Seamus Creedon explains the important role played by non-executive directors and the opportunities this creates for actuaries
A lack of governance can lead to catastrophic results. From the failure of Enron to creating the environment that enabled the financial crisis of 2008 to take root and flourish, when boards lose control the consequences can be disastrous; think of Lehman Brothers, Enron, WorldCom, Equitable Life, Co-op Bank, HBOS, RBS, Anglo-Irish Bank, Carillion, Patisserie Valerie - the litany of apparent corporate governance failures grows ever longer.
Such failures attract deserved, if hindsight-fuelled, criticism. They can obscure the fact that, in competitive markets, most businesses face fluctuating fortunes. Boards of executive and non-executive directors are doing their best to satisfy the diverse expectations of investors, customers, employees, suppliers, regulators and more. Corporate governance is the toughest of team sports.
About 300 members of the IFoA serve as non-executive directors (NEDs) for a range of companies in the UK and elsewhere, mainly in the financial services sector. Roles range from chairmanships of FTSE 100 firms to service as 'independent' non-executives at many life and non-life (re)insurance firms. Actuaries also play a part in independent governance mechanisms established, for example, to assess value for money from defined contribution pensions. It seems likely that the Financial Conduct Authority's increased emphasis on value for customers will lead to more opportunities.
Actuaries can bring extensive technical knowledge to specialised insurance contexts, but perhaps more important is our training in thinking probabilistically and contingently. Firms often have to make decisions based on incomplete information and have to be prepared to adapt their course as they learn the lessons of experience. The perfect can often be the enemy of the practical, and the actuarial mindset can be especially valuable to entrepreneurial start-ups outside the financial services sector.
However, the role of a NED who is an actuary is different from that of an actuarial advisor. Good NEDs will use their skills and experience to aid the collective understanding of the whole board. A good board will be diverse in terms of the backgrounds, experiences and genders of its members.
Back in 2011, the IFoA encouraged the formation of a member interest group, which has worked as a resource for actuaries acting as NEDs to develop their professional skills and also to enable actuaries to think about developing their career as NEDs. Both on its own and in collaboration with others, the group has organised two to three events each year, including most recently the successful webinar 'So You Want to be a NED?' Forthcoming events are publicised on the IFoA website and in our LinkedIn group.
Together with the Regulation Board, a NED working party developed non-mandatory guidance for actuaries acting as NEDs (bit.ly/2XY9ulq) which clarifies the relevance of the Actuaries' Code to work as a NED. The group has also developed an active LinkedIn group as a resource for actuary NEDs (bit.ly/2JvbOIJ). Looking forward, we will continue to do more to improve understanding between practising actuaries and the boards of firms.
The context for work as a NED is always evolving; for example, the recent Kingman review in the UK argued for a significant increase in NED accountability. There should be a balance here; there is no point in increasing the risk for NEDs to the extent that nobody wants to do the job. For regulated businesses, most NEDs who also chair board committees are now subject to the Senior Managers and Certification Regime (SM&CR) but the effectiveness of this new regime will likely be tested only when something goes wrong.
A priority for the NED community is to expand the range of available CPD resources, especially in the area of professional skills. Technical knowledge is less important, although NEDs should have a high-level awareness of relevant technical concepts. The real skill is to exercise constructive professional scepticism - asking the right questions of the right executives in the right context. We are working on developing events and tools in these directions.
Seamus Creedon chairs the organising committee of the Non-Executive Director Member Interest Group
To find out more about the NED career and the support available from the IFoA, send an email to: [email protected]