How diverse is your trustee board?
Diversity in trustee boards might be improving slightly but there is still a long way to go
We all know the pensions trustee stereotype: male, white, aged 50 or over, often with a background in finance. Now, that image is backed up with empirical evidence, through research carried out by Leeds University Business School and Aon. The study found that the median age of a trustee is 55, 81% are male and 78% are educated to degree level or above, most commonly in business and management, engineering and technology, or mathematics. Eighty per cent make investments with their own personal wealth.
Are 50-something white males with a background in chartered accounting or similar better suited to the requirements of trusteeship than those from more varied backgrounds with different skillsets? And, as long as a scheme is well governed, should we care if every member of the board has the same ethnicity, gender, socio-economic background and life experience?
Any decision-making board should care about cognitive diversity
The answer to that last question, according to John Belgrove, EMEA head of investment at Aon, is a resounding ‘yes’. “Any decision-making board should care about cognitive diversity [differences in the way people think]” he says. “Approaching problems from multiple perspectives typically leads to a more rounded analysis and more robust output.” Lack of that diversity, continues Belgrove, can lead to “narrowness of perspective, group-think and confirmation bias.”
Cognitive diversity is about far more than the occasional disagreement or personality clash at trustee board meetings – it is about including people with genuinely different ways of thinking. “Sadly, I’ve heard pale men in their 50’s state that their identi-white male boards are ‘cognitively diverse’,” says Hannah Lewis, director of behavioural science specialists Behave London. “We tend to see huge differences among our own group easily, and are unable to understand the narrowness of our experience. Just because Bob is ‘not like me’ does not make him cognitively diverse.”
Things are getting better and we expect the trend towards improved board diversity to accelerate
Belgrove is optimistic about the future, however. “Things are getting better and we expect the trend towards improved board diversity to continue and accelerate. For example gender diversity has improved from 1 in 40 in 2006 research to 1 in 5 in Leeds University Business School’s recent research.”
Belgrove concedes that DB schemes may struggle to improve age diversity, as schemes close to future accrual and the age profile of those that remain in the scheme narrows. “Part of the problem is lack of willingness of people to be trustees,” admits Iain Clacher, associate professor in accounting and finance, Leeds University Business School. “Following the 2001 Myners Report, people felt the social good of being a trustee. But now, as younger employees are no longer contributing to DB pensions, there’s a shortage of people who will be willing to manage money for those still in the scheme.”
We are often anchored to beliefs we grew up with and this can affect one’s opinion of ‘what is normal’
Those limitations of age diversity could have a knock-on effect on decision-making. “We are often anchored to beliefs we grew up with and this can affect one’s opinion of ‘what is normal’,” says Belgrove. “There is a risk that trustee boards are not exposed to new ways of thinking, or at least the diversity of approaches that a more age-diverse board would otherwise have.” However, the picture is very different for DC schemes. “There is more of an opportunity to seek age diversity,” says Belgrove.
However, the selection process for member-nominated trustees does offer opportunities to help introduce greater diversity. “This is perhaps an area where selection is better than election,” adds Belgrove.
If you are a highly competent and skilled female in this area, you are likely to be in demand
If the options for diversification are limited from a member perspective, there is no limitation on professional trustee firms when it comes to age, gender or ethnicity, and firms are now beginning to respond accordingly. “Many professional trustee firms are also actively diversifying their own staff expertise more effectively now.” Clacher adds: “If you are a highly competent and skilled female in this area, you are likely to be in demand.”
Lewis believes even more proactive change is needed. “I’m adamant that we need to develop new routes to being a trustee. If you’re not the typical man who has worked in financial services, you have no idea that these options are even open to you.” She advocates a structured training programme, where potential trustees could shadow existing boards for 6-12 months.
Even if a board has attracted trustees across a wide age range, with a good mix of gender, ethnicity and workplace experiences, making sure all of those viewpoints are heard and equally respected also matters.
The chair is responsible for enforcing a policy of everyone speaking in equal measure
If the “big voices” in the boardroom are the only ones that are routinely heard, their view quickly turns into the board’s view. That is where the skill of the trustee chair comes in. “The chair is responsible for enforcing a policy of everyone speaking in equal measure,” says Lewis. “The group norm should be to remind the ‘big voice’ to wait their turn. Psychological safety is incredibly important – in essence, every member of the board needs to be given a sense of confidence that no-one around the table will embarrass, reject or punish them for speaking up.”
Speaking at the Pensions and Lifetime Savings Association’s (PLSA) investment conference in March, chief executive of the Pensions Regulator Lesley Titcomb said that there would be increased focus in the next year on the role of trustee chairs in decision-making.
If trustees expect greater diversity as investors, it is time to apply those same criteria to their own governance
The PLSA has also recently launched its Breaking the Mirror Image campaign, aimed at encouraging greater diversity in pensions trusteeship. It reflects the fact that, as investors, pension schemes now expect more diverse corporate boards running the companies in which they invest. If trustees expect greater diversity as investors, it is time to apply those same criteria to their own governance structures.