Global, 5 August 2020.
Investment organisations are not learning from their experience when it comes to improving investment committee (IC) practices and governance according to new research from the Thinking Ahead Institute, a not-for-profit member group. The research, entitled Going from good to great, identifies the aircraft industry’s structured-learning environments as one to emulate because learning from experience and errors has increased safety enormously and given birth to innovations such as checklists to improve decision making and dashboards for tracking mission-critical issues.
Roger Urwin, co-founder of the Thinking Ahead Institute, said: “The aircraft industry ensures the safety of billions of people through learning from experience. Investment committees can likewise provide for the financial safety of billions of people by applying best-practice frameworks to their context. In doing so they will be better placed to tackle the challenges that lie ahead such as systemic risks, performance pressures, complexity management, increased regulatory influence and the growing influences from multiple stakeholders.”
The research explores best-practice governance for ICs and sets out a best-practices checklist which all types of ICs can follow to improve their outcomes. For more ambitious and well-resourced organisations it suggests the adoption of the Total Portfolio Approach (TPA) to introduce more dynamism and focus on goals in decisions.
Roger Urwin said: “Large asset owners are using advanced best-practice governance to unlock the complexities of modern investment, notably when dealing with ESG considerations, and employing TPA helps the integrated thinking required. We believe that this crisis will accelerate the adoption of TPA and, in time, it will become one of the defining innovations of this period.”
The paper sets out ten building blocks investment committees can use for more successful outcomes, including strategic focus, an effective chairperson and strong culture.
Roger Urwin said: “Retaining a strategic focus is vital for effective board governance and doubly important for investment committees, where there is often a temptation to get lost in the weeds. Key to this discipline is having an effective chairperson. This leadership role is crucial in terms of setting and managing overall strategic direction, facilitating the contributions from all committee members and extracting all the benefits of a strong culture.”
Acknowledging the confines of resources and time, the Institute suggests that taking an IC from good to great outcomes is eminently doable with strong leadership and an ambitious strategy and identifies key areas where they can make the biggest gains:
- Getting the right people on the IC ‘bus’ is critical, especially in the areas of competency, teamwork and accountability
- Exploiting the opportunities for improved efficiency and collective intelligence, notably: extending the chair role; building the IC teamwork; pinpointing its comparative advantages; restyling the IC process; and developing a richer culture
- Taking the opportunities this crisis presents, starting with exercising more innovative thinking and practice in the conduct of IC meetings, and applying more innovative thinking to the challenges of the future
Roger Urwin said: “Could investment committees and boards set their sights higher? Absolutely they could. The stakes are too high for them not to take this path. And these current pressurised circumstances make such steps attractive right now.”
About the Thinking Ahead Institute
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to mobilising capital for a sustainable future. It has over 40 members around the world and is an outgrowth of the Willis Towers Watson Investments’ Thinking Ahead Group which was set up in 2002.