A question of competency
“Capabilities are really high, skills and competencies are quite good.” This is the outcome of an independently commissioned survey by consultants Watson Wyatt into decision-making and pension fund governance in the UK. As Professor Andrew Kakabadse from the Cranfield School of Management, who led the research, told those attending a recent Global Asset Study conference in London, the key issue under consideration was the capability, skills and competencies required to be effective as a trustee. Competency-based decision-making was about skills, having in-depth knowledge of your subject, whereas capability-based decision-making was about broad-based reasoning and experience, independent of the applicable field, yet equally as valid. As part of this, the survey looked at current trustees’ attitudes and beliefs towards their role and the effect of this on their future decision-making post-Myners.
Age is the single most important determinant of trustee attitude, performance and response patterns. This was true, across the two sample groups identified: Corporate man who is company-appointed and for whom being a trustee is simply ‘part of the job’ and prudent man who is anyone outside this. Corporate man is comparatively younger and less experienced with on average overall experience of only one trustee group. By contrast, prudent man, 43% of the sample, is appointed as trustee by invitation, has longer experience as a trustee and in a trustee group with background experience of more than one trustee group. Trustees’ attitudes towards their own role was positive, both corporate and prudent man feel that their roles are clearly defined, they have the freedom to perform and have attained a good level of professionalism. Yet, prudent man enjoys the role and its challenges slightly more.and is also more positive about the culture surrounding trustee boards and groups, finding it to be a supportive environment. He also believes that the culture is responsive to representing key stakeholders slightly more than corporate man. Both groups see the boards as operationally and strategically driven with an effective use of time in meetings. Neither is heavily influenced by management concerns and are generally not risk-takers. Both perceive a strong cohesive spirit with effective communication in general and at a group level. The best relationship is seen to be between the trustees and the chairman of the trustee group with both working towards similar objectives. There are no hidden agendas, professional advisers and management communicate effectively with the trustees.
In specific terms of competence and capabilities, although corporate and prudent man feel they have a lot to add, particularly from their personal experience, prudent man feels more confident of his ability and experience to influence decisions. Both see themselves as possessing relevant management skills, yet find keeping up-to-date with issues as problematic. On the issue of expertise, around 75% of both groups believe that their knowledge of how investment objectives link to liabilities is good. There was also a positive response regarding expertise in risk measures appropriate to fund; investment language, asset liability modelling and performance measurement reports. When looking at formal qualifications however, the survey found some interesting findings chartering a distinct shift in educational background (see table 5). No relevant qualifications was the third most relevant qualification, twice as true of prudent man. Other relevant qualifications were the second most relevant formal qualification. Between the two groups, corporate man emerges with professional accounting qualifications by a large margin. One to two days was a typical response when it came to on the job training, yet prudent man tends to have at least three days training whereas corporate man might only have one (see table 6). Yet, as Kakabadse says, it is significant that capabilities are evenly matched between the two groups, irrespective of qualifications.
Of all the decision-making bodies, prudent man views the trustees as having the greatest input into principal investment decisions, followed by the investment committee (see table 3). Corporate man responded in a similar way yet felt however that other intervening bodies such as investment consultants, advisers and committees also make a significant contribution (see table 4). Top of the decision-making list is the level of trustee support for decisions made within the trustee group (see table 1). Decision-making is felt to be far more complex, yet the quality of decision-making in the trustee group is felt to be high and made on a ‘well-informed’ basis. Above all, trustees feel that they know what they are doing.
When it comes to decision-making performance, the trustees’ relationship with the investment consultant is top of the list when assessing the heaviest influence on this process (see table 2), then group dynamics, followed by the time taken to properly understand the issues at hand. There was a middling response to the extent which the chairman heavily influenced decision making performance. The weakest influences on performance are seen to be trustees relationship with the managers, with continuity/ turnover of members being seen as the least influential factor.
At a wider industry level, trustees agree with Myners that the performance of advisers should be measured and assessed. With a good level of support for what Myners is trying to achieve there is a belief that the report will have a significant effect on operational measures if implemented, leading to more sophisticated markets. They believe that Myners will also promote greater transparency , accountability and enhance the position of investment consultants. Yet, bureaucracy and workload will increase, slowing the decision-making process down. The need to be more professionalised is a low priority, they feel overall fund performance is fine. Both predict increased levels of responsibility in the future, for themselves and their advisers.
As Kakabadse says, “what’s emerged from this survey is that trustees seem to display far greater levels of capability than their counterparts on the executive management side or on boards”, yet both are needed. “It is the competencies issue. It is the training issue. It is understanding the level of knowledge you need so that you can use your capabilities to best effect”.