Implementing King III in a Retirement Fund
Retirement funds are legal entities where the stakes are high. In order to ensure that all stakeholders’ interests are attended to and that no misconduct can occur, retirement funds should adhere to the King III code of governance. However the implementation of this code needs to be comprehensive and well executed.
This is according to Hugh Hacking, Umbrella Fund Project Manager at Old Mutual Corporate who says that because retirement funds have significant assets – a failure of judgement at an influencing level could drastically alter the lives of members and other stakeholders.
“Retirement funds are much like large companies. There are many stakeholders and therefore there is a need for robust management processes.”
Hacking recommends King III as a robust, well tested and carefully researched standard. He says because it is now accepted as a requirement for listed firms, it therefore makes sense to reuse the good principles it defines and apply them to retirement funds.
“King III governance for a retirement fund should encompass all aspects of the fund - including ethical leadership and corporate citizenship, boards and directors, audit committees, the governance of risk, the governance of information technology, compliance with laws, rules and standards, internal audit, governing stakeholder relationships and integrated reporting and disclosure,” he says.
In terms of ethical leadership and corporate citizenship, Hacking says retirement funds will be obligated to not only consider the financial performance of the fund – but also their impact on the environment and society. He recommends that funds develop a code of conduct that will encourage decision makers to act in line with the guidelines of ethical and corporate citizenship. He also says this can be reflected in the investment selection of the fund as well as the methods and content of client communication.
“The board of a retirement fund that is governed by a King III philosophy must ensure that it has sufficient expertise, that it has eliminated or disclosed all conflicts of interest and it must remain in control at all times and act in the interests of all stakeholders.”
As with a large company, Hacking says retirement funds should have an independent audit or governance sub-committee. He says this committee must be of suitable skill in order to fully review the actions of other sub-committees. “This sub-committee should be responsible for setting up the fund’s risk-management process as well as appointing the external auditor.”
King III governance also requires retirement funds to take control of risk- management. Hacking advises funds to, assess the risk, respond to the risk, monitor risks and most importantly – disclose the risk to stakeholders. Finally, he says it’s crucial that funds receive risk assurance that risks are effectively managed.
“Knowing about key risks is not enough. The board must ensure that mitigation plans are implemented that the appropriate controls are in place.”
According to Hacking, ensuring strict governance in the information systems and technology of a fund is vital as it cuts across all aspects of operation. “The IT of a fund should be aligned with the objectives and sustainability of the fund and form an integral part of risk management. The board should delegate the implementation of the IT governance to experts and also ensure that IT assets are managed effectively.”
In order to adhere to the King III requirements of stakeholder relations, he urges funds to develop a clear set of communication guidelines for each stakeholder group. He also advises that funds must ensure that the channels are in place whereby stakeholders can voice their concerns.
“In order to ensure a smooth implementation of King III to a retirement fund, the process should be completed in phases. Start with the board. Ensure that the right levels of skills and commitment are in place. Educate members of the board regarding the role of the trustee. Once this is in place, disclose conflicts of interest and develop a code of conduct, the adherence to which can be closely monitored,” he says.
The next step, according to Hacking, is to put board structures such as sub-committees and risk-management processes in place.
Finally board policies and procedures should be implemented. This includes the communication policy, information management and business rescue, dispute resolution and the procurement policy.
