PRI proposes axing Advisory Council and expanding new unified board to improve governance

The Principles for Responsible Investment (PRI) has unveiled a host of external recommendations on how to improve its governance, chief of which is a proposal to eliminate its Advisory Council and create a single but expanded Association Board whose members would be directly elected by signatories. This would replace its current multi-tier board structure, which the organisation has itself described as “complex” and which has already led to signatory resignations citing governance problems. The PRI announced plans for a review of its governance in early February, almost two months after it was hit by the departure of eight Danish pension funds from its ranks. The schemes, including DKK600bn(€80bn) Danish pension giant ATP, said they were quitting due to serious and unresolved concerns about how the organisation was run. The PRI governance structure had previously consisted of an asset owner-majority Advisory Council (the Council) directly elected by signatories, an Association composed of the asset owner members of the Council, and an Association-appointed fiduciary Board of Directors (the Board).
The PRI picked Carnstone Partners, a UK-based consultancy, to evaluate its governance and suggest ways to improve it. Carnstone’s ten recommendations have now been published, and the PRI’s 1260 signatories have been asked to comment on them by the end of August. Carnstone’s chief recommendation is for the creation of a “single governing body,” in this case a 14-member PRI Association Board. That board would have nine seats for asset owners, four seats for assetmanagers/service providers plus a chairperson elected by board members. All members would serve three-year terms. The recommendation would have asset owner signatories vote for their nine board representatives and the asset managers/service providers for their four. Currently, these signatories elect the same number of representatives to the Advisory Council, which supervises the current seven-member Association Board. In addition, only asset owners serving on the Council pick the current Board’s members. As a result of Carnstone’s proposed elimination of the Council, this would become moot. Said the consultant: “A key aspect of our review has been to recommend a governance structure which could facilitate the engagement of all signatories in the PRI’s mission, whilst retaining an asset owner majority in decision-making.”
Carnstone’s proposed board also would include one advisor each from the UN Global Compact and the UN Environment Programme to underscore the organisation’s connection to the UN. The PRI’s Secretariat would report to this board. Other more minor Carnstone suggestions include reducing the number of PRI standing committees, ensuring the continued independence of the board chair and an annual review of board performance carried out by the members themselves.
Taking into account what PRI signatories say about Carnstone’s recommendations, PRI Council Chair, Martin Skancke, plans to make formal proposals on how the organisation’s governance can be improved at the PRI’s next annual “PRI in Person” conference to be held on September 24-26 in Montreal.