Is groupthink at play on your trustee board?

For any group tasked with making decisions, the groupthink phenomenon can be a powerful dynamic.

First documented by Irving Janis in his 1972 study of group dynamics in American foreign policy, the term describes the tendency for groups to push for consensus without sufficiently evaluating their ideas in order to minimise conflict.

Quite often the dominant person will be the investment consultant who is not accountable for the results

Patrick Disney, SEI

Groupthink can have a significant impact on decision-making processes and outcomes, which in the context of trustee board meetings, could have material consequences for members.

Trustees often fail to seek alternative options and limit the set of information they use to make decisions, according to new research conducted by fiduciary manager SEI in conjunction with Iain Clacher, associate professor in accounting and finance at Leeds University Business School.

More than 80 per cent of 100 UK defined benefit scheme trustees surveyed said they consider all effective alternatives when making decisions, but just half use critical evaluators to freely air objections to debate.

Nearly two thirds (59 per cent) of respondents deemed the opinions of other trustees very or extremely important, while more than eight in 10 (84 per cent) do not appoint a devil’s advocate in discussions.

Patrick Disney, managing director of SEI’s institutional group, said groupthink can manifest in different ways in most organisations, but the statistics on the presence of the phenomenon in trustee boards are “pretty stark”.

“If you take best practice on the way boards should be run, and this comes from the regulator, there has to be different views presented and challenge of the consensus to make sure that proper governance takes place,” he said.

Last month the Financial Conduct Authority launched a review of cost control, competition and conflicts of interest across asset management and investment consulting industries.

The FCA review will include a probe of the activities of investment consultancies offering fiduciary services, due to concerns they are increasingly pitching their own asset management services to clients in the form of fiduciary offerings without a competitive tender process.

Nearly two thirds (59 per cent) of trustees surveyed by SEI do not frequently consider alternatives to the advice provided by their consultant, while more than four in 10 (42 per cent) had never personally challenged their consultant.

A dominant individual can lead groups to “just agreeing”, said Disney.

“Quite often the dominant person will be the investment consultant who is not accountable for the results,” he said.

“That’s where the difficulty arises. When you are not accountable… then the interests aren’t totally aligned between what is the objective of the trustees and the objective for the consultant.”

Devil's advocate 

Barry Parr, co-chair of the Association of Member Nominated Trustees, said there was no doubt this type of dynamic comes into play in any group scenario. However, in trustee meetings Parr said the opposite phenomenon can occur.

“It’s not unusual that someone always has to be provocative,” he said.

Parr said he hoped the collective support of the AMNT equips lay trustee members to feel confident in challenging views and ideas in meetings.

“We aim to give confidence to members to challenge form time to time,” he said, adding that the association is looking at ways to boost the focus on “softer skills” in lay trustee training.

Grilling consultants 

Adrian Kennett, managing director at professional trustee company Dalriada Trustees, said he has encountered trustees overcompensating and “trying to create conflict because they feel they need to”.

Kennett said he “absolutely grills” investment consultants, but conceded that there is an imbalance of knowledge between those charged with running pension schemes and the investment community.

“Knowing when to ask the right question and what the right question is, is a skill… which is not uniform across the industry,” he said.

“The more complex investment strategies that get developed, it gets harder for trustees to keep up and there is a danger there is insufficient challenging of investment consultants as a result.”