It is well documented that a significant contributory factor to the enormous loss of life following the sinking of the Titanic was the limited number of lifeboats on board. Significantly, the number of lifeboats was exactly as required by the regulations, it is just that the regulations were, arguably, wrong.
The risk was known, but considered remote and it was also felt that additional lifeboats would detract from the smooth lines of the ship. As a result, no action was taken. So was risk management poor and had the designers and owners really considered all the objectives and the compromises that were being made?
Of course, although the likelihood of the risk was considered remote, the potential impact of it was enormous. Parallels with the 2008 financial crash come to mind. The mistaken priority of aesthetics over safety is easy to see with hindsight.
There is no doubt that, at the inception of the Titanic, the owners had clear objectives around the design of a liner to transport passengers across the Atlantic in style and at speed. The challenge is whether all aspects of the objectives had been properly considered, most notably to achieve all of the other objectives safely.
The learning here is that trustees should also consider their objectives at a variety of levels to ensure that all elements of strategy across the different areas of a scheme’s operation have been considered. This includes understanding the interactions and the compromises. This could be achieved by reference to a strategic plan which sets investment objectives, funding objectives and matters such as the desired member experience and principles for the governance of the scheme. It is only then that the risks to those objectives can be identified and documented.
Once the risks have been identified, controls can then be designed and implemented. Critically, this must be at the right level for the trustee board where the focus should, most likely, be on strategic matters. Many other matters can be managed at a lower level and reported by exception. Of course with smaller schemes, consideration must be given to with whom (or which service provider) responsibility lies.
This approach encourages good governance with a strong control environment and also helps the trustees stay focused on the right strategic issues.
In the current environment trustees should be considering their approach to objective setting, governance and the robustness of processes. As well as publishing articles in our newsletter, we can either run workshops with you on an individual basis or perform some remote analytics which, whilst requiring only a small investment of your time, can provide valuable information for your consideration.
To read part 1 of the series here.