What's in a mandate?
Here's a hint: tension, and possibility!
I love asking questions.
When I started out in strategy consulting, my favourite question to ask my firm’s leaders was, why do clients hire you? Each answer was different and provided insight into the Partner and their practice.
“Because I’m smarter than they are” (an actual response!) meant a premium on confidence, rigor and reputation, analyzing every possibility and avoiding I don’t know at all costs.
“Because I care about my client’s problems as much as they do” indicated a focus on relationships, process and collaboration, a willingness to learn on the job and lead with the heart.
There were as many interesting answers as there were motivated leaders – each had a strong sense of their personal mandate and had organized around it. So, what’s in a mandate anyway?
In the pension industry, mandates are a foundational concept enshrined in legislation or policy. In my experience, Canadian pensions (particularly the public ones) take their obligation to manage assets, risks, and member experience very seriously. The Canadian Pension Model, combining independent governance and professional asset management and talent, was a profound innovation in its time and has resulted in a successful system that should make us very proud.
But lately, I’ve been thinking a lot about the unintended consequences of mandates…
Let’s imagine that we’re a Canadian public pension, with a few tens or hundreds of billions of dollars under management, and our mandate is to maximize return without unnecessary risk of loss to provide a reliable member benefit. How would this mandate influence our organization? As enlightened executives, we would seek to
…focus on protecting and growing capital, of course, but in what investment mix across asset classes, geographies or sectors of the economy?
…understand the range of risks involved in earning our return and decide which ones were worth taking. How would we manage risk, or hedge it away at the cost of diluting our return?
…recruit and retain the smartest and most experienced people to make these complex choices, even if it meant paying a premium for them. What governance would balance accountability and creativity for the talent making these decisions?
…access the right information and build the right relationships, as well as the tools and technology to use these inputs effectively. What costs and behaviours would ensure these advantages?
…deliver a valued benefit to pension members. What service offering will satisfy our stakeholders?
Our organization would likely need to scale, as more people operating in more places were required to deliver on our goal. Thank goodness our mandate is a clear one – to make money and manage risk – there’s a lot of pressure on us not to make mistakes! We need absolute confidence in ourselves, our processes and inputs; this is not an environment that celebrates failure. We may be rigid or arrogant or demanding, but we get our job done.
And here we have the paradox of the mandate: with my apologies to Winston Churchill, we shape our mandates, thereafter they shape us.
How does an organization designed to be right navigate the imperative for change? What can – and should – we do to promote and leverage diversity, invest for desirable outcomes amid structural shifts like climate change, or adapt to reflect changing social values? Our mandate doesn’t command or authorize us to solve for these challenges, even if we want to.
But should it?
A similar and similarly complex problem is brought to life in The New Corporation: An Unfortunately Necessary Sequel. Filmmakers Jennifer Abbott and Joel Bakan build on their previous diagnosis of corporations as psychopaths to explain why ‘good’ corporations are bad for democracy – providing, incidentally, my perfect pandemic date night of pajamas, popcorn and a post-viewing debate that lasted days!
They argue that efforts toward corporate social responsibility are fundamentally constrained by the legal mandate of a corporation to maximize shareholder value and that ESG-flavoured marketing campaigns are masking the increasing and dangerous privatization of public sector accountabilities for our health, education, welfare, and the environment.
It’s a compelling argument for a complex problem – but I found myself asking simply, why not create a new mandate for a different kind of corporation, one that sets more balanced expectations among stakeholders and can play a reimagined role in society?
I know, I know, this naïve craziness would disrupt the law, financial services, politics, the global economy and more. But is it any crazier to ask new things from old models, expecting internal tensions to be resolved for the common good by legacy incentive structures that don’t account for it?
And now, I come back to pensions, excited as I always am by the potential of long-term capital to make meaningful change in our world: Do I really care if my retirement paycheque is secure in 50 years if I can’t take a deep breath outside? If the vast majority of my fellow humans are uneducated, unhealthy, unemployed or unsafe? Do we prioritize returns, regardless of where they come from? Is risk of loss that bad, relative to other things we value? (Can we align on shared values? Yikes!) Do we believe patient capital should be complicit in a glacial pace of change?
Is it time for a new mandate for a different kind of pension?
I warned you, I love asking questions – and I’ve got more of them than answers. But I also have faith in our ability to solve tough problems together; to address our biggest challenges in ways that provide important insights into ourselves and our society, as it is and as we want it to be.
As I start my new firm, fuse, I’m excited to be working alongside pensions, investors, policymakers and peers to improve risk-taking and retirement outcomes for Canadians. Our goal is to ask and answer big questions in new ways, collaborating with changemakers to spark the bold ideas that will reimagine retirement.
Whether our future demands we modernize legacy models or invent new ones, I believe the Canadian pension industry – and ordinary Canadians – can bring unique skills and perspectives to addressing these challenges.
We can deliver on our mandate and be confident enough to question it.
p.s. I’ll be sharing my thoughts along the journey and would love to hear your views! Please join the conversation below or drop us a line at hi@fusestrategy.co.