Governance Bites #78: Corporate Trustee Services, with David Callanan

In this episode, Mark Banicevich talks to David Callanan about Corporate Trustee Services. They discuss how Corporate Trustees interact with Boards of Directors, and the biggest challenges both groups face. David also gives his thoughts on governance in Australia and New Zealand, and shares the best governance advice he's received in his career. 
David Callanan General Manager of Corporate Trustee Services at Public Trust. He is a Fellow of the Governance Institute of Australia, and has been Chief Risk Officer at Public Trust, Tower Insurance, and RACQ Insurance in Australia (often including Company Secretary). He spent 4 years at PwC in Australia and London, and worked for the Citibank-State Street joint venture CitiStreet Australia for 6 years prior to that. 
#governance, #leadership, #corporategovernance, #boardcraft, #decisionmaking, #makingadifference, #governancebites, #boardroom , #cgi, #charteredgovernanceinstitute

Transcript

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Hi. I'm David Callanan, General Manager, Corporate Trustee Services at Public Trust. My background is working in financial services in Australia and New Zealand. I have been working as a company secretary, Chief Risk Officer, and now in the funds management supervision space, throughout my career. Looking forward to having a chat about governance, the world of funds management in New Zealand, and, yeah, just generally bringing some sporting analogies to the conversation with Mark today. So looking forward to it. Hi. Welcome to Governance Bites. My name is Mark Banicevich, and, as you just heard, I'm very fortunate today to spend some time with David Callanan. David, thank you very much for your time. Thank you. The conversation today we want to start with is around Corporate Trustee Services, your current role, and how they're involved in governance. So can you start by telling us just a bit about what Corporate Trustee Services are? Yeah, sure. So Corporate Trustee Services is a business unit at Public Trust first and foremost. So PT, Public Trust, is known for a number of things, in particular associated with, you know, wills and estate administration. That's probably the first thing people think about when it comes to Public Trust. But Corporate Trustee Services is a really important part of the business. And Corporate Trustee Services, what it's all about, is the use of trusts in financial services. So a trust is a legal structure, a legal entity, and actually trusts sit behind the effective operation of financial services, particularly in New Zealand but across the world. So what is a trust? Effectively, a trust is a legal entity where you have multiple interested individuals, so investors we would call them beneficiaries, or in the KiwiSaver context, you call them members, and they've all got a shared interest in ensuring that good financial decisions are made for their pool of assets. So corporate trustees sit overseeing this trust, this structure where you've got multiple interested beneficiaries sitting underneath this legal entity, and we effectively play this role of oversight, making sure that things are well managed in the interests of those underlying investors. So that that shows up in lots of different spaces. As I've mentioned, you know, KiwiSaver. Every KiwiSaver fund in New Zealand has got a supervisor, and supervisor is just a label for a corporate trustee. Likewise, managed investment schemes, and even down into other types of products like bond securitisations. They've all got this role of having an independent trustee that sits there making sure that things are being well managed for those underlying investors and beneficiaries. Right. It's interesting to hear you describe a trust as a legal entity, because it's a legal entity but not a legal person, right? Yeah. It's quite a strange structure that we have in Westminster law. Yeah. How do corporate trustees interact with boards of directors? Yeah. So we do get quite active working closely with boards, and I guess if you're the board, let's say you're the board of a KiwiSaver fund, you know, you've got a lot of responsibilities. You know, we're talking now over a hundred billion [NZ] dollars of assets in New Zealand that are being invested for New Zealanders. So those boards have got a lot of responsibility. So they do lean on us as the supervisor or trustee. As I said, same thing. We will engage with them to have ongoing conversations to give them, I guess, they want to get assurance that things are going well, that the underlying manager of the funds or their other service providers are doing a good job. So there's an assurance layer. But also we will escalate and engage with them if there are any potential issues or risks that we're concerned about. So that's something that a board would expect us to do. And I mean, it's a similar kind of relationship that you'd expect in other sorts of entities where you've got an independent advisor that's sitting closely alongside your management team. It's just, it's entrenched heavily in the, you know, legal regulatory landscape here in New Zealand, which I think is a very effective model. We get to work really closely with the manager and their board, but we also get to have this macro-level engagement with the regulator, and we bring that to both relationships and connect the two together. Great. Okay, your services include debt issues and structured finance arrangements. Can you tell us a bit about that? Yeah, look, I mean, it's very similar as I just said. One of the differences is we will fulfill two distinct roles. So there's the role of a security trustee, and that's similar to the role of a custodian, where effectively we're there to make sure that the interest is being securely held, hence the security language that's embedded in there. And then there's the role of the trustee, which is to make sure that the obligations under the trust deed are being met. So, in particular, that might be the payment of income from that entity. So it's, I mean, in some ways, it's very simple. You've got the role of protecting the asset and then making sure that the things that are promised are being delivered. That's consistent across all of our roles. And when it comes to those specific different types of assets, it's just slightly different language and different concepts that are applied, but legally they're very similar. Okay. Right. What kind of challenges are Corporate Trustees facing at the moment, and what sort of opportunities? Yeah, well, I think the biggest challenge is there's just a lot going on. So we've got a shifting regulatory landscape. We've got a regulator that's being very proactive, which is great, but it does mean that the bar's constantly being raised in terms of the work that market participants are expected to undertake. And, as I said, that's not a bad thing, but it does mean that there's a lot going on as a corporate trustee to keep yourself, your finger on the pulse, to keep engaged. And, and what that also means is that we have to balance, like any other business, the allocation of resources, and in particular getting your hands on really capable people, so that you can deliver on what is a substantial promise. So, you know, we're always looking for the right talent, and finding and recruiting that talent is, and keeping that talent, is really important to us. So getting the culture within the organisation right, so that when you bring them in, you keep them, and also that you're using that as your best market employee to bring great talent in. So, yeah, look, we're like any other business. We've got those challenging competing priorities around delivering outcomes versus the cost of doing a great job. And so, like running a board, we've got to weigh up those challenges and progress them. Certainly, we're, in New Zealand, we're in a market where there is, there's not a shyness away from innovation and trying new things, and that's really good. But at the same time, we're relatively small on a global scale. So although there's lots of divergence of practices that might be occurring, which we'd encourage in terms of innovation, it does create that ongoing challenge for us to kind of just keep it well managed. We don't want to stifle the innovation, but you want to make sure that those minimum standards, like the regulator, which is the Financial Markets Authority, or the Reserve Bank in terms of our role with, - Prudential supervision. - Yeah, with NBDTs[non-bank deposit-takers]. And we also have a role with retirement villages as a supervisor. That's right. So all of these sectors, they're all trying to innovate and win business, but that just creates variability in terms of the engagements that we have. So bringing, as I said before, bringing that regulatory control into the conversation is really important, but also doing it with a commercial mindset and understanding the parameters that businesses are having to run in means that we need great people. We need people that can understand that conflict, walking that, you know, we call it as a line that you have to walk as an independent trustee or supervisor. You've got to put yourself in the shoes of someone who's trying to run a business, but at the same time, we've also got to put ourselves in the shoes of the investor. And in our instance, that's a direct obligation for us to act on behalf of. It's a fiduciary obligation to act in the interests of investors. And that's ultimately what the regulator wants too, is for us to bring that consumer lens into all the work we do. So it's just striking that balance is a real challenge. So, as a supervisor, it almost feels like your role as independent governance of these trusts and those organisations have their own boards of directors. So hence the interaction. With the interaction that you have with boards of directors, what are the common challenges, or the largest challenges, that the boards that you're working with are facing? Yeah, as I said, it's very similar to the challenges that we're facing. So, ultimately, these are businesses, and they want to grow, and they want to deliver for their customers. And we don't shy away from that either. We want to support those businesses to be successful. But at the same time, sometimes with success comes risk. And the bigger you are and the more complex you are, then the more important it is that you get things right. So one of the most important things for boards to navigate is this investment in the here and now and compliance and managing risk and good governance. It kind of goes without saying, but governance sits at the heart of all of this, making good decisions. And you can only make good decisions when you have good information. So you need to invest to have good information coming up to the board to make good decisions, and that means you've got to invest in the business in terms of the here and now. So that's the short term, and then there's the long term. So there's also a need to invest in the future, the future of the business, whether that's designing new products that are compliant within the parameters that they need to be. But leaning into your marketing, you know, looking for new and innovative ways of service, delivering service to customers. These are all opportunities for boards to think about, not just meet your minimum compliance obligations now, you also want to be setting your business model up for success in the long term. Yes. So, yeah, those issues, as I said, for Public Trust as a corporate trustee service provider, we have to manage those ourselves, but we also need to have our head around this responsibility that boards, fund managers, all of these entities are trying to navigate, striking that balance between the short term and the long term. And that's where governance, you know, really comes to the fore is finding that balance. Right. What's your, given your experience in both Australia and New Zealand, and with the governance lens, what's your feeling or your view of the state of governance generally in New Zealand and Australia? How are we performing? Yeah, that's a tough question. So I've been here for nearly 10 years, and I had some exposure through a few governance roles that I had in Australia. Certainly worked in a mutual for quite some time in Australia, worked in a professional services firm, had a lot of board interaction. I was on the board of, the national board of the Governance Institute [of Australia], and I'm a fellow of the Governance Institute in Australia. So I guess I got to see what might have been best practice in terms of governance, because you'd expect the Governance Institute to have good governance. And then coming over here working in a listed insurer as the company secretary and an executive and the Chief Risk Officer, and then now working at an Autonomous Crown Entity in the executive and was the company secretary for some time as well. So I've seen quite a variety of different entity structures, different roles. I think in terms of the difference between Australia and New Zealand, some of it is the rhetoric that you'll hear from me, which you'll hear from a lot of Australians, which is New Zealand is traditionally more conservative. There is a slight risk aversion compared to probably Australia. And I think that's, there's a lack of confidence, probably - self-confidence - which can be good because there's slightly less risk-taking, I think, in the governance sphere, I'm talking. Not in terms of entrepreneurs and kind of startup culture, that's definitely alive and well in New Zealand. But at a governance level, I think there's a little bit of conservatism that's certainly present, whereas in Australia, there is quite a willingness to push out further, and that has risks, but I think Australians generally, they're a little bit more brash, a little bit more confident, and more willing to take risks. So that's a difference. But I think what's probably more prevalent, or more important from my experience is the different ownership structures actually has more of an impact than necessarily the Australia- New Zealand divide. So working with mutuals, I've seen mutual boards are very, very able to connect with the consumer because the consumer is their shareholder, and so that connection is very immediate and apparent in their decision-making. They can make that leap and make that decision with that lens very readily, versus if you're working in a, a government entity, like Public Trust, we've got a very clear direction from the government, our shareholder. So that does make that kind of quite clear and obvious path for us to navigate, but it also creates other stakeholder and other, you know, perimeter issues for us to navigate. So certain obligations that we have as a government entity for us to navigate and manage, which just adds some complexity, in particular disclosure and, you know, transparency. And the work that I'm now doing with the Auckland Future Fund, as well. So the Council have established this Council-controlled organisation. You know, it will be operating in a very transparent environment. So that government environment does create that lens of very strong governance, very deliberate decision-making, and very transparent, which is helpful, but does mean that you're probably slightly more conservative in your process than you would be in a private entity. And then that third bucket is, yeah, private equity, and there's much more risk-taking, because there's an expectation from shareholders that you've got to focus on dividends. There is also obviously an interest in driving good consumer outcomes. If you run a good business, you're driving good customer or consumer outcomes. So that balance is there, but there is a slight skew and heavy, more heavy weighting, I think, to shareholders and profitability and commercial decision-making, certainly in that environment. Now, so I've just described three different buckets, and how they're different. I actually think they're converging now, and that's a shift that's been driven by, in fact, the governance fraternity generally, and the focus on governance, corporate governance across the globe, Australia and New Zealand included. And there have been failures in governance that have resulted in negative outcomes. Yes. And those standards have been lifted for everybody. So I think there's a convergence because there's an expectation that you need to be undertaking business on a platform and foundation of good conduct. And good governance and good conduct are very similar concepts. And so I think, regardless of what kind of entity you are, regardless of whether you're in Australia or New Zealand or the US, this conduct lens is actually bringing everyone together onto the same page in terms of what good looks like, and lifting the bar in terms of those expectations. So there are differences, but I think that there's maturity developing across the board as we, you know, move forward and take on board this consumer lens. That's an exciting insight. Final question for you, what's the best governance advice you've received? So a couple of things come to mind. I think the first thing I'll mention is a board is like any other team, and you need to have a great culture. You need to have a shared vision, but also you need to have a really strong captain. And in a board context, that's the chair. And so I think it's often underestimated how important a role of the chair is, and the chair's ability to bring the board together, make those decisions in a timely and efficient way, and, you know, to also work with management and get really close with the chief executive. And we're really lucky at Public Trust, Ian Fitzgerald as a chair, you know, very engaged in the business, has a great working relationship with our chief executive, Glenys Talivai, and I know you've spoken to Glenys, and I'm sure she'd say the same thing. And that's just really important in terms of the effective governance of an organisation with so much going on like Public Trust. And so the same applies from my observations, either as a company secretary, or where I've been a supervisor, and working with boards, or as a professional services firm consulting to boards. A strong chair makes all the difference in terms of the environment, the boardroom environment, but also outside of the meetings. So that's the first thing, you know, that chair has got to take that role really seriously and really lean into that team captain role. And then a second thing I'd say, so the advice that I got was that performance is a lead indicator of long-term deliverable, long-term outcomes. So, as I've already probably said about 10 times, there's a balance to strike here as a board from a governance perspective. You can't overweight the focus on short-term performance, because you'll lose sight of what you're trying to achieve long term. But you also can't only sit on that horizon that's 5 or 10 years out and disregard short-term performance, because you might find yourself, you know, falling into a hole without looking at your feet, because you're just looking so far ahead. So the advice really is, yes, you need to have a conversation about short-term performance, and it's a leading indicator of long-term performance and outcomes, but also make sure you balance that time and spend some time really thinking about the future of the organisation, because that's the future that you've been engaged to deliver, and you've got to strike a balance between the two. That's great, David. Thank you very much for your time. I really appreciate it. It's been a fun conversation. It did take you right until the end to bring up a sport analogy, but I'm pleased you managed to pull that off. I'll look forward to catching up again soon. Yeah, great. And see you next episode. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel, where I interview directors and experts on various topics relating to boards of directors and governance. We'd love to see you back, and please like, subscribe, and share the videos and podcasts.