Leadership, Collective Decision-Making, and Pension Fund Governance

Abstract

For pension funds and other institutional investors, governance refers to the resources and processes used in decision-taking. Recognising that risk and uncertainty are the life-blood of investment strategy, in this paper we develop a resource-based framework to better understand the structure and management of financial decision-making in these organisations. It is suggested that these types of institutions have three types of scarce resources: time, expertise, and collective commitment (or how groups work together to a common purpose). We explain the nature of such decisions including their sensitivity to global financial markets; we explain the resource-based framework, and; we show how and why leadership in the decision-making process is essential to best-practice pension fund governance. To sustain the argument, we rely upon our best-practice governance framework and recent research on pension fund trustees' expressed opinions regarding their preferred styles of decision-making. Lessons are drawn for the process of collective deliberation and especially the role of board leadership and its distinctive qualities in best-practice organisations.

Keywords: Decision-making, pension institutions, financial markets, risk, uncertainty, pension governance

JEL Classification: G11, G15, G23