How thoroughly does a multinational look at its various subsidiary pension funds with its pension governance" hat on? Not sufficiently is my guess.
Running a pension plan is no different from running any other part of the business. It has its own board; its own accounts to produce; extensive processes to put in place; assets to protect; performance objectives to meet; systems infrastructure to install; management reporting to implement; risk management and control systems to monitor; regulatory requirements to adhere to, etc. Overall a very complex business indeed!
But had these assets instead been widgets, then the operating division would have been cloaked by the management system and have received close attention from the company's chief financial officer. But, somehow, when it comes to being called a "Pension Fund" the interest drops; the attention to "governance" responsibilities slips and the time being devoted by busy executives to running this business is in many cases inadequate.
But with business pressures inevitably being shorter term than those encountered in the longer horizon pension arena, it should not come as a surprise! Therefore, by recognising this fact of life, it becomes critical for multinationals to have a sound governance structure in place for their overseas pension plans. There is a need to ensure that key corporate executives are regularly involved; that the management system imposes the same rigorous disciplines on the pension activity as it would on any other part of the business and that there are sufficiently skilled people in place to run and manage the whole operation. So what would be some of the pension governance building blocks to have in place? Here are some suggestions:
q Start with the board. Ensure the right company representatives are appointed; that they clearly understand their fiduciary role and responsibilities and that they appreciate the risks to the business of "getting it wrong"!
q Ensure all boards have a Statement of Investment Principles in place outlining key investment matters.
q Have formal, board approved, delegations so that everyone in the organisation knows what he can do.
q Implement a comprehensive controls and risk management process with at least an annual "health check" presented to the board.
q Ensure close monitoring and reporting of performance against strategic objectives.
Nevill Brooke is an adviser to international pension schemes."