Making Pension Boards Work: The Critical Role of Leadership

Abstract

Understanding human behavior and cognitive biases are important elements in designing effective governance structures. The authors are guided by this reality in proposing a framework for understanding collective decision-making in pension funds. The article suggests that five types of decisions need to be made, from structural-strategic at one end, to tactical-operational-monitoring at the other. Within this context, Pension Fund Boards operate as part of a unique 'ecology'. They must be collegial, representative, and have a collective commitment to protect the interests of beneficiaries. At the same time, Boards can lack focus, be overwhelmed by the range of issues they must deal with, and suffer from unacknowledged differences in individual decision-making styles. These factors combine to thrust the role of Board leadership into the limelight. Successful Board Chairs show sensitivity to managing stakeholder expectations and to the culture of the organization. They mediate between various decision-making styles on the Board. They understand the importance of organizational design, delegation, accountability and measurement. Most importantly, they command strong personal respect.