Mixing it up: how added diversity could boost trustee board results

Today, if the world was a village of 100 inhabitants, 19 would be Chinese, 18 Indian, 16 African, with 13 from the Americas and 10 from Europe.  

However, as it stands, trustee boards are overwhelmingly homogenous and remain the preserve of the 60-something, white male. 

A diverse board contains a broader mix of skills and experience, which gives it a greater ability to achieve good outcomes. Achieving diversity is a challenge that needs to be addressed. 

Trustee boards can achieve diversity not just in functional and technical expertise, but also of backgrounds, perspectives, ages, and more.

Boards today simply do not reflect the membership they represent and many risk a disconnect between the board and scheme members. A diverse group brings ideas from all walks of life, keeps ideas fresh and promotes the agendas of all member groups. 

One could also argue that this may be a two-layer problem: where a lack of women in senior levels at the trade unions might be being mirrored at pension trustee boards.  

The benefits of diverse pension trustee boards extend beyond pension provision and could be a route to increased dynamism in companies. 

The trustee structure provides an understanding of how formal boards work and the importance of good governance, creating a valuable stepping-stone for talented execs before moving on to board positions.  

Boosting representation

Improving female board representation is a focus of the UK government following the Lord Davies report in 2011.  

The recommendation was a business-led approach, rather than quotas, to increase participation of women on FTSE boards. 

Initiatives such as the 30% Club – a group of board chairs and CEOs committed to better gender balance at all levels of their organisations through voluntary actions – are helpful in these endeavours.

Co-founded by Helena Morrissey, the 30% Club launched in the UK in 2010 with an aspirational goal of having that percentage of women on FTSE 100 boards by the end of 2015. 

There are currently 115 members of the UK branch and the proportion of female FTSE 100 directors has risen from 12.5 per cent to 22.8 per cent.  

One of the working groups of the 30% Club is called the investors group, which represents asset owners, including pension schemes, and asset managers who have decided to proactively raise the question of diversity when meeting prospective portfolio companies’ management teams. 

Fund managers have started to recognise that diversity can be a driver of corporate performance – but more could be done. They have a responsibility to ask the question and hold companies to account.   

Analysts place a huge emphasis on reports and valuations but do not focus enough on how to get employees more engaged, ultimately leading to great companies instead of good ones.   

Timebound tenures 

There are a number of practical steps that can be implemented – for example, setting limits for trustee terms. This is essential to ensure the length of service is limited and that trustees do not become entrenched or burnt out.   

Alternative methods of recruitment can tap into new groups or communities not currently represented, as can holding board meetings at times that are convenient to all in locations that are accessible to everyone.   

There will inevitably be challenges that trustee boards face as they attempt to overcome the status quo of existing board thinking.  

Some may be against the changing social make-up of the boards, while in other situations implementing these ideas can be significantly difficult in terms of finding the appropriately qualified individuals who are prepared to stand up to the board.  

Successful management is necessary for a diverse board to have the right balance between a variety in thinking, but at the same time the ability to come together to reach conclusions for the benefit of the pensioners.  

Kathleen Hughes is European head of institutional sales at Goldman Sachs Asset Management