Pension Funds Online

Trustee Conflicts of Interest – a Policy Approach

A good conflicts policy has to be simple. Otherwise when you need it in a hurry you’ll realise that you need a team of lawyers to interpret it, and, even then, you’re still not entirely sure what you should be doing.

So here is a six-point guide to a good, simple conflicts policy and an approach used by many of us at Capital Cranfield Trustees:

1. Make it short, clear and memorable

Preferably one page, or two as a maximum. It needs to be easy to read, with all trustees being comfortable that they understand it. Remember its key issues so that following the policy becomes intuitive.

2. Get it agreed with the employer

It affects how employees will behave, so the employer must be happy with it.

3. Differentiate between directors and non-directors

Non-director trustees rarely have conflicts, because the Pensions Act 1995 allows them to act even though they are scheme members; also, when acting as trustees, their trustee duties override their employment duties. So make sure that they - and their employer - understand this; the scheme advisers and any professional trustee on board should help any individual struggling with trustee duties.

Occasionally an individual may have personal reasons that make it difficult to carry out trustee duties effectively; the Chair should be sensitive to this, and, if necessary, excuse that individual from a particular agenda item.

It’s trickier for directors who are trustees because they have a duty to shareholders which is comparable with their duty to members. However, don’t get rid of your directors from the trustee board – they often fulfil an invaluable role, not least in keeping good relations with the employer. Instead, accept that there will be issues (typically funding and covenant based) when they will need to absent themselves.

4. Ask conflicted trustees to leave the room

It’s easier that way. Yes, there may be circumstances when it might be all right for them to stay, but you don’t want to spend the meeting debating whether someone should or shouldn’t leave – that way it becomes personal. If the policy requires absence for any item where an actual conflict is declared – remember, apart from directors, this should be very rare – everyone understands what is needed.

This means they need to be absent for any preliminary discussions as well, so the Chair will need to manage the agenda carefully to make sure that discussions stay within the agenda item and avoid conflicted issues.

5. Prepare for full and open discussion of information

Trustees should disclose any information relevant to a topic being discussed. Make sure the employer understands this, and, if necessary, beef up your confidentiality requirements so that everyone knows that information discussed during trustee meetings must remain within those four walls.

It should be very rare for individuals to have information that cannot be disclosed legally. Even price sensitive information should be able to be disclosed to co-trustees, as long as there is an atmosphere of trust and goodwill and the appropriate safeguards are in place. So, Chair of Trustees, you should try to maintain a good relationship with the employer; that way information can be shared frankly and a good relationship is in everyone’s interests.

However, you might want to allow for non-disclosure of information in exceptional circumstances. It has to be exceptional, because things get tricky if a trustee holds information which is not allowed to be disclosed. You need to ensure that the trustee is expressly notified by the employer if certain information isn’t disclosable; otherwise all involved should understand that the assumption is that information should be disclosed. If a trustee has had notification, then that individual needs to be absent for any agenda item the information might relate to, as well as discussions leading up to it.

6. Look at the constitution of your trustee board

There’s no need to remove directors from the board to achieve effective conflict management. More will probably be lost than gained by doing so. However, it makes sense for the Chair not to be a director; otherwise you’ll have created a crucial vacancy if he or she needs to be absent.

Similarly, you’ll need to ensure that there aren’t too many directors on the board – one or two as a maximum, perhaps, unless you have a very big board. Otherwise the board will be depleted whenever you get to issues like funding. So check your quorum provisions too, so that your board is still quorate if you have to lose a couple of trustees.

Once your policy is in place, keep a record of any conflicts that come up, and review these from time to time. You may want sometimes to discuss particular conflicts with the employer, particularly if a trustee is finding managing his or her conflicts difficult.

And then you can get on and deal with some of the really hard issues facing trustee boards at the moment...

Biography of Joanna Matthews

Formerly a partner with Sacker and Partners, Joanna Matthews is an experienced Chair of Trustees and offers independent trusteeship through Capital Cranfield Trustees.

With thanks to Peter Docking of Sacker and Partners for his help.