Board effectiveness and knowledge amongst the master trust Scheme Trustees (ST), Scheme Strategist (SS), and Scheme Funder (SF) are potential problematic areas.
They form part of the Systems and Processes requirement section 10. Trustee governance, 11. Managing service providers, 12. Risk management and 15. Communicating with members together with the ST, SS and SF skills assessments for authorisation evidence requirements for the Pension Regulator (TPR). An authorisation submission between 1 October 2018 to 31 March 2019 is a requirement for all master trusts operating the UK.
Although TPR have published the DC code of practice 13 (July 2016 GB and September 2016 NI) with guidance on the trustee board, the master trust code of practice 15 (July 2018), 21st Century Trusteeship and sample board evaluation questions (February 2018), it is useful to look at other external governance guidance and standards.
The Financial Reporting Council (FRC) updated this year their publication on Guidance to Board Effectiveness and the UK Corporate Governance Code. Although relating to large companies these two publications can give an insight into the thinking that forms part of good Board behaviour, and give guidance on what a model Trustee Board could do working with its Scheme Strategist and Scheme Funder.
FRC: Guidance on board effectiveness July 2018
The guidance looks at board leadership and company purpose, division of responsibilities amongst directors and company secretary, board composition, succession and evaluation, audit, risk and internal control, and remuneration.
“An effective board defines the company’s purpose and then sets a strategy to deliver it, underpinned by the values and behaviours that shape its culture and the way it conducts its business. It will be able to explain the main trends and factors affecting the long-term success and future viability of the company” (#11 Guidance on Board Effectiveness.)
The impact of board effectiveness is extended to consider what questions to ask of management:
“Questions for boards to ask management:…What steps has management taken to ensure that suppliers meet expected standards of behaviour? Has management identified appropriate KPIs that are properly aligned to desired outcomes and behaviours?” (Guidance page 6)
FRC: The UK Corporate Governance Code July 2018 (effective from 1 January 2019)
This code considers board leadership and company purpose, division of responsibilities, composition, succession and evaluation, audit, risk and internal control and remuneration. Contained within the board leadership and company purpose there is a statement of the engagement with stakeholders to achieve Principle D:
“In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.” (Code page 4)
A review of these two FRC publications would benefit master trusts seeking authorisation and create a better understanding of how a 21st Century master trustee could operate.
The FRC Guidance on Board Effectiveness can be found – here.