VicSuper CIO Andrew Howard speaks about how stakeholder management is not simply about piling on the information. If boards receive too much data, it all becomes just noise, he says.
Navigating the choppy waters of the financial markets is a tricky exercise. But many chief investment officers know that communicating how you go about it can be as challenging as the ride itself.
And yet, the stakes are high.
Not only have careers been cut short where communication between board and CIO has broken down, but good communication also has a real impact on the quality of the decision-making process within an organisation and, hence, on returns.
It is the reason why Andrew Howard, CIO of VicSuper, and his team have spent a good part of the past two years establishing a new framework for stakeholder management.
“One of the challenges for any board is that there is so much information to be consumed that it all just becomes noise, so you need to ensure that the board is getting clear and succinct information on which to make informed decisions,” Howard says in an interview with [i3] Insights.
“At the end of the day, the ultimate decision maker for any fund is the board and so one of the things we worked very closely on, with the board and the investment committee, is to ensure that what we are presenting to them, what we are communicating to them, actually helps them make informed investment decisions.
“We worked really closely with Wayne Kayler-Thomson, who is the chair of the investment committee, saying: ‘Does this work for you? Is this the kind of thing you want to see?’ More importantly, this is not ‘set and forget’; how we communicate and interact continues to evolve.”
One of the challenges for any board is that there is so much information to be consumed that it all just becomes noise
He sees the management of the investment strategy and function as a collaboration between the board, the investment committee and investment team.
“When we ask them to make a decision, we try to make the information as succinct as possible, but at the same time you don’t want the board to feel they don’t have the adequate information needed to make the decision. It is a balancing act,” he says.
The work culminated in a six-month project where the fund completely revised its investment governance framework and stakeholder management. The project was led by Tony Arnold, Head of Investment Strategy at VicSuper, who joined the fund in May last year from Willis Towers Watson.
“I’d like to think of it in this way: Tony does the worrying for all of the investment team,” Howard says.
“He led that project to revise the governance policy framework and that consists of 17 different underlying policy documents. Within each of these documents there needs to be a proof statement, stating: ‘Are we actually doing that?’”
VicSuper also created a new investment management committee that decides on investment issues that don’t require the attention of the full board or investment committee. This committee consists of Michael Dundon, the fund’s Chief Executive Officer; Sam Horskins, Chief Financial Officer, Martin Vassallo, Chief Risk Officer, and Howard himself.
“We introduced further delegations in regards to manager decisions and dynamic asset allocation recommendations, where the investment committee isn’t required to get into the weeds. This allows us to lift up the conversation with the board and investment committee to be more focused on strategy and higher-level challenges,” Howard says.
Howard has also introduced Meet-the-Manager sessions with the board that allow them to get an insight into specific investment issues. “We do this at each investment committee meeting, where we have one of our managers come in to discuss how they do what they do and why. In a sense we want to bring the committee ‘inside the tent’,” he says.
“It is not investments 101; it is about bringing to life what the manager actually does. For instance, we’ve had one of our property managers come in and talk about the process of moving the portfolio to a carbon neutral position by 2020. It is bringing some of the detail that they otherwise wouldn’t see and help them understand why we do the things we do.”
The team has worked hard on reducing the sheer volume of investment papers the investment committee and board have to wade through; one of the initiatives has been to introduce a range of dashboards where information is presented more concisely, while ensuring deeper levels of detail are accessible if desired.
“The team also prepares a high-level email at the beginning of each month, saying here is what the markets did, here is the performance and here is a link to the latest investment update. So when they are speaking to members they are fully informed as to what we are communicating,” Howard says.
“I think stakeholder management, for anyone working in investments, is just so critical. It is both internal and external: it is at a management level, team level, how you work with other teams, investment committee, board and ultimately with the member as well.
“Continuing to spend time on this critical aspect of the process can have a positive effect across all areas of the fund. Without an efficient and effective stakeholder management process, the ability to make decisions and manage the investment strategy can be adversely impacted.”
For a general guide on ESG issues in Australia, please see here.
__________
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.