Issue: June/August 09
Some are good, some not so good. What can prevent and what can enhance sharper, better decision making.
It’s in the nature of things that, at any number of board meetings, a clash of views can be interpreted as a threat to board stability. So various board members incline to support the chairman’s view rather than express opinions of their own. As a result, many boards merely perpetuate lines of power.
The observation is disturbing because of who makes it in the context of retirement funds. After 20 years in institutional investment, Rhona Stewart is speaking from her more recent experience as a strategic advisor to retirement funds.
This follow-the-leader dynamic exists not only in many companies but also in retirement funds where, she finds, controversial issues are not discussed openly. Instead, they are decided in advance by cliques. “The development of these invisible lines occurs more frequently in boards where there is a low level of trust, resulting in the formation of subtle coalitions which go unchallenged in an environment of artificial harmony.”
Such board dynamics may be expedient for some, she suggests, but may not be optimal for all stakeholders. It’s not always the fault of the trustee, she’s observed. Honesty and openness may be hampered by structural factors that lead to conflict-ofinterest explosions.
For example, a problem might arise when those who nominate and appoint a trustee expect loyalty from the trustee by advancing their interests. The trustee then has a conflict of loyalties: between the fund and its members on the one hand; those who brought him to his position on the other.
Commercially-sponsored and occupational funds carry other problems inherent in their structures. The first disruption, according to Stewart, is in boards comprising people with varying levels of authority. It then becomes almost impossible to avoid an employer’s power play. This could result in a conflict where trustees support the employer rather than the member.
Frequently, fund sponsors need to control the decision-making processes because it is difficult otherwise to exclude commercial considerations. “Whether or not it’s admitted, issues at the sponsor level impact on board dynamics,” she says.
Another threat to board harmony is the absence of trust in report-backs to constituencies. If the rules for report-backs aren’t defined and applied, trustees may find themselves constrained by fear that elements of their discussion are conveyed out of context or in a way that distorts their good intentions.
For trustees to avoid these pitfalls, Stewart’s suggests:
Were it only that the right people for trusteeship can be found in sufficient numbers...