How can trustees improve their scheme's governance?
Pardon the Interruption
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The regulatory and administrative burden is the biggest governance challenge for more than half of trustees attending a recent conference, so how can boards ensure their governance is and remains good?
An audience poll at Legal & General Investment Management’s client conference on Tuesday, attended by more than 200 delegates, showed 53% are finding the burden of administration and new regulations challenging, and over a quarter (26%) said it was hard to keep the right skillsets on the board.
‘More governance is not necessarily good governance’
Time for decision-making was a challenge for just 14% of those who attended, but given the growing regulatory burden, this could be an emerging issue. Daniel Barlow, a director at professional trustee firm Law Debenture, said prioritising strategic issues was critical for good governance.
“Good governance is what helps you achieve your objectives,” he said speaking at the conference, adding: “More governance is not necessarily good governance. We need to be quite rigorous in testing governance: does it help us achieve our objectives?”
“Good governance is what helps you achieve your objectives,” he said speaking at the conference, adding: “More governance is not necessarily good governance. We need to be quite rigorous in testing governance: does it help us achieve our objectives?”
Some trustee boards have lost sight of the purpose of their meetings, observed Melanie Cusack, a client director at trustee firm Zedra, citing one board where much discussion time was used up with non-strategic matters.
“Their strategic goals had been overlooked for discussing things like, ‘Why are we meeting in this location?’. There are too many examples of that,” she said, speaking at the same event.
“Their strategic goals had been overlooked for discussing things like, ‘Why are we meeting in this location?’. There are too many examples of that,” she said, speaking at the same event.
Cusack also criticised trustees that do not read the meeting report pack, as this makes them ineffective in their role – and is unfair towards their fellow trustees.
“It’s a bit obnoxious to think you can turn up and bluff everyone at the table who has read the papers,” she said.
If a trustee has not managed to read the pack, they should notify the chair, she suggested, and if the time given to read it was too short, the meeting might need to be moved; otherwise, the chair will need to have “a quiet word” with that trustee to say that their voice is needed to have a discussion.
“It’s a bit obnoxious to think you can turn up and bluff everyone at the table who has read the papers,” she said.
If a trustee has not managed to read the pack, they should notify the chair, she suggested, and if the time given to read it was too short, the meeting might need to be moved; otherwise, the chair will need to have “a quiet word” with that trustee to say that their voice is needed to have a discussion.
Report packs can easily become too long, and it might therefore be a good idea to put a limit on the number of pages to read, said Anna Lees-Jones, a professional trustee at Capital Cranfield who was also on the panel. “We don’t need to have board packs that aren’t concise and clear,” she said.
Yes-sayers don’t add value
To avoid having trustees simply agreeing, the chair on one of her boards employs a particular tactic. “He purposely leads conversations down a train of thought he doesn’t believe in, to check he doesn’t have a bunch of yes-sayers on the board,” she said.
It can also be up to the chair to help the other trustees question or challenge advisers by creating the environment for them to feel safe to do so. “Often I do throw out a provocative statement to provoke some dialogue," said Cusack.
Barlow said that as a chair, “you have to almost start up with not a stupid but a simple question that helps others to chip in”.
He advised chairs to encourage people to pose challenging questions: “If you have a natural devil’s advocate, let them be that; if not, maybe assign that role to someone.”
He advised chairs to encourage people to pose challenging questions: “If you have a natural devil’s advocate, let them be that; if not, maybe assign that role to someone.”
Can schemes be well run without a professional trustee?
While the devil's advocate could be any trustee, the sector has seen growing professionalisation, largely prompted by the regulatory burden. So is a professional trustee – perhaps even a sole trustee – now required for pension funds to be well run?
Not necessarily, found Lees-Jones, who sits on three schemes as an independent rather than a professional trustee. “I don’t feel they’re any less good,” she said, adding: “It depends on what you are trying to achieve and how.”
Barlow said professional trustees bring value but larger boards with different points of view from members and employers offer useful dialogue. However, they can be more unwieldy, he warned. When the market environment or circumstances change, “you do need to think how you respond and delegate”.
Some sponsors bring professionals to the trustee board not because the board is performing poorly, noted Cusack, but because they are closed to accrual and the cultural link between the scheme and the members is getting weaker: “They recognised they need some succession planning.”
