“The Experience of FNPF : Recent Lessons in Corporate Governance”AISAKE TAITO ACTING GENERAL MANAGER & CHIEF EXECUTIVE FIJI NATIONAL PROVIDENT FUND SATURDAY - 29th SEPTEMBER 2007
“The Experience of FNPF : Recent Lessons in Corporate Governance”
AISAKE TAITO ACTING GENERAL MANAGER & CHIEF EXECUTIVE FIJI NATIONAL PROVIDENT FUND SATURDAY - 29th SEPTEMBER 2007
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FNPF BACKGROUND
Established in August 1966: FNPF Act (Cap 219) Compulsory Contribution Savings Scheme Core Business: Contribution Collection, Investment and Pension/Member Benefits Payout Key Stakeholders: FNPF Contributors (Members), over 340,000 at June 2007 Mission: To provide social security & financial services to all its Members.
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RESPONSIBILITY TO STAKEHOLDERS
Exercise Sound Management & Prudent Investment Policies Practice Responsible Stewardship Be Good Corporate Citizen Practice Ethical Standards – (Transparency) Provide Quality & Efficient services
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SIZE & ROLE TO THE ECONOMY
SIZE & ROLE TO THE ECONOMY FNPF SIZE: Total Assets, Over $3.3 Billion AN ACTIVE PLAYER IN FIJI’S ECONOMY: The largest single Non Bank Financial Institution (NBFI) in Fiji’s financial system Accounts for about 40% of Fiji’s financial sector Helps finance major projects and other business activities Due to its size & role in the economy - the safety of the Fund cannot be compromised.
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FNPF GOVERNANCE ISSUES
Lack of expertise in technical areas (Investments, Internal Audit, Risk Management, Asset & Liability and Actuarial) Participation of Board Members in subsidiaries and outside Boards Risk appetite for the Fund is not determined upfront Thresholds for the type and significance of issues not established to the attention of the Board
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FNPF GOVERNANCE ISSUES
Assessment against responsibilities and performance by independent entity Lack of appropriate policies and procedures Lack of Due Diligence on Investment projects Conflicts of Interest Lack of quality in the information provided
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
Corporate Governance Policies: Fund to use the ‘governance by policy’ approach Developed policies for Board and all key functions On-going processes for policy development and review Mandatory review of the governance policy in 2008 Code of Conduct To Establish Code of Conduct for Board, Management and Staff Conflict of Interest Declarations of interest by Board, Management and Staff
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
Awareness Training Conducted induction training for Board Members Conducted corporate governance workshops for Board, Management & Staff Strengthening of Critical Functional Areas: Staffing in the Internal Audit, ERM have been beefed up to enhance the Fund’s oversight mandate Establishment of a Compliance Function Resources directed to the Investment Unit for capacity building The FNPF aims to develop capabilities and identify opportunities that protect and create value for members, thereby promoting an efficient and effective organisation. Change Management: Expected to compliment good governance within the Fund by changing the work culture and employees’ mindsets/attitudes Business Process Re-engineering
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
Establishment of Board Committees (with Charters) Audit Committee (Internal Audit reports directly to this Committee) Risk Committee (ERM reports go to this Committee) Investment Committee (Review all investment proposals before the main Board) Human Resources Committee (Assists the Board in reviewing all HR Policy matters before taking to Board) ALCOA Committee (Yet to be established)
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
Sound Management & Prudent Investment Policies Amendment to the FNPF Act in 2005, under Section 7 ‘Prudent person test’ allows Board to consider more diversified range of investments and all criteria to be strictly adhered to Primary objective is to maximize long-term investment returns Prudent Person Test – 13 Steps Purposes of the Fund and the needs and circumstances of the members of the Fund Diversifying the investments of the Fund Nature of existing funds investments Need to maintain the real value of the capital or income of the Fund Risk or loss of depreciation of capital or income
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
Potential for capital appreciation Likely income return and timing of the proposed investment Length of the term of the proposed investment Liquidity and marketability of the proposed investment Aggregate value of the Fund Likelihood of inflation affecting the value of the proposed investment or other Fund investments Costs in respect of making proposed investment including commissions, fees, charges and duties Must be weighed against the outcome of existing Fund investments.
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
Review Investment policies by November 2007 Investment Policy Statement (defines the Fund’s overall investment strategy) Investment Properties Policy Commercial Loans Policy Fixed Income Policy Equity Policy
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ERM framework being established Focus is for risk management to be an integral part of operations Development of Risk Register, Risk Management Policy and Guidelines Development of a Risk Management Process document outlining views of management team ENTERPRISE RISK MANAGEMENT
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
RISK IDENTIFICATION Total of 27 risks , 12 rated as high and 15 rated as medium – low RISK ALLOCATION Assignment of key risks to Risk Owners Identification/training of Risk Champions RISK ASSESSMENT Likelihood of identified risks and the magnitude of their impact assessed ERM –FNPF MODEL
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
RISK MITIGATION Identification/development of Risk Control Plans by Risk Owners Deadline given to draw up risk action plans Continued follow-ups and Monitoring of Action Plans Appointment of Risk Mentors to assist Risk Champions in monitoring Operational Risks Public Awareness Weekly/fortnightly articles on Risk Management and Corporate Governance. ERM –FNPF MODEL
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BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
Creation of a risk conscious culture across the Fund Promotes a proactive rather than reactive approach On-going management of risks at the business unit level Identification of Residual Risks that require Business Continuity/Crisis Management ERM –EXPECTED OUTCOME
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LESSONS LEARNED
Corporate Governance goes beyond mere compliance, it is not a simple matter of creating checks and balance. It is a continuous process of realising FNPF objectives with a view to making the most of every opportunity. It involves leveraging FNPF resources and aligning its activity to members needs, stakeholders benefit and employers growth. All in all its about basic honesty, being accountable and transparent
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CONCLUSION
Corporate Governance is an on-going journey. At FNPF, the Board and Management are committed to serving as a force for integrity, accountability and prudent solutions to the governance issues facing the Fund today. Transparency and good standards of corporate governance — both in our Members affairs and in our own — are central to our values.
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