Why should pension scheme members accept a lower standard of assessment of trustee board effectiveness than those same trustees expect from the boards of UK companies? Mark Hodgkinson discusses the various attributes a trustee board should incorporate in order to achieve the highest possible standards. 

I found myself chatting recently to a former client who happens to be the long-standing chairman of trustees of a large pension fund. It turned out he was a mite troubled by a recent conversation with the CEO of the sponsoring company. The conversation had gone something like this:

CEO            "Tell me, how good a job do you think you and your colleagues actually do as the trustee board of the pension fund?"

Chairman     "Funny you should ask that, we were only discussing it at the end of our board meeting last week. We concluded that we are pretty good really. There's not a lot that passes us by."

CEO            "Excellent! I'm interested to hear more and particularly about the benchmarks you chose to judge yourselves against to inform your conclusion?"

Chairman     "Well we are very diligent about dealing with the work put in front of us. And we have a clear policy on trustee training. And our advisers understand us well – and so they should, we've been very loyal to them."

CEO            "So you're doing a "pretty good" job yet apparently we are going to have to contribute an additional £500 million over the next eight years: perhaps I should just be grateful that you haven't cocked things up then!!" 

In a moment of self-awareness it occurred to my chairman chum that perhaps his board's analysis of performance could have been conducted with a little more rigour and so he challenged me to write down for him the top five attributes of a high performing trustee board.  "No problem – just give me five minutes," was my reply. Then I started jotting down some essential qualities:

Committed and engaged trustees. A diversity of professional backgrounds. Intellectually capable. Objective in analysis and robust in debate. Good relationship management skills. Focused on a strategic agenda. Strong on risk management. Well supported by talented advisers and diligent scheme officers. Engage regularly and constructively with the right employer representatives. A steady 'refreshing' of board talent to address the risk of complacency. Knowledgeable about the membership and the attributes of the scheme's liabilities. Good decision process leading to sound and timely decisions. Strong on performance management of all advisers and service providers. Effective at delegation and outsourcing. Fully conversant with duties and responsibilities. Appropriately informed about pension developments that may impact the scheme. Adopt clear strategic objectives and shorter-term priorities consistent with the strategic direction of travel. Use time and resources effectively. A first class chair(person)....I stopped writing when I realised that identifying the 'top five' attributes was proving pretty tough!

So what does this tell us? Perhaps it explains why many trustees are reluctant to engage in a truly objective assessment of their own performance, either individually or collectively as a board.  After all, what does 'good' look like? And where are the benchmarks to be found? Assessing the performance of trustee boards is far from straightforward. There are a host of factors to consider and while poor governance can, at times be quite obvious, understanding what 'good' looks like is less easy. Those that are serious about understanding their own effectiveness have generally engaged external facilitation to reinforce objectivity and to access wider experience. This is just what the UK Corporate Governance Code requires public company boards to do. So why should pension scheme members accept a lower standard of assessment of trustee board effectiveness than those same trustees expect from the boards of UK companies that they invest in? Beats me!  

Written by Mark Hodgkinson, director at Muse Advisory.