ISSA Guidelines: Good Governance (Open access version) · 02.09.2015 · A. Good Governance Guidelines for the Board and Management 17 A.1. Principles and Guidelines for the Board

ISSA Guidelines

Good Governance

Open a

ccess

versi

on

ISSA Guidelines on Good Governance

3INTERNATIONAL SOCIAL SECURITY ASSOCIATION


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

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

vINTERNATIONAL SOCIAL SECURITY ASSOCIATION

Contents

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 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

vi 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

viiINTERNATIONAL SOCIAL SECURITY ASSOCIATION

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 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

viii INTERNATIONAL SOCIAL SECURITY ASSOCIATION


IntroductionGood 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.



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 con-stant 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 guide-lines 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 guide-lines 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 institu-tion and other agencies, including stakeholders and the political authorities, may likewise be developed in the future.



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 accounta-ble, 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 reg-ulations. 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 prin-ciples of governance may well be applied in the context of maintaining a status quo, dynamism refers to



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.



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 sustainabil-ity; 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 administra-tion 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 bene-fits, 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



operations. Human resources management – attracting, retaining, training, mentoring and compensat-ing 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 institu-tion’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.



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 guide-lines 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 con-cerning 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.



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.



A. Good Governance Guidelines for the Board and Management



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 administra-tion. 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 mak-ing 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.



Guideline 1. Powers and responsibilities of the board

Legislation, policy or decree defines the powers and responsibilities of the board. The pow-ers and responsibilities of the board are clearly delineated from those of the management. There are no areas of ambiguity, dilemma or conflict of interest.

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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.

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Guideline 3. Independence of the board from political interference

Legislation, policy or decree provides for the board’s independence from political inter-ference to implement its mandate by prescribing the selection process and by defining the grounds for removal from office solely for just cause.

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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.

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Guideline 5. Legal liability of the members of the board

Legislation, policy or decree establishes the legal liability of the members of the board for failure to discharge their functions.

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Guideline 6. Performance standards for the management

The board ensures that the institution is performing its mandate efficiently. It establishes a set of standards and benchmarks to evaluate the management’s administration and imple-mentation of the social security programmes.

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Guideline 7. Strategic planning

There is a board-approved strategic plan that lays down and spells out the key strategies and plans of action to be implemented by the management in order to realize and perform the legislated mandate of the institution.

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Guideline 8. Risk management

The board ensures that the risks faced by the social security institution are properly iden-tified and managed or averted. These risks may arise in various forms, including but not limited to strategic, operational, political, economic, regulatory, geographic and demo-graphic risks.

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Guideline 9. Internal and external systems of control

Legislation, policy or decree provides for the establishment of internal and external sys-tems of control for the social security institution.

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Guideline 10. Investment management

For social security institutions that have an investment mandate, legislation, policy or decree establishes the general direction of the investment policy and prescribes the types of allowed investment instruments. Furthermore, in order to maximize the long-term rate of return on reserves and at the same time mitigate investment risks, the range of instru-ments allowed for investments is sufficiently diversified. The board has the technical expertise to decide on the merits and risks of an investment proposal, using security and profitability as the main basis for an investment undertaking. Legislation, policy or decree establishes the legal liability of the board for fraudulent investments.

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Guideline 11. Financial sustainability of the programme

The board implements the established actuarial measures to ensure the financial sustain-ability of each of the social security programmes established by the institution. For insti-tutions that have investment reserve funds, standards and benchmarks are established for the returns on investments to support the financial sustainability of the social security programmes.

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A.1.2. Transparency

Open dissemination of key information about the social security institution does not necessarily imply transparency. To be transparent, such information, which is a basic right for stakeholders, members and beneficiaries of the social security scheme, should be timely, reliable, relevant, accurate and objectively verifiable.

Transparency is of the highest importance to enlightened policy-making. It underpins and reinforces the capacity of the stakeholders to hold responsible the persons entrusted with the management and admin-istration of the social security institution. It is a prerequisite to effective and meaningful stakeholder par-ticipation. To the extent that it improves the availability and quality of market information, transparency can significantly lower transaction costs.

The board should conduct its business in a transparent way, and promote transparency in its deci-sion-making process and in its relationship with the management, members, beneficiaries and other stakeholders of the social security programmes.

These four guidelines will assist the board to promote the principle of transparency in the administration of a social security institution.



Guideline 12. Policy on disclosure

The board establishes a policy on disclosure of information that clearly defines the grounds on which the board may choose to exercise discretion in providing information to stakeholders.

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Guideline 13. Code of conduct

The board establishes and abides by a workable code of conduct, which includes a policy on the disclosure and management of conflict of interest on the part of any board member.

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Guideline 14. Public reports

The board regularly, accurately and in a timely manner informs the stakeholders and the general public on the status of the social security institution and its operations.

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Guideline 15. Members’ right to information on benefits

Members are informed about the benefits due to them under the social security programmes.

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A.1.3. Predictability

The legislation, policy or decree that establishes the social security programme normally prescribes its manner of financing and the benefits to be provided to the covered population.

Predictability refers to the consistent and uniform application of the law, including the rules and regula-tions to implement it. Stakeholders are generally averse to sudden or unannounced changes in contribu-tions to and benefits from the programme. The methodical application of the programme will strengthen stakeholder confidence and support for it.

Predictability underlines the importance of stakeholder consultation and consensus building prior to the implementation of any change in the programme. An effective communications strategy and public rela-tions programme are important in keeping stakeholders informed of developments in the social security scheme, and their impact on stakeholder rights and obligations.

These three guidelines will assist the board to promote the principle of predictability in the administra-tion of a social security institution.



Guideline 16. Duties and responsibilities of members and beneficiaries

Members and beneficiaries are regularly and periodically informed of their duties and responsibilities, as mandated by the legislation, policy or decree that establishes the social security programme.

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Guideline 17. Rights and privileges of members and beneficiaries

Members and beneficiaries are regularly and periodically informed of their rights and priv-ileges, as mandated by the legislation, policy or decree that establishes the social security programme.

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Guideline 18. Consistent application of board decisions

Decisions of the board are applied consistently and do not affect acquired rights of pro-gramme members and beneficiaries.

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A.1.4. Participation

Participation refers to the effective involvement of stakeholders in the institution’s decision-making process to protect their interests and to support the social security programme. It is a way of build-ing partnership between the board and the institution’s stakeholders, allowing better policy-making, improvement of trust among stakeholders and the enhancement of transparency.

The most solid form of participation is the power to decide. Less extensive forms are participation in the decision procedures, participation in the nomination of representatives, the possibility to provide advice and attend meetings, and the right to be informed. Members and beneficiaries must have channels by which to monitor those responsible for the management of the social security programme. Redress mechanisms should be in place to empower stakeholders with monitoring, oversight and/or disciplinary powers over those entrusted with the programme.

This guideline will assist the board to promote the principle of participation in the administration of a social security institution.



Guideline 19. Board representation of stakeholders

Legislation, policy or decree provides for the balanced representation of the different stakeholders on the board of the institution.

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A.1.5. Dynamism

Dynamism is the governance element of innovation or positive change, the effect of which is to hence-forth improve the efficiency of an organization.

Governance may well be in accordance with the principles of accountability, transparency, participation and predictability. The principle of dynamism improves on the status quo and enables the institution to be more faithful to its mandate and to respond to the evolving needs of its members.

A newly appointed social security administrator may choose to maintain the status quo and, if the pre-vious administrator adhered to the principles of accountability, transparency, participation and pre-dictability, good governance will continue to prevail within the organization. Alternatively, the newly appointed authority may opt to improve on the status quo and, through various means, motivate pro-gramme enhancements that build on the status quo. Once an innovation is introduced and adopted, its positive effects can alter the institution’s operating environment.

These two guidelines will assist the board to promote the principle of dynamism in the administration of a social security institution.



Guideline 20. Implementing rules and regulations for legislation, policy or decree

There is enough flexibility within the legal framework to allow the institution to introduce innovations and improvements in the administration and implementation of the social security programme, without having to amend the legislation, policy or decree establishing it.

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Guideline 21. Leadership and innovation in the institution

The leadership of the board motivates and inspires the institution to propose and work on innovations that would increase operational efficiency and improve the implementation of the mandate of the programme.

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A.2. Principles and Guidelines for the Management

The management is the group of persons who, under the legislation or by-laws establishing the entity, is given the responsibility for the administration and daily operations of the social security programme.

The 23 guidelines for the management support and promote the following five principles of good gov-ernance, as applied to social security institutions:

1. Accountability

2. Transparency

3. Predictability

4. Participation

5. Dynamism.

A.2.1. Accountability

The principle of accountability is at the heart of good governance. At a political level, it means mak-ing 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.



Guideline 22. Powers and responsibilities of the management

Legislation, policy or decree defines the powers and responsibilities of the management. The powers and responsibilities of the management are clearly delineated from those of the board. There are no areas of ambiguity, dilemma or conflict of interest.

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Guideline 23. Clarity in powers and responsibilities

The powers and responsibilities of the Head of Management and senior officers are clearly defined. There are no areas of ambiguity, dilemma or conflict of interest.

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Guideline 24. Accountability of the Head of Management

The objectives and actions of the Head of Management and senior officers are aligned with those of the board in pursuit of the mandated mission of the institution.

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Guideline 25. Independence of the management from political interference

Legislation, policy or decree provides for the independence of the Head of Management from political interference by prescribing the selection process and by defining the grounds for removal from office solely for just cause.

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Guideline 26. Suitability and competence of the Head of Management

The Head of Management is suitable and competent to fill the position in the social secu-rity institution. The term of office of the Head of Management and the basis for its renewal (if it is renewable) are clear and well defined.

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Guideline 27. Legal liability of the management

Legislation, policy or decree establishes the legal liability of the management.

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Guideline 28. Strategic planning

The management submits for board approval a strategic plan that lays down and spells out the key strategies and plans of action to be implemented by the management in order to realize and perform the legislated mandate of the institution.

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Guideline 29. Risk management

The management ensures that it identifies the risks that the institution faces, proposes policies and measures to manage or avert these, and implements those that are approved by the board. These risks may arise in various forms, including but not limited to strategic, operational, political, economic, regulatory, geographic and demographic risks.

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Guideline 30. Internal and external systems of control

The accountability of the management is enhanced by internal and external systems of control.

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Guideline 31. Investment management

For social security institutions that have an investment mandate, the management ensures that it has the technical expertise to manage the investments of the social security insti-tution. In particular, it manages liquid assets so as to guarantee the timely and accurate payment of benefits, in each of the social security programmes run by the institution. Legislation, policy or decree establishes the legal liability of the management and/or its designated agents for fraudulent investments.

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Guideline 32. Financial sustainability of the programme

The management implements board-approved measures to ensure the financial sustainabil-ity of each of the social security programmes run by the institution.

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Guideline 33. Performance standards for management officers and staff

The management establishes a code of ethics and a set of standards and benchmarks for its officers and staff.

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A.2.2. Transparency

Open dissemination of key information about the social security institution does not necessarily imply transparency. To be transparent, such information, which is a basic right for stakeholders, members and beneficiaries of the social security scheme, should be timely, reliable, relevant, accurate and objectively verifiable.



Guideline 34. Policy on disclosure

The management implements a board-approved policy on disclosure of information. The policy identifies the limited instances when the management may choose to exercise dis-cretion in the disclosure of information to stakeholders.

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Guideline 35. Code of conduct

The management adopts and abides by a board-approved, workable code of conduct for its officers and staff, which includes a policy on the disclosure and management of conflicts of interest.

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Guideline 36. Public reports

The management regularly informs the stakeholders and the general public on the status of the institution and its operations.

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Guideline 37. Members’ right to information on benefits

Members are regularly and promptly informed about the benefits due to them under the social security programme.

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A.2.3. Predictability

Predictability refers to the consistent and uniform application of the law, including the rules and regula-tions to implement it. Stakeholders are generally averse to sudden or unannounced changes in contribu-tions to and benefits from the programme. The methodical application of the programme will strengthen stakeholder confidence and support for it.



Guideline 38. Duties and responsibilities of members and beneficiaries

The management enforces compliance with the duties and responsibilities of the members of the institution.

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Guideline 39. Rights and privileges of members and beneficiaries

Members and beneficiaries are regularly and periodically informed of their rights and privileges.

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Guideline 40. Information and communications strategy

The management establishes an information and communications system to provide accu-rate and up-to-date information to the stakeholders of the social security programme. The goal is to empower stakeholders with a full understanding of the programme and how it is being governed, to enable their effective participation.

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A.2.4. Participation

Participation refers to the effective involvement of stakeholders in the institution’s decision-making process to protect their interests and to support the social security programme. It is a way of build-ing partnership between the board and the institution’s stakeholders, allowing better policy-making, improvement of trust among stakeholders and the enhancement of transparency.



Guideline 41. Participation of stakeholders

The management maintains open communications with the stakeholders, to encourage exchange and suggestions on how the institution can be more responsive to their needs and concerns.

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Guideline 42. Management of stakeholder initiatives

Suggestions to improve the institution’s services to its stakeholders are properly evaluated and, if they have merit, are submitted to the board for information or approval, before implementation by the management.

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A.2.5. Dynamism

Dynamism is the governance element of innovation or positive change, the effect of which is to hence-forth improve the efficiency of an organization.



Guideline 43. Leadership and innovation in the institution

The Head of Management motivates and inspires the institution to propose and work on innovations that would increase operational efficiency and improve the implementation of the mandate of the social security programme.

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Guideline 44. Encouragement of staff involvement

The management has strong, consistent and enabling human resources policies which would encourage its officers and staff to propose innovative ideas and positive change.

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B. Guidelines for Specific Areas in Social Security AdministrationLegislation, policy or decree establishes the breadth of a social security institution’s functions and respon-sibilities. There are social security programmes that are wholly budget financed and hence would have no mandate to collect contributions from the population to be covered. For others, coverage and contri-butions collection are administered by an office other than that which administers benefits and services. Some programmes are designed to have no accumulated reserve funds, while others may be authorized to have internal or external managers to manage fund investments. Yet others have fund management institutions wholly separate and independent from those which administer member contributions and/or benefits.

Some or all of the following guidelines may be relevant to a particular social security institution, depend-ing on its mandate. Guidance is provided in nine specific areas of social security administration:

¡ Strategic planning;

¡ Operational risk management;

¡ Internal audit of operations;

¡ Actuarial soundness;

¡ Enforcing the prudent person principle in investment management;

¡ Prevention and control of corruption and fraud in contributions and benefits;

¡ Service standards for members and beneficiaries;

¡ Human resources policies: Development, retention and succession;

¡ Investments in information and communication technologies (ICT) infrastructure.

The guidelines 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.



B.1. Strategic Planning

The board and management articulate a strategic plan which spells out the key strategies and plans of action that will be implemented in order to perform the legislated mandate of the institution. A strategic plan usually spans a period of from three to five years, is periodically reviewed and fine-tuned, and is further detailed and rendered precise by annual plans.

These five guidelines will support an institution’s strategic planning activities. The guidelines are under-pinned by a cyclical process of planning, budgeting, implementation, monitoring and review. Open communications channels are important to facilitate and sustain the buy-in of stakeholders and the alignment of efforts. Tracking and measurement tools enable continual monitoring and, when necessary, timely interventions. A review phase will inform the next cycle of strategic planning.



Guideline 45. Initiating the strategic planning process

The management provides leadership, sets the priorities and defines the strategic agenda for the planning period. The management consults the board and key stakeholders of the institution to define and build consensus on the strategic priorities. External and internal factors are thoroughly analysed to better position the institution for the future.

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Guideline 46. Development of a vision statement

The strategic plan embodies a clear statement of the institution’s vision for the planning period. The vision statement is inspiring and easy to communicate. It is guided by the institution’s mandate.

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Guideline 47. Strategy formulation

The strategic plan spells out the institution’s plan of action, goals, targets, milestones and deliverables to achieve its vision. It articulates the programmes and activities to be imple-mented, and the management environment that would ensure coherence and maximize synergies within the institution. The formulation process ensures the consistency of the strategic plan with the institution’s mandate.

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Guideline 48. Strategy implementation

The strategic plan is cascaded to all units of the institution. Implementation is regularly monitored and assessed. The strategic plan is revisited, evaluated and fine-tuned, if nec-essary. Management aligns the performance trinity of strategy and vision, leadership and management, and institutional culture and values in implementing the strategic plan.

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Guideline 49. Strategy diagnosis and performance review

The effectiveness of the strategic plan to advance the institutional mandate is evaluated. There is an assessment of lessons learnt from achieved goals, delivered targets and proven strategies, as well as unsuccessful initiatives. The performance review serves as input to the next cycle of planning activities.

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B.2. Operational Risk Management

Risk management involves having policies, measures and approaches to manage, mitigate or prevent the detrimental effects of risks faced by the institution. Whether risks arise from internal or external factors, the goal is to defuse their detrimental effects on the administration of the social security programme, including its financial sustainability; fund investments; the management of coverage and contributions, and the delivery of member benefits and services; and human and ICT resources capacities.

These four guidelines focus on managing operational risks, a daily concern for social security institutions. They are underpinned by a process model. The institution, having identified the potential points of vul-nerability of its main processes and services, should embed at each point a response system that ensures active, appropriate and timely measures to contain or prevent the effects of relevant risks.

Operational risk is but one of many risks faced by social security institutions. ISSA guidelines will assist with managing these, e.g. the governance guidelines on financial sustainability and actuarial soundness provide guidance on managing actuarial risks to the programme; the governance guidelines on enforc-ing the prudent person principle and the ISSA Guidelines on Investment of Social Security Funds provides guidance on managing investment risks; and the governance guidelines on investments in ICT infra-structure and the ISSA Guidelines on Information and Communication Technology provides guidance on managing certain types of ICT risks.



Guideline 50. Process model

A process model is developed for each administrative area to identify the potential points of failure, the internal or external events which can trigger risk, and the corrective meas-ures to be implemented. There is ownership of responsibility for the potential points of failure.

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Guideline 51. Scanning and scenario analysis

To manage or prevent risks in real time, there is ongoing monitoring of the institution’s internal and external environment. Risk scenarios are analysed to keep the institution con-stantly alert and ready.

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Guideline 52. Clarity of responsibilities and measures in case of an intervention

There is clarity in the line of authority and decision-making, and staff roles and responsi-bilities to ensure coordinated, appropriate and timely responses to the incidence of risk. There is clear understanding of the risk to be contained and the corrective measures to be implemented.

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Guideline 53. Aligning and coordinating risk management activities

The management aligns and coordinates risk management activities across the institution to maximize synergies, avoid gaps and prevent duplication of effort.

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B.3. Internal Audit of Operations

Internal audit is the central unit that undertakes independent and objective reviews of all areas of opera-tion of the institution, and verifies and certifies compliance with all pertinent laws, rules and regulations. The scope of its work is comprehensive. By undertaking independent and objective reviews of policies, operations, systems and procedures, internal controls, risk management, information management, ICT systems and governance processes, it promotes a disciplined approach to the overall management of the institution.

The International Professional Practices Framework (IPPF) of the Institute of Internal Auditors is the con-ceptual framework that organizes and provides authoritative guidance to internal audit professionals, including those in the field of social security. These four guidelines elaborate on certain aspects of the internal audit function which are relevant to social security administration including, in particular, com-munication between the institution’s internal auditor and actuary.



Guideline 54. The internal audit charter

The board or management establishes the internal audit charter of the internal audit unit. The charter sets out the nature, role, responsibility, status and authority of the unit and outlines the scope of its work.

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Guideline 55. Communication between the internal auditor and the actuary

When auditing the institution’s reports, the internal auditor and actuary communicate clearly and effectively. The exchange of information between them neither compromises nor impinges upon their respective independence.

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Guideline 56. Performance assessment and quality assurance

There is a periodic performance assessment of the internal audit unit. A set of clearly defined indicators measures its efficiency and effectiveness in improving the institution’s performance.

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Guideline 57. Implementation and management of audit findings

The implementation of audit findings and recommendations are time bound and monitored.

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B.4. Actuarial Soundness

Depending upon the legislation, policy or decree that establishes the social security programme, the board and management of a social security institution may be duty bound to maintain an adequate level of funding to deliver the promised benefits to members and beneficiaries of the scheme, and to ensure the cost effectiveness of the administration of the social security programme.

In this respect, the key challenges will include defining and maintaining the actuarial soundness of the fund; adopting and complying with the actuarial measures; balancing the inflow of contributions and income from investments with the outflow of benefit payments; and benchmarking operating expenses.

These four guidelines will help address the actuarial soundness of a social security programme.



Guideline 58. Actuarial measures of the social security programme

The actuarial measures of the social security programme are well defined and documented to enhance accountability, transparency and predictability in the administration of each of the social security programmes established by the institution.

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Guideline 59. Actuarial valuations of the social security programme

The programme has regular actuarial valuations to monitor sustainability.

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Guideline 60. Changes in contribution rates and benefit entitlements

To maintain its financial sustainability, the contribution rates are set according to the promised benefits of the social security programme.

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Guideline 61. Investment performance and benchmarks

For institutions that have investment reserve funds, standards and benchmarks are estab-lished for the returns on fund investments to support the financial sustainability of the programme.

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B.5 Enforcing the Prudent Person Principle in Investment Management

For social security institutions that have a mandate to manage the investment reserve funds of the programme, whether through internal and/or external fund managers, the board and the management are duty bound to ensure that the funds are invested in accordance with basic prudential rules such as profitability, safety, liquidity and diversification.

There are many areas to be addressed in enforcing the prudent person principle in the investment of social security funds. These nine guidelines are addressed specifically to: (a) institutions with internal investment units; (b) institutions with external fund managers; and (c) institutions that have representa-tion on the boards of companies where they have significant asset holdings.

The ISSA Guidelines on Investment of Social Security Funds provides guidance on a progressive process of governance that starts with establishing the various structures involved in the investment process, through defining their roles and how they interact, to processes to be set up to ensure that governance objectives are met.

B.5.1. Guidelines for institutions with internal investment units




Guideline 62. Prudent person principle

The investment unit follows the prudent person principle in managing the funds of the institution. The prudent person principle is integral to the fiduciary duties of the board and management in administering and managing the funds of the institution.

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Guideline 63. Investment policies

The investment unit of the institution efficiently implements the investment policies set out by the board or management.

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Guideline 64. Due diligence

The board and management have the technical expertise to determine whether investment proposals have undergone due diligence, and act upon their determination.

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Guideline 65. Valuation of the investment portfolio

The board and management ensure that the valuation of the investment portfolio is in accordance with international market standards on fair market value.

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Guideline 66. External safekeeping measures

The board and/or management ensure the professional safekeeping of the investment assets of the institution.

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B.5.2. Guidelines for institutions with external fund managers




Guideline 67. Selection process for external fund managers

The board and/or management use best practice to select the fund managers for the invest-ment reserve funds of the institution.

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Guideline 68. Alignment of incentives

The board and/or management ensure the alignment of external fund managers’ incentives with the overall investment objectives of the institution.

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Guideline 69. Custody of investment assets

The institution ensures the separation of the investment assets that are managed by external fund managers from its own operating assets, to enhance accountability and transparency.

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B.5.3. Guidelines for institutions with representation on boards of companies




Guideline 70. Objectives of representatives on boards of companies

The board ensures that its representatives on the boards of companies represent the inter-ests of the social security institution. To avoid potential conflicts of interest, there is a priori alignment and compatibility between the institution’s objectives and the corporate objectives of the company.

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B.6. Prevention and Control of Corruption and Fraud in Contributions and Benefits

The board and management are duty bound to prevent and control any form of corruption and fraud in the collection of contributions for and the payment of benefits of the social security programme.

Corruption and fraud undermine the credibility of the programme to stakeholders, which can lead to a weakening or withdrawal of stakeholder support.

These two guidelines will help prevent and control corruption and fraud in the collection of contributions and the distribution of benefits.

The ISSA Guidelines on Contribution Collection and Compliance provides further guidance on fraud con-trol and the implementation of contribution collection processes.



Guideline 71. Prevention and control of corruption and fraud in contributions

The board and management protect the institution from all forms of corruption and fraud in the collection of programme contributions.

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Guideline 72. Prevention and control of corruption and fraud in benefits

The board and management protect the institution from all forms of corruption and fraud in the payment of programme benefits.

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B.7. Service Standards for Members and Beneficiaries

The raison d’être of a social security institution is to administer the rights and obligations of members and beneficiaries. Efficient administration and the provision of quality service strengthen the credibility of the institution and enhance member and beneficiary support for it.

These three guidelines will assist in providing service quality standards to programme members and beneficiaries.

The ISSA Guidelines on Contribution Collection and Compliance provides further guidance on the imple-mentation of contribution collection processes and fraud control. Further guidance on how to ensure service quality in social security is provided in the ISSA Guidelines on Service Quality.



Guideline 73. Contribution collection services

The institution provides its members with quality service in the collection of programme contributions.

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Guideline 74. Benefit distribution services

The institution provides its members with quality service in the distribution of programme benefits.

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Guideline 75. Developing new services for members and beneficiaries

The board and management continually aim to improve and to develop new services for members and beneficiaries.

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B.8. Human Resources Policies: Development, Retention and Succession

People – and the talent, experience and capacities that they have – are key to an organization’s perfor-mance, resilience and dynamism. The board and management must continually ensure that the institu-tion’s human resources policies are able to attract, develop and retain competent staff, and inspire staff loyalty to the institution. Effectively managing the institution’s human resources – hiring, compensating, retaining, training, mentoring and developing – is key to the successful governance of any organization.

These seven guidelines focus on recruitment, performance appraisal, development, retention, succes-sion, decent work and the promotion of corporate values.



Guideline 76. Recruitment, selection and promotion policies

The institution’s human resources policies, rules and regulations are fair, impartial, well defined, documented and widely disseminated to all staff to protect the integrity of the recruitment process, to minimize political considerations and to enhance transparency and predictability. These include a policy of employment equity and protection against harassment.

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Guideline 77. Performance appraisals of personnel

Performance appraisal is embedded in the institution. The objectives of individual staff members are clearly aligned with the strategic objectives of the institution.

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Guideline 78. Development and training

To ensure a competent, dynamic and dedicated workforce, the board establishes policies and programmes that provide for the continual development, upgrading of skills and train-ing of staff.

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Guideline 79. Talent management and retention

The board establishes human resources policies that enable the management to identify, develop and retain talented staff who could take on greater responsibilities in the institu-tion. Policies based on the principles of transparency and merit are fundamental to profes-sional fulfilment, staff morale and personal satisfaction. The work environment and insti-tutional culture, more than monetary compensation, draws and keeps skilled and talented people in the institution.

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Guideline 80. Succession planning

The management purposefully nurtures the leadership capacities of talented staff. It may define a succession plan, based on the principles of transparency and merit, to develop understudies for key positions in the institution.

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Guideline 81. Personnel morale, compensation policy and decent work

The board ensures that the institution’s human resources policies promote decent work conditions which, as defined by the International Labour Organization (ILO), are based on the understanding that work is a source of personal dignity, family stability and peace in the community. This includes providing a work environment that is safe, allows adequate rest and time for family, provides adequate compensation and access to social security pro-tection, and respects the rights of workers regardless of gender, race or creed.

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Guideline 82. Promoting corporate values

The management ensures that the officers and staff are loyal to the institution and its mandate.

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B.9. Investments in ICT Infrastructure

ICT is an indispensable enabler in the administration of social security programmes. It often determines whether services and processes can or cannot be done, within the institution and between the institution and its external partners. For this reason, the board and management must promote an efficient and adequate ICT infrastructure to support programme administration and operations.

Taking into account the rapid evolution of ICT products, investment proposals for (new) ICT should be considered with care, diligence and prudence. Board and management concerns often arise not from the size of an investment per se but from issues stemming mainly from the degree of confidence that can be attached to, for example, the suitability of recommended technology vis-à-vis the needs of the insti-tution; the delivery of promised capacities and services; or the anticipated impact upon and interaction with existing ICT platforms, as well as any hidden and indirect costs for complementary or maintenance products and services.

These three guidelines will assist in evaluating new ICT investment proposals, ex-post evaluation and infrastructure maintenance. The ISSA Guidelines on Information and Communication Technology pro-vides further guidance on ICT investments and technical advice on the governance and management of ICT in social security institutions.



Guideline 83. Standard policies and procedures

Investments in ICT respond to the short- and medium-term needs of the institution and are always aligned with its strategic plan. The management establishes a standard system of policies and procedures to evaluate and decide on proposals for investments in ICT infrastructure, to enhance accountability, transparency, predictability, participation and dynamism.

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Guideline 84. Ex-post evaluation of new ICT infrastructure

The management establishes a standard system of policies and procedures for the ex-post evaluation of new investments in ICT, to ensure delivery of promised benefits, services and improvements with respect to project goals, as contained and justified in the project proposal.

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Guideline 85. Maintenance of ICT infrastructure

The management ensures the integrity of existing ICT infrastructure and averts any threat of system failure. The overall goal is to ensure the high availability of the social security services.

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Documents

ISSA Guidelines: Good Governance (Open access version) · 02.09.2015 · A. Good Governance Guidelines for the Board and Management 17 A.1. Principles and Guidelines for the Board