> Governance Of Public Pension Funds: Lessons From Corporate Governance And International Evidence

outside directors theoretically are able to focus on shareholder interests without undue influence from corporate insiders, so too are member-elected trustees able to focus on beneficiary interests without undue political interference. They may also serve to monitor politically affiliated trustees. Trustees appointed by the government to represent specific stakeholder groups also may fall into this category, depending on how they came to be selected for appointment.

> The composition of the board for a national pension plan is likely to differ from that of a board for a civil service plan. In the United States, for example, there are hundreds of

> state and local pension plans for civil servants, including those for teachers, judges, police, and firefighters. In such cases, plan members may be able to usefully elect their own representative. For national schemes, however, the election of trustees may not be feasible and may actually undermine the pension fund's goals (Palacios 2002). Instead,

> national schemes often have a tripartite board, with board members nominated to represent unions, employers, and government.

Analysis of a data set of more than 200 state and local U.S. civil service plans in the 1990s showed the composition of trustees on the average board to be approximately twothirds with political affiliations and one-third elected by plan members. On average, almost one-half of the trustees were appointed by government official or committee and one-third were not members of that pension plan. The size of the board averaged 8.5 trustees, with a range of 3 to 32 trustees.

> For our sample of 26 public pension funds, the number of trustees on the board averaged 12, with a range of 3 to 29 (see Table 3). The average proportion of ex officio trustees on the board was just less than 20 percent, and 70 percent of trustees were appointed. In 10 of the 26 plans, the entire board consisted of government-appointed members. Only eight of the 26 respondent funds had at least one trustee that was elected to the board. Instead of elected members, it was not uncommon for government-appointed trustees to represent trade unions or other employee associations: approximately 25 percent of board members represented trade unions or other employee associations and less than 15 percent represented employers. Approximately 40 percent of the board therefore could be classified as "outside" directors under the corporation analogy, as they are potentially independent of the government. This is approximately the same percentage as for U.S. state and local pension plans. However, while these trustees are appointed to represent different stakeholder groups, government influence may impact their ability to act as an independent monitor.

A final issue with respect to trustees that act as representatives of different groups is the expertise of those trustees. Only 62 percent of the funds surveyed indicated that they had at least one expert or professional member on the board, but among these funds on average 47 percent of trustees were identified as experts. One fund indicated that all of its four trustees were experts.

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