The Role of Diversity in Investment Committee Effectiveness

A recent Vanguard survey looked at the diversity of investment committees of pension funds and endowments – diversity in gender, race, education, age and professional background.

The survey also gauged the opinions of committee members on a variety of topics: How much do they value diversity? Are they satisfied with the level of diversity on their board? How does diversity impact committee effectiveness?

The results were published in a Vanguard report and in the September issue of Pension Benefits.

From the report:

Four in ten respondents to our survey said that committee diversity was either ‘not’ or ‘not very’ important, and another 37% remained noncommittal in terms of diversity’s role in driving committee effectiveness. Few respondents placed a high level of importance on diversity of any kind-65% were ‘extremely satisfied’ or ‘very satisfied’ with their committee’s level of diversity.

Respondents considered their investment committees to be most diverse in terms of members’ professional experience-more than 60% of members indicated their committee was ‘very/extremely diverse’ in this respect. Nonprofit committees reported a higher level of diversity than retirement committees in terms of professional experience and investment committee experience. Overall, committee members reported the least diversity in terms of race/ethnicity.

When survey respondents were asked to rank the top three diversity elements that positively contributed to the effectiveness of a committee, diversity in professional experience and diversity in committee experience ranked highest. Based on these findings, committee members tended to point to job-related diversity as the main driver of committee effectiveness, whereas biodemographic diversity again played a more secondary role.

Fewer than one in ten investment committee member respondents said that they have a formal, written policy in place to develop and foster diversity within their committee. The importance placed on developing such a policy moving forward is relatively low, as just 6% of committee member respondents said this was ‘very/extremely important.’

Just one-quarter of our survey respondents said their committee had become more diverse than five years previous-with the majority (70%) indicating that their committee had not changed one way or the other.

One-third of our survey respondents ranked being ‘fully engaged in the committee process’ as the most valuable trait among effective committee members.

The entire report can be read here.