Corporate governance and managing trustee expenses
South Africa prides itself of being at the forefront of good corporate governance on the basis of the 16 plus one principles formulated in the King IV report.
A trustee on a pension fund’s board of trustees is in no different position to a director on a company’s board of directors. Trustees in SA have been held liable in their personal capacity for wrong doings on their fund and Namibian courts will undoubtedly look for SA precedents when adjudicating on any wrong doing by a board of trustees in Namibia.
The key concepts of directorship and trusteeship are
Trustees are required to manage the affairs of their fund in the best interests of their members. As a trustee there are many areas one needs to consider and measure your fund to understand whether you are doing good, bad or indifferent. Commonly for example, trustees measure the performance of the investments of the fund. The investments being the biggest asset of the fund, the performance can fortunately be measured against readily available benchmarks and trustees will at all times know how they are doing and when they may expect to face head winds from their members if they are not doing that well. So that area is covered pretty well provided trustees have applied care, skill and good faith in appointing the asset managers they did appoint.
But what about fund expenses, managed by the trustees in their absolute discretion? There are no readily available benchmarks. So one board of trustees may decide that the fund should carry the cost of each of their trustees doing an MBA or similar qualification to better qualify them in managing the affairs of the fund. Another board may decide it should be good enough to have each trustee attending a relevant training course once every second year. One board may decide trustees need international exposure to be better equipped to act in the best interests of the fund’s members taking into account international developments while another fund is only prepared to support local seminars and courses.
So how does your board of trustees decide whether your policies measure up well against the duties of care, skill and good faith? This is particularly critical as far as expenses are concerned that are incurred for the direct or indirect personal benefit of trustees – an area where trustees are likely to face serious censure if they have not managed to separate personal interests from fund interests.
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As far as the example of training goes, one important consideration is whether trustees are serving the fund on a full-time basis or only on a part-time basis. If one looks at this question from a company’s point of view, any company would go to much further extents in training staff to run the business of the company because the benefits of such training would accrue to the company on a ‘24/7 basis’, i.e. the dedicated employee is expected to plough back into the company everything he learnt.
Directors or trustees typically only serve the company or fund on a part time basis and are expected to have a sufficiently solid foundation to understand and to apply their obligation of duty of faith, duty of good care and duty of skill to overseeing the management of the business of the entrusted entity. So one needs to distinguish clearly between these two situations. Company’s often have benchmarks for staff training and maybe the VET levy is a good starting point as this is what government effectively has resolved employers should spend on training their staff. The same principles can be applied to a pension fund where the payroll comprises of the salaries paid to full time staff plus the trustee remuneration.
To assist trustees we have established a data base of funds administered by RFS. The average in each case is probably a good benchmark. Anything closer to the minimum or to the maximum should be probed properly to determine whether it can be justified or whether it may expose the trustees to a risk.
Here are the figures your fund may wish to benchmark to.