Tuesday, 12 December 2017

    When DB sponsors act like philandering husbands

    Terry Thomas could teach trustees how to stand up to sponsors who deny the obvious, says Steve Delo

    Back in 1967, Walter Matthau starred in a movie called “A Guide for the Married Man”. The story involved Matthau planning to have an affair, egged on by his best friend. He tells Matthau a number of cautionary anecdotes to demonstrate that cheating on one’s spouse requires careful tactical planning.

    At one point, Matthau’s friend tells him how to react if his wife catches him in the act. “Deny, deny, deny!” he says. A short sketch illustrates the point, as a middle-aged lady comes home to find her husband – played by American comedian, Joey Bishop – in bed with another woman. Shocked, she demands to know what is going on – albeit the answer is rather obvious. But the husband simply ignores her, gets out of bed and starts getting dressed. The woman in the bed does the same. Bishop then makes the bed and puts on his slippers whilst the woman disappears out of the front door. Throughout this process, the wife keeps questioning and hectoring him. Bishop simply delivers a poker-faced denial to each question. “Who’s that woman?!” she screams. “What woman?” he deadpans. He repeatedly denies anybody is there or anything has happened and soon he’s comfortably seated in an armchair, smoking a pipe and reading a paper. The wife suddenly questions her sanity and assumes she was wrong. It’s a classic scene.

    Deny, deny, deny, however brazen and unjustifiable it may be. It is exactly the approach that corporates – and corporate advisers – can use when going into triennial actuarial valuation discussions with trustees. A trustee board will have spent much time and effort agonising over integrated risk management, working closely with their covenant adviser and scheme actuary, to formulate technical provisions and recovery plan proposals. They will have formed a clear view of the deficit they need to plug and the cash contributions needed to plug it. 

    Yet, go into engagement with the sponsor, and every aspect of the proposal – every assumption, every assertion on covenant, every margin for prudence, every interpretation of regulator guidance, will be picked apart and disputed. This may feature audacious doublespeak where one moment the covenant is claimed to be weak (e.g. the cash that can be afforded) whereas for another it will be strong (e.g. the discount rate). The trustee board, in this whirlwind of rebuttal and denial, may feel its confidence erode until they end up believing that they themselves have pushed too hard or been too prudent. An entirely reasonable initial position gets salami sliced. The corporate chutzpah may well also be presented with liberal doses of outrage and astonishment at what the trustees have asked for – so trustees feel greedy and guilty, even though they are the ones owed the money! Just like the wife in the movie! 

    Trustees must be sharp in these negotiations and prepared for the tactics that may be employed against them. They should be ready to use a line from another scene in the movie where the late, great Terry Thomas is trying to find an oversized brassiere his mistress has lost in his house. When she suggests he pass it off as his wife’s, he simply says through a gap-toothed grimace: “Don’t be ridiculous!”

    Steve Delo is chief executive of PAN Governance

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