Fiduciary Excellence 101: Best Practices for Committee Success

January 22, 2024

[This is the second post in a multi-part blog series that will cover best practices for committees that have fiduciary responsibility. The series will focus on the foundation of good governance from both an “art” and “science” perspective.]

An important part of an organization seeking to implement a successful fiduciary committee governance structure is the selection and appointment of committee members. In this blog post, we will delve into best practices for deciding fiduciary committee members, with a specific focus on effective decision-making.

Clearly Defined Roles and Responsibilities

An essential first step is to have a clear understanding of the roles and responsibilities (guidelines for accountability) associated with the fiduciary committee. Define the committee’s purpose, objectives, and the specific duties each member will be responsible for and document these details in a committee charter (distinct from an investment policy statement). This clarity not only assists in selecting suitable candidates but also ensures committee members understand what’s being asked of them so they can be most effective in their positions.

Important Criteria for Committee Members

Selecting committee members requires a thoughtful evaluation of individuals possessing specific attributes and qualities, including diligence, integrity, objectivity, and effective communication skills. Russell Olson, in his classic book The Independent Fiduciary, lists the following criteria a prospective committee member should meet1:

  • “High moral character, ready to avoid even the perception of conflicts of interest.
  • Knowledge of how the fund relates to the financial situation of the plan sponsor.
  • A healthy dose of common sense—the ability to reason in a logical manner, to apply abstract principles to specific situations, and to relate questions at hand to everything else he knows.
  • A flexible mind, willing and able to consider, weigh, and apply new concepts and ideas, and to challenge previously held concepts, including one’s own.
  • A willingness to accept a level of risk high enough to gain the investment return advantage of a long time horizon.
  • A willingness to learn—about the kinds of concepts discussed in this book about individual investment opportunities.”

Diversity of Thought and Perspective

A diverse fiduciary committee has the benefit of bringing a range of relevant knowledge and different perspectives to the decision-making table. Be intentional in considering individuals with varying backgrounds, work experience, and expertise in investments, operations, risk management, and related fields.

“Diverse groups take account of a range of opinions and enhance credibility and widespread acceptance and implementation of decisions but may be more difficult to convene and manage appropriately. However, where chairs manage conflict constructively, more varied membership leads to better performance and more reliable judgements.”2  

A cross-section of experience and expertise fosters a wide range of ideas and insights and, when managed properly, enhances the committee’s ability to make well-informed decisions.

Transparent Selection Process

When managing the selection process, establish and maintain transparency throughout each step to build trust among potential committee members and stakeholders. Clearly communicate the criteria for selection and provide a fair and open opportunity for interested individuals to express their willingness to serve on the committee. A common organizational practice is to tie committee membership to a formal job position, allowing the member to utilize relevant skills and knowledge from their designated role. This integration is agreeable with good governance as long as it is transparent.

A transparent process cultivates trust and confidence and ensures the committee is viewed as a credible entity within the organization.

Commitment and Availability

Being a fiduciary committee member may require a significant time commitment. At the very least, it demands members’ full attention as well as incumbent time and effort to help the committee make informed decisions. Assess the availability and commitment level of potential members to ensure they can dedicate the necessary time to fulfill their responsibilities. The assessment can also serve as an opportunity to understand a member’s motivation to join the committee.

An engaged committee with the appropriate level of accessibility is better positioned to navigate decision-making processes promptly and effectively.

Conflict of Interest Policies

Implement distinct conflict of interest policies to avoid potential biases in decision-making. It should be required that committee members disclose any potential conflicts and mechanisms should be in place to manage or mitigate such conflicts. Applying a rigorous conflict of interest framework ensures that decisions are made in the best interests of the beneficiaries without being influenced by personal or external factors.

Regular Training and Education

The various domains (capital markets, legal and regulatory, finance, operations, etc.) that impact a committee’s decision-making are dynamic, and continuously evolve. To make certain the committee remains effective, provide regular training and educational opportunities for its members. This enables committee members to stay abreast of industry trends, regulatory and statutory changes, and risk management considerations, empowering them to make sound decisions.

Effective Communication Channels

Establish clear and effective communication channels within the committee. Encourage open dialogue, active listening, and the exchange of ideas among all members. A well-instituted communication framework allows for productive input and advances consideration of each member’s perspective, essential for a cohesive and well-functioning team.

Periodic Performance Evaluations

Conduct occasional evaluations of the committee’s and individual committee members’ performance. Assess the committee’s effectiveness in fulfilling its responsibilities and achieving stated objectives. This evaluation can identify areas for improvement, guide ongoing training efforts, and help maintain a high standard of decision-making within the committee.

A good practice to fulfill a board’s duty to monitor is to direct the fiduciary committee to prepare a report (on an annual basis is typical) that summarizes the activities and actions taken over the reported time period.

Assembling the Puzzle Pieces

Selecting fiduciary committee members is a critical task that demands diligent consideration and adherence to best practices. By contemplating the items outlined above – as well as group dynamics (see “Tuckman’s stages of group development”) – organizations position their fiduciary committee to be properly skilled and well-equipped to consistently make high-quality decisions. Effective decision-making within the fiduciary committee is not only a strategic necessity but also a cornerstone for building trust and confidence among stakeholders.

1. Russell L. Olson. The Independent Fiduciary. John Wiley & Sons, Inc., 1999.  

2. Sandy Oliver, Katie Hollingworth, Rob Briner, Catherine Swan, Kate Hinds, and Chris Roche. “Effective and efficient committee work: A Systematic overview of multidisciplinary literatures.”  Evidence Base, 2018.

More News