A greater focus on strategy and asset allocation rather than smaller matters is a simple step for boards and investment committees to improve fund performance, delegates at the Conexus Financial Chair Forum heard last week.
Discussing the relationship between good governance and investment performance, chair of the investment committee at Equip Super, Andrew Pickering, said the committee focuses on strategy and asset allocation not manager appointments.
“It takes too much time and doesn’t deliver bang for buck,” he said. “The real risk is setting asset allocation which is more complex and where you need real expertise. We work with a consultant on that but I’d like to see that skill come on to the board.”
For similar reasons Peter Kennedy, chair of the Cbus investment committee, is delegating to the investment team more and more and then monitoring that performance
“In the early days the investment committee would look at managers but not anymore,” he said. “We look at the terms of their appointment but we don’t assess them.”
According to Martin Goss, senior consultant at Towers Watson, the key characteristics of good investment governance include firm beliefs and coherent decision making.
“Super funds have grown up from a cottage industry where everything is outsourced, but there has been a lot of evolution in terms of their resources and also what is good governance,” he said. “One of the big risks is not wasting time on the smaller issues. This means, for example, not spending time on an investment that is one per cent of the fund. That is bad governance because it is not focusing on the big things, like asset allocation, that can make a difference.”
The panellists, who also included chair of AvSuper George Fishlock, agreed that getting the right people on the board is critical.
Following the lead of ASX listed companies which are now required to disclose a skills matrix of their board members, super fund boards are increasingly using these to fill vacancies.
Equipsuper, which has a tenure limit for directors of 12 years, recently used its skill matrix to fill a vacancy, appointing its first woman director, Jane Simon this year.
The discussion also addressed the issue of independent directors to which the panellists had mixed views.
Equip’s Pickering says he’s a big fan of merit based appointments. “One of the issues with independents, I think, is it’s a strange way to achieve a standard that should be there for all members of the board not just two or three. I favour improving the participation and skills of directors, and the question of whether they should have a connection with members is changing over time.”
The session also looked at the culture of boards, and the impact that had on the entire organisation.
Euip Super has a maximum tenure on its board of 12 years, and Pickering has been there for eight. He said the culture of the board starts anew every time a new member joins, making sure new members understand the culture of the board.
For Goss the right person to join a board has diverse skills and thoughts, but also fits with the culture of the board so they are operating together as a group.
“It’s the right people doing things the right way, for example reading the board papers and making decisions on what’s relevant to the situation not just relying on past knowledge,” he said.
AvSuper’s Fishlock says finding the right people to join the board is difficult, and as chair he works with nominating bodies in putting forward candidates.
“Finding the right people is difficult. A board with a successful governance model means you have to be capable of looking at a strategic plan. Not everyone is capable to see whether investments are following a strategic plan,” he says.