1. Governance Essentials
Adapted from “Transforming the Dialogue: Fiduciary Essentials” by Frederick (Rick) Funston. Amazon, 2025
Governance Essentials: You're a Fiduciary—Now What?
Congratulations! You’ve become a fiduciary for a public retirement plan—an important responsibility that affects the long-term financial security of many participants and beneficiaries. Your job is essential because retirement plans must consistently deliver on their promises despite economic shifts, uncertainties, and competing stakeholder interests. So, how exactly do you fulfill this vital role?
Getting Started: Understanding Your Board’s Composition
One unique aspect of public retirement boards is that trustees typically don’t choose each other—stakeholders elect or appoint them. Trustees can include active and retired plan members, jurisdictional appointees, and ex officio members like state treasurers or local officials. This diverse and oftenchanging mix means you need to quickly learn how to collaborate effectively.
Stakeholders selecting trustees should prioritize individuals who bring integrity, engagement, diverse perspectives, financial acumen, good communication skills, and a commitment to ongoing learning. As a trustee yourself, regularly ask: "Where can I grow and improve?"
Three Essential Fiduciary Duties
Being a fiduciary means you're held to the highest legal standards—even higher than corporate boards. Your decisions must always prioritize the participants' and beneficiaries' best interests, navigate competing interests impartially, and avoid personal conflicts. Here’s a breakdown of your core duties:
1. Loyalty—Prioritizing Participants’ Interests
Your primary duty is clear: act in the best interests of all plan participants and beneficiaries. Easier said than done, right? Stakeholders often have conflicting goals— Retirees might want higher cost-of-living increases, active employees might prioritize securing future benefits, and taxpayers could push for lower contributions. Your task is to carefully balance these competing interests. The goal isn't to create winners and losers but to find optimal solutions considering current conditions and future uncertainties. It's not about what's fastest or easiest but about making thoughtful, balanced decisions in the best interests of all plan participants and beneficiaries.
2. Acting with Prudence— Thoughtful Decision-making
Prudence doesn’t mean having all the answers; it means using a careful and systematic process to arrive at informed decisions. Prudence is judged by your method, not necessarily the outcome. Here’s how to be prudent:
Ask good questions. Establish a practice of consistently questioning assumptions, data, risks, and implications.
Consider all relevant facts and available information. You won’t know everything immediately, but the more thorough your approach, the better your decisions will be.
Stay informed by peers. Look to other plans to learn what has worked—or failed—in similar situations.
Interestingly, too much industry expertise on your board can sometimes become a disadvantage. Experts might rely on past successes and resist necessary changes. Balance your board with diverse perspectives to remain adaptable and responsive to changing environments.
3. Compliance—Staying Within the Rules
As a fiduciary, you’re obligated to comply strictly with laws, regulations, and your plan documents. Compliance isn’t just a legal formality—it builds trust and confidence with stakeholders. This means staying updated on changing rules, clearly communicating with participants, managing costs effectively, and consistently documenting that you’re following policy.
Navigating Conflicts of Interest
Conflicts come in two forms: group conflicts and personal conflicts. While group conflicts must be resolved collectively and openly, personal conflicts must be actively avoided.
Group conflicts: These arise from stakeholder groups with different priorities. Resolving these requires open, systematic dialogue aimed at achieving consensus.
Personal conflicts: Individual conflicts can severely damage trust. If you suspect or face a personal conflict, disclose it immediately and take action to prevent undue influence. Transparency here is crucial.
Building Consensus and Effective Dialogue
Public retirement plans can require tough decisions, and effective dialogue is essential. Aim for consensus decisions—ones everyone can support, even if they don’t fully agree. Split votes can breed divisiveness; consensus-building develops unity and commitment. Here’s how to encourage productive conversations:
Clearly define decision-making processes.
Actively listen to and consider all perspectives.
Frame discussions in terms of the long-term best interests of all plan participants and beneficiaries.
Communicate openly and transparently about tradeoffs and implications
The Fiduciary’s Toolkit: Five Essential Powers
To fulfill your fiduciary duties effectively, your board has five crucial powers at its disposal. Here’s how to leverage each power:
1. Conducting Board Business
Establish clear roles, agendas, and processes. Regularly assess your board’s performance and plan for effective leadership succession. Spend your time wisely on meaningful discussions rather than administrative tasks.
2. Setting Direction and Policy
Policies aren’t static; they should be regularly reviewed and adjusted to reflect changing circumstances. Move beyond mere data reporting—focus on interpreting what the data means for policy and strategic direction.
Consider questions like:
What does current performance data tell us?
Are our policies still effective, or do we need adjustments?
What new insights have emerged from peer practices?
3. Approving and Delegating
Clearly identify the critical decisions your board must make and require thorough due diligence. Once decisions are made, delegate clearly and provide the chief executive and management with the necessary resources and authority to act effectively.
4. Approving and Delegating
Keep track of whether plans and policies are implemented effectively. Rather than getting bogged down by every detail, focus on critical issues, and make sure you’re getting clear, actionable insights. This helps you adapt quickly if things aren't going according to plan.
5. Verifying Information and Advice
Don’t just trust—verify. Seek independent assessments to confirm that the information and recommendations provided to the board are accurate and reliable. Independent verification reinforces confidence in your decisions and reports. Use internal and external audit. Get second opinions from legal, actuarial, investment, industry, and governance experts.
Making the Most of Your Limited Time
Board trustees are often part-time volunteers facing complex issues and time constraints. To make the highest and best use of your time:
Prioritize discussions on strategic policy implications rather than just data reviews.
Emphasize proactive governance, focusing on the future rather than reacting to past events.
Encourage deeper engagement and structured discussions that promote consensus and productive decision making.
Learning from First Responders
One innovative approach is leveraging principles from first responders— professionals accustomed to making disciplined, high-stakes decisions quickly. Adopting similar principles can significantly enhance your fiduciary effectiveness. Some key first responder principles include:
Proactive risk management: Anticipate problems before they escalate.
Situational awareness: Stay continually informed about your internal and external environment.
Structured decision-making: Establish clear protocols to accelerate informed decision-making.
Continuous improvement and adaptation: Regularly evaluate performance, learn from experience, and refine and adapt your policies and processes.
Why Transform Your Dialogue?
Transforming board dialogues is essential in managing a fiduciary's complex role effectively. Here’s why and how:
Move from Data to Insights: Transition from raw data presentations to meaningful conversations focused on implications, strategies, and necessary actions.
Systematically Resolve Conflicts: Use structured processes to address differing stakeholder interests, aiming for consensus that aligns with long-term goals.
Shift to Proactive Governance: Regularly discuss emerging trends, risks, and peer practices, positioning your plan for future success.
Enhance Collaboration: Assure all voices are heard and valued, increasing stakeholder trust and participation.
Improve Decision-making: Use clear frameworks to guide tough decisions, reinforcing transparency and trust in your governance process.
Final Thoughts
Being a fiduciary isn't always easy or even appreciated—it requires courage, clarity, and commitment. It means making tough decisions, often without complete information, and being ready to adjust as circumstances change. However, done well, fiduciary governance has profound, positive impacts, safeguarding the financial futures of countless individuals.
Keep learning, ask good questions, collaborate openly, and stay adaptable. Your dedication can make a lasting difference— one decision at a time.
To learn more, contact
rfunston@funstonadv.com or Slussow@boardsmart.com
Click here to order “Transforming the Dialogue: Fiduciary Essentials.”
