King IV Sector Supplements - Public Commenting

Transcription

1 King IV Sector Supplements - Public Commenting Filled Monday, July 11, 2016 Page 1 Welcome to the official King IV Sector Supplement public commenting platform. After you have downloaded and reviewed the draft King IV Sector Supplements here [if this link does not open, please copy and paste the following into your browser: [ you will be able to enter your comments using this platform. This is the second phase of the public commentary process. Phase one invited comment on the whole of the King IV Report, bar the Sector Supplements. This platform will remain open in respect of phase 2 for two months from 11 May 2016 to 11 July 2016 Commenting terms and conditionsplease note that this process is open and transparent. All comments submitted will be available for public view at and NO anonymous comments are permitted. Comments received are added to the library for public viewing weekly together with the identity of the individual or organisation on behalf of whom the submission is made. Only comments submitted through this platform will be considered for the finalisation of the King IV Report. Do you agree to the King IV commenting terms and conditions? Yes

2 Page 2 Personal Details Section: *Title: Mr *First Name: Sandile *Last Name: Maphalala *I am commenting on behalf of: An organisation *Name of organisation: Liberty Group Limited *Capacity within organisation: Senior Legal Consultant

3 Page 3 INTRODUCTION TO SUPPLEMENTS INTRODUCTION TO SUPPLEMENTS Add your comments on the Introduction to Supplements here: SUPPLEMENT FOR MUNICIPALITIES SUPPLEMENT FOR MUNICIPALITIES Add your comments on the Supplement for Municipalities here: SUPPLEMENT FOR NON-PROFIT ORGANISATIONS SUPPLEMENT FOR NON-PROFIT ORGANISATIONS Add your comments on the Supplement for Non-Profit Organisations here: SUPPLEMENT FOR RETIREMENT FUNDS SUPPLEMENT FOR RETIREMENT FUNDS Add your comments on the Supplement for Retirement Funds here: 1. General We have focused primarily on the Retirement Fund Supplement (RFS) to the draft King IV Report as many of the principles in the latter report were incorporated in the RFS and further customised to make them fit for purpose. It must be noted, however, that most, if not all, of the principles in the

4 RFS are already codified in existing legislation (most notably the Pension Funds Act) and Circular PF130 issued by the FSB and are well known in the retirement fund industry. It therefore begs the question as to the value-add of the RFS to the retirement fund industry in general, and boards of trustees, retirement funds and service providers in particular and what new or different principles (i.e. other than those that are already known) are being introduced by the RFS. Of course, if the purpose of the RFS is to merely reinforce or reiterate existing principles of good fund governance, then that is a different debate altogether. Perhaps it would have been better if, for each of the principles in the RFS, there was a cross-reference to similar provisions in existing legislation and Circular PF130, as opposed to rehashing the same principles, and then emphasize only new or different principles of good fund governance. Based on the principles set out in the RFS, we have difficulty understanding the rationale behind elevating these principles when considered in the context of good fund governance principles that already exist. Does the RFS either want to stress the importance of these principles or are there concerns around the implementation, management and oversight of these principles in the current environment that would warrant such elevation? Is the RFS just another document that the retirement fund industry would need to align itself with? 2. Introduction - We understand that the term investee companies comes from CRISA, but perhaps it should be defined (or alternatively clarified) also in the RFS. - Replace the term investee companies in the second sentence with service providers. - Hold investee companies accountable Realistically how would this work, particularly in the scenario where a fund holds a miniscule portion of an entity? - Include private fund administrators in the first sentence they play an important role in the retirement fund industry. - On paragraph 1, the following is stated: Retirement Funds furthermore carry fiduciary duties to their ultimate beneficiaries This statement is not entirely accurate. Only the Board of Management of a retirement fund carries fiduciary duties and not a retirement fund as an entity. This is in appreciation of the fact that the term retirement fund is not defined, and may include other stakeholders

5 3. CRISA - Why only mention CRISA? The RFS seems to focus very much on fund investments but should have a broader scope. It should, for example, extend to those issues already covered in Circular PF130, directives and other practice notes issued by the FSB and also deal with the fit and proper and educational and training requirements for trustees as provided for in the Pension Funds Act. However, the RFS should not duplicate what already exists as far as good fund governance is concerned, as stated. 4. Role of the Board - The duties of the Board are set out in the Act. However, some of the duties included under this paragraph appear to be an addition to the duties prescribed by the Act. Will this not necessitate amendments to the Act itself? In the event of conflict between the already prescribed duties and the duties introduced under this paragraph, which one will take precedent between the two? 5. Board Composition - While the independence of trustees is something that is highly recommended, the Act does not at this stage refer to independent trustees or define the term independence in the context of retirement fund trustees, neither is the term independent defined in this supplement. - With regard to professional development and learning, some of the challenges that is delaying the finalization of trustee training at this stage includes the following: the costs, the lack of guarantee that once trained, a trustee will be elected to the position, the right of members to elect 50% of the Board members, and the fact that once a trustee has left office and the Fund has spent money for such training, such trustee will not be able to utilize the skills acquired after vacating office 6. Terminology - The term Board should be defined as the board of a fund as defined in the Pension Funds Act since the term trustee is not defined in the Act. For the same reason the words of trustees after the word board should be removed throughout the RFS. Rather refer to trustees in their

6 personal capacity in the same way that directors are referred to as such in the Companies Act 2008 and the main King IV draft document. Applying the practices in the Code to retirement funds - The term 'stakeholder' to be in line with the definition stakeholder in the Pension Funds Act 7. Leadership, ethics and corporate citizenship - The corporate citizenship aspect is already covered in CRISA, Regulation 28 to the Pension Funds Act and elsewhere and should thus be removed. We cannot ignore the primary purpose of a retirement fund. 8. Scope - The code s application is limited to pension funds, provident funds, preservation funds and retirement annuity funds. What about beneficiary funds, umbrella funds, collective bargaining funds, unclaimed benefit funds, etc. What about service providers to retirement funds, such as administrators, etc. - Tax Act, 1962 to as defined in the Income Tax Act, All the funds mentioned (with the exclusion of the GEPF and other government or parastatal funds) are governed by the Pension Funds Act and related regulations, board notices and practice notes which cover many of the principles of King IV and the RFS. The GEPF would presumably be affected at a greater level. As stated, perhaps the RFS should just refer back to the legislation, board notices etc. rather than restating the same principles of good fund governance. - Next to preservation funds state in brackets including beneficiary funds and unclaimed benefit funds. 9. Applying the practices in the Code to retirement funds - As stated, some of the practices are already covered in existing legislation, Circular PF130 and other FSB practice notes and thus we are of the view that where duplication exists in the RFS it should be removed. (See also the comments above).

7 - Principle 1.1 Delete the reference to fund administrator in the third paragraph. It is unlikely that a fund administrator (i.e. a benefit administrator) would be involved with investment analyses and practices on a day-to-day basis, unless the administrator has been approved by the FSB also to do investment administration. - Principle 1.3 In terms of Circular PF130 corporate citizenship for a retirement fund is more narrowly understood in the context of socially responsible investments (SRI). Retirement funds should not be held accountable for a broader mandate of corporate citizenship as understood in CRISA. - Principle 2.2 It is impractical to expect retirement funds to comply with Principle 5 of CRISA (which requires inter alia regular engagement with investee companies ) as it would be too onerous, particularly if they have offshore investments or where the assets of the fund are invested in pooled portfolios. - Principle 3.2 With regard to the independence of trustees, we can think of 3 examples where complete independence of trustees may not be appropriate: - In a DB environment; - In an employer sponsored fund; - Where the employer needs to be consulted about the implications of affordability. - Principle 3.2 Those trustees should not be involved in the employer s decisions vis-à-vis the fund. Arguably this could preclude senior staff of the employer, such as HR and Finance managers who typically establish the rules for engagement with the fund, from serving as trustees on the board of the fund. - Principle 3.2 The paragraph starting with Even though the election. The statement should extend beyond just employers and sponsors to include unions. It is a basic principle of pension law that trustees are elected or appointed to the board of a fund to represent the interests of the FUND as a whole, rather than the interests of the constituency that appointed or elected them to the board. - Principle 3.2 The requirement that half of the board should comprise of independent trustees. This would increase the costs to retirement funds (particularly small employer sponsored standalone funds) and may not necessarily add value to funds, particularly in the three scenarios outlined above. Also see additional comments on the independence of trustees above.

8 - As stated, many of the principles covered under Chapter 3 are already covered in relevant legislation and Circular PF130. Is this not duplication that could lead to confusion? - Principle 3.4 Principal Officer. These aspects are already covered in the Pension Funds Act, Directive 5 and other practice notes issued by the FSB. Again, is this not duplication? 10. Governing structures & delegation - Page 6 last paragraph, before the section that deals with performance evaluations Remove the sentence It should not be interpreted that the principal officer is excluded from responsibility towards the fund and replace with what he does do and is accountable for. Incidentally, the BATSETA is of the view that the principal officer is equivalent to a company CEO! We need alignment here. Perhaps the entire paragraph should be reviewed and rewritten. - Principle 3.2: while ensuring the balance of skills in the Board s composition, this is not always guaranteed in respect of retirement funds where members have a right to elect at least 50% of Board members. It will be easy to achieve this particular objective in respect of commercial funds such as umbrella funds, retirement annuity funds, etc. - Principle 3.3: while creating additional governing structures is critical in ensuring efficient governance, it might have financial implications for smaller funds. It is common practice for umbrella or commercial funds to establish the additional governance structures, but for small standalone funds, this is not always advisable. - Principle 3.4: it is not clear who executive management is that the Board has to delegate some of its responsibilities to. It would help if we can get clarity on this point. 11. Board composition - While the independence of trustees is something that is highly recommended, the Act does not at this stage refer to independent trustees or define the term independence in the context of retirement fund trustees, neither is the term independent defined in this supplement. - With regard to professional development and learning, some of the challenges that is delaying the finalization of trustee training at this stage includes the following: the costs, the lack of guarantee that once trained, a trustee will be elected to the position, the right of members to elect 50% of the

9 Board members, and the fact that once a trustee has left office and the Fund has spent money for such training, such trustee will not be able to utilize the skills acquired after vacating office. SUPPLEMENT FOR SMALL AND MEDIUM ENTERPRISES SUPPLEMENT FOR SMALL AND MEDIUM ENTERPRISES Add your comments on the Supplement for Small and Medium Enterprises here: SUPPLEMENT FOR STATE-OWNED ENTITIES SUPPLEMENT FOR STATE-OWNED ENTITIES Add your comments on the Supplement for State-Owned Entities here: SURVEY QUESTIONS SURVEY QUESTIONS How much do you agree or disagree with the following statements, please give a reason for your answer. You may need to scroll to the right to see all the options, depending on the size of the screen you are using. Please provide comments supporting your rating and suggestions for enhancement. The Sector Supplements provide adequate guidance and explanation of how the recommended practices (No response)

10 in the Code could be customised to meet the situational specifics of the various sectors The supplements illustrate the general approach to the application and interpretation of the Code in such a way that it enables users to formulate their own sound solutions to corporate governance challenges The King IV Sector Supplements connect and reconcile the King IV Code and legislation applicable in the particular sectors (No response) (No response) END Have you added all the comments you would like to add? If not please click on the section you would like to add comments to. Once you have done this you may return to this page and submit your comments.