The Pension Regulator’s consultation on 21st Century Trusteeship and Governance has closed and they will now be starting to digest the various responses and may come up with new policy. We shall see. Whatever happens, however, maybe things will move forward a little on their own.
A good consultation should provoke thought, debate and perhaps even initiative, in that order. In other words, consideration of change can bring about change itself. That is often how it works for me anyway.
The PTL response to this consultation can be summarised as: ramp up standards for all – particularly professional trustees – increase accountability and publish less but enforce more. The middle one of these, however, increase accountability, I am still pondering.
Let’s start by defining “accountability”: The obligation of an individual or organisation to account for its activities, accept responsibility for them and to disclose the results in a transparent manner (source: BusinessDictionary.com).
All trustees should disclose the training they undertake in their report and accounts and scheme return”
The fact of the matter is that pension trustees are accountable but, by and large, aren’t held to account. This position, it could be argued, reduces the pressure on trustees to do the best possible job and so may contribute to poor governance.
The PTL consultation response made some practical suggestions: the name of the chair of trustees should be disclosed in the annual report and accounts and scheme return, the Chairs of all schemes (not just DC schemes) should report against defined governance standards, the substance and relevance of training received by professional trustees should be subject to on-going supervision or audit, and all trustees should disclose the training they undertake in their report and accounts and scheme return. These measures tick the “disclose the results in a transparent manner” box – but they still do not ramp up being held to account.
It’s this last point I’m still pondering: how can we increase trustees’ accountability?
One feature of a big corporate board’s diary is the Annual General Meeting (AGM). The AGM is a public meeting to which all shareholders, large and small, are invited. More often than not, the shareholder is entitled to vote on certain motions (including executive remuneration) and they get the chance to challenge the board publically. These can be nervy events and can, from time to time, go against the board: Sir Martin Sorrell’s pay package was rejected at a WPP AGM, Sports Direct also suffered a political loss, albeit not a real one (Mike Ashley owns the majority of the shares and was never likely to vote against himself!), at their recent AGM.
All pension schemes have low member engagement”
Some trustee boards, notably the Legal and General DC Master Trust board, have introduced AGMs but with mixed success. The problem is, generally, all pension schemes have low member engagement and there’s not much point being held to account by no one, so is there a different way?
Would it be possible, for example, to have virtual AGMs of some description? At a simple level these could be the same as a normal AGM but held online. Alternatively, they could be something more interactive – something, anything, which would make it easier for the member to be involved and to challenge trustees. Or could it be more radical still?
When the boards of big corporates lose resolutions it is usually because the institutional investors, those holding large chunks of equity on behalf of others, vote against them. Ironically, we, as trustees (or our investment managers) do this all of the time. Is there some way we could create a pension scheme member proxy for the institutional investor? Could we have a PIRC for pension scheme members? Could we be compelled to table a voteable motion seeking the confidence of the membership?
TPR’s consultation makes clear that they want to improve the standards of pension scheme governance. There is much research that shows people will only be honest and thorough when being watched. Ramping up accountability means trustees will be watched. Discuss.