REPUTATION MATTERS FOR PENSION TRUSTEES Issue 1 2011
Content Introduction 3 Managing Relationships with the Sponsor in a Bid Period
4
John Adshead, OBE Why Trustees Use PR advisers 6 Charles Amos Pension Scheme reputation management 8 Anthony Hilton Why trustees should spend (at least a little) time thinking about PR
10
Mark Cobley
Communicating with pension fund members 12 Matt Gore Delivering internal communications – a case study of USS
14
MHP is a top ten UK PR company and the leading PR adviser to UK Defined Benefit pension schemes. By value MHP advises some 10% of total Defined Benefit schemes in the UK, including four of the top twenty-five schemes – USS, Royal Mail, Barclays and ICI. Formed last year from the merger of Hogarth, Penrose and Mandate, MHP topped the 2011 Reputation Online/New Media Age’s agencies league table.
2
Welcome Nick Denton Managing Director Pension Advisory and Investor Services, MHP Welcome to the inaugural issue of Reputation Matters for Pension Trustees. This issue includes a range of contributions which we hope you will find of interest and use when considering how to manage external reputation and communications matters for your scheme. John Adshead provides guidelines on how trustees should work with sponsoring employer boards during a potential or actual bid. These are based on his own experience as Chair at J Sainsbury’s pension scheme over many years including the period when Sainsbury’s faced two putative bids in 2007. Traditionally trustees have been understandably reluctant to use the press as a platform. Charles Amos of ICI Pensions proposes that the media can, in fact, provide the best channel to ensure the trustees’ position is well understood and appreciated externally, especially in the specific context of a takeover bid. Two journalists who know the pension field very well – both are pension trustees - have also produced interesting contributions. Anthony Hilton has written one of his typically authoritative pieces on why and how trustees need to manage the reputation of their scheme in practice; while Mark Cobley of Financial News has produced a heartfelt plea for trustees to engage more with journalists. Matt Gore of Pension Corporation looks at the best way to communicate to scheme members during a buy-out and how this needs to be developed beyond the basics. And there is a case study of how USS has undertaken a detailed communications plan to its 285,000 members and some 400 universities and higher education institutions. We very much hope you enjoy this publication and find it useful. We aim to produce further issues every six months or so. Obviously we’d be delighted to hear your views and to know if there are specific topics you would like covered in future issues. nick.denton@mhpc.com 3
Managing relationships with the sponsor in a bid period A bid period will most likely be tense and
Trustees tend to operate on the basis that for
frantic and it may be difficult to establish, if
most of the time the interests of the company
they don’t already exist, good and effective
and its current and former employees
relationships and channels of communication
who are pension scheme members are
with the sponsor when the trustees and the
reasonably well aligned. A bid situation is
company are under pressure and confidence
one time when they may not be. It is the time
and trust are stretched by the circumstances
when independence of thinking, advice and
of the bid. These important relationships
judgement is truly critical. Good practice
should already be in place - like the scouts,
indicates that the trustees should have
“Be Prepared”.
independent support and advice. It is easy in calmer times to go along with the inherited
As a matter of good governance, the
situation of the company’s auditors, lawyers
trustees,
chair,
and other advisers also serving the pension
should have an agreed and formal right of
scheme. However, this is unlikely to work
access to the senior official who can speak
well when a takeover bid or merger plan has
for the company on pension matters (above
been launched and separate advisers should
the Pensions Manager). This may be the HR
be in place before a bid occurs.
particularly
the
trustee
director or, more often these days, the CFO or the Treasurer.
A key consideration for the trustees facing a bid is the potential change in the strength
However, a bid makes things rather more
of the sponsor’s covenant. The bidders
difficult and these company officials will
may be contemplating restructuring and/
almost certainly be dealing with the bid.
or re-financing the business. Attempting to
They may favour the proposed ownership
understand fully, once a bid is launched, the
change and, in any case, are likely to
strengths and weaknesses of the current
have different interests from those of the
covenant and how it may change with new
members of pension scheme - they may not
owners is chancing fate for even the best
even be members. The key contact on the
organized and resourced trustee board.
pension implications of a bid and change of
Sponsors may, even in calmer times, be
ownership may be between the trustees and
reluctant to see trustees seeking expensive
the company board through their respective
outside help in understanding and analyzing
chairs. It is desirable for the trustee chair to
the covenant.
have at least met and hopefully established a relationship with the company chair before a bid develops. 4
“Ask us what you want to know and we
for scheme members, for the company and
will tell you” may be their suggestion. And
the bidders, for the Pensions Regulator and
it is always a good idea to get as much
if necessary for the public through the press,
information as possible from the company
a deep understanding of the risks to the
and from published sources.
security of members’ benefit that may follow a change of ownership, and what is needed
However, it is also vital when a bid comes that
to counter those risks.
the trustees have, whether with outside help or not, a well informed and well supported
During a bid, trustees should be bold, decisive
view of the strength of the covenant. This will
and robust in their dealings with the company
be the firm foundation for the trustees’ hard
and the bidders. Communications with the
headed assessment of the bid’s implications
company, the bidders and others should
for the pension scheme.
be timely, clear and if necessary forceful in stating members’ concerns and interests. It
Trustees have few formal powers but the
is easier to be purposeful, independent and
best defence of members’ interests they can
robust if the independence of the trustees
offer, whether or not specialist advisers are
has been firmly established before the bid
engaged, is to be able to articulate clearly
arises.
John Adshead, OBE
Chairman of Sainsbury’s Pension Scheme 1994-2011 Chairman of Vodafone and Segro Pension Schemes
5
Why Trustees Use PR advisers Trustees are constantly being urged to see
For most UK trustees, that employer “put
their mission as like running a business but,
option” is by far their most valuable single
in one key respect, it’s completely different.
economic asset, often underpinning one-
Real businesses need contented customers
third or more of total liabilities. Yet it’s the
and advisers - ideally, more of them - so you
one trustees have least control over. When
can see why companies use PR advisers.
company
But pension fund members are financial
shareholders in radical change (takeovers,
liabilities; trustees don’t need more liabilities,
acquisitions, break-ups etc.), pension funds
or happier liabilities, they just need to be
can easily get ignored.
directors
see
advantages
for
able to discharge them. Why on earth would In theory, trustees might hope that the
trustees need PR advisers?
Pensions Regulator would step in; but in Surely,
practice, unless the employer is a “nice
though, protecting investments is what a
guy” who volunteers for Clearance or is
custodian bank does, or what investment
crude enough to fall foul of Moral Hazard
managers do when avoiding dodgy stocks,
regulations, the Regulator can disappear
or what trustees do when setting asset
for years into the scheme-specific funding
allocation strategy or limits for individual
process and may, even then, emerge with no
managers? Not much need for PR advisers
more cash.
Maybe to protect scheme assets?
there, then? So a free press is often the only natural
6
The answer, as with so much else in pensions,
supporter
of
ordinary
pension
funds
lies in the economics.
Most UK pension
members’ interests capable of responding
schemes are funded on an ongoing basis,
to corporate change at the speed that it
which is a polite way of saying with only
actually happens. Publicity can slow down
around a two-thirds chance of surviving
management who may be intent on ignoring
without needing even more cash than
trustees, particularly where transactions
planned from the employer.
That right to
involve brand names the public recognises.
call on the employer in downside scenarios
Even if management is already set on doing
is very valuable to pension funds (and
the deal, bankers will take a hard-nosed
incredibly expensive to replace); it’s called
interest in anything that spells trouble ahead
an unlimited downside put option.
getting repaid.
Foreign investors may genuinely not realise that pension fund trustees have to put members’ interests first, even if management appointed them. Yet these are complex messages to convey in a hurry; PR advisers can help you find journalists who understand the subject and to explain your own fund’s position clearly and simply in terms that minimise the risk of being misquoted. If the regulatory system could protect members’ interests as quickly as capital markets can sacrifice them, maybe PR advisers would be unnecessary; but, until that happens, more and more trustees are likely to use them.
Charles Amos
Chief Executive ICI Pension Fund Secretariat (This article first appeared in Pensions Week)
7
Pension Scheme reputation management Being attacked in the press is unnerving
they found themselves roundly abused by
for anyone but particularly so for a pension
disgruntled employees and trade unions for
trustee - even when they are used to press
blocking a deal which could have saved their
intrusion in the day job.
jobs.
Trustee work is
technical and sometimes arcane, private, and for the most part unpaid. It is often a
What this underlines is that the interests of
struggle even to engage members, so it is
the pension scheme can be quite different
doubly a shock when interest comes from
from the sponsor, and this gap can become a
outside and is hostile. Trustees know better
yawning chasm at times of corporate activity
than to expect much thanks for what they
like acquisitions or disposals. Perhaps it has
do, but by the same token they don’t expect
always been like that but the difference is
outsiders to put the boot in without warning.
that these days the trustee is expected to do
And when it happens they too often find
something about it. Defending the scheme
themselves trapped in the headlights and
members’ interests can involve taking a
with no idea how to present their side of the
controversial public position, often at very
story.
short notice.
But communication is fast becoming a key
This first surfaced as a public issue when
requirement, at least for the chairman and
David Norgrove, later the Pensions Regulator,
often when it is least expected. One set of
but at the time chair of the Marks & Spencer
trustees were surprised to read in The Times
trustees, went public with his reservations
that they were being blamed for the near
about a highly geared bid proposal from
collapse of negotiations by their scheme
rival retailer Sir Philip Green,
sponsor to sell an under-performing division
distinctly different position from that of
when in fact they were only dimly aware that
the M & S board. Sainsbury trustees were
talks were even
similarly vocal when that company came
underway. It turned out
the private equity buyer was trying to force
taking a
under pressure.
down the price in the negotiations by leaking scare stories about the pension deficit to
But the best PR is not crisis PR, and when
deter rival buyers.
possible it pays not to wait until the item is a headline on the ten o’clock news. Trustees
8
The trustees thought as the story was wrong
of Royal Mail understand this and have for
they did not need to respond to it. This turned
months been conducting a discreet press
out to be a bad mistake. A few months later
briefing campaign to explain what will
the division was closed rather than sold and
happen to the pension scheme if its past
liabilities get taken over by the Government.
Next time it could be different. Next time a
They believe this will put them on the front
private equity house or hedge fund blows up
foot with the press – and through them with
a business, someone surely will ask if it was an
their members who will read the articles - if
appropriate investment for the pension fund.
and when this happens. It is a lesson other
The trustees will need to have an answer and
large funds could usefully learn.
one which satisfies their members as well as the media.
In these cases the trustees are emerging with their reputation enhanced; but it is not always
It is a little appreciated fact, too, that much
like that. While it would be unfair to name
of the money spent by funds on hedging
names there are other deals, particularly
interest rate and inflation risk has been
related
acquisitions
wasted - as funds were duped into believing
where pension trustees should have been
the investment banker’s model. If inflation
more vocal. They have had to endure the
returns they will be much more exposed
discomfort of being blamed for failing – at
than they thought and will again face some
least in the eyes of the media – properly to
probing questions.
to
private
equity
represent their members’ interests. Some of It is not the pension trustees’ fault but
these could easily result in litigation.
in today’s world people have lost faith in Investment strategies can also bring a
authority, so they want transparency, they
backlash.
highly
want answers and they are no longer prepared
geared Southern Cross care homes business
to “trust the experts.” Being a trustee is no
brought a torrent of abuse down on the
longer the private occupation it once was.
head of Blackstone, the private equity group
There are times when the credibility of those
which had put the business together in its
responsible for the fund requires them to
current form. More by luck than judgement
speak out in public. Doing good by stealth
no one looked through Blackstone to find
is no longer enough.
The
struggles
of
the
out the identities of the investors in its funds who were the ultimate beneficiaries of the financial engineering but had they done so they would have found several were pension
Anthony Hilton Financial Editor Evening Standard
funds.
9
Why trustees should spend (at least a little) time thinking about PR It’s fair to say that journalists, like me, and
Traditionally, and for very good reasons, the
PR people don’t always see eye-to-eye. But
only public image that trustees have worried
even I have to admit they sometimes have
about is their image among the scheme’s
their uses.
own membership. Most pension schemes have no financial incentive to seek positive
As a finance journalist covering pensions,
publicity more widely. The trust structure
as well as being a trustee myself, I also
means they do not seek profits; they seek
know they can be particularly useful to the
the best outcome for their members. So
pensions sector.
pension schemes will rarely be pro-active publicity-seekers.
First,
a
disclaimer.
This
article
is
not
necessarily an endorsement of any PR
They
should
certainly
never say anything to journalists that they haven’t already told their members.
agency – I wouldn’t even claim every pension fund needs one.
But there are clearly occasions when the best interests of those members are served
But it is an endorsement of the idea that
by taking the initiative and opening up good
pension scheme trustees, in today’s world,
relations with the press.
need to give a little thought to what we might call the “public image” of their pension scheme. Perhaps even to developing what you might call a “media policy”. That policy can be pretty simple. It could just be: “If a journalist calls, the trustee chairman has the responsibility for speaking for the board”. Or perhaps it’s the company finance
The first myth to dispel is this: if I don’t talk to the press, they won’t write about me. No. If your pension-scheme becomes an object of public interest, then the press will write about you whether you like it or not. There are many trustee boards who have discovered this. Just ask the Sainsbury pension trustees, or the Boots trustees, the
director, or the company press office. Or
BA trustees, who are almost never out of the
perhaps you do want to go all-out and hire
papers these days.
professional help from a PR agency. And if you don’t talk to the press, be aware: But you do need to have some procedure for
someone else will.
talking to the press worked out in advance. If unfair, or inaccurate stories about your And here’s why.
pension scheme appear in the papers, your members might read them.
10
Of course, there is always a right to reply.
The dialogue between pension trustees and
But pension schemes don’t always make
the media needs to improve. Journalists’
it easy for us. I have called company press
sympathy should naturally be more inclined
offices, only to be told “we don’t comment
to lie with the unpaid pension trustee and
on behalf of the trustees, you need to speak
the ordinary member. You should get a fair
to them, and no, I can’t provide any contact
hearing.
details”. I have searched high and low, and left numerous messages, only to receive
And if you don’t? If you make all the right
a call back from a curious administrator a
preparations and take all the steps outlined
fortnight after my deadline expired.
above, but you still you have a bad experience with a poor journalist who misquotes you
There are many things you can do to
and doesn’t check his facts?
overcome those problems. Devising a brief media policy is one. Providing a contact
You might, understandably, decide never
point is another. You might spend a moment
to talk to any journalists again. But there
drafting brief trustee-board statements on
is a far more effective way to express your
issues you know will prove controversial,
displeasure – which will punish the bad
and distributing them to the company press
journalist as well as hopefully setting the
office for when it announces the transaction.
record straight. Talk to his rivals instead!
You might even shell out for a professional PR agency – especially if you are entering into a lengthy deal process that could take months. But it doesn’t have to always be about avoiding the risk of bad publicity. And this brings me to another myth that needs dispelling: journalists are only interested in bad news.
Mark Cobley
Pensions Editor of Financial News, a Dow Jones publication, and a member-nominated trustee of the Dow Jones UK Pension Scheme.
Of course, we are interested in bad news – it’s news. But good news can also be interesting. I have written plenty of positive articles about trustees’ hard work on their members’ behalf, and hope to write many more. 11
Communicating with pension fund members Pension fund members are a diverse set of
to gain and one that can be harder to retain,
individuals. Even within a fund they can vary
but easy to lose.
hugely in class, age, education, interests and also, perhaps more importantly, in general
For an insurer post-buyout, first impressions
financial confidence and specific knowledge
really do count. It is vital to explain what
about pensions.
the buyout means for members, what the transition from pension fund member to
Some of the beneficiaries will not even be
policyholder entails and how long it will last.
the original members - they could be the
Issues which should be addressed include:
spouse or financial dependant of the original member. These people will possibly have had
Is my pension safe?
little to do with either the pension fund or
Will it be reduced?
sponsor and may not even remember the
Will the trustees still be in place?
name of the fund.
Will my spouse and / or dependants still be provided for?
Let’s face it: pensions can be complicated. Even amongst the active and deferred
One of the key points to get across is that
members of a pension fund there will be
members are not dealing with a faceless
many who do not understand the subject
institution – that someone will be available,
and some who feel they have never had
either on the phone, by email or letter, to
good advice.
help in case of problems, and that most importantly
Some may feel it is the responsibility of the
there
is
someone
who
is
accountable.
trustees to explain everything in more depth. But best practice does not just mean sending of
out letters, however well written. It might also
comprehension and knowledge, trustees and
mean senior members of the team speaking
insurers have the opportunity to ensure that
at pension fund AGMs or inviting members
their communications are clear, engaging
and policyholders to events put on by the
and contain genuinely valuable information
insurer, as we have done.
By
taking
into
account
this
lack
in an easy-to-understand way. The benefit of
12
communicating in this way for trustees, and
We have found that about 50% of our
by extension for an insurer during a pension
policyholders
insurance buyout, is that they will gain the
regular basis, although very few view it as
trust of their members – a difficult commodity
indispensible.
use
the
internet
on
a
They use it for keeping in touch, shopping, banking and general information – very much as do other demographics. This suggests that in time the internet will become a good means of communicating with fund members and it is prudent, where there are resources available, to start preparing for this, as we are doing by developing a member log-in page on our website. Our policyholders are very clear with us – when we communicate with them there is a genuine desire for help and concise information. The key points to gaining the trust of pension fund members or policyholders are clarity, brevity and relevance, whatever the form of communication.
Matt Gore Chief Administration Officer Pension Corporation
13
CASE S Delivering internal communications Universities Superannuation Scheme
2. Arranging regional workshops during
(USS)
August and September to explain the
changes in benefits and identify the
Changes to the Universities Superannuation
administrative implications – on, for
Scheme are due to take effect from October
example, flexible retirements.
1st 2011. This means a busy period for USS Busby,
3. Updating sections of the USS website
and his team, who have been working on a
and the scheme’s “eManual” to include
detailed plan to communicate the planned
amendments to any forms that are
changes both to the scheme’s 285,000
affected and updates to the explanatory
members and to their employers – nearly 400
notes reflecting the changes.
Communications
Manager,
Colin
of Britain’s universities and higher education institutions.
But it was also important to identify ways to reach members directly.
Embarking on such a huge and complex task required a detailed internal communications
“Most
members
strategy. Colin and the team identified the
communication
pivotal role of the university staff who deal
important to make sure institution staff
with USS members on a daily basis – and
are
who must therefore understand the planned
“The USS communications team has the
changes to be able to answer any questions
capacity to provide on-site presentations for
from eligible employees.
members at the larger institutions, but this
properly
prefer and
face
that’s
supported”,
to why
Busby
face it’s says.
is just not practical on a large scale. Paper The strategy for informing these crucial staff
communication is still the most reliable way
includes:
of reaching a large number of members but this can be supplemented by email with the
1.
Producing a checklist of 8 important
cooperation of institutions.
actions that institutions must take in preparation for the scheme changes on
“A significant number of members will visit
1 October 2011. The list identified the
the USS website to obtain general information
changes that would be required to payroll
about the changes and to find out how the
systems to accommodate the new rules.
changes might affect them personally. A combination of the annual service statement and a new benefit modeller will answer many of their questions.”
14
STUDY A printed summary of the changes was
they are in. A new set of Q & As is also being
enclosed with the annual service statement
added dealing with anticipated questions
dispatched to institutions in June, and a
from members. Staff at the scheme’s AVC
PDF version of the same document was
provider have also been briefed on the
posted on the USS website and emailed to
scheme changes, to ensure they are able
institutions for distribution specifically to
to handle enquiries from scheme members
eligible employees who do not receive a
on their AVC position, as have financial
service statement.
advisers who participate in the arrangement USS has with the Personal Finance Society.
The service statement encourages members
All relevant USS printed material is being
to go to the USS website and use the benefit
revised, including a new guide for members
modeller. This tool has been re-designed
and updated factsheets. Again, PDF versions
and updated to incorporate the later normal
will be posted on the USS website and paper
pension age (NPA) so that members can see
versions will be delivered to institutions.
how retiring before the new NPA might affect them. Another new modelling tool is being
Finally,
the
Members’
Annual
Report
developed to illustrate the way benefits build
for 2011 will be distributed to all current
up in the Career Revalued Benefits section of
members in October, including deferred and
the scheme. These new tools will be available
retired members, and will include a section
before 1 October 2011. A programme of
explaining the scheme changes.
member presentations is also underway and will be available to all institutions
“Devising and implementing such a big
with a significant USS membership. The
communications project in such a short time
presentation explains the scheme changes
is challenging enough”, Busby admits. “To be
and how they might affect members. During
doing this in the Summer, when many of the
and after the presentation members have
institutions and members are on holidays, is
the opportunity to ask questions.
an added obstacle to overcome. The key is to use all the means of communication at our
A video explaining the scheme changes
disposal, and we think this strategy puts us
is being produced for the USS website. In
in a good position to do just that.”
addition there will be a major update of the website to incorporate the changes. This will include new navigation to allow members to see the benefits they are entitled to depending on which section of the scheme 15
MHP Communications 60 Great Portland Street London W1W 7RT 0203 128 8000 www.mhpc.com
Business & brand experts@