In his last article in the series, Colin Czapiewski considers the many functions of the actuary in the new role as a non-executive director
Previous articles in this series introduced the concept of a non-executive director (NED) and highlighted the areas where actuaries have not been involved traditionally. Now we consider the actuary in his or her most likely scenario as a NED in more detail. Before starting out on this role, I would emphasise that a discussion with an experienced NED is essential to obtaining a fuller understanding about what is involved in practice. I was extremely lucky in this regard.
(Other articles in the series: Actuary on board and On board with fraud)
Duties and responsibilities
In their individual role and as a member of the team of directors on the board, the NED must understand the main tasks that they should be doing. The board should determine the strategy and objectives of the company, and monitor the progress in achieving these. In addition, the board will be accountable to various parties for its activities, such as shareholders and regulators. Finally, the board is responsible for ensuring that all financial information is accurate and that the systems and controls of the company are adequate, particularly in relation to risk management.
More specifically, the NEDs should monitor the performance of the executive management. The role involves a balancing act of encouragement, participation and constructive criticism. They should ensure there is sufficient succession planning and that the remuneration is appropriate.
The performance of the board and the board committees must be scrutinised regularly and objectively, and improved upon to attain the required standards. Self assessment is a necessity and a fundamental role of boards and particularly for NEDs. There are also statutory duties in respect of the company in general, but also in a personal capacity as a NED.
The Companies Act 2006 sets out generic duties of directors, including that they:
- Act within the constitution of the company
- Promote the success of the company
- Exercise independent judgement, reasonable care and skill
- Avoid conflicts of interest;
- Decline benefits from third parties;
- Declare any interests.
Approval
It is necessary to be approved before becoming a NED. The increasing importance of NEDs is highlighted by the regulators' growing interest in them. Both the PRA and the FCA are likely to interview prospective candidates, and more specialised regulators such as Lloyd's may also become involved when a NED joins the board of a managing agency.
Many actuaries will be familiar with the approval process in relation to controlled functions under the Financial Services and Markets Act 2000 (FSMA 2000). These relate to individuals that have significant influence function (SIF) roles within firms, and some can have more than one.
Work style and commitment
It often appears at first sight that the number of hours required to perform a NED role is low. Board meetings may be four per annum and the numbers of other board committees are limited. Do not be fooled. To perform the role of a NED efficiently, much time is needed.
It would take another article to describe the different roles of the committee in detail, but a brief description is outlined below.
Audit committee
Appointing external auditors, monitoring their activities and performing the statutory audit-related roles seems fairly basic, but the committee must watch the audit process carefully, and the NEDs should hold a private meeting with the audit partner once a year.
Risk committee
This is an absolutely ideal role for actuarial NEDs. Assessing the risk-related aspects of the business is right up our street.
Investment committee
In financial companies the investment return may comprise a significant area of the profitability of the company. The balance of risk and return must be carefully managed.
Remuneration committee
A difficult role not usually involving actuarial skills, but actuaries sometimes get involved.
Others
Various other board committees are dependent on the types of business involved.
Preparation for the role
Is the above what you expected a NED to do? Clearly, more reading is necessary, but this should give you a flavour. If you are still keen to enter this field, then seek out a helpful NED and listen to him or her. The role of a NED really can be very satisfying.
Colin Czapiewski is an independent actuarial, insurance and risk management consultant