Kim Newell Chebator from State Street makes the case for greater diversity, highlighting one particular aspect that could help refresh the thinking of pension fund boards.
According to government statistics, women comprised 26.1 per cent of board appointments at FTSE 100 companies in 2015, compared with just 12.5 per cent in 2011.
Different viewpoints and perspectives can help fuel innovative thinking and debate, which can lead to better business outcomes
Moves are also being made in the US and other countries where major institutional investors including pension funds and fund managers are pushing for greater diversity on boards across their portfolio holdings. It is equally important though that pension funds achieve board diversity themselves, so as to better represent the interests of their own members.
Not just gender
However, it is not just gender equality that should be actively pushed. Boardroom diversity at pension funds across ethnicity, sexual orientation, age and experience should also be high up the list of priorities.
Different viewpoints and perspectives can help fuel innovative thinking and debate, which can lead to better business outcomes and drive a culture of constructive challenge and accountability necessary for risk excellence and improved performance.
Research has shown that diverse and inclusive teams consistently outperform others when they include colleagues with varied lines of business (different areas of expertise addressing the same challenges); years of experience (senior level and junior level employees challenging the status quo) and ethnicities (bringing different perspectives together).
Data from accountancy firm Grant Thornton found that companies on the S&P 500 index with a diverse board composition outperformed ones with male-only boards by 1.9 per cent. The data showed companies on the S&P 500 with all-male boards incurred opportunity costs of nearly $567bn (£461bn).
In another report published by Credit Suisse in 2016, research demonstrated 3 per cent outperformance by companies that support and embrace lesbian, gay, bisexual and transgender diversity.
Get young people on pension boards
So how can this sort of diversity promotion help pension funds? Pension funds are facing significant challenges. Negative interest rates have had a major impact on pension fund deficits, which continue to grow. A failure to remedy deficits could result in future government and taxpayer intervention to stem shortfalls.
Having a diversified board, fully representative of all stakeholder interests, to address these challenges is crucial, and pension funds must broaden their board diversity to develop innovative approaches to managing their deficits.
Plugging generational divides across pension boards and ensuring diversity of experience is also paramount. It is important that pension funds appoint individuals to their boards with senior level experience, but also bring junior-level employees into the fold.
Juniors will often be at the forefront of innovation and new ways of thinking, not to mention disruptive technology. As new challenges emerge, an inclusive pension board – bridging the gap between the older generation and millennials – will be better suited to address these issues.
Get buy-in from high up
Diversity on pension fund boards can facilitate diversity elsewhere. A number of schemes (and asset managers) are pushing for diversity to be improved across companies where they are invested. Such activity requires senior manager buy-in; our values and how we behave is all driven by the role models we see.
The focus on diversity has grown over the past few years among institutional investors. A new initiative, The Diversity Project, was launched by the Investment Association in June of this year and aims to achieve a greater level of diversity in the fund industry.
The Diversity Project will target diversity in its broadest sense for investment and savings businesses, aiming to tackle gender, ethnicity, socioeconomic background, degree discipline, sexual orientation, age and disability.
The pensions industry is facing existential challenges due to rising deficits, ageing populations and disruptive technology. Making sensible investments and adopting a different mindset to the more traditional ways of thinking is key if pension funds are to meet their fiduciary obligations to stakeholders. Boardroom diversity can play a major role in achieving this objective.
Kim Newell Chebator is executive vice-president and head of global markets – Europe, Middle East and Africa at State Street
