mast image

Impact Investing

IPE special report May 2018

Sections

What does your board look like?

Growing governance

Philip Menco
Chief Executive Officer
De Eendragt Pensioen NV
Netherlands

• Invested assets: €1.3bn
• Participants: over 20,000
• Mainly DB and CDC but also runs several separate DC schemes
• Date established: 1921 as a pension fund, in 2006 as a life insurance company

We are atypical for insurance companies with regard to our governance structure but reasonably typical for mutual and pension funds, although we are the only one in the Netherlands with this structure.

As a limited liability company, an NV, we have equity and all the shares are owned by a foundation, the previous pension fund. This board is made up of employer and employee representatives of the larger companies that are insured with us, 30 of which have appointed two representatives each. Two additional representatives represent the smaller companies and two the retirees.

This board meets at least twice a year, discussing the annual report and the most important developments within the company. It also approves official regulations and large acquisitions.

The five-person strong supervisory board meets at least five times per annum while some of its sub-committees responsible for audits, insurance issues, human resources or investment get together two to three times or more a year to discuss specific issues.

A separate investment committee consists of three experts and two company representatives. It officially meets five times a year but if other issues, such as the selection process of a new mandate, need to be discussed, it will convene again.

De Eendragt's board of directors has two people, while the management team currently includes these two plus the CFO. However, it will be enlarged to enable a better exchange of ideas. De Eendragt itself has grown from 11 people two years ago to 26 today, which is why we need a different internal, organisational structure. As a corporate pension fund we were not able to acquire other companies but since our change to a life insurance company we have grown from 13 sponsors in 2006 to 50 today. Over the same time period, the number of overall insured members has increased from around 12,000 to over 20,000 and the number of active employees from 1,200 to 6,500. They need a lot of attention and information and therefore we reinforced the level of governance to keep the service at the same level and become more professional.

Our board has always tried to offer a broad range of knowledge and consists of people with a variety of expertise. But on 1 June, new requirements from the Dutch Central Bank will take effect requiring members to possess a certain knowledge, which will ensure that the board has the knowledge required by the life insurance company.

Peter Damgaard Jensen
Chief Executive Officer
PKA
Denmark
Manages eight pension funds in total
• Invested assets: DKK144bn (€19.2bn)
• Participants: 250,000
• Hybrid scheme based on DC but with a certain level of guaranteed pensions
• Date first PKA scheme established: 1954

Each of PKA's eight pension funds is headed by a board. The board consists of representatives from both the employers' and the employees' organisation, members elected at the annual general meeting and a board member with specific financial skills. Board members are either appointed by the social partners in collective agreements or elected among members. Employee representatives make up the majority of the board.

The board allocates bonuses and decides the level of services to its members, as well as investment policies for the individual funds. It meets at least five times a year, decides on the overall management and sets up different guidelines and limits for the executive board of managers.

On top of the executive board each pension fund also has an appointed actuary.
The resson for this governance structure is that all PKA pension funds are agreed upon in collective bargaining between employers and trade unions and are fully owned by members.

It has been in place since the funds were established. However, two years ago legislation changed to require Danish pension fund boards to include at least one independent board member with specific professional financial and accountancy skills.
Apart from this, the financial services authority (FSA) has gradually increased demands on the boards to deepen their involvement in more technical issues, and reporting to the FSA is detailed and frequent. This is why the reporting and the board's annual planning must be carefully carried out.

In general mandates, authority and responsibility must be aligned and distinct to ensure that everything works the way it was intended.

When labour market partners appoint new board members they are aware of the necessity of a diverse board and management and the skills needed to make sure that the knowledge of the overall board management is as comprehensive as possible.

The biggest challenge today is to address the lack of risk analysis skills at board level, so we pay a lot of attention to risk analysis presented to the boards through in-depth analysis. We also have the possibility to put up distinct and well-defined mandates for the board of managers to work with.

We invest many resources into educating board members, in particular with strategic and technical skills. This means continuous assessment of board results, skills and adjustments to satisfy the growing demand for increasingly complex board tasks and responsibilities.


Philippe Desfossés
ERAFP
Chief Executive Officer
France

• Invested assets: €10.5bn
• Mandatory pension fund for France's 4.6m civil servants
• Hybrid of DB and DC
• Date established: January 2005
• Funding level: 117.7% (Dec 2010)

ERAFP is a public sector scheme for civil servants working in central, local and regional government, the magistrates and public sector hospitals. The board is paritarian, meaning it has an equal number of representatives - eight - from the employers as well as the beneficiaries, the latter of which are represented by trade unions. The board also includes three independent experts, increasing the board members to 19. The president of the board is chosen from the three experts by ministerial decree.

The government appoints the employer representatives and experts by decree, while the trade unions suggest the names of their representatives.

Every three years the board members are re-elected, with the next election in June. Members are only allowed to sit on the board twice, in other words for a maximum of six years, which is why a number of our current members are now leaving.

The board meets at least four times a year - last year, for example, it reconvened six times.

Each board meeting is prepared by four sub-committees: an asset liability committee, an audit committee, a committee responsible for the payment of benefits and collection of contributions as well as a socially responsible investment (SRI) committee, as SRI is at the core of our pension fund and translated into investment criteria. Each sub-committee has approximately 10 members selected from the board of trustees. They choose which sub-committees they want to be part of based on their background.

This governance framework was imposed on us by law and has not changed since our inception in 2005. We trust the organisations to appoint board representatives with the right skills and background. With regard to diversity, the board is almost evenly split between male and female representatives.

However, it is not always easy to find the right candidates. As a fully funded pension scheme, our emphasis is on asset liability management and you must have some actuarial knowledge to be able to understand it, which is why we organise seminars to educate our trustees further.

Remuneration of investee company boards is one topic we engage on but the their diversity is also part of our investment criteria. Furthermore, we try to protect shareholder interests and let companies know that we are their owners.

While governance structures, of course, always have room for improvement, there are currently no plans to change our existing one, as it works.

 

 

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • RE-2441

    Closing date: 2018-05-31.

Begin Your Search Here