA tax temporary reprieve of 2% of pay which was in place to stimulate the economy for three years. Yet, while we look to make cuts in certain areas, investments in infrastructure are needed, especially in the community college career development activities, roads, bridges, electric grids, mass transit, eco-energy and internet capacity, e.g. The key about these investments is they will also create jobs as well as assets. I mention the latter as it is entirely appropriate to borrow money to build an asset. You do not typically pay for that out of operations. The former is critical as well, as the job creation will lessen the burden on other costs, create more taxpaying citizens, and generate the acquisition of more products and services.

Stewardship is important. It does not have to be popular, as most tax increase and cutback discussions tend not to be so. Yet, we want our leaders to make the most informed decisions possible. We also hope they are not unduly influenced by special interest groups. Unfortunately, this happens much more than it should. I have shared the following comment with certain leaders in various areas. If you look to make informed, data driven decisions and endeavor to do the right thing and not what some special interest wants you to do, then you will tend to be on the side of the Angels. When you make decisions for special interests, your other stakeholders may be scratching their heads. We need you to be a good steward and go about your business in the right way. We are your shareholders by the way.

2 thoughts on “Stewardship – what do I mean by that?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.