Tim Gardener, one of the biggest names in UK asset consulting until he crossed to funds management last month, has distilled his views on pension fund governance after 20 years at the advisory coalface, writes SIMON MUMME.
Tim Gardener doesn’t often say good things about Australia. As an Englishman, it could have something to do with the cricketing rivalry between his homeland and one of the old colonies. But the former global CIO of Mercer and, before that, head of the company’s asset consulting business, openly claims that Australian superannuation funds deploy the best governance practices in the global pensions industry. “But there’s always more work to do,” he says. In a global market with no shortage of threats and crises, achieving good governance is the most pressing challenge for institutional investors, he says, if only because it can enable pension funds to weather uncertainty and perhaps even exploit the opportunities it creates.
The work involved in delivering good governance isn’t setting board structures and decision-making checklists: it’s maintaining the right combination of investment professionals and lay people who can both challenge industry norms with sound arguments and minimal arrogance, but also make good on their mistakes. He’s seen this in action. “Strong boards have investment experts, but also strong people from diverse backgrounds who aren’t investment experts.” He’s also witnessed governance train wrecks. These involve boards dominated by powerful individuals who do not entertain open questioning and debate. As a result, boards’ members feel coerced into signing off on important decisions. Gardener, who now heads consultant relations for AXA Investment Managers (AXA IM), says it’s easy for boards to pay lip service to the tenets of good governance, and appease regulators and stakeholders with board structures and cross-checks that give an outward appearance of fiduciary duty.
What really matters, however, is “taking governance from a tick-allthe- boxes stage to having a process that makes good decisions”. “People don’t look at the composition of the investment committee and for conflicts of interest within the investment committee.” To help provide checks on dominant personalities, or groupthink among board members, funds should maintain a healthy “information disadvantage” between investment experts on boards and lay trustees who openly contest their views. Diversity – “groups of people who have different backgrounds, groups and beliefs” – is a crucial tenet of good governance, Gardener says. In the coming years, pension funds and their boards must be “adaptable” as global markets moved on from the relative stability of the past few decades.