Master trust Nest is in the process of developing a member assembly as a way of bringing its members into the boardroom.
To do this, the pension scheme is embracing a form of governance called ‘deliberative democracy’.
Paul Todd, chief operating officer of Nest Invest, explained more about how he and his colleagues are trying to bring the amorphous phrase, ‘members’ best interests’, to life, during a session at the Pensions UK Investment Conference.
He said: “We have always felt it was important to bring members into the boardroom. The big challenge is how do you do that effectively? Our membership is drawn from across the country, all sorts of different workplaces and industries. Trying to get a handle on that and not just invest in a generic way that doesn’t try to see where the differences are is really important.
“Trusteeship is a more distant form of governance, and in my opinion, that’s a problem when you are talking about $69trn across the OECD being invested on behalf of members.”
Dr Emmeline Cooper, Cranfield University
“We have used a lot of socioeconomic data, focus groups and surveys – and all that has been helpful in the trustee stepping through what they are trying to achieve – but we have always found that quite unsatisfying. There is a risk you may get captured by certain groups who have a particular axe to grind, which is perfectly legitimate, but is it representative of all of your membership?”
In search of better ideas, Todd met Dr Emmeline Cooper, a senior research fellow and lecturer in sustainability strategy, entrepreneurship and sustainability at Cranfield University, at an international conference. She was presenting on the deliberative democracy work she had done with a Dutch pension scheme.
“It was one of those moments of: ‘Oh, this is the kind of thing we want’,” recollected Todd.
Cooper believes trusteeship has its limitations as a model. “There is ambiguity, because trustees in different pension schemes are taking different interpretations of their duties and what they’re allowed to do on behalf of others in their best interests,” she told delegates. “In variety, there is ambiguity.”
She added: “Trusteeship is a more distant form of governance, and in my opinion, that’s a problem when you are talking about $69trn across the OECD being invested on behalf of members.”
Setting the compass
Since then, Nest has worked with Cooper and others to convene the most representative group of members possible, to discuss and debunk some complex investment issues. This will inform how Nest invests and uses its ownership rights.
Over the course of two weekend meetings, in Manchester and London, Nest, Cooper and Irenie Ekkeshis, co-founder and director of the New Citizen Project, brought together two representative groups and discussed a range of issues, such as climate change, defence and housing.
“This is not about replacing trustees or fiduciary duty – this is about adding to it.”
Paul Todd, Nest
Todd reflected: “It feels quite humbling hearing people talk about their lives and what’s important to them, but also how impressive people can be if you give them enough time and space to answer complex questions.”
Cooper said: “We know in our daily lives, people handle trade-offs all the time. And as we’ve shown with the Nest Assembly and other pension funds [that are seeking] member dialogue, people are perfectly capable of making these value judgements.
“That’s where deliberative democracy comes in. Just as we trust juries with people’s lives, you can trust people to make important decisions about investment, and that can feed into trustee decision-making.”
There is much discussion about whether Nest should be doing this, Todd said. He clarified: “This is not about replacing trustees or fiduciary duty – this is about adding to it.”
Irenie Ekkeshis added: “Deliberation isn’t about replacing the expertise that exists in this sector – it is about helping to set the compass going forward.”
