Diageo Pension Scheme has scrapped the time limit on the service of its member-nominated directors to avoid a talent drain, as schemes balance members’ democratic rights with continuity in decision-making.
The scheme said the decision was made following a number of director retirements and new appointments in the past couple of years. This was coupled with the time it takes trustees to build their understanding of the scheme.
“The trustee board believes this change will best serve members’ interests by allowing maximum flexibility in the retention and development of directors, and by helping to avoid the loss of much-valued expertise,” the scheme told members in its latest trustee review.
Diageo MNDs, together with their employer-appointed counterparts, will still need to be reappointed by the trustee board every three years.
The Association of Member-Nominated Trustees said it supported longer durations for member-nominated trustees to help them get up to speed.
Co-chair Barry Parr said it took defined benefit trustees three years, and defined contribution trustees more than 12 months, to see “the whole cycle of events” involved in managing a pension scheme.
“That said I do think it’s sensible for all trustees to have a time limit on their tenure – or at least for reconsideration and perhaps reappointment for a future term,” he added. “This applies to employer-appointed as well as member-nominated.”
How to keep the best trustees
The Trades Union Congress said fixed-term elections can “help to protect the democratic voice” of scheme members.
“Upper time limits on office however can be damaging if they prevent trustees who have built up considerable experience and expertise from being able to represent their members’ interests,” said Janet Williamson, its senior policy officer.
Richard Butcher, managing director at Pitmans Trustees, said the usual time limit for an MNT or MND was between three or six years.
Having longer tenures for MNTs “made sense” in terms of the challenging job for lay trustees to get up to speed, especially when trustee boards do not meet frequently, he said.
“On the flipside of that, the idea of having MNTs, the original statutory objective, was to introduce people who could challenge the status quo,” he added.
“They are there to keep the other trustees honest. If you institutionalise MNTs, you may be denying the members a democratic right.”
Schemes concerned about maintaining continuity in their governance through frequent changes to their board should focus on the “strategic objective” of the trustee board as a whole, he added. The scheme declined to comment further on the change.
It is a legal requirement that a third of trustees are appointed through a process involving members, but debate has grown over whether MNTs and MNDs should be elected or selected for their posts.
