Legalsuper’s chair, Kirsten Mander has worked in companies big and small throughout her career and she’s not convinced big is necessarily better.
Amid the recent amalgamation trend leaning toward creating mega-funds, her outfit has managed to resist pressure from APRA to consolidate into larger entities despite many of its peers following that path.
Legalsuper is one of Australia’s smaller funds with about 43,000 members and $4.3 billion in assets.
It’s likely that smaller, niche funds with unique offerings would survive alongside the mega-funds with the middle ground in danger of being swallowed up, KPMG’s national section leader for asset and wealth management Linda Elkins said in a recent interview with Investment Magazine.
“I would totally agree with that,” said Mander.
“’I’ve worked in big, bloated companies. I’ve worked in start-ups. Scale brings some real advantages, particularly economies of scale, but in my experience the expectations [of what] will be achieved by economies of scale are often significantly overstated and people forget to take into account the diseconomies of scale.”
She said the larger the organization, the more it’s expected to be able to install people, which generally means more complexity, loss of focus and more cost.
“All of these different needs are being serviced [in larger organisations] not all of which are generating good margins,” she said.
“In-sourcing achieves some temporary benefits on cost, but then it increases staff over time, [then] more staff tend to need [even] more staff, to manage and support… which means more policies, more systems, more bureaucracy.”
She said the snowballing effect meant the organization then needs bigger wins in order to keep achieving outsized returns.
“Little wins don’t work anymore, they’re just not going to move the dial, so the organization has to move outside its area of strength and the outsize returns mean outsize risks,” she said.
She argued that legalsuper’s niche was servicing “a relatively homogenous membership of people who tend to be demanding around us being an organization of trust that manages their affairs carefully and with proper risk avoidance”.
“Their needs and their preferences are pretty well understood by us. The board is almost entirely out of the legal profession, in one sense or another [and] certainly the management team understands [members] very well. So that gives us advantages when designing and delivering cost effective and sustainable products that fit our particular membership,” she said.
Board leadership in time of change is like conducting an orchestra
Fund bosses have been forced to step up according Mander amid this recent rollercoaster ride of changes.
Funds have not only had to deal with the fallout from the pandemic but also the volume of regulatory change, and leaders have “really, significantly born a lot of the brunt of the transition,” she said.
“On top of [Covid there was] significant regulatory change that came through in the aftermath of the Royal Commission and then the more recent government changes with things like stapling, where even today, we don’t really know fully the rules that are going to apply and how this is all going to work and what it’s going to mean for the businesses.”
Mander stressed that amid all this change and lack of definitive information around new regulations it was vital leaders kept a strong focus on longer-term strategy.
“You can’t underestimate the importance of clarity of purpose, really embedding and focusing again on your strategic priorities. And thinking ahead about what changes are going to be needed even if you can’t actually be precise about it, because much of it still could play out,” she said. “You need to use tools like scenario planning to support your thinking around who you are and what you need to be and what your value proposition is.”
She maintained her role as chair was about facilitating a strong board and management team, as well as communicating on behalf of the board to external stakeholders.
“But it’s a lot about making the board and the management team effective, performance oriented and goal oriented,” she said.
“It’s about leadership in the same way that a conductor of an orchestra is a leader, it’s not a command and control role. I very strongly believe that. Leadership is about inspiring people to work together to achieve a shared vision and goals. I don’t mean I’m not capable of giving instructions or being fairly firm in my views at some point but, ultimately, you’re going nowhere if you can’t inspire people,” she said
She also stressed that continuous improvement was important.
“I don’t want people to think that we have to be perfect, but they have to understand what they were doing yesterday or last year was probably not the thing we need to continue doing this year or the year after. And that’s not [because] the world’s changing, you [just] have to continuously improve,” she said.