Published by Christine Kerr on
Conflicts of interest have long been part of the trustee/employer environment. However, the scope and meaning of what type of conflicts could arise has developed and broadened as governance best practice evolved.
Very simply, conflicts of interest arise when someone has interests or loyalties that could clash in a given situation. This could be due to an ongoing situation (e.g. the fact that one of the trustees is also the employer’s finance director) or through specific events (e.g. one of the trustees is the subject of request for enhanced ill-health early retirement benefits).
In the spirit of this topic, I should declare that I have had a long and interesting career, helping trustee boards to have the arrangements in place (including dealing with potential and actual conflicts) so they can take best decisions they can. Now that’s out in the open, let’s look at things some trustee boards may not have thought of in relation to conflict management and practical ways to deal with them.
When I started going to trustee meetings as a junior consultant in the 90s, there was no conflicts item on most trustee agendas and the line between who was taking decisions and recorded as taking decisions (i.e. trustee or employer) was often pretty blurred. I seem to recall short agendas and rather nice long lunches. Somewhere along the way everyone in the industry became aware that the knowledge and recording of what powers the employer had and what decisions rested with trustees was important. Where someone had two hats to wear the fact they only had one head needed to be addressed. By and large that trustee/employer conflict is now well understood and dealt with.
So what other conflicts are there?
There are the trustee’s own individual conflicts to manage. Such as:
All new trustees should be asked to declare any conflicts at the time they are appointed and that be held on the trustee record. There may be times that a trustee has to remove themselves from taking a decision or indeed even being in the room for the discussion. It’s also useful to be aware of the other interests of independent trustees who will have more than one appointment in that capacity.
The other type of conflict, which the Pensions Regulator recently highlighted as part of its 21st Century Trusteeship campaign, is adviser conflicts.
Larger schemes with more resource may already on top of this but the Regulator is now expecting higher standards of all trustees.
Actions that all trustee boards should take include:
Usually the scheme secretary would do the leg work in maintaining the conflicts documents. However, the trustees are still ultimately responsible for them. You need a policy telling the trustees what to do in a conflict situation and also a register which records all the actions taken and way that conflicts have been managed.
Once you have gathered all the information do remember to review it periodically as advisers will take on new clients and review their policies and trustee circumstances will change.
“A good time to check in with advisers would be pick up as part of your regular adviser reviews. The conflicts register should be tabled regularly with the trustee board to give the trustees the opportunity to update information about themselves. Include conflicts management in your new trustee induction program. ”
It’s also really important to think about conflicts when appointing new advisers or before embarking on any major project work.
Just because a conflict exists it doesn’t mean you can’t appoint that adviser or make that decision. You do have to have a process in place to identify it, manage it, and record it.
If you have not looked at your conflict of interest policy and processes for a while, now would be a good time to check they match the expectations of the Regulator. Successful boards will have thinking about conflicts embedded in their daily governance and critical thinking and not just remember when the conflicts “tick box” comes up on their agendas. It’s simply increasing transparency and doing the right thing which should be a positive factor in improving outcomes for your scheme.