As one of the first multinationals to recognise the importance of the corporate role in the co-ordination of its pensions and investment plans worldwide, Anglo-Dutch corporation Unilever has set up a comprehensive system of independent divisions and committees as the backbone to its employee benefits provision.
A central element in this structure has been the development of a global investment philosophy and decision-making process to enable what Angela Docherty, senior corporate investment consultant at the company in London dubs: 'Unileverage'.
She describes the current corporate role at Unilever as an essential backdrop to the crucial issues of shareholder value and risk management, with the company seeking to provide functional leadership and enable optimal corporate leverage, whilst allowing for local market practice and the influence of local investment cultures.
To fulfil this role Unilever established a corporate pensions division (CPD) to cope with the variety of countries and funds within the group and strike the right balance between corporate and local trustee needs.
Unilever explains its centralised, hands-on involvement with pension assets worldwide as a safeguard to back up the company's recognition of DB schemes as an open-ended commitment to pension provision. With the possibility of substantial costs arising from such schemes, the focus has largely shifted towards ensuring good investment returns.
Unilever CPD monitors 37 countries with funded pension arrangements, splitting down into 80 different plans, with 20 alone in India.
Overall pension assets total £11bn, with notable statistics showing that around 45% of this figure covers Dutch and UK schemes, and 16% represents DC plans.
Issues covered by the company's corporate policy include strategic asset allocation ranges, developed in 1992, under which subsidiary companies are encouraged to have an equity focus. Active discussion between Unilever's local pensions manager and the CPD on manager selection then facilitates the hiring of the investment manager by the local scheme.
Docherty explains that this process has resulted in a 'preferred providers' list of investment managers the company wishes to work with globally. The requirements for inclusion on the list, she says, are a consistent investment philosophy and approach on a global basis, coupled with a wide range of products and leading-edge thinking, but also with local presence in the required areas.
Furthermore, managers are only approved for specific asset classes. There is no point in having a manager who can add value, if, for example, we cannot get the same product in the US, Asia or Europe, because this would make it impossible for us to monitor," she offers.
Unilever recognises this restricts it to a handful of global players, but Docherty points out this is very much a company strategy requirement, and casts no aspersions on the quality of other investment managers.
However, she stresses the flexibility of the system. For domestic reasons local scheme trustees may well use local investment managers, only relying on the preferred providers for global investment needs.
The use of derivatives is kept on a strict corporate controlled basis though, due to risk considerations. At present, only the top 15 Unilever funds can utilise derivatives up to a ceiling of 15% of their total asset value, and deviation from this limit is only permitted in special cases.
"We provide the information and guidelines to our local schemes, but these are not carved in stone and it is possible for them to remain with local managers if the reasoning is sound. However, we find both parties tend to agree on the manager choice and the local schemes greatly appreciate the depth of research and consideration that has been invested in our preferred provider recommendations."
Particular examples include the recent plan implementation in Hungary, where local managers were appointed because of the DC environment, and Denmark, where the legislative requirement for a significant investment in government bonds necessitates a very domestic managerial approach.
In terms of selecting appropriate providers, Unilever first looked towards large active managers, before adding passive managers where required and then choosing specialist provision where it felt investment choice could be restricted.
Docherty says: "We have recently added a global bond specialist and are always looking at whether we need to take things a step further. For example, one of our consultants is currently looking at a manager of managers product for multinationals which is very interesting, although we are unsure how this will fit in with tax and legislation issues. We would always hope there are ever better opportunities for us to pool assets where appropriate and offer our schemes the best investment opportunities. In the future it is extremely likely that we will use more specialist managers for our worldwide plans."
Commenting on the increasing global implementation of DC plans for pension provision, Docherty says: "The jury is still out here on DC schemes, but as an organisation we review the best structure for each market on an individual basis, and as in Hungary, DC schemes have been implemented before. Overall though, we want to be competitive and develop consistent products as far as we can in order to attract the best employees. Therefore, we have to look at our benefit provision from a total perspective, which includes assessing the products of our peers in the given market. But with so many countries and varied factors to account for we can't possibly have any blanket coverage, so we must tailor our packages carefully," she says.
Should any individual plan wish to alter its fund arrangements the Unilever pensions division has a number of country specialists working closely with operations on the ground, so references back to the corporate level are handled swiftly.
And in terms of next year's euro transition, Unilever has asked all its companies to carry out a review to ascertain whether resources are best placed to provide for fund liabilities in the new European environment.
Docherty expects to see more euroland mandates as a result of the review. She also says Unilever is keeping a close eye on proceedings in the proposed Kvaerner/Zeneca pan-European pension test case."