What do a hot potato, a live goat and a basket of oranges have in common?
It might sound like the setup for a punch line, but in fact these three elements represent the thorny issue of governance for panelists at Pensions & Investments' inaugural Investment Innovation and the Global Future of Retirement conference, held in New York June 22-24.
In the central conversation on the topic, “Global Plan Governance,” Jonathan Boersma, executive director, global investment performance standards and head of professional standards at the CFA Institute, said a recent World Bank education session on trustee ethical conduct posed tricky questions about gifts. One was a live goat, which representatives said they could not accept and take home on a plane. “So (the givers) took it back and gave them a basket of oranges,” he said.
Mr. Boersma's example illustrated the difficulty in designing global ethical and governance standards. “As we are developing those standards ... the goal is to ... move people to better practice, and eventually to best practice,” he said.
Use of the CFA Institute's GIPS and code of conduct may be widespread, he said, but many pension boards need continuing education about their fiduciary roles and duties.
“At the end of the day, you have to own it, educate yourself and make sure colleagues are educated,” added Martin J. Sullivan, senior vice president and head of asset owner solutions, Americas, at State Street Corp., on the same panel discussion. “In the absence of that, you will have bad things happen.”
Public plans have to operate “in a fishbowl” and can be affected by “headline risk,” said Ian D. Lanoff, principal at the Washington-based Groom Law Group, and are forced to answer questions on investments in response to world events and corporate scandals. But corporate boards can ignore the headlines and “focus on the merits of the investment.”
However, public defined benefit plans have the advantage of a clear fiduciary structure, he said, while corporate plans have more difficulty.
Mr. Sullivan said one problem is finding someone to accept the role of fiduciary. “Being the fiduciary is kind of (like) the hot potato — nobody wants it. When you don't have a plan, things break down.”
Mr. Sullivan added that the “expanded” use of alternative assets “is changing the governance of oversight. There is greater reliance away from the governance board and toward the (chief investment officer)” when it comes to research and what drives returns.