Sunday, April 14, 2024
CEOWORLD magazine - Latest - CEO Agenda - How to set up an effective investment committee.

CEO Agenda

How to set up an effective investment committee.

Anna Bolotova

Nine recommendations to create a productive investment committee.

An internal investment committee is a body responsible for managing investments within a company. It is responsible for evaluating and making investment decisions, as well as monitoring and analyzing their effectiveness. The committee may include high-ranking employees of the company, such as the CFO or managing director. Its goal is to maximize the company’s financial returns and minimize risks.

Here are some aspects to consider when establishing an investment committee to ensure it successfully fulfills its tasks:

  1. Develop a charter. In our company, we regularly review our charter to ensure it remains relevant to the current conditions and goals of the company. The document contains a set of guiding principles rather than a detailed set of rules. The charter defines risk appetite, expected returns, environmental, social, and other constraints, and provides an algorithm for assessing the effectiveness of investments.
  2. Empower participants with both responsibility and authority. Committee members are responsible for the success of the decisions they make. To fully take responsibility for their actions, each participant should have the right to obtain information directly from the project initiator and freely interact with external data sources and other committee members.
  3. Avoid overstaffing the committee. A larger committee composition provides broader and more diverse knowledge. However, there is a risk that the decision-making process may become stagnant. If difficulties arise in the substantive consideration of projects, create subgroups based on professional directions. For example, invite the IT director as an expert to evaluate an IT project but do not grant voting rights.
    Example of vote distribution and areas of responsibility according to one of the charters of an internal investment committee within a telecommunications company – Appendix No. 1.
  4. Create a skills matrix. Compile a matrix of all the key skills necessary for committee members. It may turn out that there is an abundance of technical experts but a lack of marketers. After preparing the skills matrix, review the composition of participants and include the missing specialists in the committee.
  5. Avoid frequent changes in the composition of participants. Regardless of the committee’s composition, try to maintain it for at least a year. Frequent staff turnover undermines the overall understanding of the investment program. The productivity of participants is likely to decrease, and additional time will be needed to integrate a new team.
  6. Establish a decision-making algorithm. Specify in the charter the required quorum of votes and whose vote will be decisive. In our company, in the event of a tie, the director’s vote becomes decisive. Additionally, they may have veto power over any project, even if the committee members unanimously approved it.
  7. Send the meeting agenda in advance. Whether the investment committee consists of three or ten members, it should have a meeting schedule. I recommend holding meetings once a month. The agenda should be sent no later than 24 hours before the meeting and limited to a few key items. Most of our meetings focus on three topics:
    1. Project effectiveness evaluation – setting target indicators and benchmarks, as well as comparing planned values with target indicators and benchmarks.
    2. Monitoring compliance with the investment portfolio.
    3. Testing internal team processes, such as risk management.
  8. Implement electronic documentation of meetings and committee decisions. To increase transparency and speed up decision-making, use specialized software to store information. We use Hyperion for these purposes at Megafon.
  9. Avoid cognitive biases. It is no secret that communities of people tend to fall into the same misconceptions. Try to prevent such possibilities. For example, to prevent team cohesion from leading to a decrease in critical perception, invite independent experts. They will also notice if regular participants filter new information in a way that confirms their pre-existing opinions.

By following these recommendations, you can establish an effective investment committee that facilitates informed decision-making and maximizes effectiveness.

Written by Anna Bolotova.

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CEOWORLD magazine - Latest - CEO Agenda - How to set up an effective investment committee.
Anna Bolotova
Anna Bolotova is an experienced financial and investment analyst with over 14 years of experience. She started as a marketing manager at the telecommunications company Megafon, creating a dynamic Excel model for marketing forecasts. Promoted to Financial Analyst, she led important projects including a unique base station construction valuation model and the implementation of complex IT analytics projects. Anna's expertise allowed her to become the head of the Competence Center for monitoring and post-analysis. She is a published author of non-fiction articles on financial modeling and financial management, holds a CIMA qualification and is a member of the CPA.

Anna Bolotova is an opinion columnist for the CEOWORLD magazine. Connect with her through LinkedIn.