At the end of the manager selection process, many investment committees conduct a final round of interviews, the so-called “beauty contest,” disliked by many managers because of its superficiality. But this method of selection can be dissatisfactory for sponsors, as well. It misdirects fiduciary oversight, relieves consultants of accountability, and is symptomatic of incomplete and ineffective delegation of fiduciary responsibility. We believe that there is a better alternative.

Poor governance by investment committees and asset management organizations often takes the form of other maladies, such as high turnover, high costs, performance-chasing, or rigid and counterproductive decision rules. These are often symptoms of broader governance ills, such as inexperience with investments, lack of focus, misplaced priorities, inconsistent decision-making, lack of discipline or flexibility, or organizational disunity. Recognizing the symptoms of poor governance can be a useful first step in tracing the root causes and finding the cure.

Hiring an outside firm to assume the day-to-day oversight of investment management may seem to require losing control of the investment function. On the contrary, outsourcing can increase control by enabling fiduciaries to focus on governance, investment policy, and other high-level issues. The trick is to pick an outsourcer that can adapt to the client’s specific needs for control and information.

A culture of good investment governance is based on the shared objectives, mutual respect, judgment and experience of the group of people working together to fulfill fiduciary responsibilities. Developing and sustaining a supportive governance culture takes commitment, integrity and a degree of self-awareness. We hope that the self-evaluation of your corporate governance culture set out in this issue of Fiduciary Insights will stimulate reflection and discussion that foster a culture of good governance.

The responsibilities confronting board members have never been clearer. They must do everything in their power to understand and manage the risks their organization faces. But what happens when that just is not possible? What happens when the risks are simply too complex for board members to grasp? What happens when they just don't have the skill sets that are required to meet their fiduciary obligations?

We explore a growing trend in outsourcing. Many plan sponsors have outsourced their Defined Contribution plan, realizing a range of benefits, but have stopped short of outsourcing their Defined Benefit plan. Here we explore three different Defined Benefit plan outsourcing alternatives—i.e., Funds of Funds, Investment Consultants and Full-Service Fiduciaries. Each offers a different approach and a varying array of considerations and benefits for plan sponsors.