Good Governance in Superannuation Funds

Governance Matters

Kate Costello

• understand the role of the Board

• get the right skills and encourage the right behaviour

• introduce effective processes

Effective Governance

Governance is what the Board does or should do to be a “value-adder” to the organisation rather than just a “cost-centre”.It is different from what management does or should do.

Understand the Role of the Board

“The Board’s role is to create the future of the

organisation, not just mind the shop”.

John Carver

What is Governance?

The Role of the Board

Accountability Strategy Formulatio

n

Compliance

Roles

Appoint CEO Performance Roles

Monitoring and Supervision

Policy Making

Outward Looking

Inward Looking

Past & Present Future*adapted from Tricker, RI: International Corporate Governance (1994)

p149

Those you can’t say no to!

• the law and regulation• constituent document or empowering legislation • creditors (eg. bank; suppliers)• other contractors (eg government funding; sponsors)

Accountability

Those you need to listen to!

• owners (shareholders; members; government)• customers• staff• the community

Accountability

• “listening” to stakeholders

• risk management• organisational culture

Good Governance in Accountability

• what is “Strategy”? – Michael Porter

• the gut, the head, the heart

• answer the hard questions

Strategy Formulation

• longer term strategic plan (with measures)

• aligned operational/business/annual plan (with measures)

• aligned budgets

Good Governance in Strategy

• dedicate some board meetings to strategic matters

• spend the first hour on a strategic issue

• reorganise the agenda (decision; discussion; noting)

Good Governance in Strategy

“I define policy as the value or perspective that underlies action. Of course that means everyone in the organisation makes policy including staff members, but boards must make the broadest and most inclusive policies in order to control the organisation. The trick is for the board to make distinctions between the types and sizes of policy, so that what is delegated is clear”.

Carver J: Reinventing Your Board, P41

Policy

Carver argues that the board only has one employee, the CEO.

“The board will:• instruct only the CEO• view all organisational performance as that of the CEO• view any organisational failure to comply with board policy

as the failure of the CEO• require that the CEO keep the organisational performance

within policy criteria and restore it to this state should there be policy violations

• never in its official capacity, help the CEO manage”John Carver

Good Governance in Policy

• Matters reserved for the board

• Policy separated from minutes

• Board Manual

Good Governance in Policy

• By strategic KPIs• By annual KPIs• By compliance with board

policy• By agreeing what information

will come to the board, in what

format

Monitoring and Supervision

• “hire and fire” the CEO• remunerate and reward• assess performance• plan for succession

CEO and Succession

• size of the board• board skill set• committees

the right ones? clear terms of

reference? reviewed, or task

forces?• amend constituent

document to make right

Get the Right Skills

• induction • management update

sessions• expert reports• expert development

sessions• Board and director performance evaluation

Board Member Knowledge

Encourage the Right Behaviour

Board Effectiveness Research

Shey NewittCompliant but not contributing: why Australian boards are being under-utilised

• Chair – CEO relationship critical

• behaviour and teamwork• a “living” Code of Conduct

Working Relationships

• calendar• papers before meeting• clear, concise, precise

papers• duration of meetings• calibre of minutes plus

action list• receipt of minutes after

meeting

Introduce Effective Processes

• understand the role of the Board

• get the right skills and encourage the right behaviour

• introduce effective processes

Effective Governance

Good Governance in Superannuation Funds

• size of board; alternates• “fit”: skill set; appointed or

elected directors – written notification of duties

• letters of appointment and position descriptions

Structure and Skills

• what committees?• the right committees• committee skill sets

Structure and Skills

• communication from, and to, members

• relationship with APRA

• Code of Conduct – Section 52 SIS; fiduciary obligations

• reports on governance

Accountability

• a true differentiation?

• mergers

• enough time on strategy

• longer term plan

Strategy

• Fund-specific investment philosophy drives investment objectives and strategies

• measurable objectives for each investment option

• time on investment matters

Strategy

• who makes investment decisions?

• assessing, rewarding and terminating investment managers

Strategy

• matters reserved

• centralise all board-endorsed policies

• outsourcing – what?; service standard agreements; auditing; reporting to board

Policy

• risk management integrated in strategic planning process

• risk management program

• business continuity plan

Policy

• of outsourced service providers

• of objectives for investment options

• of risk management program and follow-up of breaches

Monitoring and Supervision

• performance management

• annual succession planning including for nominated, critical positions

CEO and Succession

• the right chair

• succession planning for the chair

• performance evaluation

Leadership and Teamwork

• duration and timing

• format for submissions

• annual calendar

• meeting without management

Meetings

The right directors and chair

A strategic view

The right processes

Your checklist

In Summary

Understanding Good Governance in

Superannuation Funds

Governance Matters

governancematters.com.au