These practices may not be achievable for all schemes. However if your scheme already has good governance, they are illustrations of best practice and behaviours that you might wish to adopt.
Chair leads and supports
A chair works with their board so that they operate effectively as a group. The chair is patient with those who need it, to get the best out of those around the table. They want trustees to enjoy meetings and feel they have contributed.
The chair makes it a priority to get to know the strengths and weaknesses of each of the trustees and helps the board as a whole to achieve its potential. The chair builds consensus and brings the trustees together in discussions. They ensure that the board remains focused on their role in relation to the scheme’s beneficiaries, balancing different interests and views on the board to build common understanding.
The chair has individual discussions with trustees ahead of each board meeting to understand their views, how they like to receive information and if there are any knowledge gaps or difficulties. The chair supports the trustees, ensuring the collective competence of the board and helping them to prepare for scheme business so that they can provide input and participate in the meeting and beyond.
Involving trustees in selecting a chair
When appointing a chair the employer seeks input from the trustees, using their knowledge of the existing board members’ skills and capabilities, and the dynamic of the board. Potential chairs all have different skills and experience and behave differently.
The board are looking for a chair who is inclusive and supports the trustees, encouraging participation from all. The trustees recognise leadership is an important part of the role of a chair, along with the ability to delegate and monitor activity.
One chair looks very good and very experienced on paper. However, the selection process exposes dominant behaviour traits (including body language and answers to questioning). The trustees think this shows the applicant is not focused on developing the board.
The chair eventually selected may have had less technical knowledge and less experience in some areas, but they are far more effective in bringing people together and delegation. They are a better fit for the board.
Delegate effectively to sub-committees
A board sets up new sub-committees so they can respond better to changes in the market and regulation. A trustee chairs each sub-committee and the rest of the sub-committee members are made up of staff performing specialist work for the board.
The chair of trustees sets out very clearly the commitment that is expected of all committee members. Minimum attendance and participation requirements are set, with committee chairs able to remove members who do not comply.
The chair regularly asks each committee chair if they are happy with the performance of their committee members. The chair also stresses the importance of having the right people on the committees to ensure clear accountability to the trustees.
The sub-committees bring key know-how and expertise while freeing up time for the board to focus on strategy.
Evaluate the board and sub-committees
A board evaluates itself and its sub-committees each year. The evaluation covers:
- who sits on the committees, including diversity and mix of skills
- how often meetings take place
- how the chairs, secretary and pensions manager are performing
- identifying risks
- quality and flow of management information
After the evaluation, the trustees put action plans in place to develop the board and improve performance.
Regular reviews focused on improving the efficiency of the board and sub-committees help trustees to spend time on issues that most affect good member outcomes.
Plan the best time for training
The secretary of a scheme keeps a 12-month forward look of training, key legal changes and events coming up for the scheme. The board considers this at trustee meetings and add items when they need to. It provides the chair and the trustees with a clear and reliable planning tool.
Training is specific to the scheme’s circumstances and planned around the time of key changes and scheme events, such as investment training before the scheme’s investment strategy review.
‘Just in time’ training provides information and builds skills when trustees need it most, when they are carrying out that particular business or activity.
Shortlist member-nominated trustees for election
A scheme has vacancies for member-nominated trustee (MNT) positions. The board carries out a skills audit and assesses areas of strength and weakness in the knowledge, skills and experience of the trustees. An external review of the scheme’s governance structure and processes recommends changing how MNTs are elected.
The board considers the recommendations and decides to implement a selection process to produce a shortlist of candidates. The process involves broadening the potential pool of MNTs by allowing more applicants and asking them questions on their experience. This ensures that members and pensioners vote on a limited pool of candidates already vetted for their suitability and potential contribution to the board.
A process of selecting candidates for election allows the chair to fill gaps on the board and improve the diversity of trustees.
At a board meeting the trustees discuss recent successful negotiations with their third-party administrator. They focus on the need to keep managing the relationship and monitor the service provided.
The board’s legal adviser reviews the contract terms and ensures the standards of service are clearly defined and contractual remedies are available. The trustees agree a plan to carefully scrutinise the quality of service to ensure standards do not slip. They have secured a lower-priced contract and recognise a risk that the service to members might fall if the administrator looks to cut costs as a result.
The trustees discuss how to work more closely with the administrator to improve the quality of service to members. The trustees understand the potential impact of business practices on the quality of service and take measures to manage and monitor the risk.
Reviewing contracts, ensuring clear terms of service and working with administrators helps the trustees monitor and oversee the scheme’s administration and maintain quality for members.
Make the chair’s statement helpful for members
The board of a scheme with money purchase benefits is finalising the scheme’s annual chair’s statement. The trustees agree that the report is not a ‘compliance exercise’ and they are clear that the document needs to be helpful for members.
The trustees do not think it appropriate for their statement to be drafted by an adviser or accountant and simply signed off by the board. The trustees agree to check that they can verify each point made in the statement and ask that the relevant information is brought to the board when signing-off the statement.
Proportionate approach in a small scheme
In a small scheme with defined benefits, the board of three trustees meet twice a year. Two of the trustees are drawn from the staff of the scheme’s sponsoring employer. The employer is in the finance sector so the board has plenty of financial and investment expertise. An independent trustee acts as secretary and prepares the agenda, which is circulated in advance.
The board regularly discusses whether they are using committees too much. The board are willing to review their control mechanisms to improve their efficiency. All three trustees contribute fully to the meeting.
The trustees consider that the scheme has a very strong funding position, low-risk investment strategy and strong employer covenant, and the board have intimate knowledge of the scheme. Therefore, the trustees are confident that the scheme risks are low and easily manageable. The trustees meet less frequently than some other schemes due to the lower risks and complexity of the scheme.
Use electronic papers
The board set out a guide to electronic documents. They ask for executive summaries with the decisions that need making highlighted and everything for information or noting clearly signposted. They set out how they will keep information secure when holding and sharing them electronically.
They ensure their advisers deliver to a clear template that the trustees are familiar with and use common templates for sub-committees. This improves the board’s efficiency and speeds up the rate they absorb information.
Involve the sponsoring employer
A representative from the defined benefit scheme’s sponsor attends a trustee board meeting to observe. They provide the employer’s view on the investment strategy and valuation assumptions.
This helps to develop an open and collaborative relationship between the trustee and sponsoring employer. The trustees are not intimidated by the sponsor’s views and all participate in constructive debate on the issues.