Rising to the challenge

Rising to the challenge, first published on top1000funds.com

Governance is a construct that is brought to life by good people, leadership and culture working well together. Better governance can emerge from our current adversity through a mix of effective design, focus and leadership.

The governance in our investment industry setting is focused on investment committees (ICs), both in asset owners and asset manager settings, where best practice has evolved considerably.

IC governance has improved markedly during my career, but in the current circumstances it needs a big step up. To help, here are five suggested ways to consider:

Balance the urgent with the important. We must work on the critical short-term agenda but do so showing respect for the critical issues in the medium and long term. We cannot afford to lose sight of the longer-term mission. The fundamental temptation here is to over-do the anxiety, but the step up to better governance here is to apply ourselves to meeting the long-term mission through a balance in our time horizons.My best example here is about holding your nerve on strategy. As long-term investors, being patient is crucial, safe in the knowledge that you can stay the course through whatever turmoil markets throw at you. Current market volatility is scary, and there is a chance it will get worse, but history should confirm our beliefs that we will be okay in the longer term.

Try to see around corners. Investment committees can weaponize their skill through anticipating future trends and patterns. In present uncertain times we must work harder on the unexpected as many more issues ‘lurk’ out there. When we think we see the light at the end of the tunnel, we should not relax, and the focus should still be on ‘seeing around corners’ – good governance’s most prized asset.Investment beliefs remain the mainstay of good IC practice and some may need updating now. There are the long-term core beliefs that only need light refreshing, but there are ‘the world has changed’ beliefs which need serious work.

Reprioritise.  Staying true to core principles and beliefs is important but good governance should be adaptable around its edges. This suggests doing a few things more deeply and letting lesser stuff drop away. We must respect the idea that a governance budget is finite.Doing a few critical things well is the key principle here. This environment means we are experiencing a series of squeezes everywhere, for example liquidity, capacity, communication, resilience and wellbeing. Accepting that there are constraints to what is possible is critical to ensure the actions ICs take actually add value. This means reprioritising strategic agendas and focusing on activities that have highest impact relative to the effort involved.

Communicating deeper, wider, better. IC communications must pick up pace at times of crisis. Many aspects of good communication are timeless. Central concepts here are managing expectations through communications frequency and cadence. But at times of uncertainty, the key is to communicate even more, even when it seems like there is fundamentally less to say given the uncertainty.

One practical example: IC meetings need an innovative re-tread to ensure the best-practice elements translate into a virtual setting. To this end we have set out below a new physically-distant but socially-connected model for governing through virtual meetings without compromising on the best elements of inclusive decision making. This builds on previous thinking on more effective meetings.  We believe this model is useful near-term but has longer-term appeal to complement physical meetings once they resume.

Live your values. Values set the tone for behaviours, the behaviours drive the actions, the actions drive the outcomes, simple.At a time that is presenting massive dilemmas everywhere, people and purpose come ahead of profits and performance. This is a key element in governance thinking. In current times with life and death playing out, people must come first. And profits will surely follow in the long run if we can cluster around a stronger purpose crucible.

Governance is a construct that is brought to life by good people, leadership and culture working well together. Better governance can emerge from our current adversity through a mix of effective design, focus and leadership. The opportunity for that leadership beckons.

The Virtual IC Meeting Model

A strawman proposal of a physically-distant but socially-connected governance model

1Build out the prequel segment to the meetingWork in this prequel segment includes pre-reading and indicative polling (see below) and puts IC members further forward before the meeting starts.
2Work to a well-structured set of papersMeeting papers are a more critical contributor to effective virtual meetings needing better executive summaries, narratives and background references. Web-based platforms for papers, files, communications and collaborations of the IC and the team also play their part.
3Develop the ‘Run-Sheet’ to add to the meeting agenda‘Run-Sheets’ are precise specifications of meetings that add key parameters over and above an effective agenda; the specifications need to cover the hard and soft ‘ask’ of IC members, and of outside parties.
4Use high-quality video technologyMeetings will need to be appropriately convened in a high-quality video format: Skype, Web-Ex, Zoom, Teams, etc
5Work at chair-effectiveness through planning and preparationThe chair is critical – they are first of all facilitators, and secondly strategists, coaches, arbiters and content providers. Facilitating a virtual (call) meeting is a big challenge, but good planning and preparation takes you far.
6Apply cognitive diversity and turn-takingCognitive diversity requires surfacing all views and this is helped by going around the virtual room person-by-person on certain issues.
7Use informal pollingVirtual polling (using technology) can be used to provide insights on key issues indicative to values and preferences, without becoming binding votes. Polling also adds diversity.
8Gather feedback on meeting effectivenessMeetings should be assessed for on-time, on-inclusiveness, on-point delivery. Good feedback gathered consistently is critical to be able to improve practices.
9Build out the sequel segment to the meetingMeetings need to be completed with accurate minutes, notes, clear follow-ons, including polling results to support thinking and action.
10Stage the virtual meetings to complement physical onesWhen constraints requiring virtual meetings are removed, ICs should explore a new cycle of physical and virtual meetings as a more efficient and sustainable solution to IC governance.

View article on top1000funds.com.

Roger Urwin