In and out of the board room
What does your governance structure look like?
ABN Amro Pensioenfonds
• Invested assets: €18bn
• Members: 105,000
• DB scheme
• Date established: 1907
• Funding level: 114% (UFR) 112% (economic)
With new legislation on the governance of pension funds imminent in the Netherlands, we have a reason to review our governance structure.
At the moment, we have a pension fund board with 10 board members. Half come from the employer, while the other five are employee representatives. Of those five, two must be retired.
Pension fund board members representing the retirees are chosen in elections every four years.
In addition, we have a variety of committees including an investment committee, a pension fund governance committee and a communications committee. The structure requires at least two board members to sit on the committees. However, most committees have three members.
The investment committee is an exception because it consists of two board members and four external members that bring independent investment advice to the table.
If the new governance rules are passed, they will become effective as of 1 July. The governance structure of Dutch pension funds will have to change as a result. New councils and components of governance will emerge, while others will disappear.
The law will also offer pension funds new opportunities for different types of governance structures.
For example, there will be structures where a board of trustees with equal representation from employers and the employees is no longer required. On the other hand, pension fund boards can have a board of external professionals combined with employer and employee representatives.
There are three major structures to choose from and even more sub-structures to select. While it is a major change in the Dutch pension system, at least it provides opportunities to set up new structures.
Pension funds have one year to change their structures and comply with the new law.
Given that we are a pension fund in the financial sector, we have never struggled to find investment experts to join our committees or board.
We have yet to make a decision on our future governance structure.
Voluntary voting is sufficient. I am overall less keen to such matters becoming mandatory.
Merseyside Pension Fund
• Invested assets: £5.75bn (€6.76bn)
• Members: 120,000
• Funding level: around 70%
• Date established: 1987
Our pensions committee is the decision-making body of the pension fund. In addition, we have two recommendation-making sub-committees – a so-called investment monitoring working party and a governance and risk working party.
The investment monitoring working party scrutinises investment-related matters and meets eight times a year, while the governance and risk working party meets twice a year and deals with risk, pensions administration and governance matters.
The latter was a more recent addition to our governance structure. We introduced it because we felt that the investment working party had been of great use to us for many years as it allowed members to consider matters in greater depth.
In addition, governance, risk and administration were not receiving the same level of scrutiny which, particularly in the wake of the events of the credit crisis, they should receive.
While the extra committee has not been a significant strain on our resources, it does involve more preparation and organisation but its benefits outweigh these extra burdens.
All of the 18-19 members of the pensions committee are invited to the sub-committees although, in practice, they do not all attend. The pensions committee meets five times a year. In line with local government legislation, it consists of elected local councillors, of which there are currently 16, and three employee representatives who, in this case, are union officials.
To ensure members are compliant with the first principle – concerning informed decision-making – of the UK Myners Report that recommends a voluntary code of practice for the pension fund industry focusing on pension trustees, the scheme has a robust training regime. Regular attendance at external conferences and events is also encouraged with regular reports to the pensions committee.
While we do not have an independent adviser on the pensions committee, we have two independent advisers on the investment sub-committee. There is also scope for these positions on the governance committee if needed.
Our governance arrangements have evolved over time and work quite well. The sub-committees mean that members’ time is more efficiently used.
• Danish common management company for collective labour market pension schemes
• Net invested assets DKK150bn (€20bn)
• Members: 284,000
• DC, DB scheme closed to new members
• Funding level of DB scheme: 119%
• Date established: 1946 but roots go back to 1928
The governance structure of Danish pension funds is strictly regulated by the country’s financial authority (FSA), which regularly imposes new demands and legislation on pension funds and supervises and controls the work of the board.
Since the ownership of Sampension was divided into two shareholder parties, we have had the same governance structure in place.
Sampension is governed by a board of directors. It has 12 people, eight of whom represent the owners, partly the local municipal governments and their organisations, such as Kommunernes Landsforening [the Danish regions].
Four board members come from the trade unions, so employees of Sampension elect four people to the board.
We have one independent expert on our board – the former CEO of The State Bank of Denmark (Nationalbanken) – but the pension fund might elect another independent member this year or next.
Sampension’s board of directors is elected by an assembly of delegates, consisting of 48 people that equally represent the owners.
We pay great attention to the diversity of the board – legislation demands it but we also believe it leads to better discussions and results.
Elections for the board of directors take place every four years, with the next one scheduled for April 2014. The board meets six times a year.
Any governance issues and problems are related to the intense FSA supervision but we are happy with our current structure and have no plans to change it.
As a private company, we are dependent on our owners and shareholders’ view on governance too.
We spend plenty of time and effort on the ongoing education of our board members and strive to make reading materials such as agendas and annexes even more accessible and understandable. We are also working on making meetings and presentations more straightforward and easier to understand.