Governance Spotlight: MNT arrangements

Introduction

Welcome to the first in our new series of newsletters from the Sackers’ Governance Team, taking a fresh look at scheme governance in practice.

A trustee board made up of individuals with the right skill set is a fundamental pillar to good governance. Here, we look at steps you can take in designing and implementing MNT arrangements, as part of a robust and workable governance framework.

Reviewing MNT arrangements

Trustees should undertake a review at least every three to five years.
A change in the scheme’s membership or circumstances could trigger the need for an earlier review.
You might, for example, consider bringing deferred members into the process where your scheme has closed to future accrual. In addition, a scheme merger might have materially changed the scheme’s membership profile.
Seeking out the right candidates for the job is key.

Nomination

Transparency of expectations can improve the outcome of MNT arrangements.
Be clear about the skills you want candidates to bring to the table. These may be:

“hard” skills – such as experience in financial or investment matters; or
“soft” skills – nominees could be asked to provide evidence of teamwork, negotiation skills, or how they would handle member issues.

Offering training about the role and the commitment it requires can generate real enthusiasm. Likewise, it can also help those who are unsure about becoming MNTs to make up their minds.

Selection process

Aim to distil nominees into a group that has the potential to add value to the trustee board.
Schemes must hold a ‘selection process’ in which at least some of the scheme members participate. But this is flexible – the process could be a ballot of scheme members, the use of a selection panel, or a combination.
Ballots might be appropriate where the membership is cohesive and nominees are well-known in the sponsor’s organisation. But is the winner of the ‘popular vote’ necessarily the right MNT?
Sifting nominations to put to ballot only suitable candidates can achieve the best of both worlds.
The removal of an MNT requires the agreement of all the other trustees – another reason to ensure you get the ‘right’ people on board.

Selection panels

We have seen an increasing use of selection panels, a reflection of the role they have to play in ensuring candidates with the right skills are selected.
The panel can draw out responses to tailored questions relevant to the trustee board’s aspirations.
Desktop reviews work. But we see many larger schemes favouring the interviewing of nominees to test their written answers.
The structure of the panel is crucial – the law requires it to be fair, transparent and proportionate. It is also important that the panel is structured to gain the trust of the scheme’s members.
Drawing up terms of reference can meet these objectives. These can also address issues like managing conflicts and voting processes.
Think about who the panel members should be. The involvement of an independent voice can bring objectivity and build member confidence.

New MNTs

Remember that new MNTs have up to six months to ‘get up to speed’ with their Trustee Knowledge and Understanding obligations.
Building a ‘new MNTs’ training programme will help successful candidates to add value quickly.
Short, topical training slots at trustee meetings can supplement the programme.

Look to the future

Keeping an eye on the future pays dividends.
You can structure an MNT process which creates a ‘reserve list’ from
nominees to fill vacancies that arise.
The law leaves open the possibility of schemes being required to have 50% (up from the current one-third) MNTs. A recent DWP report suggests that there is broad support for this move amongst scheme members, but less so with employers. We are watching for any movement on this from the Coalition Government.

How we can help

As well as advising on the law, we can bring our in-depth experience to bear in:

leading or helping you to develop briefing sessions for nominees;
developing the right questions to put to candidates;
drawing up selection panel terms of reference;
sitting on your selection panel, to guide panel members and bring an independent view;
developing and delivering MNT specific training.