Diversity and inclusion: a simple idea, but difficult to achieve

McKinsey & Company found that companies in the top quartile for racial and ethnic diversity are 33% more likely to perform above national industry averages.

Cloverpop found that inclusive teams make better business decisions 87% of the time and make decisions two times faster with half the meetings.

These benefits also apply to pension schemes boards, where good decision making is critical because poor choices can affect the quality of life of millions of people. 

Anne Sander, client director at Zedra Group says: “No one trustee is likely to have experienced everything our members go through such as divorce, being a carer, discrimination, challenges in meeting daily financial needs or living with a disability. Nor will they have all the background knowledge needed to effectively challenge our advisers about issues relating to administration services, member communication, actuarial, investment or legal matters.” 

Caroline Escott, senior investment manager at Railpen, trustee chair at Standard Life and chair of NextGen adds: “It’s…vital that boards are made up of engaged, knowledgeable individuals who bring with them the diversity of perspective, skills and experience that allow them to fully respond to and reflect all savers’ needs.”

Harus Rai, managing director of Capital Cranfield & chair of the APPT says: "If you have diverse individuals who are bringing different experiences and solutions to the issues that the scheme is dealing with, then that trustee board is able to consider more options and then create better member outcomes."

What does diversity for schemes mean?

To achieve truly diverse boards, schemes must look beyond the obvious.

Janice Turner, co-chair of the AMNT and MNT of the BECTU Staff Retirement Scheme says: “It's important to stress that diversity isn't about visible differences... In addition to protected characteristics, things like education, health and employment experience need also to be considered.”

Schemes must also prioritise inclusivity to avoid what NextGen characterises as ‘the revolving door of diversity’. Many trustee boards will have established ways of working that suit the typical trustee, rather than a working environment that enables people from different walks of life to thrive.

Rai explains: “You can have a really diverse board, but if they're not inclusive, then it doesn't achieve your goals. It is important that the views of each trustee on a board are heard, and that the conversation is not dominated by big characters.”

Escott points to her personal experience of joining the board of the Standard Life Master Trust when she was just 35 years old to highlight how important this is. 

She says: “I have seen for myself the importance of a board chair who is truly committed to making everyone feel welcome and fully able to contribute, taking the time to provide additional support outside of trustee meetings and ensuring a structured training and on-boarding programme. 

Challenges in achieving diversity

While there has been some progress, many trustee boards and executive teams still lack diversity. One problem is cultural. Trustees say that employers and advisors need to move away from the view that the only appropriate people are those with lengthy experience. 

Escott says: “My sense is that those – still relatively rare – individuals and organisations that are passionate about creating more diverse and inclusive trustee boards often have to battle quite hard against the naysayers to proactively and intentionally look more widely when recruiting for diverse talent.”

Even when boards do this, recruitment poses challenges, particularly in the defined benefit world. Varsha Gicas, director of commerce & engagement at the Pensions Management Institute says that the most prominent issues include limited candidate pools and lack of training, which leads to unconscious bias.

Turner adds: “Many DB schemes closed to new members a while ago - which means that they may not have younger members who could become MNTs... This may also impact on the availability of women and ethnic minorities to come forward as a trustee. 

“An employer may have set up a diversity and inclusion strategy in recent years and it may have worked… but this would have no impact on the pension scheme board if the board has to recruit trustees from the workforce that predated the strategy.”

How to recruit more diverse talent

Despite the recruitment challenges, Turner argues that MNTs bring crucial diversity because they are “generally not in the pensions industry bubble" and offer a different point of view.

She says unions can help with identifying - and encouraging - people from more diverse backgrounds. Schemes at larger companies might also consider asking women's and ethnic minority networks for assistance.

Sander says successful tactics include changing the MNT process to allow nomination without requiring supporters’ signatures and using a panel selection process for MNTs, where the panel has a specific objective of creating diversity.

Brendan McCafferty, chair of the Nest trustee board says that focusing on Purpose and making a difference in people’s lives tends to attract a broad spectrum of well balanced people. 

He adds: “At Nest, we did a Webcast ahead of a recruitment round. This was delivered by a relatively diverse group, the CEO, two NEDs and the CRO. They spoke openly about our need and wish to be more diverse in the composition of the board. The campaign was a success.”

The PLSA’s Alyshia Harrington-Clark says that internal training can also move the needle. She explains: “Trustees also often, like all of us, need help to identify and mitigate for and overcome unconscious biases alongside more direct prejudices… Incremental changes can have significant results, such as having a D&I policy and monitoring progress against it, using objective selection criteria and showcasing allies and role models from diverse backgrounds.”

Gicas adds: “One successful initiative for increasing trustee board diversity involves providing ongoing education for board members on unconscious bias, cultural awareness, and the value of inclusion.”

Schemes can also appoint knowledgeable professional trustees who come from a diverse background and understand the importance of bringing a wider range of perspectives around the table.

Rai concludes: "It is really important that diversity is also apparent in the advisers to those boards. If you haven't got diverse advisers who are thinking about different solutions and bringing those to the table, then the trustees are basing decisions on limited information."