Dick Kamp: Do you work with an explicit stakeholder strategy?

December 19, 2023

^{This column was originally written in Dutch. This is an English translation.}

By Dick Kamp, Director Pension, Investment and Risk at Milliman Pensioen

A pension fund, like any other organization, has many stakeholders. The word management implies that the stakeholders must be 'managed'. But who are the stakeholders of a pension fund? How are they managed? And why is stakeholder management important? An exploratory overview.

According to a simple and perhaps broad definition, the stakeholders of a pension fund are those persons and organizations that have a direct interest in the existence of that pension fund. That interest can take different forms.

Who are the stakeholders?

As direct consumers of a pension fund's services (i.e. providing pension benefits), the participants (i.e. active, dormant, (ex-)partners, orphans and retirees) are emphatically stakeholders. The participant's employer is also a stakeholder as a client. The pension fund gives concrete substance to the employer's employment condition.

The sector or 'society' is a more distant stakeholder. After all, proper implementation of a pension fund increases the confidence of the sector or society in pensions. Improper implementation creates distrust, with all its consequences. Moreover, a pension fund invests in society and the participant consumes in society.

Other stakeholders are the regulators, DNB and the AFM, who through supervision ensure that pension administration by participants, employers and society takes place in a responsible manner.

Finally, the service providers who support the pension fund in its business operations are also stakeholders. This includes pension administrators, asset managers, accountants, actuaries, communications specialists and IT platform suppliers. After all, there is reciprocity. If the pension fund is doing well, then the support staff can also be doing well. And vice versa: good support is a condition for good service by the pension fund.

How are stakeholders managed?

A number of steps are taken when managing the stakeholders by the pension fund. The first step involves identifying the stakeholders. The second step involves analyzing the stakeholders: what is their role, how important is it and what dependencies are there. The third step concerns prioritizing and how stakeholders can be actively involved in strategic and operational management. The fourth step concerns monitoring the stakeholders. The fifth step concerns evaluating and, if necessary, adjusting your own processes or the agreements with the stakeholder.

This actually sounds logical and familiar, you might say. Good thing, too. You already do a lot in operational management and it is included, for example, in the communication policy and the outsourcing policy. The added value of looking at the stakeholder management aspect is the integrality of the whole.

Why is stakeholder management important?

If you make an overview of the stakeholders, you also have an overview of the fund's ecosystem. There may be a surprise in there too. I give the example of communication and actively involving participants. Now this often takes place via a risk preference study. But when have you really had a conversation (read: dialogue) with participants to see what their expectations are?

Another example is 'society'. You cannot enter into dialogue with 'society' as such. Still, you want to know what experiences and expectations exist there. The Pension Federation is actively trying to work on this. What do you contribute to this as a pension fund?

A final example is the more desirable mutual cooperation between the pension administrator and the asset manager in the implementation of the new pension contract. This cooperation does not arise spontaneously and must be managed in the interest of the pension fund. A different operational interpretation of stakeholder management is required. In our opinion, the pension fund should take the lead in this regard.

This limited number of illustrative examples shows why stakeholder management is important. It ensures that the (strategic) objective of the pension fund remains 'in sync' with the clients and participants. It also ensures that operational execution remains effective and efficient. And all within the lines of the law.

Dear pension fund manager, do you have a comprehensive view of your stakeholders and do you manage them in such a way that your pension fund is also relevant for the long term? In short, do you work with an explicit stakeholder strategy?

This is the twenty-third column in a series on risk management. The series aims to encourage the reader to consider risk management as an integral part of running a pension fund.

More columns by Dick Kamp