Fixing the Pension Governance Deficit: Taking the Next Step

“If asset owners and managers are to do a better job of investing for the long-term, they need to run their organizations in a way that supports and reinforces this.”

FROM “FOCUSING CAPITAL ON THE LONG-TERM”DOMINIC BARTON AND MARK WISEMANHARVARD BUSINESS REVIEW, JAN-FEB 2014

Revisiting Pension Fund Governance

Authors Barton and Wiseman do not mince words in the HBR article cited above. They challenge the Boards of organizations managing assets for others to be very clear about the purpose of their organization and its assets. In the case of pension assets, that means turning retirement savings into capital assets that produce healthy cash-flows over long periods of time. Their assertion that asset owners “need to run their organizations in a way that supports and reinforces this” raises an important question. Do Boards of pension and other long-horizon investment organizations have the requisite competencies to not only understand the purpose of their organizations, but to also effectively oversee the achievement of that purpose?

This is a question a small group of researchers have been addressing for some 25 years now. This Letter summarizes what we have learned about pension fund governance over that period, and its implications for raising Board effectiveness. It also offers a ‘to do’ list for things we still need to learn more about. The Letter ends by describing a new research initiative to that end launched just last month.