ISSA Guidelines: Good Governance (Open Access Version) - WordPress
ISSA Guidelines Op en ac ce ss ve rsi on Good Governance
ISSA Guidelines on Good Governance INTERNATIONAL SOCIAL SECURITY ASSOCIATION 3
ISSA Guidelines on Good Governance The ISSA Guidelines for Social Security Administration consist of internationally-recognized professional standards in social security administration, and form part of the ISSA Centre for Excellence in Social Security Administration. The ISSA Guidelines have been developed by the ISSA Technical Commissions and staff of the ISSA Secretariat, based on a broad consultation with experts, international organizations and the worldwide ISSA membership. English is granted precedence as the authoritative language for all ISSA Guidelines. The ISSA Guidelines and related resources are available at http://www.issa.int/excellence . While care has been taken in the preparation and reproduction of the data published herein, the ISSA declines liability for any inaccuracy, omission or other error in the data, and, in general, for any financial or other loss or damage in any way resulting from the use of this publication. This publication is made available under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License (CC BY-NC-ND 3.0). License details http://creativecommons.org/licenses/by-nc-nd/3.0 International Social Security Association - Case postale 1 - CH-1211 Geneva 22 / Switzerland www.issa.int First published 2013 ISBN 978-92-843-1209-2 International Social Security Association 2013 4 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
Contents Introduction 9 Objectives of the ISSA Guidelines on Good Governance 10 Definition of Good Governance 11 Governance Framework for Social Security Institutions 13 Structure of the ISSA Guidelines on Good Governance 15 Acknowledgements 16 A. Good Governance Guidelines for the Board and Management 17 A.1. Principles and Guidelines for the Board 18 A.1.1. Accountability 18 Guideline 1. Powers and responsibilities of the board 19 Guideline 2. Delegating powers and responsibilities of the board 20 Guideline 3. Independence of the board from political interference 21 Guideline 4. Suitability and competence of members of the board 22 Guideline 5. Legal liability of the members of the board 23 Guideline 6. Performance standards for the management 24 Guideline 7. Strategic planning 25 Guideline 8. Risk management 26 Guideline 9. Internal and external systems of control 27 Guideline 10. Investment management 28 Guideline 11. Financial sustainability of the programme 29 A.1.2. Transparency 29 Guideline 12. Policy on disclosure 30 Guideline 13. Code of conduct 31 Guideline 14. Public reports 32 Guideline 15. Members’ right to information on benefits 33 A.1.3. Predictability 33 Guideline 16. Duties and responsibilities of members and beneficiaries 34 Guideline 17. Rights and privileges of members and beneficiaries 35 Guideline 18. Consistent application of board decisions 36 A.1.4. Participation 36 Guideline 19. Board representation of stakeholders 37 INTERNATIONAL SOCIAL SECURITY ASSOCIATION v
A.1.5. Dynamism 37 Guideline 20. Implementing rules and regulations for legislation, policy or decree 38 Guideline 21. Leadership and innovation in the institution 39 A.2. Principles and Guidelines for the Management vi 40 A.2.1. Accountability 40 Guideline 22. Powers and responsibilities of the management 41 Guideline 23. Clarity in powers and responsibilities 42 Guideline 24. Accountability of the Head of Management 43 Guideline 25. Independence of the management from political interference 44 Guideline 26. Suitability and competence of the Head of Management 45 Guideline 27. Legal liability of the management 46 Guideline 28. Strategic planning 47 Guideline 29. Risk management 48 Guideline 30. Internal and external systems of control 49 Guideline 31. Investment management 50 Guideline 32. Financial sustainability of the programme 51 Guideline 33. Performance standards for management officers and staff 52 A.2.2. Transparency 52 Guideline 34. Policy on disclosure 53 Guideline 35. Code of conduct 54 Guideline 36. Public reports 55 Guideline 37. Members’ right to information on benefits 56 A.2.3. Predictability 56 Guideline 38. Duties and responsibilities of members and beneficiaries 57 Guideline 39. Rights and privileges of members and beneficiaries 58 Guideline 40. Information and communications strategy 59 A.2.4. Participation 59 Guideline 41. Participation of stakeholders 60 Guideline 42. Management of stakeholder initiatives 61 A.2.5. Dynamism 61 Guideline 43. Leadership and innovation in the institution 62 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
Guideline 44. Encouragement of staff involvement 63 B. Guidelines for Specific Areas in Social Security Administration 65 B.1. Strategic Planning 66 Guideline 45. Initiating the strategic planning process 67 Guideline 46. Development of a vision statement 68 Guideline 47. Strategy formulation 69 Guideline 48. Strategy implementation 70 Guideline 49. Strategy diagnosis and performance review 71 B.2. Operational Risk Management 72 Guideline 50. Process model 73 Guideline 51. Scanning and scenario analysis 74 Guideline 52. Clarity of responsibilities and measures in case of an intervention 75 Guideline 53. Aligning and coordinating risk management activities 76 B.3. Internal Audit of Operations 77 Guideline 54. The internal audit charter 78 Guideline 55. Communication between the internal auditor and the actuary 79 Guideline 56. Performance assessment and quality assurance 80 Guideline 57. Implementation and management of audit findings 81 B.4. Actuarial Soundness 82 Guideline 58. Actuarial measures of the social security programme 83 Guideline 59. Actuarial valuations of the social security programme 84 Guideline 60. Changes in contribution rates and benefit entitlements 85 Guideline 61. Investment performance and benchmarks 86 B.5 Enforcing the Prudent Person Principle in Investment Management 87 B.5.1. Guidelines for institutions with internal investment units 87 Guideline 62. Prudent person principle 88 Guideline 63. Investment policies 89 Guideline 64. Due diligence 90 Guideline 65. Valuation of the investment portfolio 91 Guideline 66. External safekeeping measures 92 B.5.2. Guidelines for institutions with external fund managers 92 INTERNATIONAL SOCIAL SECURITY ASSOCIATION vii
Guideline 67. Selection process for external fund managers 93 Guideline 68. Alignment of incentives 94 Guideline 69. Custody of investment assets 95 B.5.3. Guidelines for institutions with representation on boards of companies 95 Guideline 70. Objectives of representatives on boards of companies 96 B.6. Prevention and Control of Corruption and Fraud in Contributions and Benefits 97 Guideline 71. Prevention and control of corruption and fraud in contributions 98 Guideline 72. Prevention and control of corruption and fraud in benefits 99 B.7. Service Standards for Members and Beneficiaries 100 Guideline 73. Contribution collection services 101 Guideline 74. Benefit distribution services 102 Guideline 75. Developing new services for members and beneficiaries 103 B.8. Human Resources Policies: Development, Retention and Succession 104 Guideline 76. Recruitment, selection and promotion policies 105 Guideline 77. Performance appraisals of personnel 106 Guideline 78. Development and training 107 Guideline 79. Talent management and retention 108 Guideline 80. Succession planning 109 Guideline 81. Personnel morale, compensation policy and decent work 110 Guideline 82. Promoting corporate values 111 B.9. Investments in ICT Infrastructure viii 112 Guideline 83. Standard policies and procedures 113 Guideline 84. Ex-post evaluation of new ICT infrastructure 114 Guideline 85. Maintenance of ICT infrastructure 115 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance Introduction Good governance is central to the effective delivery of social security and is a priority of the International Social Security Association (ISSA), which has the constitutional mandate to promote and develop social security worldwide through technical and administrative improvement. The ISSA Guidelines on Good Governance seeks to provide a practical and comprehensive reference on good governance. The guidelines are underpinned by a governance framework that spans the range of internal governance issues that are involved in the administration of social security programmes. The guidelines recognize accountability, transparency, predictability and participation as principles of good governance, and introduce dynamism as an additional important characteristic. INTERNATIONAL SOCIAL SECURITY ASSOCIATION 9
ISSA Guidelines on Good Governance Objectives of the ISSA Guidelines on Good Governance The diversity in governance practices around the world is a reflection of differences in the political, social, economic and cultural histories of countries. There is common recognition, however, that good governance is aimed at delivering what is mandated and ensuring that what is delivered is responsive to the evolving needs of the individual and society. Improved education and new technologies have increased the expectations of the public for accountable and transparent administration, including constant improvements in the delivery and performance of social services. Good governance is an important objective for social security organizations and a key principle of the ISSA. To provide ISSA member organizations with a basic framework on good governance, a project on governance and social security was included in the Association’s 2008-2010 Programme and Budget. The ISSA Good Governance Guidelines for Social Security Institutions that was launched at the World Social Security Forum in Cape Town in December 2010 was an outcome of this project. The current guidelines are a compendium of the ISSA’s work on social security governance over the two triennia of 2008-2010 and 2011-2013. They seek to provide ISSA member organizations with guiding principles and practical guidelines on good governance. The guidelines begin by defining, for the first time, what the ISSA means by “good governance”. The governance framework that underpins the guidelines aims to give the user an overview of the range of internal governance issues involved in social security administration. The ISSA Guidelines on Good Governance presents a virtual checklist of the essential elements which would help engender and support good governance within the institution. Suggestions are given on how to apply each guideline by describing governance structures and mechanisms that would facilitate its use. The ISSA Guidelines on Good Governance provides a basis on which the ISSA Secretariat will continue to develop further tools to facilitate capacity building and support the efforts of members to promote and improve the governance of their institutions, including training modules, e-learning applications, and indicators and benchmarks for good governance. Presently, the guidelines are focused on the internal governance of a social security institution and on nine specific areas that are among its major concerns. Future work remains for developing guidelines in other specific areas of operation that are of equal importance to social security administration. Governance guidelines which span the interaction and coordination between the social security institution and other agencies, including stakeholders and the political authorities, may likewise be developed in the future. 10 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance Definition of Good Governance The concept of governance is understood in many ways by different people. Its definition often depends on the goals to be pursued, the entities involved, and the socio-political environment within which these goals are to be achieved. Many definitions of governance focus on processes, structures and arrangements that pertain to the administration of an entity or unit of organization. The ISSA aligns its definition of governance with those that underscore the exercise of authority and power. The Asian Development Bank (ADB) describes governance as “the manner in which power is exercised in the management of a country’s economic and social resources for development”. Similarly, the World Bank refers to governance as consisting of the traditions and institutions by which authority in a country is exercised. In the context of social security administration, the ISSA defines governance as the manner in which the vested authority uses its powers to achieve the institution’s objectives, including its powers to design, implement and innovate the organization’s policies, rules, systems and processes, and to engage and involve its stakeholders. Good governance implies that the exercise of the vested authority is accountable, transparent, predictable, participative and dynamic. Various authors define and associate a number of principles with good governance, four of which are of particular relevance to social security institutions: accountability, transparency, predictability and participation. The ISSA includes dynamism as a fifth principle to characterize good governance. Each of these principles reinforces the four others. Observing one principle facilitates the practice of the other principles, thereby creating a virtuous environment for good governance. In the context of social security administration, the principles are defined in the literature as follows. Accountability is the ability to hold legally responsible the officials who are in charge of the institution. It requires establishing norms and standards to evaluate the achievement of the institution’s mission, and a well-functioning system of redress that protects the interests of stakeholders and deters mismanagement and deviations from the institution’s mandate. As trustees, social security administrators are responsible, and hence accountable, for managing the programme prudently, efficiently and equitably. Transparency is the availability and accessibility of accurate, essential and timely information to ensure that stakeholders are well informed of the true state of the social security programme and how it is being managed. Transparency in the decision-making process promotes honesty, integrity and competence, and discourages wrongdoing. Clarity and simplicity of rules, systems and processes help to limit the areas that would require discretion and arbitrariness in programme administration. Predictability refers to the consistent application of the law and its supporting policies, rules and regulations. For social security programmes, the rights and duties of members and beneficiaries must be well defined, protected and consistently enforced. Surprises and sudden changes in contribution rates, benefit entitlements or other features may seriously undermine the credibility of the programme. Participation refers to the active education, engagement and effective involvement of stakeholders to ensure the protection of their interests. The meaningful participation of stakeholders depends on their access to information about the institution and their capacity to understand and act on such information. Dynamism is simply defined as the element of positive change in governance. While the other four principles of governance may well be applied in the context of maintaining a status quo, dynamism refers to INTERNATIONAL SOCIAL SECURITY ASSOCIATION 11
ISSA Guidelines on Good Governance changing and improving on the status quo itself, by doing things more efficiently and equitably, and by responding to the evolving needs of programme members and beneficiaries, thereby creating new value. 12 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance Governance Framework for Social Security Institutions Most mandatory social security programmes are created by legislation, decree or some official act of government, to define the mandate of the institution that is responsible for the implementation of the programme. The mandate often draws a distinction between the “board” and “management”, with the board as the governing and policy-making body of the institution and the management as the body that administers the programme and implements the resolutions of the board. The governance framework that has been developed for these guidelines attempts to span the entire range of responsibilities of the board and management in social security administration. The framework describes social security administration in terms of four broad governance areas: financial sustainability; sound investments; member coverage and contributions, and member benefits and services; and resource management, in particular, human resources and information and communication technologies (ICT) infrastructure. The scope of each of these governance areas is briefly summarized below. Legislation, decree or policy will establish the governance scope of the institution. For example, there are programmes that are wholly tax financed and hence have no mandate to collect contributions; some have no investment reserve funds, others have units to manage fund investments, while some have fund management institutions that are wholly separate and independent from those that administer member contributions and benefits. Financial sustainability The board and management are duty bound to maintain an adequate level of funding to deliver the promised benefits to members and beneficiaries, and to ensure the cost effectiveness of the administration of the social security programme. Maintaining the financial sustainability of the programme and balancing the inflow of contributions and investment income with the outflow of benefit payments are some of the key management challenges in this area. Sound investments For programmes with an investment mandate, the board and management must ensure that reserve funds are invested in accordance with basic prudential rules such as profitability, safety, liquidity and diversification. Framing the investment policy and strategy, portfolio and asset–liability management, enforcing the prudent person principle, valuation of assets, representation on the boards of companies in which the institution has significant asset holdings, and policies on investments with socio-economic utility are some of the issues in this governance area. Member coverage and contributions, and member benefits and services The raison d’être of social security institutions is to administer the rights and obligations of members and beneficiaries. Coverage extension, collection of contributions, adequacy of benefits, distribution of benefits, quality standards of service for members, and prevention of fraud and corruption in the programme are some of the central issues in this area. Resource management: Human resources and ICT infrastructure The board and management must ensure proper resource management, in particular, the availability of competent human resources, and efficient ICT infrastructure to support programme administration and INTERNATIONAL SOCIAL SECURITY ASSOCIATION 13
ISSA Guidelines on Good Governance operations. Human resources management – attracting, retaining, training, mentoring and compensating expert, loyal and motivated staff – is key to the successful governance of any organization. Staffing and compensation, succession planning, merit and performance appraisals, and adherence to a staff code of ethics are among the key policy instruments to consider in motivating and managing the institution’s human resources. In the area of ICT infrastructure, the key operational issues include maintaining the integrity of the member database, evaluation of investments in new ICT, matching existing systems with new ICT, and integrity and cost effectiveness of backup and recovery systems for the institution. 14 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance Structure of the ISSA Guidelines on Good Governance The following guidelines are organized in two parts. Part A, Good Governance Guidelines for the Board and Management, provides some guidelines for the board and the management of the social security institution. The guidelines are aligned with the five identified good governance principles, including suggestions on governance structures and mechanisms to enable the implementation of the guidelines. Part B, Guidelines for Specific Areas in Social Security Administration, addresses nine specific areas that are of common concern to social security institutions. It begins with three cross-cutting topics in programme administration: ¡ Strategic planning; ¡ Operational risk management; ¡ Internal audit of operations. Then, in the area of financial sustainability, the topic is: ¡ Actuarial soundness. In the area of sound investments, the topic is: ¡ Enforcing the prudent person principle. The area of member coverage, contributions, member benefits and services covers: ¡ Prevention and control of corruption and fraud in contributions and benefits; ¡ Service standards for members and beneficiaries. The area of resource management covers: ¡ Human resources policies: Development, retention and succession; ¡ Investments in ICT infrastructure. Open access versions of the ISSA Guidelines for Social Security Administration differ from those made available to ISSA member institutions. Open access versions of the ISSA Guidelines for Social Security Administration provide readers with each respective Guideline statement and its underlying principle only. They do not provide information concerning the suggested operational structures for the functioning of Guidelines or mechanisms for their implementation. Open access versions also do not provide additional resources, references and links to good practice examples designed to provide background and assist comprehension. INTERNATIONAL SOCIAL SECURITY ASSOCIATION 15
ISSA Guidelines on Good Governance Acknowledgements Acknowledgements The ISSA Guidelines for Social Security Institutions were prepared by the ISSA Secretariat with the ISSA Technical Commissions. The ISSA Guidelines on Good Governance were produced in 2008–2010 under the auspices of the ISSA Technical Commission on Organization, Management and Innovation chaired by Errol Frank Stoové of the Netherlands Social Insurance Bank (SVB) and the ISSA Technical Commission on the Investment of Social Security Funds chaired by Omar Al-Razzaz of the Social Security Corporation, Jordan, and in 2011-2013 under the auspices of the ISSA Technical Commission on Organization, Management and Innovation chaired by Adriana Lender of the Swedish Social Insurance Agency. The Guidelines were prepared by a team at the ISSA Secretariat led by Maribel D. Ortiz. Expert support and contributions were provided in 2008-2010 by Alberto R. Musalem of the George Washington University, Washington, DC, United States; Hugo Bertin of the University of La Plata, Argentina; and Roberto Calvo of the Universidad Argentina de la Empresa, Argentina; and in 2011-2013 by Jan-Erik Hunn, Svenja Falk and Carmen Uys of Accenture. 16 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance A. Good Governance Guidelines for the Board and Management INTERNATIONAL SOCIAL SECURITY ASSOCIATION 17
ISSA Guidelines on Good Governance A.1. Principles and Guidelines for the Board The board is the group of persons who, under the legislation or by-laws establishing the entity, is given the responsibility to govern the social security programme and to exercise oversight on its administration. The entity could be a government ministry or department, a statutory body or a private entity. The 21 guidelines for the board support and promote the following five principles of good governance, as applied to social security institutions: 1. Accountability 2. Transparency 3. Predictability 4. Participation 5. Dynamism. Each principle is described briefly. Guidelines are then provided on how each principle may be applied. A.1.1. Accountability The principle of accountability is at the heart of good governance. At a political level, it means making rulers accountable to the ruled. To enforce accountability, governance structures and mechanisms are needed to enable the principals to hold their chosen trustees legally responsible for their acts and decisions. The board of a social security institution should be accountable to the members, beneficiaries and other stakeholders of the social security programme. The members of the board should be liable for their actions as well as for their failures to act. The legal liability of the board members must be defined by the legislation, policy or decree that establishes the social security programme. As trustees, board members are responsible, and hence are accountable, for achieving the institution’s mandate and for managing the programme prudently, efficiently and equitably. Internal and external governance structures and mechanisms must be in place to ensure the efficiency of the organization in the way the institutional objectives are set and decisions are taken, implemented and reviewed. The board should not be able to absolve itself completely of its responsibilities by delegating certain functions to the management of the social security institution or to external service providers. These 11 guidelines will assist the board to promote the principle of accountability in the administration of a social security institution. 18 INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance Guideline 1. Powers and responsibilities of the board Legislation, policy or decree defines the powers and responsibilities of the board. The powers and responsibilities of the board are clearly delineated from those of the management. There are no areas of ambiguity, dilemma or conflict of interest. Notes. ¡ . ¡ . ¡ . ¡ . ¡ . INTERNATIONAL SOCIAL SECURITY ASSOCIATION 19
ISSA Guidelines on Good Governance Guideline 2. Delegating powers and responsibilities of the board Should the board delegate its functions to a subgroup of the board, to a subgroup of officers at management level and/or to external service providers, such delegated functions are well defined, documented, time bound and subject to review and approval by the board. Legislation, policy or decree provides for the responsibility of the board members for such delegated functions. Notes. 20 ¡ . ¡ . ¡ . ¡ . ¡ . INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance Guideline 3. Independence of the board from political interference Legislation, policy or decree provides for the board’s independence from political interference to implement its mandate by prescribing the selection process and by defining the grounds for removal from office solely for just cause. Notes. ¡ . ¡ . ¡ . ¡ . ¡ . INTERNATIONAL SOCIAL SECURITY ASSOCIATION 21
ISSA Guidelines on Good Governance Guideline 4. Suitability and competence of members of the board The selection process ensures the suitability and competence of the members of the board. The term of office of a board member and the basis for its renewal (if renewable) are clear and well defined. Notes. 22 ¡ . ¡ . ¡ . ¡ . ¡ . INTERNATIONAL SOCIAL SECURITY ASSOCIATION
ISSA Guidelines on Good Governance Guideline 5. Legal liability of the members of
Objectives of the ISSA Guidelines on Good Governance 10 Definition of Good Governance 11 Governance Framework for Social Security Institutions 13 Structure of the ISSA Guidelines on Good Governance 15 Acknowledgements 16 A. Good Governance Guidelines for the Board and Management 17 A.1. Principles and Guidelines for the Board 18 A.1.1.
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