Q&A: Improving trustee board effectiveness

Jonathan Stapleton speaks to Punter Southall Governance Services director of outsourced pension services Clare Owen about the firm's latest research into the effectiveness of trustee boards.

clock • 6 min read

Jonathan Stapleton: Your research found that a substantial proportion of schemes don't assess the effectiveness of their boards. Did that surprise you?

Clare Owen: Yes it did. About 56% actually did trustee effectiveness evaluations, which means 44% didn't. However, there is a contrast between very large schemes, where nearly 80% did evaluations, and the smaller schemes, where only around 20% conducted such reviews. This may not be surprising, but The Pensions Regulator has clearly set out that trustees chair should do individual appraisals on an annual basis and also do an annual evaluation of the skills, knowledge and experience of the board as a whole. So it's a bit surprising that schemes aren't doing it this effectiveness work.

I think the main reason for this is that trustees are very time poor. There's also lots of activity going on at lots of schemes - with many doing de-risking exercises, which take an awful lot of time; and GMP equalisation has also jumped up the priority list and is taking up a lot of time. Trustees have got very full agendas, and therefore, it's quite difficult to find time to think about trustee effectiveness. And do trustee boards see this as a priority? Sometimes they perhaps just see it a bit of navel gazing and would rather be ‘getting on with the work' rather than just looking at themselves.

Jonathan Stapleton: While just over half of trustee boards assessed their effectiveness, only a small proportion of these felt these performance reviews were actually effective - does this surprise you?

Clare Owen: There are three points I would like to raise on that. First, the chair of trustees is key to this process, for setting the broader tone and ensuring the whole trustee board is engaged in any review process - if the chair isn't engaged in it, then the other trustees aren't going to be engaged either.

You also need to have a very good environment for doing the trustee effectiveness review. And what I mean by that is in terms of that you have to have a process which is very open and honest - enabling trustees to give their views and opinions in a confidential way. Therefore, if they're responding to questionnaires, or they're in one-to-one meetings, for example, they want to feel that they can be open about their opinions and thoughts about the board without any comeback to them in terms of reporting.

The third point is about having a fresh pair of eyes. Within the survey 27% of participants said that they had had an external review of their trustee effectiveness. External firms will bring quite a lot of benefits to the evaluation process, and while they may cost more and there might be more effort involved, they can clearly bring a fresh pair of eyes to the process. I think they also bring lots of insight into working with other boards and knowledge of best practice.

So while there's no single right way of governing a board, there are ways to improve the effectiveness of a board. And bringing in an external person or firm can actually enable you to get a lot more out of your review. My experience is that some external firms do very good facilitated workshops, where the trustees can actually kind of review the results and discuss the results among themselves together. It also gives the trustees a bit of time away from the meetings to have a discussion in terms of how they're doing, what their strategy is going forward, and the action they can take going forward. It's no good having a review, if then you decide that nothing's going to be taken forward and there is no accountability for those actions.

Jonathan Stapleton: What in your view, are the characteristics of an effective trustee board? Are there common denominators between trustee boards or does it vary?

Clare Owen: It probably varies quite a lot. But I think strong leadership from the chair is key. The trustee chair really sets the tone of the board in terms of how they work and the dynamics of the board - if you have a very good chair, you tend to have very good governance.

I think also the trustees have to work as a team. Often, trustee boards will have a mix of employer-nominated and member-nominated trustees, but they're all trustees, and therefore they should all work together.

Also, it's important that there is the right level of delegation to committees, allowing the main board to consider the strategic issues. All the governance and operational stuff can be done at sub-committee level.

Lastly, I think, having a good support team in place is also important. What I mean by that is a good executive team or secretarial team, who can do a lot of the running around while the trustees are not in meetings, look at the policies and procedures, and ensure the trustees are compliant. A good support team will really help improve the effectiveness of a pension scheme.

Jonathan Stapleton: Are trustees generally well prepared when they go into meetings and engaged in those meetings? Or do you feel there are gaps in the basics?

Clare Owen: From my own experience, trustees are really engaged. But this survey was quite interesting as just under 50% of respondents said all of their trustees were prepared and a similar percentage said not all their trustees actively participated in meetings, which is quite surprising and goes against my experience of trustee meetings.

Again, this comes down to the chair and the other trustees to ensure everyone is engaged. It's very important that there's sufficient training, a sufficient understanding of the role that the trustees have, and that trustees understand how much time they need to put into the role - it's not just turning up to meetings and then going away and forgetting about it for four months.

Jonathan Stapleton: Do you feel that increased use of professional trustees or indeed increased board diversity can help with regards to good governance and good board effectiveness?

Clare Owen: It's quite interesting that you put professional trustees and diversity in the same question, because I think there's a certain image of professional trustees in the sector in terms of them probably being make and probably being of a certain age. This is certainly changing but it is changing slowly.

There is a challenge here if the regulator is thinking about accredited professional trustees being on all boards, then there needs to be a recruitment drive for professional trustees. And part of that recruitment drive should actually be looking at not only the experience on offer but the diversity around age, and gender of those professional trustees.

At Punter Southall Governance Services we really value the ability for people within the team to actually have a career as a professional trustee, rather than coming into it as a as a career after their first career. That will create some diversity.

Also, I think professional trustees generally bring a lot to trustee boards. I've experienced it when you bring a professional trustee on board. Because they may have been lawyers, actuaries, they may have investment background. They bring those skills to a board. And I think they can see through a lot of things more quickly. They can make decision making much more focused and dynamic. I think all that more effectiveness to the board and hopefully better outcomes for members.

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