Pension Fund Administrators (PFAs) have been implored to protect their interest in blue chip companies quoted on the Nigerian Stock Exchange (NSE) where N710 billion equity investments have been made as at June, 2018.
The former Director General, National Pension Commission (PenCom) Muhammed Ahmad, who stated this at a forum in Lagos, called for a structured process of ensuring that the pension industry collectively protects its interest in some major companies in which it invests.
This, he said could be achieved by securing adequate board representations and ensuring the board maintains excellent standards of corporate governance. He also canvassed the need for Pension Fund Custodians (PFC) to ensure the exercise of voting rights in a cohesive manner to enable the attainment of sustainable positive returns on investment.
“Accordingly, therefore, efforts must be channeled towards establishing a more structured process of ensuring that the pension industry collectively protects its interest in some major companies in which it invests through securing adequate board representations and ensuring they maintain excellent standards of corporate governance.
“It is also worthy of consideration that Pension Fund Custodians ensure the exercise of voting rights in a cohesive manner to enable the attainment of sustainable positive returns on investment. The imperative of doing this is evident considering the value of N710 billion in equity investments of blue chip companies quoted on the Nigerian Stock Exchange as at June, 2018,” he said.
He noted that the pursuit of excellence in Corporate Governance by the Pension Industry underscores the imperative of seeking continuous improvement in all aspects of regulation and management. He urged pension operators to ensure that their boards comprise of adequate number of directors with diverse qualifications and experiences, adding that the inadequacy of directors often results in recycling of members on various Board Sub-Committees, thus, limiting the quality of deliberations.
“It was understood at the formative stages that operators were constrained by cost due to low volume of business. However, the consistent accumulation of pension assets has reversed that trend with at least 12 out of the 21 Pension Fund Administrators each currently managing pension assets in excess of N100 billion,” he added.
The appointment of Independent Directors, he said enriches the company’s policy decision making process, hence, pension fund operators should ensure their appointment as provided in the Code of Corporate Governance for Licensed Pension Fund Operators, stressing that this also contributes to the much needed diversity of boards.
He noted that attaining a culture of excellent corporate governance also entails instituting a reliable process of board evaluation, which could be internal or external and that whatever option selected, it is important to highlight areas of deficiencies with a view to remedying same.
He noted that evaluation report should also be made available to the shareholders at the Annual General Meeting (AGM) as a feedback on the performance of the directors.
Ahmad called for greater disclosure to the shareholders, regulatory body and the funds members, adding that the information should contain both financial and non-financial item to engender greater confidence.
He noted that traditional, investors were only interested in financial ratings; however, many investors currently consider a combination of strong returns and Environmental, Social and Governance (ESG) ratings. Thus, interest has tremendously shifted to assets of companies that are socially and environmentally responsible.
He said the development of ESG ratings have given investors an objective tool to rate corporations on their ESG biases, while taking investment decisions and that often, focus is given more on the business processes, culture and practices, rather than a company’s products.
‘‘In general, a combination of all these considerations provides a win for the companies, the investor and the society, he said.