A Back Kick to iNEDs
As an ex-amateur martial artist, many eons ago, in his last round for Fund Boards Council, JB finally takes off the kitten gloves and delivers a Technical Knock Out on iNEDs and the Assessment of Value.
What a year that was: a historical bookmark for existential risk if ever there was one. As before there will be a next time. Society, economy, industry and billions of lives have been dealt a hard body blow. Our industry should be part of the UK’s rebuild plan if we can be trusted; post. COVID-19, given Boris’ big new Green deal and ambitious pathway to COP26.
Can we be trusted? After the shiny lacquer of our appointments wears, two years in as iNEDs, we should stop to reflect ‘did I make a difference’, am I happy with everything I did, the Board and should our customers? Did we serve catharsis or did we become part of an ageing industry facade?
Having read a vast number of Assessment of Value (AoV) reports, and listened to the deafening silence from my fellow iNEDs then I have to reflect ‘no’, we didn’t make the difference many (including myself) had hoped for. It doesn’t appear to have improved culture or competition much, it doesn’t appear to have drawn adviser focus to the importance of governance and asset concentration into low-cost vendors continues. Common sense dictates that if we don’t address Value then that’s the end game for us all, Vanguard having all but branded value for itself. ‘Jack’ will be chuckling from above.
Much like opaque greenwash there is an unsettling duality to the outward presentation of values and culture versus the inside anecdotes I am hearing from consultants and other iNEDs, on the QT.
What I gather is that Execs within larger asset managers, particularly of a transatlantic bent, see the Assessment of Value as little more than an unwanted bureaucratic exercise.
Correct me if I am wrong but I don’t recall reading that in any of the reports. This then makes folly of notions of clarity and transparency if we cannot even believe the verbiage presented. It reminds me of 2007 when Treating Customers Fairly (TCF) came out and when non-British (and some British firms) seem to treat TCF with scant regard. In doing so we ended up with the Asset Management Market Study 11 years later. Then it was all on the Execs; now it’s on us (iNEDs) too. It is why I have pushed so hard for a transparency agenda when it comes to the AoV and, with my Chair’s blessing, we opened our doors to scrutiny.
Colin McLean as chair of the SVM Asset Management’s fund board is also one of the few to go on public record about his views of the AoV process and they are far more than shallow platitudes. As a long-term corporate governance advocate, they are authentic. Whilst he and I will not agree on everything (nor should we) we do both share a healthy level of cynicism. Perhaps it is something in the Scottish tradition. Link: http://www.thevaluekey.co.uk/Posts/Read/3598/Can_a_regulator_create_competition
Where are the rest and, indeed, where are the other iNEDs sharing their independent views? We know one trend is for consultancy to crossover with the provision of iNEDs much in the same way we have seen in the pension trustee space. That brings attractions such as best practice sharing, locum and better indemnity cover but do we lose some individuality and independence in the process? Certainly, individuals from such firms play the corporate game better, they speak better ‘Exec’. However, we also lose their voice in the corporate vacuum. Truthfully the judges are split and it will go to a points decision for me.
Thus, in 12 months of this Diary I don’t think I have been approached by a single FBC member to discuss issues or concerns privately. That has surprised me. Perhaps I am still perceived too contrarian to be considered safe. I suspect iNEDs are just not interacting as we expected; they are following tried protocols. I have read perhaps two other fund board iNED views and doubt I have somehow missed the other 99%. Usually only aspirants comment, then go dark once appointed.
Yet this is in stark contrast to the more mature governance structures I know in pension land (not without their own issues, e.g., Pathways) where other iNEDs seem more open to discourse. What then are the solutions if iNEDs alone are not enough? Increasing the proportion of independence, I have discussed before, board composition and the shape of governance frameworks likewise. However, these do not detract from a simple fact, iNEDs need to step up in the boardroom and in the public domain if we are to effect true change. That’s it, oh, and listen to customers and advisers.
Independent (external) assessment is another route but I am wary of again commercialising governance into another unregulated cottage industry where commercials may skew results. Look at the problems we saw with Ireland’s CP86 regulations. The other route is regulatory prescription but neither the City wants it nor does HM Treasury; for it would make the U.K. less flexible, and less competitive, as an investment destination, globally. Far easier to slip between the cracks when the edges are not well defined. Meanwhile the spectre of a US style litigious system looms closer.
As an ex-professional fund investor; and in absence of iNED intervention, I call on all advisers, rating agencies, distributors, wealth managers and fund selectors to make their voices heard on the important issue of AoV.
I think the end game for fund boards is something akin to Independent Governance Committees (IGCs) but ones operated more like customer boards so that we get informed buyer engagement.
I call on consumer groups and bodies representing professional fund buyers like PIMFA, the personal finance association; IFP, the financial planning institute; CISI, the chartered securities institute; CII, the chartered insurance institute, and my very own Association of Professional Fund Investors to help gather and provide that voice to fund managers.
For those whom will miss my monthly sartorial hegemonic ramblings, fear not for my monthly NED column in Investment Week will continue and I will be starting my ‘New Fund Order’ podcast next year. Finally, having giving my fellow iNEDs the literary equivalent of herding them into a room, locking the door and giving them an ‘education’; I want to thank you dear reader for staying the course.
My parting shot. If the AoV process is left without hope of a victory then fund governance too is left on the canvass, gum-shield out, eyes rolled and the referee has started counting, 1, 2, 3 … are you ready to get back up and make a fist of it?
Over this past year, JB has recorded his experiences on the boards of two very different organisations as he navigates the highs and lows of a plural career at a time when the fund industry is beset with challenges and opportunities in equal measure.
JB can be contacted at email@example.com.
Note from the Eds: For his yeoman’s service to FBC and its members, JB he has our deep and affectionate thanks. We haven’t always agreed with everything he has opined on, but that is sort of the point. We wish him well in his future governance (and editorial) endeavours, and something tells us we haven’t seen or heard the last of him in this column, so it is not goodbye, but till next time …
If you would like more information on Fund Boards Council, and how you can get involved, please see https://fundboards.org, or get in touch at firstname.lastname@example.org