PhD: Stewardship of UK Pension Funds .

1. PhD: Stewardship of UK Pension Funds. Framing the Character of a New Trustee 17th February 2012 Angela Pober

2. The Research Pension deficits and media speculation on the sustainability of schemes means that trustees must make effective long term decisions. Research Question What frame defines the characteristics of a new trustee to become an effective board member, and hence the board to be effective? Personal Interest As a non-executive director (Trustee) of a statutory Local Government Pension Scheme I was a new trustee 3 years ago and remember my own experience. Basis of Methodology choice The works of Ervin Goffman and frame analysis helps define ‘interaction’, as trustees interact with others occasionally and within incumbent rules and constitution which has not been explored and defined in previous research. Specific Aim The intention is to create a model of the frame(work) which determines the character of the trustee over time.

3. Background Research What is a Pension? Pensions Trusteeship • A pension is a sum of money paid regularly as a retirement benefit. • It is deferred pay. • Working people build up pension entitlements during their working lives by making contributions and sometimes getting employer’s contributions. • As a result, they receive a regular income when they retire.

4. Background Research Pensions in the UK are losing members Pensions Trusteeship • In 2009, there were 8.7 million active members of occupational pension schemes with two or more members in the UK, of whom • 3.3 million were in the private sector and 5.4 million in the public sector • In the private sector, 39 per cent of male employees and 28 per cent of female employees belonged to an employer-sponsored pension scheme in 2010, compared with 52 per cent and 37 per cent respectively in 1997. • In the public sector, male employee membership was unchanged between 1997 and 2010, at 87 per cent, while female employee membership rose from 75 per cent to 82 per cent • Employee membership of private sector defined benefit (as opposed to defined contribution) pension schemes fell from 34 per cent in 1997 to 11 per cent in 2010; they are being close. Source: http://www.statistics.gov.uk/hub/economy/personal-finances/pensions

5. Background Research As Private sector funds close and no new money comes in, trustees need to focus on having enough money to pay out until the last pensioner dies Pensions Trusteeship Other research questions could focus on the difference between public sector and private sector board member interaction; the topics being discussed at board meetings; or the appropriateness of the trustee model based on outcomes (years) after board decisions are taken.

6. Background Research What is Trusteeship: a summary Pensions Trusteeship • Sheep: return property of same number and in good health • Laws: Trust laws, Pensions Acts: 1/3 Member Nominated Trustees • Regulation: tPR guidance, K&U, data, turn around times • Careers: portfolios of Chairs and committees • Honorary and esteem • Board/Panel/Committee membership vs attendance

7. Background Research Roles on the Trustee Board? Pensions Trusteeship Constitution CHAIRMAN Chair of Investment Committee Chair of Audit Committee Trustees Chair of Performance Committee Chair of Remuneration Committee Company Nominated Trustees Member Nominated Trustees Secretary to The Board of Trustees Boarc HR Investment Advisor(s) Paid Advisors Executive Admin/ Finance Actuary Investment Legal Advisor CEO/Head of Pensions

8. Background Research The Pensions Regulator expects each trustee to have taken the Toolkit within 6 months to demonstrate ‘knowledge and understanding’. Pensions Trusteeship

9. Background Research The Research Plan Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps • The plan goes from Oct 2010 out to 2014 • Effort is in ensuring the data gathering method is monitored and administered • Writing up is an on-going activity • The plan will develop as the methods become more familiar and the recruits are on-boarded • This is a three year data gathering exercise • Qualitative longitudinal study with quantitative assistance from Expert Choice decision making software

10. Background Research The Literature Review Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps • Areas covered • Stewardship Theory • Agency Theory • Governance: Corporate and Pensions, institutions • Board behaviour • Trustees (Pensions) • Decision making: group and individual; groupthink • Group dynamics: in & out-group • Sense making • Organisational Learning etc • Knowledge and thinking • Embeddedness • Influence • Key Papers/Books from: • Stiles & Taylor, Davis, Shoorman & Donaldson • Meckling & Jensen, Sappington • Keith Ambachtsheer, Fiona Stewart and Juan Yermo. Thomas Clarke, J Solomon, B Garratt • Kakabadse(s), R Pozen, J Miller, A Strauss • Gordon Clark, Johanna Weststar and Anil Verma,Hendrik P. van Dalen et al, O Mitchell • Robert Tattersall, Irving Janis, Roger J. Volkema and Ronald H. Gorman • Milch et al, Ryan and Bogart, Castano et al • Kurtz & Snowdon, M Reis Louis • Herbert Simon, Chris Agyris • Karl Popper, Ayn Rand • Brian Uzzi, Mark Granovetter • Edgar H Schein KEY LEARNING: downloading lots of ‘stuff’ gave an illusion of progress but focus should have been on previous research in pensions arena to help inform the methodology and choices of methods to use rather than information to help analyse the data yet to be gathered.

11. Background Research Eventually the Literature Gap emerged as a method gap and lack of differentiation in trustee population when ‘testing’ them Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps • Current research studies trustee competence, cognitive skills and decision making but has an investment only focus and is conducted outside of the board room and ‘tested’ • Also assumes a trustee is ‘oven ready’ and does not differentiate between fresher trustees and career trustees • I will study the participant’s journey as a new and developing trustee in their natural setting, without influencing/directing their thinking and hence their journey within the frame • Researching what is the perception of the new trustee of their own journey, what actually happens as ‘stewardship in action’ and also compare this experience to the literature which cites a version of what should happen • Key question – how to determine the frame within which a Trustee’s character is developed

12. Background Research Methodology: this gap, and the constraint of time, influenced the interlinked research design Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps Today MPhil to PhD conversion 2010 2011 2013 2012 Q4 Q1 Q2 Q4 Q1 Q2 Q4 Q1 Q2 Q3 Q3 Q3/Q4 Literature Review Frame Analysis Wide Search: Governance Previous research Relevance to Node-coding Meths PhD Website Explore tools: nVivo, End Note, Livescribe, Expert Choice Devices KCL Training Expert opinion on the frame: Triage/check Quantitative Qualitative Personally observing the frame in action Longitudinal Study: capture the experience of a brand new trustee Serendipity: Networking for recruitment

13. Background Research Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps Methods: where 3 methods, possibly another 2, use data from one method to inform the basis of the next method and then continues in parallel 2011 2012 2013 Today Quantitative 25x Elite interviews B Qualitative 5x Board observations C New Trustee Concluding Interview 9xNew Trustee narratives via emails for 2 years 1 2 3 4 5 6 7 8 A Participant focus session

14. Background Research The Research Methodology was built around when Board meetings happen Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps Interview/voted in M1 2 hours+ to 2 days Gap 3 months M2 M3 Before During After Before During After Papers Form preliminary views/ decision Potential contribution Presentations Interaction Conversation Voting ‘Training’ NA Their realised personal outcome Work-day job Conferences Meetings Magazines News Trustee K&U at 6 month point New Trustee Induction?? Knowledge Sense making Knowledge Learning Under/over socialised Motivation Intent Embeddedness In Group Out Group Group Think Sense making Decision making Boardroom behaviours Institutional norms Empirical, qualitative, longitudinal study, Grounded Theory, naturalistic, compared to Normative

15. Background Research The participants in the 3 methods come from the following board roles Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps CHAIRMAN Chair of Investment Committee Chair of Audit Committee 6/9 of Method 1 New Trustee emailers Trustees 3/9 of Method 1 New Trustee emailers Chair of Performance Committee Chair of Remuneration Committee Company Nominated Trustees Member Nominated Trustees Secretary to The Board of Trustees Boarc HR Investment Advisor(s) Paid Advisors Method 3 Board Observations Method 2 Elite Interviewees Executive Admin/ Finance Actuary Others Investment Legal Advisor Recruiters Journalists Authors CEO/Head of Pensions

16. Background Research Frame Analysis is: Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps • "I assume that definitions of a situation are built up in accordance with principals of organization which govern events […] and our subjective involvement in them; frame is the word I use to refer to such of these basic elements as I am able to identify.“ (Goffman1974) • "Frames are principles of selection, emphasis and presentation composed of little tacit theories about what exists, what happens, and what matters.“ (Gitlin 1980) • frames are basic cognitive structures which guide the perception and representation of reality • which parts of reality become noticed? • what are the behavioral effects of different framings? • what frames does the participant articulate and what framing is going on (eg journalists frame to deceive an audience)? • Goffman, Erving. 1974. Frame Analysis: An Essay on the Organization of Experience. New York, NY et al.: Harper & Row. • Gitlin, Todd. 1980. The Whole World Is Watching: Mass Media in the Making and Unmaking of the New Left. Berkeley, CA, Los Angeles, CA & London, U.K.: University of California Press.

17. Background Research Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps Frame Analysis based on a horizontal and vertical analysis of the data Time in Quarters 1 2 3 4 5 6 7 8 1 New Trustee Participant 2 3 4 5 6 7 8 9

18. Background Research Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps New Trustee narrative (Method 1) is be coded and Expert Choice will be used as the tool in the Elite Interviews (Method 2) to compare the importance of the criteria which are articulating the frame Illustrative screen shots of Elite Interview tool taken from Expert Choice Figure 1 Narrative Analysis – major categories

19. Background Research Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps Each of the 3 areas influencing the frame of the Trustee have criteria important to their execution Figure 2 Subcategories from analysis of new trustee submissions: pre-meeting activity

20. Background Research Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps Expert Choice drives the Elite interview. The Elite is asked to compare pairs to determine importance; the Elites will also be asked to provide their own list for pairwise comparison. Meaning the new trustee defined pairs are asked of all Elites but the data is triaged with the Elites’ version of ‘characteristics’ and framing. Figure 5 Each (sub)category compared in pairs

21. Background Research Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps The Expert Choice table is now complete, all pairs compared, each Elite response is added and averaged to get the cohorts’ view and the output is used, along with the additional new trustee narratives for board observations Figure 6 Completed (illustrative) Pair-wise Comparison

22. Background Research Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps Expert Choice also produces graphical representation of the data. Figure 12 Example of various types of data displays from Expert Choice

23. Background Research Finally, the research is currently….. Plan Lit Review Methodology & Methods Frame Analysis Tool Next Steps • Just received the 2nd of 2 Ethics Committeee approvals for how the Board Observations are to be executed. Note: everyone at the Board Meeting must sign a consent form meaning about 10-20 forms per meeting • Booking the Elites chosen from serendipity encounters (another Ethics form), networking, personal contacts. Start end of April to do about 30 by end of 2012 • Run one rehearsal/pilot on the Expert Choice Elite interview process • Start assessing which boards may allow access to being observed to complete the triage of data. Finish these by middle of 2013 • Write up remaining findings

24. Questions?