IFoA governance reforms

In our profession, we are often looking at risk profiles of other businesses and our current structure sits outside of the desired risk profile. It is essential that we at the IFoA are consistent with best practice, and this will mean the creation of a new Unitary Board with an independent Chair. The IFoA is at risk of legal challenge, lines of accountability are unclear and the roles of individuals within the governance structure are poorly defined.

These weaknesses are not theoretical. They have been highlighted by governance ‘near misses’ in recent years, the departure of two CEOs and an independent grievance report which included a Council-endorsed recommendation to conduct a full governance review.

Governance issues have already imposed a human cost on IFoA members and staff and have caused reputational damage to the organisation. As evidenced by organisations that have experienced similar governance issues, the risks and potential consequences of not acting swiftly and thoroughly are significant and potentially existential.

This is clearly not sustainable if the IFoA is to retain credibility in the eyes of our employers and clients, the FRC, policymakers, media and the general public.

Specifically for the IFoA, there are increased expectations from our oversight body, the Financial Reporting Council, in relation to the governance of the areas we regulate, including the need for strong independent (non-member) input in these areas – namely, education and regulation/discipline. This is reflected in the Corporate Governance Code. Our members tell us that the ability to self-regulate is essential, and meeting FRC’s and other stakeholder expectations of good governance is required to ensure the IFoA continues to command the confidence of its stakeholders.

As such, the need for reform is essential and urgent.

The IFoA has been through a thorough process to understand the effectiveness of our current framework and to consider recommendations made to improve the position. We sought external and expert professional advice, with the review spanning several months to ensure input from a range of stakeholders – including, but not limited to, current and previous Council and Management Board members and key Board and Committee leadership.

The review’s findings concluded that our current approach does not support the IFoA’s future direction. During the review process, governance structures of other organisations were taken into account. There were a number of recommendations made which included creation of a Professional Consultation Group, reviewing the size of the Council, removing the Management Board and a revised Committee structure. Council considered all proposed recommendations and overwhelmingly accepted that the agreed proposals were most appropriate for the IFoA’s purpose and structure.

The reforms voted for by Council in June 2023 are designed to:

• Safeguard the fundamental and central role of members as the owners (‘shareholders’) of the IFoA, remaining the ‘lifeblood’ of the organisation and profession;
• Ensure that members retain the ability, through Council as their representative body, to input to and influence decision-making, and in extremis to change its leadership by removing the Board Chair or the Board itself;
• Make our corporate decision-making arrangements more orthodox inline with sector and good governance practice, to ensure that the IFoA is organisationally capable of being more effectively run on behalf of its members;
• Confirm Council’s key strategic and ambassadorial role on behalf of members, and
• Ensure the Executive is overseen by a suitably qualified Board, containing the right experience and an effective mix of independent and member non-executives.

These reforms will allow the Council to have a much clearer focus on a vision for the profession and potentially be much more representative. Much of Council’s efforts will focus on skills, mindsets, and domains (current and future). The Unitary Board will act as the business hub that will enable the IFoA to act on the visions of the Council. Council will be populated with IFoA members and will have the exceptional power to remove the chair of the Unitary Board or the entire board. In essence, Council is still the governing body.

These reforms will result in a more resilient, efficient, streamlined, and agile governance structure better suited to the challenges presented by a rapidly changing world and a growing, global membership. Decisions can be made more effectively and efficiently which will ultimately benefit the member experience. We are particularly excited about the potential for Council to take a much more visionary and directional role in the future of the profession, focusing on the long-term future of the profession as well as member experience, education and regulation.

Council will be responsible for creating a long-term strategy for the profession which represents the views of IFoA members, and articulates to the Unitary Board what IFoA members need to be successful from their professional body in terms of member experience, thought leadership, education, learning and regulation. The Unitary Board will then be responsible for how this strategy is delivered, alongside overseeing the ongoing operations of the organisation. The details of how Council and the Unitary Board will work collaboratively together is one of the areas the Council Working Group will cover as part of its forthcoming member consultation.

The revised role of Council is designed to reflect and amplify the voice of the membership. Council will be responsible for a vision for the actuarial profession and acting as an advocate for the IFoA’s membership, strengthening the voice of members in all areas (e.g., the membership experience, thought leadership, education/lifelong learning, and regulation).

The world around us is changing at pace. The shifting nature of global risks, rise of artificial intelligence and difficulty in attracting top talent are just some of the challenges our profession is currently facing. It is therefore important the Council can focus on how the profession navigates these changes and provides qualifying and qualified actuaries with the necessary guidance and tools required.

The Unitary Board will comprise four independents, four IFoA members and one executive (the CEO). It is envisaged that there will be a Nominations Committee, responsible for all Board appointments (other than the President). The details of how this will work, who will sit on the Nominations Committee, and who they will report to are still to be settled. However, it is quite common in other organisations for Committees of this sort to report to Unitary Boards with no issues – provided those committees are, themselves, effectively and independently led. That would be the intent here, too. The consideration of the Nominations Committee reporting links closely with the Unitary Board composition.

To reassure you, the Council will consider all of these issues. The key objective will be to ensure a robust, independent, merit-based, and transparent appointment process, to ensure that the new board has the calibre, experience, and expertise to fulfil its leadership functions effectively on both the IFoA and its members.

The value of independence on the Unitary Board is one of the key principles of the governance review’s findings, that Council endorsed, that the current Management Board has unanimously supported and is in-line with the Financial Reporting Council recommendations on board composition*. Members, by definition, have a vested interest in the decisions being made which could impact the Board’s ability to maintain that independence.

The Unitary Board will be focusing on the operations of the IFoA with the visionary future of the profession still remaining with the Council. To create a member majority on the Board effectively sustains a member ‘golden vote’ and gives members the power to block decisions that the other Board members support. We are advised this would quickly result in independent members turning over and the potential for the new Board to quickly become ineffective as a result.

We are sympathetic to the symbolic importance of the golden vote, but a more professional Board operating to higher standards should reduce the risks of poor decisions being made. All Directors are required to work in the best interests of the IFoA and will be guided by a Council with a clearer remit and voice. The Council will still be made up of IFoA members.

*The IFoA has looked at the UK Corporate Governance Code as an example of good practice which states: ‘The board should include an appropriate combination of executive and non-executive (and, in particular, independent non-executive) directors, such that no one individual or small group of individuals dominates the board’s decision-making.’

As is currently the case, the views of members will continue to be represented by Council. The voice of members will, however, be stronger given Council’s clearer focus on member advocacy. The need for formalised two-way communication and partnership between Council and the Unitary Board is vital to the Terms of Reference for both groups. In addition, the President, as Chair of Council, will sit on the Unitary Board, along with three other IFoA members.

By design, under the Council-endorsed model, the Unitary Board will have full accountability and oversight risk for all IFoA activity. Failure to imbue them with that authority would perpetuate present-day issues: in particular, the lack of clarity on where authority and risk sit. Council remains the ultimate decision body within the IFoA and reserves the right to make further changes to the governance structure.

Council would be entitled to hold the Unitary Board to account on behalf of members as the custodians of the profession. There will be a duty on the Board to have regard to the Council’s views and Council will retain the power, in extremis, to remove and replace the Board Chair or the Board itself.

No. As part of the reforms and the safeguards we are putting in place in the structure, the Council would be entitled to hold the Unitary Board to account on behalf of members as the equivalent of ‘shareholders’ (owners). There will be a duty on the Board to have regard to the Council’s views and Council will retain the power, if completely necessary, to remove and replace the Board Chair or the Board itself.

The exact nature of this structure will be agreed upon as we implement each stage of the rollout.

An independent investigation recommended that the IFoA should undertake a full review of its governance arrangements. Council endorsed that recommendation and commissioned a thorough review. That review found numerous shortcomings in the IFoA’s governance independent of any specific employment issue. This was the third such independent governance review, all of which found shortcomings with the organisation’s governance.

These proposals have been approved by the Council and will look to be implemented over the coming months. There are a number of member votes needed to ultimately change the way we are run but these reforms are strongly backed by the elected council members to ensure that the IFoA can practise good governance in line with external governance standards expected of any organisation.

The report has not been published for two reasons. First, it was commissioned and written on the understanding that the report would remain confidential. This was partly to ensure full participation and candour from all parties without fear that the report would be made available to the public. Second, the publication of the report could lead indirectly to the identification of individuals who would have little or no right of reply.

As part of the member engagement process around governance reform, such as webinars, meetings and conferences, the IFoA Presidential Team and Interim Chief Executive have taken care to explain what the Governance weaknesses identified by the report were and what these reforms attempt to fix.

The IFoA is committed to providing the best possible education, guidance and community for current and aspiring actuaries. It awards the qualifications that underpin our work; it represents the profession and its interests externally; it thinks about the future of our profession in a changing world; it brings together actuaries in professional networks and at events; it sets professional standards, and - for some – it is also a regulator. The IFoA is also a community where lifelong memories and strong friendships are forged. The IFoA is, for many of us, a community where the actuarial profession lives and breathes.

It is therefore imperative that we are well structured to serve our members and continue to maintain our independence. These reforms will allow us to do this while helping to refocus the Council’s efforts where it really matters by helping to refocus the Council’s efforts where it really matters, concentrating on the long-term future of the profession and member issues.

The IFoA Council has been through a full and thorough process to understand the effectiveness of our current framework and to consider recommendations made to improve the position. We sought external and expert professional advice, with the review spanning several months to ensure consultation and input from a wide range of stakeholders – including, but not limited to, current and previous Council and Management Board members, and key Board and Committee leadership.

While actioning these changes is within the Council’s remit, we have received feedback from the members that they haven’t been sufficiently engaged around the proposed reforms. Council has taken this feedback on board and recognises that we have a duty to engage with our members and understand concerns around proposed changes. As such, we have launched this engagement campaign to ensure we are keeping our members up to date with the changes and how we will build a stronger organisation as a result of them as well as listening to any potential concerns. It is important to reiterate that, while these changes are strongly backed by the elected council and will be implemented over the coming months, there are a number of member votes needed to ultimately change the way we run. These votes are likely to take place in 2026.

The reforms voted on by Council anticipate that the Unitary Board will comprise independents non-executive directors (including the Chair), IFoA members serving as non-executive directors and one executive (the CEO). It is envisaged that there will be a Nominations Committee, responsible for all Board appointments (other than the President).

The value of independence on the Unitary Board is one of the key principles of the governance review’s findings, that the current Management Board has unanimously supported, that the Financial Reporting Council has expressed is vital*, and that Council overwhelmingly endorsed. Members, by definition, have a vested interest in the decisions being made which could impact the Board’s ability to maintain that independence.

The purpose of increasing the number of independent (non-actuary) directors is to increase diversity of thought and experience to the board. These independent directors could, for example, be those with skills in marketing, IT or at other professional bodies. In this respect, independence from the profession itself is an important element of ensuring that the board has a range of perspectives and skills needed to oversee a modern, international membership body.

Council has taken the view that the principle of independence would not be well-served if independent directors were drawn from the same – relatively small - pool of individuals as the member directors.

The IFoA has looked at the UK Corporate Governance Code as an example of good practice which states: ‘The board should include an appropriate combination of executive and non-executive (and, in particular, independent non-executive) directors, such that no one individual or small group of individuals dominates the board’s decision-making.’