In the past, I’ve argued that pension fund boards in the United States have to be smaller. As I see it, putting thirteen or more board members – all of whom represent a variety of different stakeholders – around a table and asking them to do anything other than rubber stamp is foolish. It’s just asking for dysfunction and institutional sclerosis. And yet, there are funds with Boards that are this big, and that’s problematic.
The geography of finance and investment is rapidly changing, which means that yesterday’s successful strategy may suddenly stop working tomorrow. So Boards have to be dynamic and responsive, which means they have to be small.
Consider the following excerpt from the book “Insanely Simple: The Obsession That Drives Apple’s Success” (ht Cathleen Rittereiser). This is how Apple (i.e., Steve Jobs) handled the problem of decision-making in groups:
“Start with small groups of smart people–and keep them small. Every time the body count goes higher, you’re simply inviting complexity to take a seat at the table.... Everyone in the room should be there for a reason. There’s no such thing as a ‘mercy invitation’. Either you’re critical to the meeting or you’re not. It’s nothing personal, just business... Most people know from experience that the fastest way to lose focus, squander valuable time, and water down great ideas is to entrust them to a larger group. Just as we know that there is equal danger in putting ideas at the mercy of a large group of approvers.”
That’s a lovely, real-world example of why I’m bent on keeping pension Boards small. As I see it, finance and investment is just as competitive (and nearly as technical) as what Apple is doing. So why not follow their lead in terms of process? You could do far worse in terms of role models.
...and while we’re talking about Apple, I think I should take this a step further. It’s equally important to have a strong and decisive leader at the helm of the Board or committee. You think this is obvious given the example above of Steve Jobs, but I promise you...this is not obvious when you get into the guts of most public pension and sovereign funds. And yet, research again shows that strong leadership is critical to a well-functioning pension fund Board (and even more critical than for a company in fact!).
So let’s recap: When it comes to pension and sovereign fund Boards or investment committees, keep them small and put someone very smart, responsive and decisive in charge.
