Diversity on Trustee Boards – What are we waiting for?

People sometimes complain about the pace of change in the world of pensions. This is certainly true in the context of Diversity & Inclusion (D&I). The pensions industry is at least 10 years behind the corporate world, which has long recognised the value of D&I in decision making and achieving better financial outcomes.

It’s time that D&I moved out of the wings to take centre stage.

Reasons to act now

• D&I improves decision making

The evidence is clear – teams which are more diverse and inclusive make better decisions and achieve better financial outcomes. Research from McKinsey has repeatedly shown that gender and ethnic diversity, inclusion and performance are correlated. 

David Fairs of The Pensions Regulator recently acknowledged the ‘strong correlation between gender diverse trustee boards and those boards which score highest against our measure of quality governance’.

Decision making is at the heart of everything that trustees do. If decision making can be improved by being more diverse and inclusive, surely D&I should be on the agenda of every trustee board.

• There is a wealth of material already available on the subject

There is a lot that we can learn from the corporate world.

Since 2012 the UK Corporate Governance Code has included provisions for companies to report on board diversity with measurable objectives and progress towards meeting them.

Taking gender as an example – gender diversity was considered in the ‘Davies Report’ in 2011 with the recommendation that by 2015 the FTSE 100 companies should have 25% female representation on their board. In the ‘Hampton-Alexander’ 2016 Report this target was raised to 33% by 2020.

Closer to home the PLSA has produced an excellent ‘D&I Made Simple Guide’  specifically targeted at trustee boards. The guide introduces the concepts of good practice associated with D&I and most helpfully includes some practical steps that can be taken to promote greater diversity and inclusivity.

• The Pensions Regulator has turned its attention to D&I

For the first time TPR has acknowledged the relationship between D&I and good governance on trustee boards. In February 2020 it announced the creation of a new D&I industry working group aimed at improving diversity on trustee boards. Due to the Covid-19 pandemic this initiative has been temporarily put on hold to allow TPR to focus on the most immediate risks facing pension schemes.

However, whilst TPR has pressed pause on this initiative – trustees don’t need to – now may be a good opportunity to reflect and consider bigger picture issues like D&I. Indeed, arguably in the current crisis a D&I trustee board is needed now more than ever. 

Actions to take now

1. Start the conversation

The ‘Black Lives Matter’ movement has shown us all that even when we think we’re making progress on D&I there’s still so much more to do. Recent events have brought D&I sharply into focus. So, if you haven’t done so already, it’s time to discuss what D&I means to you as a trustee board.   

2. Draft a D&I policy

Set some objectives and document them. If you need a starting point, perhaps your sponsoring employer has a D&I policy you could align with.

3. Review the recruitment process    

Consider these good practice recommendations for improving D&I on trustee boards:

• Adopt gender neutral and inclusive language (e.g. chair not chairman). Software programs can help check for unconscious gender bias.
• Review blind CVs to avoid any unconscious bias.
• Use a selection rather than an election process.
• If you do have a selection panel – is it diverse and inclusive?
• Using psychometric testing as part of the recruitment process.

4. Training  

• Include D&I training in the annual training calendar (for example, unconscious bias training).
• Consider soft skills training. I have yet to see a training calendar which includes soft skills training, which is surprising when you think about what is involved in being a trustee – managing conflicts, negotiating, constructively challenging advisers and working as part of a team with co-trustees and advisers.

5. Consider D&I of advisers and other stakeholders

Look at the diversity and inclusivity of your advisers, other stakeholders and the companies in which you invest in. Ask about their approach to D&I.  

6. Embed D&I in your governance processes

Add D&I to your Business Plan and include it as a regular agenda item for discussion.  

Organic and incremental

Building and maintaining a diverse and inclusive trustee board probably isn’t something that’s going to happen organically. It’s going to take effort and is likely to be a continual, incremental process. As we emerge out of the Covid-19 pandemic and TPR takes its finger off the pause button trustee boards are likely to face increasing scrutiny over their approach to D&I – why not act now?