What Does It Really Mean to Be a Fiduciary? (Surprise, it's not about the money)

Let’s start with a clear definition of fiduciary. We often think about it in terms of finance and responsible money management. However, the term is more inclusive than just financials. The Merriam-Webster online dictionary has a specific “Did You Know” callout section with the following note on its page about fiduciary roles:

“Fiduciary relationships are often of the financial variety, but the word fiduciary does not, in and of itself, suggest pecuniary ("money-related") matters. Rather, fiduciary applies to any situation in which one person justifiably places confidence and trust in someone else and seeks that person's help or advice in some matter.”[1]

Building on this, Orgforward looks at the breadth of fiduciary capacity to include both the actor(s) and the obligation as follows:[2]

Noun (the role): a person entrusted with decision making authority over property, assets, or power and how they are used to benefit another

Adjective (the capacity/responsibility): the obligation of a person or entity to faithfully serve as a fiduciary to another person, entity, or community

It is not hard to see social-benefit organizations in this frame. In the United States, social-benefit or community-benefit organizations are granted exempt tax status on a fiduciary basis. What we mean is that tax-exempt entities (specifically 501c3 entities) are granted that exemption based on the commitment to use resources to advance at least one of the broad social/community benefit activities identified within the US tax code (that’s actually what is listed in paragraph 501c3 of U.S tax code, hence the terminology we use). If resources are not used for that purpose, they get taxed. So, by definition and charter, exempt organizations are expected to be fiduciaries of community benefits, using the power, property, and assets they are entrusted with to benefit society.

As a capacity, Orgforward defines it this way:

Organizational Fiduciary Capacity is the ability to continuously assess if an organization is effectively & efficiently acquiring & investing assets to sustainably advance social benefit in a manner that is aligned with stated values

Fundamental to this framing of fiduciary capacity is the clear connection between both assets (which we will use to include resources, power, and property moving forward) and benefits. These are the two sides of the fiduciary coin to understand - the promised or expected benefit to the beneficiary and the manner in which assets are used.

Stewarding both the benefits and the assets associated with an organization involves consideration of a wide array of organizational capacities. It requires clarity around the social benefits provided to the community; an understanding of what it takes to advance those benefits; a well-designed operating structure that effectively does what it takes; and an awareness of the assets required to sustain that structure. The Fiduciary Capacity Model is Orgforward’s illustration and explanation of those capacities and how they fit together.

The Fiduciary Capacity Model™

Each element of The Fiduciary Capacity Model serves to reinforce the overall fiduciary capacity needs of an organization. The model is presented as a flow diagram connecting each capacity in a way that illustrates their interdependence and roles

 

Organizational Capacities Explained

Intended Social Benefit: the positive, quality-of-life outcomes the organization contributes to in the community

Explanation & Purpose: Fiduciary responsibility is grounded in acting for the benefit of another. This demands clarity around what the specific benefit is and for whom. This is placed at the top of the model as all subsequent capacities are in service to advancing this benefit. Here the organization is establishing its community aspirations (i.e. its vision of the community it wants to see in place in the world).

Organizational Design Capacity: the ability to identify and create a shared understanding of what we value, what we believe it takes to create change, and the perspectives and assumptions about people, systems, and the world that guide our daily behavior

Explanation & Purpose: Once an organization has identified the community aspiration and intended social benefit, the next substantial organizational need is a clear understanding of what it takes and what is required to advance those benefits. This is the most theoretical and expansive of the capacities. Fundamentally, it holds many of the key assumptions the organization is built upon. This is the place where beliefs, values, perspectives, and theories live. Examples of elements that make up this capacity include community aspirations (vision), community role (mission), what is valued (values), approaches (theory of change), and belief systems/ideologies. As this capacity holds most of the ‘thinking’ about what is important to an organization, it is the foundation for culture, strategy, and integrity and the primary source for the development of The Integrity Profile tool examined in further sections.

Program Capacity: the ability to develop and execute efforts that effectively advance community outcomes

Explanation & Purpose: Organizations advance social benefit through programming. It is program delivery that leads to outcomes. The Design Capacity informs the specifics of what types of programming to engage in. This capacity is about ensuring the portfolio of programs is both aligned with what is articulated in the Design Capacity and effectively contributing to the Intended Social Benefits. Program Capacity is the operational centerpiece of the organization and is what all subsequent capacities are in service to. In short, without programs we advance no outcomes and have no need for assets and structures.

Leadership Capacity: the ability to identify desired outcomes (small & large), determine what it takes to accomplish outcomes, and engage people in achieving those outcomes

Explanation & Purpose: In addition to the large-scale design thinking involved in articulating the Design Capacity, there are numerous and ongoing design, planning, and assessment efforts going on across an organization. While managing operations is a part of this capacity, it speaks more to applying an outcomes-oriented lens to decision making and behavior. This involves taking the time for inquiry and reflection to identify desired outcomes of a situation or strategy, determining what it takes to advance those outcomes for those most affected, implementing the necessary changes; engaging those involved; and assessing effectiveness.  To clarify, this can happen on large and small scales and may be demonstrated by people across an organization, not just those in traditionally defined ‘leadership positions.’ It is a combination of both dispositions, how we think about things, and behaviors, the actual tactics we engage in.

Additionally, Leadership Capacity is what enables innovation, change, and dynamism within an organization. This is the planning space that, when done well, focuses on what it takes in today’s world to authentically advance desired outcomes. It incorporates the learning and input that comes from the Engagement Capacity to ensure that the structural elements of an organization align with the aspirations of the Intended Social Benefit. Leadership Capacity is also critical to both the development and potential future renegotiations of the Design Capacity.

Engagement Capacity: the ability of community members to engage with the organization in order to inform and influence the advancement of community outcomes

Explanation & Purpose: Social-benefit organizations are deeply interdependent with the communities they are part of. As a fiduciary entity, understanding who the beneficiaries are and who is most affected by the organization’s work is critical. Engaging those most affected by an organization is the capacity that validates this part of the fiduciary equation. Engagement capacity is what ultimately informs the Intended Social Benefit and how it is understood as part of the Design Capacity. Additionally, programming must also be responsive to and aligned with those who are most affected by it.

Asset Capacity: the ability to identify required assets, attract/acquire those assets, and allocate them effectively to advance community outcomes

Explanation & Purpose: Asset Capacity represents the transition to more structural and tangible areas of an organization. Asset Capacity is an umbrella for the Talent, Infrastructure, and Financial Capacities. This collection of capacities is determined by and in service to the capacities above it. In short, the Asset Capacity represents all the things that are necessary to effectively enable Leadership, Engagement, Program, and Design Capacities.

Talent Capacity: the ability to identify and engage the people with the competence, confidence, and comfort required to meet the Program, Leadership, and Engagement capacity needs

Explanation & Purpose: As mentioned earlier, an organization fundamentally organizes people and their behaviors. It is people who exhibit leadership, deliver programs, and facilitate engagement. Additionally, people are almost always the most abundant and most costly assets and, therefore, represent the most crucial asset to align with organizational design.

Infrastructure Capacity: the ability to identify, put in place, and consistently employ the resources, systems, and processes that support people’s ability to act in alignment with design

Explanation & Purpose: Infrastructure exists to support people and their behaviors. If we had no people, there would be no need for infrastructure. Therefore, we look at infrastructure capacity as the full collection of resources, policies, and systems that best facilitate the success of the talent capacity.

Financial Capacity: ability to identify and engage the financial and in-kind revenue sources and strategies that fully support the overall asset capacity needs

Explanation & Purpose: Having sufficient and effective talent and infrastructure most often requires money to secure those assets. Organizations need to develop both reasonable and sustainable strategies and practices for securing the needed revenue as well as effective systems for financial management and assessment that support the fiduciary responsibility of ensuring assets are effectively and efficiently advancing an organization’s social benefit goals.