26 July 2022
We recently published LCP GEARS – our Strategic Journey Planning Framework which sets out how we at LCP help our clients to achieve a successful journey to their ultimate goals, capturing opportunities and managing risks effectively on the way.
In this blog series we look at each step in turn, and what it means in practice.
As a governance specialist, I eat sleep and breathe effective decision making (though sadly this doesn’t mean I avoid the dreaded Netflix scroll!). That’s why it’s great to see such a focus on the importance of setting up the right governance structure in this year’s Chart your own course report. It really is the best place to start, particularly when there’s so much going on in the pensions world at the moment – our Chart your own course survey found the industry is overwhelmed by the pace and volume of pensions regulation. So how do you get going?
Your strategic journey plan - and how to get there - is one of the most important decisions you will make as a Trustee board. There’s a whole host of tools and support available to help you with this, but without a clear vision and the right people involved, it can be tough to know where to start. We’ve found that setting up a strategic sub-committee can be a great way to approach this; a subset of trustees (plus appropriate sponsor representation) with the time and energy to understand the issues, make effective decisions and, vitally, to move quickly to capture opportunities.
Focused sub-committees, of course, aren’t a new construct for many trustee boards. Whilst I am loath to bring up GMP, bear with me as there are a lot of parallels to be drawn. In my experience, the vast majority of schemes with GMP projects have set up a GMP sub-committee. This means that GMP work is given the attention it deserves by a small and engaged group. A sponsor representative often sits on the sub-committee, meaning the sponsor is involved in decisions at all steps of the process and momentum is maintained. Advisers from trustee and sponsor side maintain frequent contact and provide their advice from the same source of information. And the Trustee board is kept up to date on decisions taken, confident that the topic is being considered at the right level of detail.
Doesn’t this sound like a good recipe for achieving long-term objectives, just as well as it helps with complicated projects such as GMP? A strategic sub-committee can work in the same way for a scheme wanting to take active steps in managing its journey plan. After all, meeting your long-term objective isn’t just about investment performance! An involved sponsor may be more willing to commit to additional contributions, or understand the benefits of certain actions more efficiently. Well-designed member options exercises can increase flexibility for members and reduce uncertainty for you - bringing your eventual destination closer. If these factors are considered within their traditional silos, it’s possible that the bigger picture can be lost, meaning missed opportunities or time delays, all of which extend risk exposures for both sponsor and trustees.
A strategic sub-committee can also meet more regularly than the quarterly meeting cycle, meaning a greater depth of understanding and a rapid response to market changes. At LCP we believe in dynamic, real time, monitoring – gone are the days of discussing Q1 performance as late as June – a strategic sub-committee is able to really grasp this idea and move it to the next level with robust but dynamic decision-making taking place.
It's important to make this governance arrangement tight – will the strategic sub-committee have delegated authority to make decisions? What skills do members of the sub-committee need? How and at what frequency does the Board want to be kept abreast of sub-committee work? You want to be nimble and work quickly, without alienating the rest of the trustee board from the process. Governance is already being given greater attention with TPR’s single Code expected to land towards the end of this year (you can read our guides to the ESOG and ORA), so it makes sense to consider in tandem whether a strategic sub-committee works for you.
This isn’t the kind of thing where we’d advise a one-size-fits-all approach: your strategic sub-committee and governance approach needs to be specific to your scheme. Please do get in touch if you think this is something we can help with – whether this is setting up your governance framework or overall strategic journey planning.
Once you have the right framework in place, all decisions on how to design and manage your strategic journey plan become more straightforward and effective. See our next blog in the series, which starts to look at the journey itself, the E in LCP GEARS: How to ESTABLISH your ultimate objective and timescales.