One of the persistent grumbles from pension fund managers is that, although they themselves would approve a particular investment strategy or move into a particular asset class, they would never be able to persuade their trustees or governing boards who do not have a sufficient grasp of investment principles to make informed decisions about a pension fund's investment policy. And perhaps the greatest fear is that people who sit on pension fund boards may not always have the interests of pension fund members at heart, and will rather seek to protect the interests of the corporate sponsor or - in rare cases - their own.

This month's Off the Record looks at the issue of pension fund governance and, in particular, the need for a code of professional conduct for people who sit on the governing bodies of pension funds.

There have been several attempts to develop codes for pension fund boards.

In 2001 Paul Myners, in a report to the UK Treasury, observed that pension fund trustees are rarely paid, may be poorly trained and have little support from their employers.

He proposed a voluntary code of conduct that would allow pension fund trustees in the UK to receive more training. More controversially, he also suggested that trustees should be paid.

Recently, there have also been initiatives on a global scale This year the US-based CFA Institute's Centre for Financial Market Integrity has developed a benchmark code of professional conduct for pension fund trustees and members of pension funds' governing boards.

The code has been drawn up by a working group which includes the UK's National Association of Pension Funds (NAPF), the Dutch Association of Industry-wide Pension Funds (VB) and the Swiss Association of Pension Funds (ASIP).

The CFA Institute points out that the conduct of those who govern pension schemes "significantly impacts the lives of millions of people around the world who are dependent on pensions for their retirement income. Just as shareholders trust corporate directors to look out for their best interests in a corporate setting, trustees are charged with looking out for the interests of the participants in and beneficiaries of pension schemes.

The CFA Institute says it is "critically important that pension schemes be overseen by strong, well-functioning governing bodies operating in accordance with fundamental ethical principles of honesty, integrity, independence, fairness, and competence.

"Establishing a benchmark code of ethics for members of the governing bodies of pension schemes will provide them with a framework to guide their activities and will give beneficiaries and participants an added sense of confidence that the trustees are working for their best interests".

The CFA Institute working group has drawn up 12 fundamental ethical responsibilities that it believes are universally applicable to members of a pension's governing board regardless of the type or nature of the pension scheme.

These can be seen at But is such a code really necessary? Many corporate pension funds already provide support and training for trustees and board members, and their internal codes of governance are usually more stringent than any external codes.

And can a code of conduct be universally applicable, or is a universal code likely to be too general to be effective? Finally, should a code only apply to individuals or should it apply to firms as well?

We wanted your views. Perhaps we could have predicted them. Asking for an opinion of codes of conduct falls into the ‘motherhood and apple pie' trap, for who would be against a code that encouraged members of pension fund boards to put the interests of pension fund members first?

Of the pension fund managers, administrators and trustees who responded to our questionnaire, a sizeable majority (89%) agree that people who sit on the governing bodies of pension funds need an ethical code of conduct.

There is an almost unanimous agreement (95%) that a code of conduct for members of the governing bodies of pension schemes would give participants and beneficiaries greater confidence that board members are working for their best interests.

The CFA Institute believes that self-regulation is the most effective and efficient form of market regulation. It therefore suggests that the code should be voluntary.

This approach elicits a mixed response from the managers who responded to our survey. Two out of three (63%) agree that, in general, self-regulation is the most effective and efficient form of market regulation Yet - surprisingly - four out of five (79%) feel that any code of conduct for members of pension fund boards should be mandatory if it is to be taken seriously

Similarly, there is some uncertainty about how universal such a code can be, with pension fund legislation varying significantly between countries. The CFA Institute has drawn up a code that is designed to be globally applicable. Yet opinion is divided among our managers about whether this is practicable A small majority (52%) agree, a large minority (43%) disagree and a few (5%) are unsure.

A similar percentage (52%) think that local and national differences in legislation, tax and so on, make a globally applicable code of conduct for pension fund boards unworkable.

One manager in the UK suggests that the best way forward may be global core standards supported by more specific national codes.

The CFA Institute code has been drawn up with individuals rather than companies in mind. Yet corporate sponsors may have a dominant position on the boards of pension funds, particularly in countries where the social partnership, with equal representation of employers and employees on the pension fund board, does not operate.

This is clearly a concern, and two out of three respondents (68%) think that a code of conduct for pension funds should apply to firms as well as individuals.

The CFA Institute suggests that any code of conduct for pension fund boards should be principles-based rather than rule-based, and this draws broad support from our respondents with a large majority (84%) in agreement.

The charge, made by Paul Myners, that members of pension fund boards generally do not have enough knowledge to discharge their duties properly, is seen as too harsh by many. A minority of our respondents (45%) agree with Myners.

However, there is an underlying feeling that pension fund board members need proper training if they are to be able to do their job. A majority (53%) think that better training for members of the governing bodies of pension funds should have higher priority than the introduction of a code of conduct. As one UK manager points out, "relevant and ongoing training is essential".

Some payment might encourage greater professionalism among pension fund board members, Paul Myners suggested. This suggestion gains some support, with a majority (58%) in favour of paid trustees.

Finally, we wanted to know whether pension fund mangers feel that pension fund governance is high enough on the political agenda in their own country. Opinion here is evenly divided, with a wafer-thin majority (52%) agreeing that pension fund governance is getting sufficient attention.

Analysis of the results by country may be instructive here. Countries which pension fund managers feel to be deficient in this respect are Austria, Switzerland, Belgium and the US. Countries that are perceived to take the issue of pension fund governance seriously are the Netherlands, France and Latvia. One country where opinion is evenly divided is the UK.

Clearly there is no consensus across Europe about the importance of pension fund governance, whether or not a code of conduct is adopted.