Feature – Diversity
City Hive, argues. “There is definitely growth in awareness but still very little tangible action,” she says. “And there is a still a lot more work to be done on the education side for peo- ple to really understand why the action is needed.” Indeed, a guide published by the PLSA reveals that across the UK pensions industry, 83% of scheme trustees are male and only 2.5% of trustees are under 30. A quarter of pension schemes have all-male trustee boards. As such, the pensions industry scores significantly worse than the average FTSE100 company.
More room in the NEST
While there is a lack of data on ethnic diversity, research by portfolio institutional shows that the top five UK defined benefit (DB) schemes (excluding local government pension scheme investment (LGPS) pools), covering more than £2.2trn in assets, did not have a single BAME (Black, Asian and Minority Ethnic) trustee or executive board member. There are also less than 10 female trustees between them.
While the LGPS pools generally feature more diverse teams and a higher level of female representation, they only have one BAME person represented at board or joint committee level. Some defined contribution (DC) schemes are countering the trend. Government workplace pension scheme NEST has one person from a BAME background on its board and another on its exec-
utive team. Some 20% of its senior leadership have a BAME background and the organisation targets a 13% BAME repre- sentation at its board by 2025. DB schemes, including one sponsored by RBS, have also set similar targets.
Diversity dividend
Ensuring that teams are offering equal opportunities isn’t just a moral imperative, it can also lead to better performance and risk management practices. For example, a McKinsey report shows that companies in the top quartile for ethnic diversity are 33% more likely to outperform their peers while more gen- der diverse companies are 15% more likely to outperform. Moreover, a 2016 article by David Rock and Heidi Grant in the Harvard Business Review showed that ethnically diverse teams are 58% more likely to price a stock correctly. Conversely, a lack of diversity could be a sign of poor risk man- agement practices, Shah argues. “We are taught to mitigate our risk by diversification,” she adds. “A multi-asset portfolio will be a mix of asset classes, currencies, sectors, market cap and geographies yet the majority of the people actually making the decisions are similar, whether it is their gender, ethnicity or schooling.
“This limits the cognitive diversity in the team (representative diversity being a proxy). It creates huge risk of group think. “We are firm believers in teams made up of people with differ- ent backgrounds, biases and beliefs lead to more robust deci- sion making,” Shah says. “In my opinion every CRO should be having sleepless nights over the lack of diversity.”
It helps if you can put peo- ple out of their comfort zone, make them realise what it’s like to be excluded. You have to get to the heart and the head and the guts, you can’t just appeal to the head. Jane Welsh, Diversity Project
What steps are schemes taking So, what is holding schemes back? According to Jane Welsh, a project manager at the Diversity Project, a cross-company initi- ative for a more inclusive investment industry, it was noticea- ble that companies kept reinventing the wheel and making the same mistakes.
“One example is the common belief that if you put everybody in unconscious bias training, it’ll all get sorted. There is quite a lot of academic research that shows that this isn’t actually help- ful, it doesn’t necessarily lead to changes in behaviour. “That isn’t to say that you shouldn’t make people aware of the unconscious bias they have but it needs to be done in a careful way,” she adds. “Storytelling is powerful, hearing experiences from different people helps you relate to them rather than it being an academic idea. It helps if you can put people out of their comfort zone, make them realise what it’s like to be excluded. “You have to get to the heart and the head and the guts, you can’t just appeal to the head,” Welsh says. “People have to really feel it to understand what it’s like to be a black person or some- body from the LGBT community in the industry.”
36 | portfolio institutional July 2020 | issue 94
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