Best practice in governance new models
We believe that the governance model adopted can be, and often is, a constraint on the ability of fiduciaries/trustees to implement their investment policies effectively. In effect, they have a governance budget that limits what they can achieve and has to be spread across their main areas of activity. It is unusual for the governance budget to be sufficiently large to enable fiduciaries as a whole to carry out all three areas of their decision-making role:
- stewardship responsibility
- executive responsibility for setting policy
- executive responsibility for implementing policy.
In practice, the traditional model of a single group exercising consensual decision-making roles can work effectively for the first two elements above. It is the last in the list where difficulties arise.
The areas included in the responsibility for implementing policy are:
- setting the investment manager structure
- changing the line-up of managers from time to time in response to performance and other issues
- adjusting the asset mix from time to time consistent with the overall strategic policy
- holding regular monitoring meetings with the managers.
There are three possible approaches to enhancing the governance budget and improving both the quantity and quality of resources available for policy implementation. These three models are:
- delegation to an investment sub-committee
- the appointment of an investment executive officer
- appointment of external resource.
Full details of how we see best practice developing in this area are available in our booklet Structured Alpha - the impact of governance on investment decisions.
For a copy of this booklet, please:
Contact: Lynn Leonard
Phone: +44 (0) 1737 241 144
e-mail: lynn.leonard@eu.watsonwyatt.com
|
