Sunday, November 05, 2006

Governance of charitable institutions

The WSJ had this great article about the Wall Watchers, an organization founded by Howard Leonard which monitors the uses of donations to religious organizations.
Another organization that does important work along these lines is the Better Business Bureau's Wise Giving Alliance. On their website, they have a set of comprehensive guidelines that seek "to ensure that the volunteer board is active, independent and free of self-dealing".
They include:
1. A board of directors that provides adequate oversight of the charity's operations and its staff.
2. A board of directors with a minimum of five voting members.
3. A minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation.
4. Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer.

Buy-side vs. Sell-side

A look at what this common Wall Street terminology means: says:
" Sell-side firms are what people traditionally think of when looking for Wall Street jobs. These firms underwrite securities and advise on mergers and acquisitions through their corporate finance divisions. Their sales and trading divisions make secondary markets in a variety of securities, including stocks, bonds, currencies, swaps, commodities and derivatives. Analysts in research divisions make both macro (overall investment strategy) and micro (company-specific) recommendations.

Buy-side firms generally manage portfolios on behalf of clients. They include insurance companies like Aetna, investment management firms like Wellington Management, mutual fund companies like Fidelity and hedge funds like Moore Capital."

A clearer definition (I think) is this: the key is to think of basic financial instruments (stocks, bonds and the like). Buy-side firms (such as mutual funds) invest in these financial instruments. Sell-side firms sell these - for example, investment banks may underwrite a company's IPO, or help to sell the company's shares to the public (and take a cut).

Though the definition seems clear-cut, its not always this simple.
Where do commercial banks stand (they take deposits and issue loans)? They invest the deposits by buying securities - so buy-side? Or maybe - because they issue bank loans, a form of financing- sell-side? Officially, they're on the buy side.
Insurance companies sell what might be called a financial instrument, but they fall on the buy-side because they invest the policies they collect in securities. Investment bankers who broker M&A deals are on the sell-side, regardless of whether they represent the company that's being taken over (sell-side?) or the raider company (the one that's looking to 'buy').