“You’ve got to work very, very hard to play like yourself!” Miles Davis.
Davis meant that music is great, music becomes a source of inspiration only when the head meets the heart.
I love this quote because it expresses the long journey to bringing head and heart together.
Great Board Chairs become a source of inspiration the moment their skillsets and experience (the head) balance their leadership skills (the heart).
A great Chair told me once, while we were discussing managerial skillsets: “A good heart is not enough”.
I agree. But expertise alone is not enough either.
It is the combination of the two that elevates a Chair to greatness.
Why is this relevant for pension funds?
I haven’t seen much research specifically linking the quality of pension fund governance to the quality of its Chair. But I am convinced, through personal experience and that of many participants in the industry, that great chairmanship and good pension fund governance are not only correlated, they are highly correlated. And it is indisputable that good governance generates better outcomes for members of pension funds. Hence the importance of a great Chair.
Why is this important for UK pension funds?
Narrowing the focus to the UK corporate defined benefit pension fund industry, the role of Chairman becomes even more important, in fact critical. Some of the reasons why include:
- A matter of national interest:
- The UK DB pension industry manages the biggest pot of money of the nation, worth £2.65trn or 53% of all UK institutional assets (ONSS);
- The private sector DB pension industry provides security and certainty to 11 million members (ONSS);
- Debilitating regulations: UK pension fund regulations don’t allow for optimal Board member composition and selection;
- Non-executive decision-makers: pension trustee directors are non-executive directors and therefore have limited time / latitude to “do”;
- (Very) limited in-house resources: Less than 1% of all UK DB pension funds have in-house executive teams;
- (Over-)Reliance on expert service providers: …and therefore rely heavily on expert external service providers, who must be managed closely;
- Decreasing support from the Company: the corporate sponsor, which used to provide (material) support to the pension fund, now allocates ever less resources to it. This is due to its non-strategic importance and the fact that it is less / no more relevant to its current and future workforce;
- Pension funds are complex and multi-disciplinary organisations; they touch on areas such as investments and risk management, corporate finance, credit, capital markets, actuarial, regulatory, M&A, political, data protection, tax, communication and PR, administration….
- A pension fund is a business: it should be managed as such.
So, what makes a great Chair? Or a terrible one?
To find out, I sought input from over 50 professionals within the pension industry (pension executives, advisers – legal, actuarial, sponsor covenant, investments – asset managers), from over 30 non-chair trustees and from Redington colleagues.
The output is a pragmatic one: a checklist / a cheat sheet that you can use, you existing or aspiring Chair, hopefully forthwith.
|The Good||The Ugly||The Great|
|1. Gets the basics right||1. Doesn’t take their role seriously||1. Earns respect and trust|
|2. Ensures outstanding secretarial support||2. Shuts down the conversation||2. Passionate for outcomes|
|3. Ensures continuous collective Board growth||3. Likes the sound of their voice||3. Creates fulfilling and constructive experiences|
|4. Embraces innovation||4. Argues with a trustee in public||4. Has capacity|
|5. Is focused on value for money||5. Feels the need to score points||5. Leadership from behind|
|6. Holds an annual strategy day||6. Loves details||6. Mitigates groupthink|
|7. Ensures the voice of all is heard||7. Is never wrong||7. Gives a damn!|
|8. Brings the best out of fellow trustees||8. Is economical with truth||8. Never interrupts or speaks over someone|
|9. Intolerant of humour||9. Never asks the group if everyone understands|
|10. Threatens advisers||10. Remains humble|
|11. Has decided before the meeting|
|12. Assumes “silence means consent”|
In the interest of remaining succinct, I have deliberately limited the number of “actions” that make a Chair good, ugly or great.
If you wanted to have the comprehensive list drafted on the back of interviews and surveys I ran, please do not hesitate to get in touch.
- Gets the basics right:
- Comes prepared to a meeting:
- owns the agenda: discussed and agreed in advance, each item is reviewed with and approved by all key participants;
- prioritises the agenda starting with what is important and urgent (what matters), followed by what is important, then what is urgent, finally ends with the rest;
- ensures each item is categorised as to note, to review or to approve;
- has identified the potential icebergs / bottlenecks in advance;
- sticks closely to the agenda and doesn’t allow the meeting to go off on tangents.
- Opens the Board meeting with a private session to set agenda and objectives, agree what success looks like, assess the preparedness of trustees and identify/highlight unexpected bottlenecks.
- Closes the meeting with a private session to assess the performance of the Board and that of the participants to the meeting: what went well, less well, seek feedback on advisers, outcomes, journey…
- Clarifies duties and responsibilities: ensures trustees know and understand what is expected from them and monitors their performance.
- Ensures there is a process in place for an effective flow of information with the Company. For example, if the HR department decides to change the contracts of several hundreds of employees without informing the Board, that could trigger a s75 debt without the Board knowing.
- Ensures policies are documented, clear, accepted by all and accessible by all.
- Comes prepared to a meeting:
- Ensures the Chair / the Board are supported by outstanding secretariat services; for example:
- The meeting dates are set a year in advance;
- Minutes are drafted and sent within 2 weeks of the meeting;
- The secretary acts as the agenda setter;
- The secretary will act as moderator during a session if the Chair is not in a position to do so.
- Ensures continuous Board growth by organising collective training/coaching sessions during each Board meeting.
- Embraces innovation if it makes the Board more effective; for example, uses electronic Board packs.
- Takes time to perform proper due diligence and objectively assesses value for money of potential of advisers. Because, as with their dentist, they would not go straight to the cheapest option:
- Doesn’t view this as a box-ticking exercise;
- Will ensure the trustees have an in-person onsite visit of the advisers’ offices;
- Will seek views from other pension funds who use the services of the advisers.
- Holds an annual strategy day to:
- Look back: assess what the Board said it would achieve and what it hasn’t;
- Look forward: set the plan for the next 12 and 36 months;
- Grow through education and training;
- Bond with key service providers.
- Ensures the voice of all is heard: if a trustee cannot make the meeting, the Chair will have taken that trustee’s views prior to the meeting and shared them at the meeting. Same with Company reps (more so maybe).
- Brings the best out of fellow trustees: identifies their strengths and plays to them, rather than trying to mitigate their weaknesses.
- Doesn’t view the role seriously; for example,
- Considers it as an honorary function;
- Doesn’t have the capacity to perform the role effectively.
- Shuts down the conversation if its direction is not going the way expected.
- Likes the sound of their own voice too much.
- Argues with a fellow trustee in public.
- Perceives life as a constant battle and feels the need to continuously score points.
- Gets caught up in the details of their favourite subject on the agenda at the cost of other (more important) matters.
- Is never wrong.
- Is economical with the truth.
- Is intolerant of humour.
- Threatens advisers.
- Makes trustees feel decisions have already been made before the Board meeting.
- Assumes “silence means agreement”.
- Earns the respect and trust of fellow trustees by leading by example: “Primus inter pares”.
- Is passionate for outcomes:
- Gets the basics right, all the time;
- Works outside of meetings to maximise the probability of making the right decisions during meetings (the Board is a decision-making body, not an executive body, and is limited in its governance bandwidth);
- Starts with the end mind;
- Comes prepared;
- During meeting breaks, asks his/her peers whether the level and pace of the meeting is appropriate. Are their concerns/questions receiving enough air time?;
- Periodically spends one day with other pension funds or organisations to learn from them, identify change when it is happening and keep abreast of industry developments;
- Willing to act as CEO when actions/engagement doesn’t have universal support.
- Ensures that people enjoy their role and find it a fulfilling and constructive experience; works very hard to ensure that people leave a Board meeting with a sense of achievement and fulfilment; leaves everyone feeling that they are a key part of the success of the pension fund.
- Ensures capacity: before committing to the role, ensures that he/she has enough time to allocate to the pension fund to be effective (a Chair’s work schedule can be much greater than that of a trustee peer).
- Leadership from behind: has a strong sense of destination, sets a clear vision / end game for the Scheme and determines what success looks like in a consensual and persuasive approach.
- Seeks to mitigate ‘Groupthink’ by:
- Wearing knowledge lightly: remembers that his/her professional background, expertise and experience cannot replace the Board and their advisers;
- Maintaining independence of opinion, seeking feedback on each item from everyone, person by person;
- identifying the introvert personalities within the Board and asking for their views first before going to the extroverts, and finally providing his/her views last;
- Applying the 10th man doctrine: one trustee will play the devil’s advocate role during each debate;
- Accepting, in fact encouraging, feedback not only from trustees but also from advisers and other service providers.
- Gives a damn! Wants to make a difference and add value.
- Never interrupts or speaks over someone.
- Never asks the group “if everyone understands”. Those least likely to understand will be those least likely to say so. Instead, summarises the facts (or asks an adviser to do so) for the benefit of the group.
- Remains humble: it’s not all about him/her. Is prepared to sit back and listen to others. Seeks regular feedback from fellow Board members and service advisers.