Soon after the enactment of the Sarbanes-Oxley Act (SOX), I&P recommended that private-independent schools adopt the “principles embodied in SOX” as “guidelines for schools to use in ensuring that their management of financial affairs instills confidence.” Private-independent schools, acting as nonprofit institutions, are not required to observe most of the regulations found in SOX. However, there are two regulations they must follow.

In the current economic climate, it is easy for schools to ignore an enormous potential source of strategic funds. The first of the ISM Stability Markers® is cash reserves, and ISM urges schools to set aside an amount equivalent to 15% of their operating expenses. This means, for example, that a school with a $4.5 million budget should have a cash reserve of $675,000. This is strategic money that has three major purposes (and a variety of other applications):

We’re all aware of the economic downturn, and there is probably no better place to experience it firsthand than the financial aid “office” of your school. Financial aid officers across the country have faced increased applications during this economic downturn, placing greater burdens on tighter budgets. Therefore, it is time to think about a different financial aid model—financial aid as a school “stimulus package.”

In 2002, Congress enacted the Sarbanes-Oxley Act (SOX) as its response to the financial and accounting scandals at several large, publicly traded companies. Its primary purpose is to protect investors by ensuring that financial statements are accurate, that Directors and Officers have no conflicts of interest, and that each Board actively works to fulfill its oversight role. SOX also includes provisions spelling out the rules surrounding document alteration and destruction, auditor independence, Audit Committee requirements, and, notably, how Executive Officers and Directors should conduct themselves as they lead their publicly traded companies.

ISM’s recommended 13-line strategic financial plan model has been in widespread use for some time. This short, six-year (i.e., displayed in six columns) expression of your strategic plan comprises a one-page attachment to the plan itself and represents the quantitative expression of that plan. The great virtue of the 13-line model is that it allows Board members who are not mathematically inclined or have little financial expertise—often either a majority or a substantial minority—to understand the financial ramifications of the positions they take on strategic issues.

“In my business, we do continuous planning. Planning never ends. We never stop examining our market, making adjustments, and, when appropriate, instituting major changes. Should private-independent schools really be any different?”

Now is the time to set your companion annual agendas—the annual Board agenda and the annual operations (or administrative) agenda. ISM recommends this approach as the most efficient means of implementing your strategic plan. With this approach, both the Board President and the School Head will set aside time toward the end of the school year to establish these two short, but critical, documents in preparation for the upcoming year. (In practice, the President's annual Board agenda is often set in May or June; the Head's annual operations agenda, in July or August. The exact timing is of little consequence.)

As a subset of your next strategic plan—or as a right-now, no-cost, mid-course addition to your current strategic plan—form an ad hoc committee (including Trustees and senior administrators) to craft a financial contingency plan for the worst-case scenario that your school might face. Include in your contingency plan a cluster of "sensitivity markers" that will trigger the plan. (ISM wishes to acknowledge the Board of Trustees at Notre Dame Preparatory School/Marist Academy (MI), which inserted an item of this type into its recently completed, ISM-facilitated strategic plan.)

Many private-independent schools have long had professional human resources advice readily available to them, from either a staff member or an external consultant. Other schools are only now beginning to address this issue, often spurred by inquiries from Board members who work in the business world where the need for HR guidance is well-accepted. ISM believes that in today's complex operating environment, all schools need to assess their employee-related practices on a regular basis and have direct access to expert HR and legal advice.

ISM's Stability Markers® carry specific financial implications for your use, as Board President, in strategic planning. While all 18 markers contain general implications for every fresh strategic plan that you write, several are explicitly financial. There are, however, some strategic planning ramifications of the top-ranked ISM Stability Marker, the formulaic mix of your cash reserves, debt, and endowment.