GLOBAL - The World Economic Forum, the group that organises the annual Davos meeting of political and business leaders, has called for an international set of pension governance principles.
The forum, along with the UK's AccountAbility, has put together nine recommendations to improve the relationship between pension funds and corporate governance (see below).
"The greatest impediment to the ability of pension plans to reflect the inherently long-term investment horizon of their participants is perhaps the one most deeply embedded in their own architecture," the group said in a 62-page report called 'Mainstreaming Responsible Investment'.
"Most funds fail to meet the bedrock governance standards they increasingly demand of companies. This can most clearly be seen in the principal ways in which accountability and transparency fall short."
It said savers normally have "no voice" in how the funds operate or who makes key fund decisions. "Corporate funds and employee stock plans in many jurisdictions are entirely or largely controlled by company management."
"Boards of trustees of pension schemes generally do not operate as professional oversight bodies. Recent probes in the US, UK and the Netherlands have exposed many of the flaws.”
It said most trustees are not trained, "spend too little time on the job, communicate too little with scheme members and ignore shareowner activism and socially responsible investment".
It added: "They are typically not paid or given authority comparable to directors at public companies, and few spend efforts assessing their own performance or communicating with beneficiaries."
It saw excessive political factors in civil service funds' trustee boards.
"And intermediaries such as investment advisors, gatekeepers, consultants and fund managers that link trustees to the investment process typically dominate trustee decision-making."
The forum's recommendations:
* Create an international set of good governance principles for pension funds akin to a corporate governance code
* Increase the duration of asset manager mandates
* Increase the disclosure of asset manager compensation structures
* Develop new business models for research on non-financial issues by analysts
* Re-evaluate the relationship and relative organizational standing of portfolio managers and buy-side analysts
* Pay, train, and empower pension fund trustees more like corporate director
* Create a specific professional competency for non-financial analysis
* Increase the emphasis on non-financial aspects of corporate performance in graduate business schools
* Widen the dialogue between analysts and corporate investor relations officers on non-financial information