Succession, Trust and Estate Planning Update

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Enhancing Accountability and
Governance Within Your
Community Trust
Presentation to AFOA Manitoba Professional
Development Workshop Series September 11th, 2008
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Establishing Effective Governance
Accountability Within Your
Community Trust

• Experiences of Rama First Nation
• Stability, Policies Procedures, and Strong
  Management
• Rick Morano, Chief Financial Officer, Rama First
  Nation
• The Process
• Specifics to Ensuring Good Governance
  Oversight
• Jack Jamieson, Vice President, T.E. Investment
  Counsel Inc.

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Stability, Policy and Procedures, and Strong
Management

• Engaging Citizens and Members
• Hiring Experienced Managers and Consultants
• Policies and Procedures
• Organization Structures
• Nurturing the Relationship

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Stability, Policy and Procedures, and Strong
Management

• 1. Engaging Citizens and Members
• Including non-elected members on the Investment
  Committee improves transparency.
• Education of all Investment Committee members
  will improve transparency.
• Investment Committee communicating to Community
  members annually and Chief and Council quarterly
  will improve transparency and accountability to
  the Community and to Chief and Council.
• Investment Committee of non-elected members
  creates a buffer between operations and Chief and
  Council, enhancing good governance.

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Stability, Policy and Procedures, and Strong
Management

• 2. Hiring Experienced Investment Managers and
  Consultants
• Completing a detailed Request for Proposal will
  improve transparency.
• Hiring qualified investment consultants and
  managers will enhance accountability.
• Hiring investment managers who have good past
  performance records, low turn over, do their own
  research, and have a philosophy that will not put
  your portfolio at significant risk, etc. is good
  governance.

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Stability, Policy and Procedures, and Strong
Management

• 3. Investment Policy and Procedures
• (i) Specific procedures documented with the
  policy help provide clarity and precision.
  Defining the roles and responsibilities (e.g.
  Chief and Council, Members of the Committee,
  Members, Consultants and Investment Managers)
  clearly improves accountability for all involved.
  
• (ii) The Investment Policy should define the
  criteria, for example purpose, returns, time
  horizons, asset allocation, conflict of interest,
  and any investment constraints.

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Stability, Policy and Procedures, and Strong
Management

• 4. Organization Structure
• Investment Committee should be arms length from
  Chief and Council and should include
  professionals as well as Members of the Community
  (as noted above).
• Investment Committee should meet regularly with
  the Investment Mangers and Consultants which will
  improve accountability.
• These meetings should be held quarterly, have a
  formal agenda, meeting minutes and Investment
  reports produced at a minimum.
• Minutes approved by Investment Committee and
  accepted by Chief and Council.
• Investment Committee should communicate at least
  annually to the Community on investment and
  returns.
• All the above enhance good governance and
  accountability.

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Stability, Policy and Procedures, and Strong
Management

• Nurturing the Relationship
• Good relationships and trust come from having a
  governance system in place where accountability
  is transparent.
• Ensuring that the reporting process is open to
  all, that communication is regular and consistent
  by all, and decision making is consistent with
  respect to the Investment policy by all, will
  ensure that the relationship between the
  Community members, Chief and Council, and the
  Investment Committee are developed.
• Example of ways to nurture this relationship is
  to include the Investment Committee policy and
  procedures in the orientation of a new Chief and
  Council.
• Include the Investment package in the Finance
  Committee package or Chief and Council packages
  quarterly.
• Ensure Investment Policy changes are communicated
  and approved by Chief and Council.

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Establishing Good Governance Accountability
- The Specifics -
1. Governance Trust Structure and
Oversight2. Establish Your Vision and Values
3. Develop Measurable Priorities and
Objectives4. Develop Investment Policy 5.
Portfolio Structure and The Manager Search
Process - Finding the Most Appropriate
Manager(s)6. Ongoing Performance Measurement
Interpretation
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Fiduciary Obligations

• Fiduciary Obligations Arise
• In special relationships where one party is
  required to look after the best interests of the
  other in an exemplary manner
• (Canadian Encyclopedia)
• Individual or Corporate Trustee
  Beneficiaries
• Chief Council / Fin. Mgmt
  Board Membership
• Tribal
  Councils Member First Nations
• Even,
• Financial Mgrs., Administrators
  First Nation Assets
• 
  Resources

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Fiduciary Obligations

• Basic test for determining whether fiduciary
  obligations arise from a relationship
• First, the fiduciary has the ability to exercise
  some discretion or power
• Second, the fiduciary can unilaterally exercise
  that power so as to affect the interests of the
  beneficiary
• Third, the beneficiary is in a position of
  vulnerability at the hands of the fiduciary.
• (Canadian Encyclopedia)

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Fiduciary Obligations of a Trustee

• New Standard of Care It is no longer good
  enough just to act honestly and in good faith.
  Trustees are responsible for displaying a level
  of prudence in the oversight and best interests
  of the beneficiary regardless of the level of
  expertise they may possess internally.
• Quite simply, if you dont have the expertise,
  then it is imperative to engage appropriate
  professionals to ensure you are able to meet your
  fiduciary obligations
• There is also an inherent obligation for those
  entrusted with the use of and control over assets
  to ensure effective internal control systems are
  in place to protect such assets and resources
  employed by or entrusted to them

As a Trustee, you are accountable !
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1) Governance and Oversight

• Getting the Right People - Employ a Diversified
  Voice to Govern
• Council ?, Members (On/Off)?, Internal / External
  Expertise?, Corporate Trustee?
• Nominating Committee? / Appointment ? / Election?
• Accountability Structure
• Who has what authority?
• Who is accountable to who and for what and how
  often?
• Define and document roles and responsibilities
• How Do You Define The Success of the Governing
  Body?
• Must have specific performance expectations and
  means to check
• Continuous Training
• Knowledge brings understanding and comfort !
• Communicate, Communicate, Communicate!!!

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Why a Corporate Trustee Makes Sense

• Safeguarding the Trust Property
• Corporate Trustee Assumes Liability
• Knowledge and Expertise
• Permanence and Continuity
• Objectivity
• Education and Training
• Record Keeping
• Specialized Reporting

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2) Establish Your Vision and Values Statement
The vision must be clear before you can set
specific objectives

• Seek input from community membership focus
  groups
• Be a Visionary Think the Impossible !
• (Martin Luther King, 1963 I have a dream)
• Your priorities are not just for today
• but must be considerate of future generations

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Importance of a Vision

• Failure to build your own future,
• and someone is going to build one for you
• Gary Hoover, Author-Visionary

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Creating Your Vision Statement

• Understanding Your Values
• Values Defined
• the ideals, customs, institutions of a society
  toward which the people of the group have an
  effective regard. These values may be positive
  such as honesty, integrity, freedom or education
• Beliefs of a person or social group in which they
  have an emotional investment for something
  specific
• Dictionary.com

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Understanding our Community Priorities
?
?
What makes up our Community?
?
?
?
?
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What is Our Community Vision?

• We envision a healthy, united, prosperous,
  balanced and harmonious self-sustaining community
  located in our traditional lands
• preserving and strengthening our culture
• for generations to come
• Missanabie Cree First Nation

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3) Develop Measurable Objectives To Be Governed
Identified Priorities (Qualitative)(What
specifically do you want to achieve?)

• Economic Development?
• Infrastructure?
• Social Support ?
• Preserve the Financial Stability of the First
  Nation for Future Generations?

Inflation 2.00 Management Fees 0.50
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Required Return versus Expected Return versus Risk
Asset Mix A 10 Cash/60 Bond/30 Stock
Expected return on cash 3.50 Expected return
on bonds 5.00 Expected return on
equities 9.00 10 Cash/60 Bond/30
Stock 6.05 Manager Added Value
(Alpha) 0.50 Total Expected
Return 6.55 Expected Risk (Standard
deviation) 6.70 Best Year since 1958
26.8 Worst Year since 1958
-2.1 Avg 12 mths since 1958
9.20 Negative returns 1 in every 16
years Equity mix is 1/3 Cdn, 1/3 US. 1/3 Intl

• Return on Investment Required
• Distributions 3.50
• Inflation Mgmt fees 2.50
• Total Return Required 6.00

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4) Develop Investment Policies Guidelines

• Investment Policy Guidelines
• A living, written document that details your
  communitys vision. This document must be updated
  as circumstances change and helps to facilitate
  communication, bring continuity and clarity.
• Sample Content Includes
• Beliefs, Values, Vision
• Objectives and Required ROI
• Disbursement Policy
• Time Horizon
• Target asset allocation
• Exposure to downside risk
• Separate sub-policies

• Allowable Prohibited Investments
• Conflicts of Interest
• Manager Change Policy
• Roles Responsibilities
• Investment Constraints
• Socially Responsible Investing Constraints
• Monitoring process

A well developed policy helps you stay focused
on your objectives through changing environments.
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5) Manager Search Selection

• Over 200 professional domestic
  Investment
  Management Firms
• Over 5,000 U.S. and International
  Investment
  Management Firms
• 1000s of Investment Products
• It is Important to Note
• 1) All providers serve a purpose but all are not
  created equal
• 2) Diligence is required to understand the scope
  of providers available,
• their performance, risk, fees, service and
  how they fit your criteria
• 3) Understand their strengths and weaknesses

Its a Big World Out There!
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The Importance of Style Diversification
Growth Manager---------- Value Manager
--------- 50/50 Blend ------------
Style diversification decreases market risk
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Manager Search Selection- Quantitative and
Qualitative Assessment

• Quantitative and Qualitative Assessment
• Performance - absolute, benchmarks peers
• Is the performance data relevant to the mandate
  required
• Risk - not all 8 returns are created equally
• Buy sell disciplines
• Dedicated investment style
• Low professional turnover
• Research - internal versus external
• Ownership and compensation
• Fees
• Service reporting capabilities
• Low correlation of returns to existing providers

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6) Ongoing Performance Measurement
- You Must Remain Informed !
At a minimum, the following are 4 levels of
reporting considered key

• Absolute returns versus requirements
• Returns against weighted benchmarks
• Returns against peer group or like managers
• Risk-Return scattergraphs (e.g. return received
  for each unit of risk taken)

• The real risk is not the underperformance itself
  but the
• inability to realize when you are
  under-performing

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Ongoing Performance Oversight Interpretation -
Understanding a Managers Relative Performance
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Ongoing Performance Oversight Interpretation -
Return is Important but at What Level of Risk?
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Again, Why is all this Important?

• Proper governance and accountability helps
• Ensure you are meeting your fiduciary
  responsibility
• Minimize exposure to personal liability
• Increase the probability of enhancing investment
  returns and ultimately meeting Trust objectives

All important reasons when governing a
Community Trust investment program..