In reading the superb editorial that backgrounds the naming of Barrack Obama as Time magazine’s Person of the Year for 2012, it is clear one of the reasons he was chosen was his ability to embrace change. In particular he shows leadership of the new America, namely people under 30, Hispanics and African Americans.

Adapting to change is an essential part of leadership. Adapting to continued upheaval and uncertainty is a hallmark of the truly successful leader in the pension industry.

Even the largest and most successful pension funds globally are not immune to these fundamental leadership challenges and with great interest I watch the appointment of Carsten Stendevad, currently managing director and chief of the financial strategy group at Citigroup in New York, as the new chief executive of ATP.

The Danish fund ATP is considered by many to be the best fund in the world.

It is prudently managed, with meeting pension objectives the only driver of all decisions, and boasts that its business model can deal with interest rates of 1 per cent or 20 per cent.

Lars Rohde, chief executive of ATP for 14 years, is respected by many, both within and outside the organisation. His appointment, which was rumoured to be more of an official crowning, as the new Danish central bank governor, has been widely viewed as a coup for Denmark as a nation. But it leaves a big hole at the top of ATP, which has a complex and unique structure and style, reflected and formed by its leader.

Today’s leaders face unique challenges, and the new chief executive of ATP arguably faces a different leadership proposition than Rhode did when he took up the reins in 1998.

Adapting to change

In an article in the June 2012 McKinsey Quarterly, the results of global research that sought to understand the leadership challenge “in a volatile, globalised, hyperconnected age” by conducting interviews with leaders of some of the world’s largest organisations found some common themes with regard to this challenge. These include what it means to lead in an age of upheaval, to master personal challenges, to be in the limelight continually and to make decisions under extreme pressure.

“Today’s leaders face extraordinary new challenges and must learn to think differently about their role and how to fulfil it. Those who do may have an opportunity to change the world in ways their predecessors never imagined.”

In his current position, Stendevad advises corporations and sovereigns throughout the world on a broad range of corporate finance issues such as valuation, acquisition strategies, capital structure and financing strategies.

This global perspective was important to the board of ATP, with its chairman Jørgen Søndergaard saying it was essential to find a new CEO who could lead the fund from its current strong platform and take it to the next level.

“In many ways, Carsten Stendevad is the natural heir to Lars Rohde, who has done a fantastic job at ATP,” he says. “With his extensive professional knowledge, network and global vision, Carsten Stendevad can help bring ATP even more into play in a global context and ensure that ATP’s decisions are to an even greater extent based on international trends and developments – all while ensuring basic financial security for Danish pensioners, also in the future.”

However if, as Obama has proven, adaptability is a condition of leadership success, then Stendevad is well positioned. While he was born a Dane, he grew up in Belgium, and has worked in Mumbai and New York for Citigroup for the past 10 years. He speaks Danish, French, German and Hindi.

“Carsten Stendevad is a candid and thoughtful person; he has great respect for people, he listens and he is open to other people’s views. He has strong analytical skills and is an extremely convincing communicator who has the ability to set the direction and lead the way – and to motivate and inspire people around him. He has a very inclusive leadership style; he creates results with and through other people,” he says.

But probably most extraordinarily, and possibly most importantly to his leadership success, is that Stendevad is only 39, an age when innovation is still an instinct.

Last month conexust1f.flywheelstaging.com hosted a thinktank with a group of influential Australian investors to discuss the opportunities in European distressed debt. Participants included the Australian Government’s $80 billion sovereign wealth Future Fund, the $68 billion QIC, and leading asset consultants, with guest speaker sir David Cooksey, former board member of the Bank of England, chairman of the UK Audit Commission and chairman of UK Financial Investments.

 

While the continued critical political, social and economic circumstances in Europe are top of mind for many investors around the world, the Australian investors and asset consultants at the roundtable were divided on the issue. For some the confronting discombobulation is too risky, for others the volatility presents an investment opportunity.

Politics is dominating Europe and so it should. A united Europe, and the euro, is a political construction, not an economic one, and that fundamental structure underpins the risks and opportunities in Europe. However, the situation is far from stagnant and every day new agreements, laws and regulations shift the investment environment, causing many investors to keep a close eye on the assets in the region.

European distressed debt is an opportunity for sophisticated institutional investors who are able allocate opportunistically, but cautiously.

Sir David Cooksey, former board member of the Bank of England, chairman of the UK Audit Commission and chairman of UK Financial Investments. says the huge political desire to keep Europe together has resulted in the European Central Bank slowly being provided with more power.

“At the meeting of the heads of state of the European Union last month it was agreed to have banking union, which will mean that the European Central Bank is the regulator and bank of last resort for all 6000 banks in the eurozone. So, you are going to see an enormous institution being formed,” he says.

“Also, in principle, the countries of the eurozone have agreed to fiscal union, which means that there will be a single authority for tax and spend across Europe.” Change is afoot.

 

Airing the balance sheets

Cooksey says there are a number of forces working in unison that are creating a mismatch between demand and supply of debt opportunities across Europe.

There is a very different culture in banking across Europe from country to country and very different legal structures for dealing with default or insolvency, with Britain being the most US-like.

In addition, the International Financial Reporting Standard, which requires assets to be marked to market, has been adopted in the UK and is slowly being adopted in Northern Europe.

Furthermore, the requirements of Basel III are fundamental as a driver, which essentially requires more regulatory capital as well as risk weighting of assets to be applied.

“The adoption of risk weighting is going to mean that the banks are going to push very hard to get the higher risk-weighted assets off their balance sheets,” Cooksey says, adding that the size of the issue is “quite enormous”, estimated to be around €2.5 trillion. Some of the assets will be written off and some will be worked out but – either way – it is quite an opportunity.

“It won’t all be defaulted debt but there will be a large amount of defaulted debt there, and it won’t come out into the market in a single rush – countries all move at different paces – but it is going to happen in the next five to eight years.”

“If you are in the position of SVP, it is sensible to go to the highest risk-weighted assets because they’re the ones that the banks really want to get rid of. The truth is you haven’t heard a lot about actual transactions because the banks don’t want to disclose the write-offs they’ve taken.”

 

Democracy and the paymaster

John Brumby says he can see that increased powers of the ECB will help resolve the fundamental imbalances in the banking system in Europe, but that a fiscal union with a fiscal transfer is essential to grow the economies of Europe.

“As I see it, in the medium and longer term, if you want a distressed asset now to become a valuable asset in the future, then Europe needs to continue growing and the key to that is the fiscal union,” he says.

Cooksey says that Jean-Claude Juncker, head of finance ministers in Europe, was right in his comments: “Juncker happens to be premier of Luxembourg but he’s head of the finance ministers as well, and has said ‘we all know what to do but the only problem is we can’t get re-elected if we do it’. I think there’s gradually a realisation emerging in Europe that austerity on its own isn’t going to work. I mean you can’t move an economy from failure to success if you’re shrinking the economy the whole time. I think this is the fundamental point worth making.”

Cooksey says Germany is driving, and will be largely responsible, for the fiscal changes that are necessary. “They know they are going to have to be the paymasters. The German banking system has always been very strictly regulated compared with the rest of Europe and as a result, on the whole German banks didn’t get caught as badly as some of the others in Europe,” he says.

“The truth is the weaker countries can’t afford to rescue their banking systems.”

An example of how pervasive the problem is in Europe took place in the past two weeks when banking giants Deutsche and UBS both announced bad banks of €250 billion and €325 billion, respectively.

 

The largest economy in the world is not going anywhere

Steve McGuiness, formerly of Goldman Sachs, says there are a lot of sales going on in Europe.

“We are monitoring or in discussion or watching approximately 235 names and the total value of those credits or corporate debt situations is $380 billion. A lot of these we probably won’t go near, but a lot are very solid from old-line industries and are very key to life and business in Europe. So, the thing is you have to pick the spots and be choosy about it because business will go on. There is a lot more to come,” he says.

His colleague at SVP, Jean Louis Lelogeais, agrees.

“Europe is the largest economy in the world, it’s not going anywhere. But you cannot plough through Europe; it’s almost sifting through a bunch of stuff and saying no to most things.”

 

Go and fish somewhere else

However, investors have mixed opinions when it comes to assessing the distressed debt opportunities across Europe.

David Neal says the fundamental problem in deciding to invest in Europe, particularly as a long-term investor, is the uncertainty around the political decisions that need to be made.

“There may be things that look like good value opportunities, but why would you invest if you can’t predict the result? There are such massive changes that could go in either direction. Why would you not just go and fish somewhere else? There are other investments to make. With something that’s so unpredictable, why wouldn’t you just minimise your gross exposure to Europe?” he asks.

 

The price is right but is the place?

Cooksey believes that those risks have been priced into the assets, and he also highlights the importance of geographical discretion in choosing investments in Europe.

“The pricing of the deals reflects this uncertainty to a great extent, therefore there is more opportunity on the upside if you get it right. It is also pretty clear which countries are going to be in trouble, those that are levering themselves out of the downturn. I think that if you restrict your area of investment to certain countries in Europe, then you’re taking advantage of the uncertainty in terms of better pricing, and also riding on the back of what will be expansion of these countries as they emerge from economic distress.”

One of the reasons for geographic disparity in distressed debt opportunities is the very different culture in banking across European countries. There are also broadly variant legal structures for dealing with default or insolvency.

“There are signs that Northern Europe is taking its medicine and is beginning to move forward. Quite frankly, in the distressed debt market that is the area that I think there are opportunities. I wouldn’t invest in Spanish real estate, even at 10 cents in the dollar, because you don’t know if you’ve chosen the right asset or not, and the legal framework for unscrambling insolvency is very imprecise at the moment. But that will come, and I think you’ll find that the governments of Europe do see that they’ve got to inject funding because it is necessary to get growth back into their economies,” Cooksey says.

 

Caution: keep talking

VFMC is also cautious, with Justin Pascoe emphasising the importance of looking at distressed opportunities globally. However, he sees the merit of being invested as it allows for access to different types of conversation and allocates as part of an opportunistic bucket.

“Having a toe in the water, I think, is an interesting proposition because it gets you having different conversations with people, rather than looking at it externally and having nice theoretical conversations. If you’re actually involved in the marketplace, it does change the nature of how much time and effort you spend digging in those issues.”

His VFMC colleague, Paul Murray, is feeling the fallout of 2008 and is worried about a potential catastrophe because the banks can’t process what needs to happen.

But Cooksey says the regulatory capital situation is much different to 2008, with banks today holding up to four times the amount of capital compared to their total assets then.

“So the cushion is much better than it was then,” he says.

At its most recent board meeting Hostplus approved investment in direct lending, but Sam Sicilia says the fund is unlikely to go into distressed debt because of regulatory and political uncertainty.

“One of the reasons we chose direct lending rather than distressed debt is that the companies can be distressed because their lender is distressed. When the world is running perfectly fine, the investment matrix dominates. But when you’re in the kind of situation the world’s in at the moment, in particular continental Europe, there are non-investment considerations that could make the investment case evaporate,” he says.

 

Case by case

Lelogeais says this is a view that resonates in other parts of the world, with European investors cautious of the risks. However, he says many sophisticated investors in Europe are investing and SVP has a $500-million mandate from a Dutch fund to invest in European distressed debt.

QIC is also an investor and Adriaan Ryder says the opportunities are an asset-by-asset approach.

“Volatility gives rise to investment opportunities, that’s the great advantage of investments,” he says. “Because of the macro risk associated with this, the opportunities are all bottom-up, and it is going to be asset-by-asset, and it doesn’t matter if the debt is in distressed real estate or distressed infrastructure. The investment opportunities will be bottom-up and we are going to factor that into the risk/return.”

But Ryder does emphasis the importance of manager selection, and complete transparency, in investing in distressed opportunities.

“We won’t deploy money unless we’ve got confidence in the execution and it is done in a measured way. There’s a lot of debt-laden stuff out there and at some point in time they could turn into great opportunities, but you need patience,” he says.

 

Flexibility and caution

The Future Fund’s Neal has certain expectations of how managers should work with the fund and advocates flexibility.

“You’re not entirely sure where the best opportunities are going to come from, but clearly there are these big pressures and you’d expect something to occur. You need the ability to be as flexible as possible, which means probably not being that enamoured with very narrowly defined strategies,” he says. “Larger funds are going to be pushing for more flexibility and more control when and if the capital gets deployed, which means mandates and the ability to turn the tap off. Those are the types of conversations we are having, and we are finding them quite difficult because there aren’t very many managers who have shifted to that type of mindset where they’re prepared to be more flexible with capital. But that is what we’re looking for and trying to push for in such a dynamic.”

Lelogeais agrees and says other sophisticated investors, including Canadian funds, have similar expectations.

Other roundtable participants, particularly the consultants Allison Hill and Graeme Miller, were cautious about investing in distressed debt.

“There’s an extraordinary amount of opacity around the issue in terms of how best you might want to invest,” Hill says.

Similarly, while Telstra Super has some distressed allocations, Kate Misic says “we’re worried on almost every level”, but there is a continuous conversation about the opportunity set.

Miller says Towers Watson has recommended investments in lower hanging fruit in the debt sector, but they may be drying up.

“Institutional investors have actually done very well by investing in garden-variety credit over the last 18 months or so. This is much less complex and has much fewer risks. But I think the reality is that a lot of those opportunities have now dried up.”

 

 

The $70 billion AIMCo uses global tactical asset allocation to help add return in excess of passive portfolios. This research piece details how it has used GTAA over the past few years, advising other funds that executing a successful GTAA requires developing world-class talent, systems, process and governance.

 

To access the paper click below

GTAA for institutional investment management

 

Germany’s MetallRente has made quick progress since its foundation by trade unions in 2001.

It has grown into Germany’s biggest multi-employer pension provider, boasting €3 billion ($3.87 billion) in assets, and counts a mammoth 21,000 companies as customers, from within the metal industry it was set up to serve and beyond.

In the past two years the asset allocation of the fund has undergone a major re-evaluation, driven by the three different pension products merging. Confusingly to non-Germans, all three products offer a hybrid defined contribution and defined benefit pension.

Norbert Klein, who heads investment at MetallRente, says that the realignment was also made to improve returns.

The share of equities at MetallRente’s pension fund, which invests exclusively in mutual funds, is now as high as 56 per cent, with about  29 per cent of these equity holdings made in emerging markets.

The debt allocation is split with an 8 per cent of assets in this fund are in high-yield bonds, with an equal share invested in emerging market debt.

Absolute return and commodity positions both equal 4 per cent each, with low-risk bonds forming 20 per cent of the portfolio.

Allianz manages the fund externally but MetallRente takes responsibility for asset allocation.

 

Chipping away at risk

 

Unsurprisingly, such a risk-orientated approach has locked in the positive course of financial markets in 2012.

The fund was returning a thoroughly decent 9.2 per cent in 2012 up until the end of October, with average performance of 4.5 per cent since its inception in 2002.

But Klein doesn’t think that a high allocation to growth assets puts the fund at the mercy of markets

He says this is because the fund itself holds just a minority of MetallRente’s €3 billion assets, with the majority of these tied into insurance-style unit-linked products, that are heavily built on highly rated debt and average a mere four per cent in equity allocations.

“For our unit-linked pension plans, only funds needed for securing this capital guarantee are invested in regular insurance investments, the rest are directed into the investment portfolio.”

 

Sustainable footing

 

MetallRente’s background in the German trade union movement is felt by the presence of two unions (IG Metall and Gesamtmetall) on the fund’s investment committee.

These voices have been influential in forming the fund’s sustainable approach.

Klein says that this is increasingly becoming a focus, although the fund included sustainability criteria in its investment policy from the very beginning.

The fund’s fiduciary duty for “workers’ capital” obliges MetallRente to seek “responsible investments for the beneficiaries and from the point of view of society as a whole”, he says, and  adds that the pursuit of its sustainable investment aims have changed over the years.

Initially negative screening to remove problematic companies engaged in businesses like nuclear power, tobacco and pornography.

A ‘best in class’ approach was later adopted, that while continuing to exclude those companies failing the negative screening test, only allows for companies that pass a series of sustainability tests to gain investment from MetallRente.

Companies’ environmental and social policies, management, production methods, products and relationships with employees, suppliers and customers all go under the microscope.

Given the role that mutual fund managers have in investing on MetallRente’s behalf, Klein explains that scrutinising these managers is an essential focus for the sustainability efforts.

Those hoping to handle some of MetallRente’s assets need to pass pre-screening on their sustainability approaches.

Further probing of a managers’ tax transparency and other sustainably geared factors will then ensue before selection.

In June 2012, MetallRente became only the eighth German signatory to the United Nations’ Principles for Responsible Investment.

Klein hails the ability of sustainable investing “to avoid the risk of losses from non-financial factors”.

At such a relatively new fund, a sustainable approach is also seen as a key to locking in reliable long-term returns.

For many trustees, fundamental indexing is still too much of a leap to risk any serious asset allocation. But the £11 billion Glasgow-based Strathclyde Pension Fund, one of the largest UK local authority schemes, plans to invest in the strategy.

The idea is to track an equity index that weights companies according to their economic footprint based on fundamentals including earnings, dividends and sales, rather than market capitalisation.

“It is a little bit radical, a bit of a departure,” admits Richard McIndoe, head of pensions at Strathclyde, pension provider for more than 200 Scottish employers from local authorities and service providers to universities and charities.

“We won’t be allocating a huge amount of money but what it should do is avoid over- and undervaluing companies, help with diversification and reduce our volatility.” Strathclyde has a 15-strong long list of asset managers keen to take on the passive £550 million mandate and hopes to decide the final allocation in the second quarter of next year.

The fund is undecided if buying a license to track one of the well-know fundamental indices would be preferable to creating a bespoke index of its own.

Fundamental indexing isn’t the only new strategy Strathclyde plans. The fund, which was established in 1974 by Strathclyde Regional Council, is also preparing to cope with its growing maturity.

“We’ve got 80,000 active members today compared to 90,000 just four years ago,” says McIndoe who joined the fund in 1996, becoming head of pensions in 2003 and like many CEOs of local authority schemes, has an accountancy background.

“We’re seeing a big migration of our members and the reason is fiscal austerity in the UK.”

 

Maturity means protecting funding levels

 

In local authorities’ scramble to save money, many have slashed payrolls and encouraged voluntary retirement. It’s triggering an early shift in maturity for many schemes. Although McIndoe estimates auto-enrolment could add 10,000 new members over time, the maturity trend will continue. It means the fund has to start to prioritise protecting its funding level and cutting out risk ahead of income and returns. “Focusing on total returns isn’t the best way to pay pensions. We’ve got to use the pension fund to pay the pensions. It’s less fun but it is right and proper,” he says. Strathclyde targets total returns of around 6 per cent over the long-term, although different assets classes like private equity tend to generate more, or less, like government bonds.

The growing maturity of the fund will push Strathclyde to reduce its equity exposure over time. Assets are currently split with a 72.5 per cent allocation to global equity, 12.5 per cent to property and a 15 per cent allocation to bonds; the majority of the equity allocation is now passively managed. The fund’s shift from active management began back in 1998 when it portioned a quarter of its equity allocation to passive. It increased this to 35 per cent three years ago and now, in an acceleration of the strategy, has just bumped it up to 42.5 per cent, managed in pooled fund with L&G. “We grew disillusioned with active management,” says McIndoe. “Some active management costs a lot and is worth it like private equity, but active asset management in the broad equity space has not delivered for us. Apart from one of two managers, it was a long series of disappointments.” The premium for quoted active management is between 20-30 basis points but much more for unquoted, he says. Within this passive allocation most of Strathclyde’s exposure to US equities is now passive. McIndoe says the fund has given up on active returns from the US where “very few managers” outperform.

In private equity, Strathclyde aims for an allocation of between 5-15 per cent; it currently has a 9 per cent allocation but plans to increase this since returns here have finally started to pick up, thanks to Asia’s budding equity culture.

Half the bond allocation is in an absolute return fund managed by Pimco; the other half is passively managed and 1 per cent of the total fund sits in UK gilts. The fund still values its liabilities on a gilts basis, but with an equity premium. Within its property allocation the fund has invested 8 per cent in the UK, mostly in central London retail and office space, however it targets a 10 per cent UK allocation. The scheme is underweight because of what McIndoe calls a “difficult market” and getting badly burnt when the UK’s property boom turned to bust. “We were unlucky with tenant insolvencies and highly geared indirect investments.” The fund has since switched managers and DTZ now handle the portfolio. The remaining 2.5 per cent property allocation is in global real-estate in Europe and Asia – particularly Hong Kong and China – and the US. It’s managed by Swiss-based Partners Group. “We tender all our investment contracts; compared to other providers they seemed to cover all the basis,” he says.

 

Innovation and opportunities

 

In another development Strathclyde recently set up a New Opportunities Fund to invest either via private equity or direct lending to UK business. The fund is a product of the financial crisis.

“It’s about finding opportunity in UK banks reluctance to lend to companies and developers,” says McIndoe. So far investment, which includes the government’s Pension Infrastructure Platform, has been funded from cash. “This fund is an amalgam of different things from alternatives to new opportunities and we’ll have to work out where the allocation sits. We’ll have to balance things by reducing one of out other exposures, maybe equity.”

Strathclyde doesn’t manage any assets itself and uses around 12 managers. Half a dozen were axed earlier this year both with the shift to a greater passive equity allocation and a decision to shelve the active currency strategy, which “didn’t disappoint but didn’t merit the effort either.” Hymans Robertson consults on strategy and McIndoe says the scheme would struggle without them. “They are inexpensive compared to other asset mangers and they help add value.” He does see delegated advisory as a step too far however. “We’ve put a lot of work into building our brand and our employers have a sense of security with us. It would be an abandonment of sorts.”

The decline in membership has already forced Strathclyde to draw in its horns. Three years ago the fund had around $100 million in cash to invest – money earned in contributions above and beyond its pension commitments. Next year or maybe even as soon as this year, the fund will be cash flow negative. In another response to its maturity profile the fund will also start to manage investment income. Until now the fund has never needed investment income – around £160 million last year – to pay pensions and managers simply reinvested it back into the pool. Strathclyde’s priorities maybe shifting to counter risk and lock in funding levels to meet its growing pension obligations. Yet its foray into fundamental indexation goes to show it’s still got the capacity to innovative and surprise.

 

 

Since becoming chair of the $80-billion Future Fund in March, David Gonski has set an agenda to act like a public company chair. An element of that vision is to very clearly delegate to management.

“The general manager has been elevated to a managing director and the six-monthly announcements will be his,” he says.

Another part is to clearly provide the board with the information it needs to make good decisions and setting up a committee structure is part of that process.

“A chair is given the role to organise and be a conductor of a board that has to make decisions, give the board information to make decisions, cultivate discussion, and focus on a decision that’s relevant and timely for the organisation… I’ve brought the same thinking as to what I do in a publicly listed company, I think you need a complete committee structure on our board,” he says. “What I inherited was an active audit committee and a board, since then I have established a risk committee, a governance committee, a remuneration and appointments committee, and a conflicts committee. All of these committees are manned and womaned by people from the board. I asked them to get very involved in what they’re doing and they’ve come to it wonderfully. We’re evolving, we started with one man with a vision with a good concept given to him by government and we need to take it from maturity to blossoming. And this is the way I think we need to do it.”

Gonski is speaking from experience. As well as chairing the Future Fund, he is the current chair of Investec Bank Australia, chair of the Sydney Theatre Company and chancellor of the University of New South Wales. He’s also been the chair, board member or adviser for the ASX, Coca Cola Amatil, ING, Consolidated Press, Transfield Holdings, Westfield and John Fairfax, the Australia Council, and the Art Gallery of New South Wales among others.

 

The simple principles of governance

He has some clear views on what makes good governance and what makes a good chair, and it’s pretty simple.

The first thing for the chair is to work out the structure for how the organisation will be governed, he says. Once the structure is in place, then the job is to hire people and in particular designating who the chief executive will be and working out the relationship with that person.

“Then once you’ve worked that out, you need to nurture it and police it. It is quite often difficult to run that role of nurturing and being a policeman at the same time. A chair also has to keep egos in check and make sure it’s the organisation that’s more important than our own ideas and standing,” he says.

Gonski believes the principles of governance are the same no matter what type of organisation, however there are often different stakeholders and that may require some sensitivity.

“You need to deal with them all with dignity and suitable listening to, but you have to manage and operate in a proper way.”

 

Know yourself

Gonski, who at 25 was the youngest ever partner appointed to law firm Freehills, also had his first board position at age 27. In that time he says he’s seen all types of chairing styles.

“I’ve seen influencing and absent chairs, and both in my opinion are wrong,” he says. “You need to be involved as a chair but you also have to pull yourself back, you have to give people some rope because if you don’t they’re too dependent on you. I expect people who work with me and alongside me and underneath me to be contributing, and when they do, they deserve all the accolades; it’s not just my organisation.”

Gonski says a chair should clearly know what his or her role is, which is sometimes difficult, and try to fulfil that role without doing the jobs of others.

They also have to know their strong points and use them.

“The worst chairs are people who try and do a role like someone else did but they don’t have that prowess. All chairs have strengths and you should play on them within the role that’s designated for you,” he says. “All people know how to work through with people, but sometimes our egos get the better of us. What I’ve been able to do is keep my ego in play, I’m just a cog in a very big wheel, I’m just a player in a much bigger group wherever I am – whether a chair of a stakeholder. It doesn’t matter if you get all the kudos, or if your ideas seem to work, but you should relish the team situation, be discrete and trustworthy.”

 

Conflict, diversity and representation

Gonski resigned his position as chair of the ASX to take up as chair of the Future Fund.

While he says there are some very clear cut cases where there would be an obvious advantage to sit on multiple boards – such as sitting on two of the four major trading banks in Australia – for the most part he says perceived conflicts can be dealt with.

“You need to be totally open about it, the biggest problem is to hide it. You should trump it, and say this is what I am and then it’s up to others, including the chair, to work out whether they are happy to live with it,” he says.

“I have had to live with conflicts of interest. My experience is if you’re transparent and there’s a procedure, it often ends up better. I have some doubt that it’s a conflict to sit on multiple boards of super funds. Decision-making is the key, boards can structure themselves to deal with conflict.”

Gonski says he is “absolutely categorically” in favour of a diverse board including gender, age, geography and education.

“The worst boards I’ve been on were where the other people were clones of me. I wasn’t pushed to the mettle, most people agreed with me because we had the same backgrounds and experience. Diversity is very important – it’s not just gender, but gender is very important. To just select only from 48 per cent of population is ridiculous – we have a small enough population as it is, [so] we should select from 100 per cent.”

Gonski supports equal representation on superannuation boards, with a caveat.

He speaks about his experience on the University Council, which had representatives from all over the university including the students.

“The problem is definitely not that it draws people from all over the place; it is good to have diversity. Most important is the question of representation. When you sit on a board, you sit there for the organisation, you need to put aside representation and this is something people find quite hard,” he says.

“If you ask me do I support having people from different walks of life on the table, then I’m in favour. But if they sit as a representative council, then it’s a flawed model. Once you sit there, however you came, you’re there for the organisation. If the chair says it’s confidential, you tell nobody; when you vote, you vote for the benefit of everyone at that organisation.”