Executive Summary of the Report that Led to the Dismissal of UCU Trustee Jane Hutton

Submitted by AcFreedom on Sat, 02/22/2020 - 21:52

We have been the sent executive summary of the report that led to the dismissal of UCU trustee Jane Hutton, we believe this is also related to the UK pensions strike.

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EXECUTIVE SUMMARY

2. Introduction

2.1 This executive summary provides a high level overview of the contents of the investigation report (the "Report"). As such, it does not contain all points of detail, analysis or nuance.

3. Scope of the investigation and this Report

3.1 We have been engaged by Universities Superannuation Scheme Limited ("USSL" or the "Trustee") to carry out an independent investigation into Professor Jane Hutton's conduct (the "Investigation"), and to provide it with this Report. The Report has been produced pursuant to our Terms of Reference and is subject to certain limitations, including the fact that we have not conducted a broad-based document trawl nor had access to material held outside USSL (such as Prof. Hutton's emails). In addition, we have not investigated and indeed express no view on the correct approach to the actuarial/statistical/pensions valuation issues which underlie some of the primary issues we have considered.

3.2 Although we are engaged by USSL, we have conducted the Investigation independently and are not engaged to advise USSL in relation to matters related to the Investigation or the potential consequences of it. We have aimed to provide all those concerned with an opportunity to set out their views, which we have tested by reference to available documents. An interim version of the Report was made available to the USSL Board of directors (the "Board"), the Universities Superannuation Scheme (the "USS" or "Scheme") Group Executive (the "Executive") and Prof. Hutton (including their advisers), subject to certain conditions of confidentiality and supervision applicable to the review, for the purpose of allowing them to identify any factual inaccuracies contained in it. Neither Prof. Hutton nor her advisers reviewed the interim version of the Report, so the Report has not had the benefit of her input.

4. Summary of factual narrative

4.1 Prof. Hutton, a professor of statistics at the University of Warwick ("Warwick University"), is a director on the Board. She was appointed to the Board on 1 November 2015, having been nominated by University and College Union ("UCU"). From May 2016 onwards, Prof. Hutton was also a member of USSL's audit committee (the "Audit Committee").

Prof. Hutton's engagement with USSL prior to her appointment

4.2 Prof. Hutton had engaged with USSL prior to her appointment in November 2015. In December 2014, she made a formal complaint to USSL under its Internal Dispute Resolution ("IDR") procedure against two USSL directors who we understand were also representatives of the Employers Pension Forum (the "EPF"). The EPF is, we understand, independent of USSL. The complaint concerned the EPF's publication of an online 'Q&A' regarding the Scheme that, in Prof. Hutton's view, contained "gross errors in life expectancy", and which she considered were both deliberate misrepresentations and attributable to USSL because she believed this data came from USSL.

4.3 Separately, on 12 January 2015, in response to a consultation paper published by USSL in relation to the valuation in 2014 (the "2014 Valuation"), Prof. Hutton co-wrote to USSL alleging, among other things, that the USS Group CEO had failed to address "the issue of wild fluctuation in valuations". This communication led to a meeting in March 2015 between Prof. Hutton, another professor of statistics at Warwick University, the USS Group CEO, a USSL Senior Internal Actuary and the USSL scheme actuary (the "27 March 2015 Meeting"). Prof. Hutton then published a note of the 27 March 2015 Meeting to a webpage, which appears to have been written for colleagues at Warwick University (the "USS Discussions Webpage"), in which she said that the Trustee should not be trusted to be "open, transparent, or willing to respect beneficiaries of the USS".

Prof. Hutton's appointment and subsequent events

2015-2017

4.4 Shortly after her first Board meeting on November 2015, Prof. Hutton submitted information requests regarding the materials underlying the upcoming actuarial valuation for 2017 (the "2017 Valuation").

4.5 Prof. Hutton's information requests continued into 2016 and expanded significantly following January 2017 Board discussions about the assumptions to be adopted for the 2017 Valuation. In particular, Prof. Hutton stated at the time that she wished to examine the underlying work supporting the various assumptions (both the data itself and the models used to interpret and portray said data) and to challenge the basis on which she believed prudence had inappropriately been built into both the assumptions and the Scheme's discount rate.

4.6 In April 2017, the Board provisionally approved the assumptions and methodology for the 2017 Valuation. Prof. Hutton formally opposed this resolution. In May 2017, she sent further requests for information to the Executive.

4.7 In June 2017, Prof. Hutton identified what she believed to be an error in the retirement rate calculations. The error was acknowledged in September 2017 by a USSL Senior Internal Actuary as resulting in "a slight increase in the retirement decrement" and was considered immaterial.

4.8 On 10 July 2017, Prof. Hutton sent an email to all directors of the Board in which she expressed her concerns regarding the legal position of USSL in respect of the assumptions and valuations work undertaken in respect of the 2017 Valuation and suggested that she could not see how the Board could accept the estimated deficit under the technical provisions proposed at the time (with her views on the various assumptions further set out in an accompanying paper (the "July 2017 Assumptions Paper")). She stated her belief that if directors disregarded her advice the result would likely be a "serious misrepresentation of the value of the USS fund, and hence a breach of trust".

4.9 At a Board meeting the following day, advice was received from external legal advisers and the scheme actuary on the allegations she had made. The legal advice was that the threshold for breach of trust was high and that there was apparently "no indication that it would even be in question here". The scheme actuary and the USS Group CRO advised the Board that there was nothing in Prof. Hutton's paper of the previous day that should cause the Board to review decisions made at prior meetings regarding the assumptions used for the employer consultation process. The Board proceeded to approve that the assumptions and technical provisions for the consultation phase of the 2017 Valuation should stand.

4.10 In September 2017, Prof. Hutton flagged to a USSL Senior Internal Actuary further errors she believed she had identified in papers presented to the Board regarding certain mortality assumptions to be used in the 2017 Valuation. Following this, Prof. Hutton also requested data and information regarding external advice presented to the Board and Executive in relation to these assumptions. On one occasion, Prof. Hutton threatened that, if she did not receive the documents she had requested by a prescribed time, she would "proceed with an application to the Court for the documents to be delivered up to [her]."

4.11 In October 2017, the Board decided to commission Deloitte to undertake an external review of the robustness and integrity of the triennial valuation process. We understand that this was in response to Prof. Hutton's repeated concerns about the 2017 Valuation. Following the completion of Deloitte's report in November 2017 (the "2017 Deloitte Report"), the Audit Committee concluded that the processes for determining technical provisions were robust and, following concerns Prof. Hutton had raised regarding levels of prudence, that the overall degree of prudence incorporated into the 2017 Valuation was small. Prof. Hutton dissented from the Audit Committee's conclusions, and dissented again at Board level when Deloitte's report formed part of the assurance for the approval of final technical provisions assumptions.

4.12 At various times following Prof. Hutton's appointment to the Board, the Executive informed Prof. Hutton that the scope and nature of her requests (including a lack of clarity on the specific information required) made it difficult to respond promptly to them. For example, following an information request in November 2017, the USSL Chairman informed Prof. Hutton that he had told the Executive to hold off responding to her requests until the Board had considered them. Prof. Hutton acknowledged that the Board was busy, although noted her disagreement with some of what the USSL Chairman had said, and stated that a consideration of how to move forward with this issue could wait until the new year.

2018

4.13 Prof. Hutton continued to submit information requests throughout early 2018. Following her exchange with the USSL Chairman at the end of 2017, Prof. Hutton again set a deadline for the provision of documents to be delivered to her. The USSL Chairman suggested the matter be discussed at the Board's February 2018 meeting and also proposed a data sharing deed arrangement (requiring, among other things, Prof. Hutton to agree that any information delivered to her would be kept confidential) (the "Data Sharing Deed"). Prof. Hutton signed and returned the Data Sharing Deed in January 2018.

4.14 In February 2018, the Board considered the timing for delivery of the information requested by Prof. Hutton. Based on legal advice provided to the Board for this purpose that drew a distinction between requests for 'extant information' and 'non-extant information', the Board resolved that Prof. Hutton would be given access to any extant information requested but that the USSL Chairman would have absolute discretion to determine whether the Executive should respond in full to non-extant information requests. Both the Board as a whole and Prof. Hutton individually subsequently obtained further legal advice on this matter. Independent advice obtained by Prof. Hutton was, as part of this, shared with the Board.

4.15 Meanwhile, in the midst of industrial action relating to the proposed increase in contributions flowing from the proposals tabled for the 2017 Valuation, the Joint Expert Panel (the "JEP") was formed by nominees selected by the employers' (the "Employers") (Universities UK ("UUK")) and members' ("Members") (UCU) representative bodies in April 2018 to review underlying valuation assumptions and make recommendations for consideration for the 2017 Valuation.

4.16 Between March and July 2018, Prof. Hutton made a number of disclosures to the Financial Reporting Council (the "FRC") (the "2018 FRC Disclosures") and the Pensions Regulator ("TPR") (the "2018 TPR Disclosures"), which broadly concerned allegations of the Board and Executive withholding information Prof. Hutton had requested regarding alleged errors in the 2017 Valuation (the "Information Allegation"), compliance with Technical Actuarial Standards ("TAS") 100 and 300 (the "TAS Allegation"), and, in respect of the 2018 TPR Disclosures, an allegation in relation to bullying and aggressive communications by the USSL Chairman (the "Conduct Allegation"). USSL conducted three internal investigations into these allegations in 2019 and concluded, in all three cases, that they were not substantiated.

4.17 The Executive became aware of these disclosures in October 2018 after Prof. Hutton, in response to a standard insurance disclosure notice, noted that she had contacted the FRC and TPR as a whistleblower. In November 2018, USSL informed Prof. Hutton that it would be conducting an investigation in accordance with USSL's whistleblowing procedure.

4.18 Throughout the second half of 2018, Prof. Hutton dissented or abstained from several Board resolutions and continued to voice her view that the Executive had failed to sufficiently address her concerns in respect of certain aspects of the 2017 Valuation. The requests culminated in the issuance of Prof. Hutton's Comprehensive Statement in August 2018 (the "Comprehensive Statement"), a document which combined all of Prof. Hutton's outstanding requests together in a single statement. The Comprehensive Statement, which was designed to allow the Board to consider Prof. Hutton's information requests holistically, was considered by the Board at the October 2018 Board meeting. The Board resolved that no amendments would be made to the 2017 Valuation (reflecting internal and external advice that the Board had received).

4.19 At about this time in September 2018, the JEP released its recommendations concluding that the 2017 Valuation had not adequately contemplated the "strong" outlook of the USS and suggesting that the defined benefits scheme could continue to be offered without a need for "steep" increase in contributions. The Board decided to confirm the 2017 Valuation but incorporate certain of the JEP's recommendations into a new, off-cycle 2018 valuation of the scheme (the "2018 Valuation").

2019

4.20 The Board gave its final approval of the 2017 Valuation at the Board meeting on 23 January 2019. Prof. Hutton voted against a resolution to accept the 2017 actuarial valuation report (the "2017 Actuarial Valuation Report") and approve various related documents.

4.21 At some point over the course of late 2018 and early 2019, Prof. Hutton published an extract from USSL's legal risk matrix and assurance register (the "USSL Legal Risk Matrix and Assurance Register"), subject to some minor amendments, on a Warwick University webpage (the "Open Questions Document"). Prof. Hutton has stated that the Open Questions Document was related to the March 2019 Royal Society Pensions meeting, which she co-organised and spoke at.

4.22 Prof. Hutton also made disclosures to the Chairman of the Joint Negotiating Committee (the "JNC") in March 2019 in relation to comments that she said were made by the USS Group CEO and an "actuary associated with the Board" at a Board away day (the "USSL Board Away Day") (the "March 2019 JNC Disclosures").

4.23 In May 2019, Prof. Hutton made disclosures to the JNC (the "May 2019 JNC Disclosures") and TPR (the "May 2019 TPR Disclosures") regarding, amongst other things, statements attributed to TPR within USSL documentation.

4.24 At a Board meeting on 16 May 2019, the Board discussed the disclosures Prof. Hutton had made to date. Following a discussion of directors' duties in the context of Prof. Hutton's various disclosures (during which external legal counsel provided oral advice to the Board), the meeting was adjourned to allow the Board to further discuss the matter in Prof. Hutton's absence. After the 16 May 2019 Meeting was reconvened, Prof. Hutton agreed to recuse herself from the Board. The USSL Head of Governance informed Prof. Hutton that the fact of her recusal was confidential to the Board and should not be disclosed to any other party.

4.25 On 21 May 2019 and 14 June 2019, two Financial Times articles were published (respectively, the "21 May 2019 FT Article" and the "14 June 2019 FT Article") which, on their face, contained disclosures and allegations made by Prof. Hutton.

4.26 Prof. Hutton was suspended by the Board on 21 June 2019 after she withdrew her recusal.

4.27 On 25 June 2019 and 26 June 2019, Prof. Hutton made further disclosures via Times Higher Education (the "25 June 2019 THE Article") and BBC Radio 4's Today programme (the "26 June 2019 BBC Radio 4 Interview").

5. Summary of factual findings

5.1 Prof. Hutton held a belief that she was appointed to the Board to, in effect, act as a statistician which led her to seek to take on a quasi-advisory or executive role and apply herself meticulously to USSL's affairs. Most illustrative of this is her very detailed approach to the 2017 Valuation, including her continued requests for information, which we consider:

(A) were disproportionate in the circumstances;

(B) as a result caused a significant amount of Board, Executive and advisers' time and fees to be incurred; and

(C) which we note did not, on the basis of professional advice from the Executive, scheme actuary and Deloitte, as far as we are aware, result in any material changes to the 2017 Valuation.

5.2 In our view, Prof. Hutton adopted an indifference to the principle of collective decision- making and deployed an abrupt communication style, demonstrably at odds with engaging with her peers on the Board in a consensus driven manner or with the members of the Executive in an appropriately professional manner. This unwillingness to seek consensus and instead promulgate her own point of view goes some way to explain why she made disclosures of confidential information to the FRC, TPR, the JNC, and to the general public through the Financial Times, Times Higher Education, BBC Radio 4's Today programme and the online publication of the Open Questions Document. These disclosures occurred in circumstances where Prof. Hutton did not get the satisfaction she sought on the 2017 Valuation, i.e. the adoption of her desired approach. Further, the impact of these disclosures caused stakeholders and the general public to doubt the validity and/or accuracy of the 2017 Valuation, and arguably lowered the esteem of the Scheme's management in their eyes. Such conduct is regrettable, particularly in the absence of evidence that the 2017 Valuation was not compliant with relevant regulations. We think that Prof. Hutton's approach was further driven by her own academic background, a general distrust toward the actuarial profession, a distrust in and adverse views toward those responsible for the administration of the Scheme (which had existed both prior to and at the time of her appointment to the Board) and a tendency to readily adopt confrontational legal terminology (such as making reference to 'breach of trust', 'misrepresentation' and 'negligence' as well as recourse to the courts) and binary explanations. We also think, however, that Prof. Hutton believed she was fulfilling what she thought to be her duties, notwithstanding that her characterisation of such duties was not always in line with the legal duties she actually owes.

6. Summary of analysis and conclusions

Disclosures

6.1

As mentioned above, Prof. Hutton has taken a number of steps to raise her concerns over the process around the 2017 Valuation and USSL's response to her concerns. These have included, in addition to the steps she has taken internally with USSL, making disclosures to regulators and to the media.

6.2 As regards her disclosures to regulators, between March and July 2018 Prof. Hutton made a number of disclosures to the FRC (the 2018 FRC Disclosures) and TPR (the 2018 TPR Disclosures), which broadly concerned allegations of USSL withholding information, errors in the 2017 Valuation and its compliance with certain actuarial standards.

6.3 As regards her media disclosures, in May and June 2019 Prof. Hutton made the following disclosures:

6.4 (A) On 21 May 2019, the Financial Times published an article containing allegations made by Prof. Hutton in relation to the 2017 Valuation (the 21 May 2019 FT Article). In particular, this article reported that Prof. Hutton had experienced repeated delayed responses to her information requests and that the Board and Executive were imposing restrictions on information supplied to directors. Prof. Hutton also alleged that the 2017 Valuation deficit was "substantially overestimated", and that a retirement rate error she had identified "had the effect of inflating pension cost".

(B) On 14 June 2019, the Financial Times published an article containing allegations made by Prof. Hutton in relation to statements attributed to TPR within USSL documentation (the 14 June 2019 FT Article).

(C) On 25 June 2019, Times Higher Education published an article in which Prof. Hutton disclosed the fact of her recusal and the existence of an independent investigation into her conduct (which she described as USSL "trying to say that whistle-blowing isn't allowed") (the 25 June 2019 THE Article). In addition, Prof. Hutton alleged that she had been "sidelined" after raising her concerns and also disclosed details of the 16 May 2019 Board meeting (which she described as a "kangaroo court"), including that the meeting was attended by an external lawyer and that discussions were had about USSL's whistleblowing policy.

(A) On 26 June 2019, Prof. Hutton appeared on BBC Radio 4's Today programme (the 26 June 2019 BBC Radio 4 Interview). During her appearance, she disclosed that she had been suspended from the Board and that she had yet to receive precise details for her suspension. Prof. Hutton alleged that her suspension was prompted by her discussions with TPR. Prof. Hutton also suggested that her best estimate, taking into account the corrections she would like, was that the Scheme was "substantially in surplus". In addition to these disclosures to the media, Prof. Hutton has made apparent use of material or information provided to her in her capacity as a director of USSL for purposes other than for which it was provided, as summarised further below. In particular:

(A) At some point over the course of late 2018 and early 2019, Prof. Hutton published the Open Questions Document, being an extract from the USSL Legal Risk Matrix and Assurance Register, subject to some minor amendments, on a Warwick University webpage.

6.5 (B) On 2 March 2019, Prof. Hutton relayed to the JNC comments said to have been made by the USS Group CEO and an "actuary associated with the Board" at the Board Away Day (the March 2019 JNC Disclosures).

(C) On 13 May 2019, Prof. Hutton disclosed email correspondence between herself and USSL, along with descriptions of information in internal USSL documentation, to the JNC (the May 2019 JNC Disclosures) and TPR (the May 2019 TPR Disclosures). These disclosures were made in connection with an allegation that the Executive had unjustifiably attributed statements to TPR in Scheme documentation.

Against the above factual findings, in accordance with our Terms of Reference, we have considered whether Prof. Hutton has acted in breach of her duties. A summary of our analysis and key conclusions is set out below.

Breach of confidence

6.6 Prof. Hutton owes an equitable duty of confidence to USSL by virtue of her directorship and her fiduciary relationship to the company. Prof. Hutton is also bound contractually to maintain confidence under the terms of her letter of appointment with USSL (the "Appointment Letter"), the USSL Board code of conduct (the "Code of Conduct") and the Data Sharing Deed, which require her to keep all information obtained during the course of her directorship confidential, and not use such information "for any reason other than in the interests of [USSL]".

6.7 Prof. Hutton has breached her duty of confidence in contract and in equity in relation to each of her non-regulatory/media disclosures. In coming to this conclusion we consider that Prof. Hutton does not benefit from any whistleblowing protection or public interest defence as her disclosures were not reasonable in all the circumstances. In particular, we find that Prof. Hutton's media disclosures were by no means a proportionate response to the relevant issues in circumstances where the matters disclosed by Prof. Hutton had already been notified to the FRC and TPR and were subject to ongoing investigations by them. Further, we note that Prof. Hutton's concerns are based around a difference in actuarial opinion between her, the Board and its professional advisers (which is by its nature complex and is not a matter that can be resolved through public debate), and there was no clear public interest that could be served in ventilating that difference of opinion before a regulator had expressed its views. In fact, there was a strong public interest in the reverse – in the reported issues not being disclosed to the media before a regulator had completed its investigation.

6.8 Further, each such breach of confidence also amounts to a breach by Prof. Hutton of her duty under section 172 Companies Act 2006 ("CA 2006") to promote the success of the company.

Collective decision-making

6.9 Prof. Hutton's disclosures have undermined the Board's decision to approve the 2017 Valuation, which constitutes a breach of her Code of Conduct duty to "faithfully support the implementation of all decisions of the board".

6.10 In addition, we have considered Prof. Hutton's conduct in light of the breaches of confidence and the court's recent decision in Stobart Group Limited v William Andrew Tinkler [2019] EWHC 258 (Comm) ("Stobart v Tinkler"), which emphasised the collegial function of the board and that an individual director's role and duties have to be understood as part of that collegial function. Although Prof. Hutton is not by the fact of being in a minority in breach of any duty, the breaches of confidence and the resulting breaches of the duty under section 172 CA 2006 are a product of her dissenting in inappropriate and unauthorised forums in a manner inconsistent with the principle of collective decision-making. We are therefore of the view that Prof. Hutton is likely to have difficulty persuading a court that her actions were consistent with the duty to act in good faith to promote the success of USSL. In our view these factors therefore not only serve to increase the seriousness of the breaches of the duty to promote the success of USSL borne from the breaches of confidence, but may also contribute to a finding of additional breaches of the duty to promote the success of USSL.

Other Code of Conduct issues and company law duties

6.11 Prof. Hutton's overall conduct has failed to meet the requirements in the Code of Conduct to "work hard to resolve [differences in opinion] through discussion" and to "respectfully engage with any conflicting views".

6.12 We do not consider there to be sufficient evidence to support a breach of the duties codified in sections 171 and 173 to 175 (inclusive) of the CA 2006.

Prof. Hutton's information requests

6.13 We have no reason to believe that Prof. Hutton was exercising her right to inspect the company's books and records for any other purpose than to perform her duties.

6.14 We find that USSL's response to Prof. Hutton's information requests, which culminated in the Comprehensive Statement, was extensive and considered. In our view, it was overall reasonable in all the circumstances. We have not seen evidence to suggest that the Board, in responding to Prof. Hutton's information requests, was acting otherwise than to promote the success of the company (USSL), although with the benefit of hindsight it would have been preferable, on at least two occasions that we have identified, for there to have been more rapid responses to Prof. Hutton's requests.

7. Recommendations

7.1 Our Terms of Reference require us to make recommendations in light of our findings and conclusions. We make these recommendations without presupposing that any particular answer should be reached. It may well be that the Board, should it decide to undertake the exercises suggested below, decides that its processes are already adequate and/or that no steps should be taken.

(A) The Board will wish to consider our findings and conclusions and determine, with the benefit of advice from its usual legal advisers, whether it should take any steps (legal or other) with regards to Prof. Hutton's past conduct and continued tenure on Board (which is currently suspended).

(B) In the context of what is clearly a difficult and potentially controversial exercise, consideration should be given to whether any greater level of transparency as to the valuation process and issues arising out of it can be given to stakeholders in order to provide additional levels of comfort that the process is being conducted competently. We acknowledge that there have been considerable efforts in this regard already, but now may be an opportunity to consider whether more, or a different approach, can be undertaken.

(C) In light of the experience gained in dealing with Prof. Hutton's requests, we recommend that further consideration be given to establishing the mechanisms for provision of data and information to directors. Consideration should also be given to whether further resource should be allocated to the internal actuarial functions of the Executive.

(D) Consideration should be given to putting in place a process to allow clear lines of escalation for directors and senior members of the Executive so that if allegations of bad faith, misconduct or breach of trust or the like (such as those made by Prof. Hutton) were made in the future they are definitively dealt with at an early stage.

(E) In light of the apparent clash between Prof. Hutton's views and those of others experienced in actuarial and similar matters, we suggest that consideration is given to whether the balance of the Board, in terms of experience, is appropriate. In this regard, we note that a board should ideally draw on diverse experiences and views and also that the Board is responsible for many matters which are unrelated to valuation or actuarial matters.

(F) In the course of the events covered by this Report, various amendments to existing policies (the Code of Conduct) and wholly new policies (Principles of Decision Making) have been introduced and various advice received on the duties of the Board. The Board should consider whether its policies, procedures and training materials are sufficiently clear and streamlined to be useful to members of the Board and the senior members of the Executive and reflect on the lessons learned from the events covered in this Report. This could extend to the adequacy of the appraisal process.