AISAKE TAITO

1
The Experience of FNPF Recent Lessons in
Corporate Governance

• AISAKE TAITO
• ACTING GENERAL MANAGER CHIEF EXECUTIVE
• FIJI NATIONAL PROVIDENT FUND
• SATURDAY - 29th SEPTEMBER 2007

2
FNPF BACKGROUND

• Established in August 1966 FNPF Act (Cap 219)
• Compulsory Contribution Savings Scheme
• Core Business
• Contribution Collection, Investment and
  Pension/Member Benefits Payout
• Key Stakeholders
• FNPF Contributors (Members), over 340,000 at
  June 2007
• Mission
• To provide social security financial services
  to all its Members.

3
RESPONSIBILITY TO STAKEHOLDERS

• Exercise Sound Management Prudent Investment
  Policies
• Practice Responsible Stewardship
• Be Good Corporate Citizen
• Practice Ethical Standards (Transparency)
• Provide Quality Efficient services

4
SIZE ROLE TO THE ECONOMY

• FNPF SIZE
• Total Assets, Over 3.3 Billion
• AN ACTIVE PLAYER IN FIJIS ECONOMY
• The largest single Non Bank Financial Institution
  (NBFI) in Fijis financial system
• Accounts for about 40 of Fijis financial sector
• Helps finance major projects and other business
  activities
• Due to its size role in the economy - the
  safety of the Fund cannot be compromised.

5
FNPF GOVERNANCEISSUES

• Lack of expertise in technical areas
  (Investments, Internal Audit, Risk Management,
  Asset Liability and Actuarial)
• Participation of Board Members in subsidiaries
  and outside Boards
• Risk appetite for the Fund is not determined
  upfront
• Thresholds for the type and significance of
  issues not established to the attention of the
  Board

6
FNPF GOVERNANCE ISSUES

• Assessment against responsibilities and
  performance by independent entity
• Lack of appropriate policies and procedures
• Lack of Due Diligence on Investment projects
• Conflicts of Interest
• Lack of quality in the information provided

7
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF

• Corporate Governance Policies
• Fund to use the governance by policy approach
• Developed policies for Board and all key
  functions
• On-going processes for policy development and
  review
• Mandatory review of the governance policy in 2008
• Code of Conduct
• To Establish Code of Conduct for Board,
  Management and Staff
• Conflict of Interest
• Declarations of interest by Board, Management and
  Staff

8
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF

• Awareness Training
• Conducted induction training for Board Members
• Conducted corporate governance workshops for
  Board, Management Staff
• Strengthening of Critical Functional Areas
• Staffing in the Internal Audit, ERM have been
  beefed up to enhance the Funds oversight mandate
  
• Establishment of a Compliance Function
• Resources directed to the Investment Unit for
  capacity building
• The FNPF aims to develop capabilities and
  identify opportunities that protect and create
  value for members, thereby promoting an efficient
  and effective organisation.
• Change Management
• Expected to compliment good governance within the
  Fund by changing the work culture and employees
  mindsets/attitudes
• Business Process Re-engineering

9
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF

• Establishment of Board Committees (with Charters)
• Audit Committee (Internal Audit reports directly
  to this Committee)
• Risk Committee (ERM reports go to this Committee)
  
• Investment Committee (Review all investment
  proposals before the main Board)
• Human Resources Committee (Assists the Board in
  reviewing all HR Policy matters before taking to
  Board)
• ALCOA Committee (Yet to be established)

10
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF

• Sound Management
• Prudent Investment Policies
• Amendment to the FNPF Act in 2005, under Section
  7
• Prudent person test allows Board to consider
  more diversified range of investments and all
  criteria to be strictly adhered to
• Primary objective is to maximize long-term
  investment returns
• Prudent Person Test 13 Steps
• Purposes of the Fund and the needs and
  circumstances of the members of the Fund
• Diversifying the investments of the Fund
• Nature of existing funds investments
• Need to maintain the real value of the capital or
  income of the Fund
• Risk or loss of depreciation of capital or income

11
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF

• Potential for capital appreciation
• Likely income return and timing of the proposed
  investment
• Length of the term of the proposed investment
• Liquidity and marketability of the proposed
  investment
• Aggregate value of the Fund
• Likelihood of inflation affecting the value of
  the proposed investment or other Fund investments
• Costs in respect of making proposed investment
  including commissions, fees, charges and duties
• Must be weighed against the outcome of existing
  Fund investments.

12
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF

• Review Investment policies by November 2007
• Investment Policy Statement (defines the Funds
  overall investment strategy)
• Investment Properties Policy
• Commercial Loans Policy
• Fixed Income Policy
• Equity Policy

13
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
CURRENTDELEGATION CASCADE SEGREGATION OF DUTIES
14
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
ENTERPRISE RISK MANAGEMENT

• ERM framework being established
• Focus is for risk management to be an integral
  part of operations
• Development of Risk Register, Risk Management
  Policy and Guidelines
• Development of a Risk Management Process document
  outlining views of management team

15
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
ERM FNPF MODEL

• RISK IDENTIFICATION
• Total of 27 risks , 12 rated as high and 15 rated
  as medium low
• RISK ALLOCATION
• Assignment of key risks to Risk Owners
• Identification/training of Risk Champions
• RISK ASSESSMENT
• Likelihood of identified risks and the magnitude
  of their impact assessed

16
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
ERM FNPF MODEL

• RISK MITIGATION
• Identification/development of Risk Control Plans
  by Risk Owners
• Deadline given to draw up risk action plans
• Continued follow-ups and Monitoring of Action
  Plans
• Appointment of Risk Mentors to assist Risk
  Champions in monitoring Operational Risks
• Public Awareness
• Weekly/fortnightly articles on Risk Management
  and Corporate Governance.

17
BUILDING BLOCKS FOR BETTER GOVERNANCE AT FNPF
ERM EXPECTED OUTCOME

• Creation of a risk conscious culture across the
  Fund
• Promotes a proactive rather than reactive
  approach
• On-going management of risks at the business unit
  level
• Identification of Residual Risks that require
  Business Continuity/Crisis Management

18
LESSONS LEARNED

• Corporate Governance goes beyond mere compliance,
  it is not a simple matter of creating checks and
  balance.
• It is a continuous process of realising FNPF
  objectives with a view to making the most of
  every opportunity.
• It involves leveraging FNPF resources and
  aligning its activity to members needs,
  stakeholders benefit and employers growth.
• All in all its about basic honesty, being
  accountable and transparent

19
CONCLUSION

• Corporate Governance is an on-going journey.
• At FNPF, the Board and Management are committed
  to serving as a force for integrity,
  accountability and prudent solutions to the
  governance issues facing the Fund today.
• Transparency and good standards of corporate
  governance both in our Members affairs and in
  our own are central to our values.

20
THANK YOU