Pension fund trustees should insist that only companies with sound governance structures and processes be considered for investment, said Mr Paul Appleby, the director of corporate enforcement.
Addressing a seminar held by the Irish Association of Pension Funds (IAPF) yesterday, Mr Appleby also suggested that trustees should keep their relationship with their investment managers under regular review to ensure their concerns about the quality of investments made on their behalf were properly taken on board.
"The effect of adopting such policies should be to reduce funds' risk of exposure to losses in portfolio values due to corporate malpractice," he said.
Mr Appleby contended that trustees should regularly challenge investment managers on the extent to which their criteria are being adhered to in practice. "They should find out what efforts have been made by the manager to influence senior management, and if necessary directors, of investee companies to improve corporate governance standards."
When trustees are dissatisfied with the way particular companies are being run, they should mandate their investment manager to use their voting power in an appropriate way.
Irish Pension Trust director, Mr Alan Broxson, believes trustees should put in place a statement of investment policy and objectives, providing "a defence for trustees in the event of subsequent issues with the investment manager".
