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Board amnesia: dealing with key person risk in pension schemes

NEWS

22 Nov 2022

In 2021 the world, as individuals and organisations, generated twice the amount of data than it did in 2019. [1] For Boards this meant twice as much communication and shared information, twice as many documents, many more decisions and ultimately an increased reliance on key personnel to understand where all this information was ending up, and what it all contained. With each year that passes, the volume of data reliant on key person(s) to access will continue to grow exponentially, making it harder and harder for schemes to find relevant information when the individual is not around.

Changes in the personnel running a pension scheme are a fact of life. Whether it’s a trustee reaching the end of their term, a scheme secretary retiring, or the advisers shuffling around their client team or even being replaced entirely.

When this happens, it’s more than just a loss of familiar faces. It leads to loss of information and knowledge or ‘board amnesia’, where the memory of decisions and important junctures in a board’s history are misplaced or forgotten.

If schemes aren’t prepared for these departures they can hamper a board’s ability to govern for years to come. Knowledge that was once at your fingertips becomes time-consuming to find without any guarantees of success, therefore forcing some decisions to be made on incomplete information.

[1] Volume of data/information created, captured, copied, and consumed worldwide from 2010 to 2020, with forecasts from 2021 to 2025, Statistica, June 2021

Key personnel should insist the board captures the knowledge they possess in a reliable way, to ensure long terms continuity.

Identifying the causes of board amnesia

We all recognise (and yet still heavily rely on) the prime suspect of this problem – emails. Email inboxes are individual silos of information and therefore move with each person rather than with the board. When key personnel leave, our current solution to retain this information is to ask them to write handover notes and do a gargantuan download of their emails, save it onto a server and pray for dear life that we never need to go rummaging through it for some really important information.

The second key suspect is our innate instinct to not rock-the-boat.

“This is how Bob has been running the scheme for 10+ years, it’s clearly working for him so let’s not change things now”

Alarm bells should be ringing at the words “working for him”. How much visibility does the board have of how Bob operates? How easy will it be to transfer all his knowledge and processes to a successor when he retires? And is Bob aware of the impact his departure will have and the need for a rock solid handover?

These aren’t easy questions to be asking of individuals who have been core to the running of a scheme for many years, but they need to be said, especially when they can have such a huge bearing on scheme members’ outcomes.

So how can schemes mitigate the risks of board amnesia?

Boards have long lived a nomadic digital existence, with disparate and scattered repositories of knowledge, resulting in hard to access information.

Taking charge of your data

First and foremost, schemes need to take charge and own their information and their knowledge. It shouldn’t be held on emails (especially not a random assortment of hotmail, BTinternet.com and other personal accounts, which additionally introduce their own security risks). It’s also no longer acceptable to offload the responsibility of knowledge capture to the sponsoring company’s servers or your advisers – there is no long-term control over these.

Almost a decade ago the Harvard Business Review wrote an article on How to Preserve Institutional Knowledge, emphasising the role of technology to continually capture and curate institutional knowledge in order to, “make it a living and evolving body of useful information that is accessible to people as they come into the organisation”. [2]

[2] How to Preserve Institutional Knowledge, Ron Ashkenas, Harvard Business Review, 2013

Falling behind on this is no longer excusable. The knowledge needs to be owned by the scheme, and accessible to whoever the board members and advisers are at that time. This allows future decisions to be made and fully informed by the experience and expertise of the scheme’s previous stewards.

There is no shortage of technology, so choosing the right tools for a board's long term purpose is crucial to ensure meaningful and continued use.

Identifying the technology you need

Capturing a Board’s complete knowledge requires substantially more than the digitisation of board meeting packs. Whilst this has done wonders for security and sustainability, the continuous governance requirements on today’s boards mean that over 50% of its activity is now happening outside of meetings.

A board must therefore look for technology that:

Can capture and facilitate board communication and documents, whether it be capturing their emails or, better still, replacing emails with a collaboration and communication tool that automatically captures discussions and decisions in an auditable timeline of events.

  • Removes the reliance on spreadsheets, allowing more accurate and up-to-date recording of everything from TKU logs and actions, to conflicts, gifts and hospitality registers.

  • Offers clear and proven flexibility, giving your scheme a future-proof home that can adapt for ongoing regulatory changes and governance requirements, or personnel changes.

  • Is intuitive to use, empowering trustees to enjoy using it and to take more control – allowing them to find the information they need in seconds, without needing to rely on others.

  • Harnesses the power of AI to interrogate gigabytes of data in seconds.

Modern tools bring people together in a way that was previously impossible. Dispersed board members must embrace this new opportunity for long term knowledge capture.

Why this should be a priority

The time to address this is now. Each month that passes is a month’s worth of scheme knowledge not stored centrally and so at risk of being forgotten by your future board.

Investing in such processes and technology should also be seen as a positive for the key persons whose departure you’re trying to prepare for, whenever it may be, because technology is sure to bring benefits to their role each day too.

PMI Pinnacle Awards Winner 2022

Innovation in Systems & Technology

UK Pensions Awards Winner 2020 & 2022

Technology Innovation of the Year

Knowa® is a registered trademark of Knowa Ltd.

PMI Pinnacle Awards Winner 2022

Innovation in Systems & Technology

UK Pensions Awards Winner 2020 & 2022

Technology Innovation of the Year

Knowa® is a registered trademark of Knowa Ltd.

PMI Pinnacle Awards Winner 2022

Innovation in Systems & Technology

UK Pensions Awards Winner 2020 & 2022

Technology Innovation of the Year

Knowa® is a registered trademark of Knowa Ltd.

PMI Pinnacle Awards Winner 2022

Innovation in Systems & Technology

UK Pensions Awards Winner 2020 & 2022

Technology Innovation of the Year

Knowa® is a registered trademark of Knowa Ltd.