Senior staff at China Investment Corporation (CIC) are talking about investment governance these days, reflecting growing recognition of the importance of sound non-executive or supervisory board oversight for all kinds of entities, be they global companies, sovereign wealth entities or pension funds.
And in the pension world, it is increasingly clear that well-designed investment and fund governance improves the eventual investment outcome and pensions for members.
For all long-term investors, there is a need to get the right expertise on the board and to get the right executive management team to execute the board’s vision.
For a sovereign wealth fund like CIC the trick is to remove the stale hand of government and to instil a culture than rewards long-term investment success and removes fear of short-term failure.
Many pension funds with a collective purpose need to reflect their membership on the board, often with employer and employee representatives.
In the Netherlands, pensioners now have the right to a seat at the boardroom table – controversial for those who see pensions as part of the collective labour settlement. At some funds there have been elections for some board or oversight positions, although turnouts have been low.
Keith Ambachtsheer, academic director of the Rotman School of Management Board Effectiveness Programme for pension funds, points out the need to balance representation and expertise. The Dutch regulator, which has sent delegates to Ambachtsheer’s programme, is certainly proving proactive in this regard and does veto board candidates.
For some, the need for more effectiveness has led boards to delegate some decision-making authority to a fiduciary manager, while others have invested in more in-house expertise.
Overall, there are now more independent experts on boards; in the UK defined benefit sector up to around 60% of trustees are thought to be independents, sometimes as a corporate trustee. This can work well, as long as the independent trustee does not just provide cookie-cutter advice.
For all boards, the issue of remuneration is a tricky but crucial element. In the Netherlands, there are now commonly accepted pay benchmarks for Dutch trustees, equating to upwards of €100,000 per annum, pro rata, for one or two days’ work a week. Fees based on meeting attendance, common for non-executive directorships in some countries, seem inappropriate.
Fiduciary trusteeship should be remunerated appropriately – above all because the job takes time, thought and experience.