The View From Both Sides: A Governance Case Study

The View From Both Sides:
A Governance Case Study
Richard McAloney - Chief Executive Officer, Nova Scotia Association of Health Organizations Pension Plan (NSAHO)
 
When I was asked to speak at this conference, my first reply was: What the heck does governance have to do with "risk management" or "a forecast of low returns"?

But then I realized that the NSAHO Pension Plan had already gone down this road a year earlier.

Faced with a forecast of low returns, we had revised our asset mix and implemented strategies designed to exploit investment vehicles that are not yet common among pension plans. This process was greatly abetted by our governance system, which operates very efficiently, despite a large board of 20 voting trustees.

Clearly, governance does belong at the front end of the risk management agenda. After all, if your great idea does not get approved and implemented in a timely manner, all of your research and hard work are in vain.

My opinions on the matter have been shaped by my experiences on "both sides of the boardroom table." I have been a board member as well as a senior staff member, serving a board in pension organizations as well as various other businesses. Perhaps most importantly, I have worked in empowering work environments as well as frustrating workplaces. (Unless you have experienced the latter, you cannot truly appreciate the value of an effective governance system.)

These dual perspectives have led me to "look at life from both sides" and promote a governance system that is symmetrical - in other words, a governance system deemed optimal by both the board members and those senior staff members serving the board. After all, the most delicate challenge for a governance system is to empower management while ensuring the governing fiduciaries retain control.

The key components of an effective governance system are as follows:

* Focus on your objectives - i.e. What good? For which people? At what cost?
* Controls should list what staff cannot do, not what they can do. In a dynamic environment, it is impossible to anticipate every required action. The default of your governance system should be empowerment, not constraint.
* Align decision-making with skill sets.
* Articulate objectives, controls, and reporting - in writing.
* Comply with your governance policies. (Make them practical, not some voluminous binders on a shelf, which no one understands or complies with.)

When seeking the best practice in governance, a good place to start is Peter Skinner's 1997 Fellowship Report, "International Best Practice in Superannuation Administration." It was written after Skinner visited and studied 41 large, leading pension organizations throughout the U.S., Canada, Indonesia, and the UK. Skinner reported that out of all 41 organizations, only "one organisation was clearly at best practice in articulating board policies..." That organization followed the model developed by John Carver, an Atlanta-based, Ph.D-holding consultant and the author of numerous books and articles regarding governance. Readers may also be interested in CAPSA's "Pension Governance Guideline and Implementation Tool" available through www.capsa-acor.org.

The NSAHO Pension Plan governance model is also based on Dr. Carver's Policy Governance. It requires written policies in each of four areas: objectives; CEO limitations; board of trustees-CEO relationship; and the board's own governance process. In our experience, this model meets all of the key components of an effective governance system and thus helps the Board see to it that the organization accomplishes what it should, while avoiding any unacceptable actions. Policy governance may not be right for everyone, but it certainly has been effective for us. The key to success is to remain focused on your objectives. By defining risk as the probability of not fulfilling your objectives, decisions required to respond to this dynamic environment in which we operate (e.g. a forecast of low returns) will be much easier! *

 

Transcontinental Media G.P.