IM: You joined the board of Cbus Super as chair of the investment committee in 2016. What is the most important factor in ensuring good governance as the fund expands its internal investment capabilities?
Stephen Dunne: There are a number of investment governance factors we are focused on, but one in particular we’ve been paying a lot of attention to lately is ensuring clarity around decision accountability. Being clear who is responsible for making an investment decision, what is needed and expected of the person or team making that decision, and how success will be recognised and over what time period.
As we internalise more investment capability, clarity around investment decision-making grows in importance.
We are clear that the investment committee must own the long-term strategic asset allocation decisions.
In doing so, we engage heavily with CIO Kristian Fok and his team to understand their thoughts and recommendations but, at the end of the day, the investment committee owns the call.
IM: Do you believe offering performance-based pay incentives is an essential development for super funds that want to attract top investment talent?
SD: Not essential, in the sense of being central to the proposition, but it is one necessary element. The reason Cbus has been successful in attracting top investment talent is not because of pay. [People] are moving because of a desire to be able to focus clearly on their craft and to be closer to the end recipient of their success, an attraction to our long-term investment horizon, the desire to be engaged in whole-of-portfolio thinking, and the Cbus culture.
IM: How do you ensure that remuneration incentives are aligned to the cultural values you wish to promote within the organisation?
SD: It is the board’s responsibility to ensure that the overall remuneration structure is aligned to the values of the organisation.
If the firm values collaboration and long-term success, then [an incentive] structure that rewards individual performance measured over short-term periods will be a massive tide against the culture you are trying to promote. Having got the macro structure aligned previously, I have found identifying, rewarding and celebrating role models of the firm’s cultural values a powerful tool. Using a two strikes and you are out approach for those who are not a cultural fit for the firm is equally powerful.
IM: What is your top tip for investment professionals about how to improve the quality of their communication with their board, and investment committee in particular?
Keep it short. If you cannot get your recommendation and rationale across succinctly in a five-page board paper, then you haven’t got your own thinking clear enough.
Having been a chief executive (of AMP Capital for 12 years), what do you think are the hallmarks of a constructive relationship between senior executive management and the board?
SD: Clarity and respect. Clarity of decision-making, respect for the value each group brings to the success of the firm. CEOs and management teams often undervalue their boards, seeing them as a compliance function or a group to keep happy. In my early days as a CEO, I could certainly have been accused of this mindset.
Top CEOs can clearly articulate the skills and competencies of their board and bring these to bear for the firm’s success and be clear about how their team works with the board to fully utilise these skills. Where new skills are needed, voice that view to the chair.
IM: What is the most striking thing you’ve learned through your involvement with the Banking and Finance Oath over the last decade?
SD: The global financial crisis, subsequent actions by central banks, market rebounds, and excessive liquidity provide an environment where many lessons were dished out, and often brutally. But for me, the most important lesson was not with regard to market behaviours but around the importance of connection with the community. The financial services industry plays an incredibly important role in society. Earlier this decade, the industry was shown to have clearly lost sight of that role and subsequently lost the community’s trust. Firms and the people operating in the banking and finance sector need to recognise that they have a duty not just to shareholders and to clients but to the community at large.
IM: In January 2018, you took on a new role as chair of the CFA Societies of Australia Advocacy Council. What do you most want to achieve in this role?
SD: Having worked with many charterholders, I value how the institute seeks to continually strengthen the professional capabilities of its members and instil a solid ethical foundation in the profession. The purpose of the Advocacy Council is to champion ethical behaviour in local markets, promote benchmarks and standards for good market integrity and establish credentials for professional excellence in financial services. We aim to do this by giving charterholders in Australia and New Zealand a voice in shaping the future of the financial markets in a way that serves the community at large. In the short term, the council is advocating for Australian and New Zealander fund managers to sign up to the asset manager code of professional conduct, which encourages the practice of ethical principles that put the interests of clients first.
IM: What do you see as the biggest challenge to improving diversity in the financial services sector?
SD: A significant amount of progress has been made in improving the diversity of workforces in financial services firms.
The financial services boards I am involved with all have workforce diversity on their agenda and I see tangible progress being made, with changed recruitment practices and successful flexible work arrangements being embraced and replicated. The next big challenge is promoting inclusion to get the benefit from a diverse workplace. Quite a number of years ago, a colleague introduced me to a book, The Loudest Duck by Laura Liswood, which discusses how we can embrace differences to get the most out of diverse teams. I remember when I had Laura come to speak to my management team and we were discussing the saying
‘the squeaky wheel gets the grease’. My Japanese and Chinese colleagues had never heard of that saying but had heard of the saying the ‘the loudest duck gets shot!’
This highlighted to me that peoples’ different gender, cultural heritage and upbringing brings different insights and ways of working that are all valuable. Leaders need to develop their capability not only to recognise the differences people bring to the table but also how to tap into those differences.
IM: Do you believe it would be an improvement if super fund boards were required to appoint independent directors to at least one-third of their board positions?
SD: No. It is arbitrary. The most important question to ask of super boards is do they have the set of competencies needed to steer their super fund into the future. Where needs are identified, boards need to support the chair and nominations committee in seeking out individuals who will complement other directors’ skills. This is what competent boards do and what members expect.