CPP Investment Board Plans To Be Leader on Governance Practices

The CPP Investment Board is committed to best governance practices, publishing them, and publicly measuring its behavior against them, a pension fund industry conference was told today.

It has introduced a formal annual process evaluating the effectiveness of its board of directors and the performance of its management. And it will publish its codes of conduct, conflict of interest guidelines, and governance policies on its Web site later this year.

John A. MacNaughton, CPP Investment Board President and Chief Executive, told the spring conference of the Pension Investment Association of Canada that "this commitment goes beyond the requirements of the law and the expectations of governance authorities. We intend to be a forthright public advocate of good governance because we accept the premise and the evidence that good governance policies and practices are a component in superior portfolio performance."

The governance process helps to keep in the foreground the primary mission of delivering value to Canadians by increasing the long-term value of pension assets available to the Canada Pension Plan.

The CPP Investment Board invests funds received from the Canada Pension Plan with the objective of maximizing returns without incurring undue risk. The federal and provincial governments together set Canada Pension Plan contribution rates, benefit levels and funding policy, with the federal government administering the plan.

Mr. MacNaughton cited several distinctive features of the CPP Investment Board's governance. Directors with accounting, actuarial, investment, business or legal expertise, for example, are subject to higher standards of care in areas that relate to their expertise.

To ensure the highest standards, the directors test the governance practices against guidelines for public companies and pension funds.

Codes of Conduct for directors and officers and employees have been developed to create a corporate culture of trust, honesty and integrity. The codes deal with such matters as relations with suppliers, personal investments, and confidentiality of third-party proprietary information.

Among governance innovations, each director must annually submit to the board's governance committee a revised resumé highlighting changes in relationships that may give rise to a conflict. Directors must also notify the Chair before accepting a directorship or any position of authority in an entity that might benefit from, or be in conflict with, the CPP Investment Board.

Recently, the CPP Investment Board developed tough guidelines for officers on the disclosure of material inside information, insider trading, and personal trading. Officers must provide an annual statement of their securities holdings to the external auditor, and a monthly personal trading report.

You can appreciate how important these rules are when you realize that over the next 10 years, the CPP Investment Board's invested assets will grow from about $3 billion today to more than $100 billion based on a full arsenal of investment strategies," Mr. MacNaughton commented. "We intend to be more than just careful."

The CPP Investment Board receives funds not required by the Canada Pension Plan to pay current pensions and invests these funds in capital markets.

These assets and the income earned on them will be available to the Canada Pension Plan to pay future pensions.

The CPP Investment Board was created by an Act of Parliament in 1997, made its first investment in March 1999 and appointed its President and Chief Executive Officer in September 1999.