In our Governance and Trusteeship consultation, we asked how we could help trustees improve the diversity of trustee boards, something we believe is crucial.
At the same time, we made clear we do not support the introduction of quotas to broaden the narrow type of individuals currently seen on trustee boards. We have now published our consultation response.
Some respondents challenged what we are trying to achieve by focusing on diversity and asked what we mean by diversity.
Research that we have conducted within The Pensions Regulator (TPR), and external academic research, all points to the fact that diverse groups achieve better decisions through debate and challenge.
Our own research on gender points to a strong correlation between gender diverse trustee boards and those boards which score highest against our measure of quality governance.
But does including one female in a board of all males, a young trustee amongst a board of older trustees, a trustee with a marketing or HR background against a trustee board of financial professionals – achieve diversity?
Does inclusivity within the Board make a difference?
Trustee Chairs often tell us that they have no influence over who is appointed to the Board. Members elect Member Nominated Trustees and the employer commonly appoints Employer Nominated Trustees and often any independent or professional trustees.
How does that impact the diversity of the trustee board – is it that some people don’t think they could be trustees, or put themselves forward as trustees? To some degree, the current lack of diversity and lack of role models for different characteristics must be a barrier and influence those who would be prepared to put themselves forward.
Every Trustee Chair, I am sure, would welcome any new trustee with the right knowledge and understanding, or an enthusiasm to gain that in the timeframe permitted by law, as would every other member of the trustee board.
But Chairs and trustees are people, and people tend to socialise and gravitate to people like themselves. We all have unconscious biases. Thinking about and being aware of those biases and putting in place mechanisms to welcome and accommodate people with different characteristics to the current make-up of the board could be a welcome first step in creating an environment where a broader range of people might be encouraged to apply.
Including one woman amongst a board of men, or a young trustee amongst a board of older trustees, will have challenges. Will they persevere and contribute effectively if the Board is not open, has not thought about any inherent biases and unwittingly seems unwelcoming of or resistant to the different opinion and voice that they bring?
To my mind, an effective trustee board needs to be inclusive, to be aware of any unconscious bias it currently has because of its make-up and understand whether board meetings are conducted in a way that enables individuals within the trustee board to contribute to their fullest extent, to be themselves.
So why is it that trustee boards are not more diverse? Is it because of the lack of role models, because breaking into a non-diverse trustee board is challenging and unwittingly hostile? Is it because, trustee boards and their chairs are not sufficiently inclusive, recognising the individual diversity that each member brings to the board?
So the challenge is, should we focus first on diversity or should we start with inclusivity? If we focus on inclusivity, will trustee boards naturally become more diverse?
We clearly need to tackle both to create a sustainable difference.
Whilst many responding to our consultation were supportive of reporting on diversity, it is clear we have more to do in building a consensus on the way forward, what we mean by diversity and how it should be realised.
The pensions industry must play its part, and I welcome the Pensions and Lifetime Savings Association’s (PLSA) commitment this week to launch a made-simple guide for schemes about how they can recruit and retain diverse trustee boards.
Changing diversity and inclusion
We are keen to make a significant change to the current position on diversity and inclusion on trustee boards and so will take time to deliver a more substantive and sustainable change.
TPR will therefore establish and lead an industry working group to find ways of supporting schemes to take steps to improve both diversity and inclusivity.
We will create clear definitions of what is meant by diversity and inclusion in a pensions context, and deliver good and best practice guidance on both board composition and how boards can make the most of the pool of potential trustees they have available to them.
I would urge anyone keen to take part in the working group to let us know in a couple of lines of why you want to join.
Please contact us by 29 February 2020 using the following email address: email@example.com
By David Fairs, Executive Director of Regulatory Policy, Analysis and Advice