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Speaker
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Transcript
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Chris Brown, Director, Burges Salmon
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Hi everyone my name is Chris Brown and I'm a Director in the Pensions team here at Burges Salmon and welcome to the third episode of season three of the Burges Salmon Pensions Pod and I am joined, as usual, by Helen Cracknell, an Associate in the Pensions team, hi Helen.
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Helen Cracknell, Associate, Burges Salmon
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Hi Chris.
In today's episode we'll be discussing equality, diversity and inclusion. Our guests today are Richard Pettit, a Partner in our Pensions team and Charlotte Osmond a Senior Associate in our Pensions team. Richard thanks for coming on the podcast and Charlotte welcome back.
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Charlotte Osmond, Senior Associate, Burges Salmon
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Thank you Helen.
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Chris
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Hi guys, great to have you on the pod, and Richard you are on the Pensions Regulators diversity and inclusion working group, I think that's right isn't it?
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Richard Pettit, Partner, Burges Salmon
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Yes that's right.
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Chris
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Okay so first question Charlotte I think to you please, in summary what is EDI, what does it stand for?
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Charlotte
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EDI stands for equality, diversity and inclusion.
So equality really focuses on equal opportunities for all, so regardless of background or characteristics, everyone is given the opportunity to achieve what they want to do. Diversity focuses on what differentiates us from one person to another, this includes disability, age and religion, however I think it does go beyond this as well so you can look at social background and also education, and to be honest the inclusion is pretty self-explanatory and it's about building a culture where everyone feels included and is able to achieve their full potential
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Chris
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Yes thanks Charlotte that's right isn't it, and it's right that diversity is wider than those principles in the Equality Act.
I suppose when people talk about this area quite often the E is left out and they refer only to D&I, so what's the most important element of EDI?
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Charlotte
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Well that's very interesting you should say that, to me E is the most important element. Equal opportunities and the key is breaking down barriers say that everyone's on the level playing field and taking a complete merit-based approach to the most qualified individual to be given a position, then this naturally leads to increased diversity and inclusion so yes, the equality of opportunities is definitely the key one for me.
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Helen
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That's a really good point Charlotte and just bringing it into the pensions focus, why do you think people should be spending time on this, in the pensions context?
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Chris
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Richard do you want to pick that one up?
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Richard
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Yes that's a really good question Helen, particularly if you look at it in the context that we're most often advising, so for pension trustee boards, I think we're all really conscious pension trustees have a huge amount on their plate at the moment more than ever and sometimes it just feels as if more and more demands are being piled on the trustees and those trustees rightly turn around and ask exactly the question you have which is, we've got really valuable resources in terms of time and money why should we spend that on addressing the latest acronym, whether it's GDPR, ESG or EDI? Yes, the question that really comes in is, is that going to improve member outcomes, which is what trustees are rightly focused on, so that's in terms of that's a really good question but what's the actual answer to the question and I think it's really straightforward why equality diverse and inclusion are important for trustees.
First is, it's just common sense. The second is, it's good governance, and the third is actually it's quite easy to get right, the simple easy wins, and that's without getting into the whole moral element that it's quite simply the right thing to do or even that the Regulator says it's really important.
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Helen
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Yes they sound like three good reasons Richard, but could you break those down for our listeners?
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Richard
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Yes sure, so the first of those I said it's common sense. I think sometimes the best way to look at any issue when you're explaining is to turn it round and I've not yet had anyone successfully persuade me that it's a good idea to have a trustee board where people aren't treated equally or where there are barriers to people joining from a full range of backgrounds and barriers than being retained, or the board should operate in a way that excludes some people from actively participating, so I think, assuming you don't want all of those things, then working on equality, diversity and inclusion makes sense. I think it's just common sense then for trustee to take any reasonable steps they can do to do that and again I don't want to harp on about common sense, but most of the steps you can take to address equality, diversity and inclusion are straightforward and fairly obvious.
On the second point, I said it's just good governance. I think, in the same way that Charlotte was saying equality is the most important of the three, I'd say equality yes, almost diversity and inclusion are part of equality, and to some extent equality is really just part of good governance. If you have a trustee board that has been well governed doing all the right things in terms of the way it's run, how people brought onto the board, almost automatically you should get to a situation where you have a equality, diversity and inclusion.
My final point, the third one, saying it's easy to get right is quite heavily related to the first two because it's common sense and it's good governance, I really don't think there's any rocket science to addressing equality, diversity and inclusion, whereas I think perhaps there's a perception that it is that puts people off. Most of the steps that the Pensions Regulators identified and that we've been looking at on the working group are straightforward and it's all about sharing examples of best practice to trustees to make make those easy steps.
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Chris
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Yes, thanks Richard that's really helpful so, common sense, good governance and straightforward and easy enough to do. You sometimes see don't you in reports and materials on this subject, stats around increasing diversity, improving performance and does the evidence show that that's right?
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Richard
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I'm going to give you a typical lawyer's answer, yes and no. So there is research that shows there's quite strong positive correlation between higher level, and this is mainly for gender diversity the research has been done, but shows a strong correlation between higher levels of diversity on company boards and better future financial performance of those companies. The most recent study I've seen was carried out across FTSE 350 companies in 2021 by the London Business School, but that's only half the answer because it's really important to be aware with that research that strong correlation doesn't necessarily give direct evidence of causation.
So to give an extreme example, in the average year across the United States is a very strong correlation between ice cream sales and the number of shark attacks, but nobody just seriously suggests that eating ice cream gives rise to shark attacks, there's something else going on there that's creating the correlation and my personal view I think is it's quite possible for company boards that being well governed means that both, you get better decisions generally and better financial performance, and also you get better diversity as a result of being well governed but as with everything else I think there's a bit of an overlay of common sense that to me it's obvious, the more diverse group of people are likely to make better decisions even if there's not statistical evidence to back it up.
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Chris
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Yes, it would seem logical wouldn't it because you have more inputs to a decision and if you have more inputs to a decision, I'm just going to mention a legal case now, but if you think about trustees and how they take decisions and Edge and the Ombudsman and where there's a legal duty on the trustees to take account of all relevant factors and disregard the irrelevant ones, so as not to reach a perverse or a rational conclusion, if there is a more diverse range of inputs into decision making then it should be easier for trustees to make sure they've picked up all the relevant factors and make sure that they're not inadvertently picking up any ones that aren't relevant.
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Richard
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Yes there's that different point of view, and just one more point to make, there's a lot of research and I mentioned it's about company boards and there's a lot of information and guidance around company boards, I think it's just worth saying that is quite useful and for the moment well until we get what we're going to get from the Regulator in terms of health regards it's worth looking at all of that because there's a large commonality between the way that company boards and trustee boards are run, although there are some differences.
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Chris
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Yes, absolutely that's right.
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Helen
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And Richard, have you seen anyone challenging this and saying that where all the members of their scheme are a similar demographic that the trustees should match that or naturally would match that if you're choosing member nomination trustees?
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Richard
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Yes it's a good point Helen, it is something we do see come up, exactly that challenge, you speak to a group of trustees and they say well hang on all of our members worked on these particular sites, a lot of our members for example are men of a certain age, surely naturally both we should represent our members and naturally that those are the kind of people will get in as trustees? Sure, to answer that from a legal perspective is no because trustees don't and shouldn't represent the members in the same way the employer nominated trusts for appointed trustees don't represent the employer and member nominated trustees don't represent members or a certain group of members, everyone's there as under a duty as a trustee to administer the trust and do what they can ultimately for the benefit of the beneficiaries of that trust, again coming back to all being part of being well governed. So it's important to break down that myth and also to make the point that in a scheme, if you did have a hypothetical scheme where all the members of men actually statistically speaking a higher number of the other beneficiaries would be women, so you need to factor that kind of thing in, but what I wouldn't do is dismiss the second part of the concern you mentioned Helen which is surely demographically we just will get a higher proportion of people from that background and I think you do have to recognise, again it's common sense, there are practical hurdles for trustee boards if all of your members are from a certain demographic it is going to be more difficult and that's why I think it's really important we'll come on to some of what The Regulators doing later that although The Regulators looking to potentially monitor in the future around diversity, it's not setting specific targets or using a stick to beat people with, it's just saying you should try and take steps to address this.
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Helen
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Particularly as it so difficult for, well the board that I see at least, to encourage people to become trustees, you don't want to have difficulty with that.
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Richard
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The last thing you want to do, exactly, is deter trustees and as you say it's a struggle to get people to stand in the first place, definitely.
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Helen
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Charlotte, do you think there's a moral angle to all this?
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Charlotte
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I often think EDI is seen as the right thing to do, I don't think anyone would argue that everyone can’t have equal opportunities and the board should not be fairly represented. I do think that inclusions should very much be a given and there doesn't necessarily need to be a policy on it for everyone to know that everyone should be included.
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Helen
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And do you think there's some easy wins that our trustee listeners could take away?
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Charlotte
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Definitely not everything the trustee boards need to do needs to be costly or time effective, so for example think about when and where trustee meetings are held so those should be held at a convenient time for everyone and ensure that they're in accessible buildings and also now in a hybrid world so some people can dial and if that helps them too.
Also think about myth busting, so quite a lot of members may self select themselves out from putting themselves forward for an MNT or an MND position because they don't feel they have the right background or experience and it's really about being clear with the membership about what the role entails and you don't need to be an investment expert to be on the board, you just need to be enthusiastic and there's lots of other skills that go in the background that would help make you a good MNT as well.
And then thirdly, having a very effective Chair, say someone is very willing to listen to everyone's views, brings people into the conversation and then that feeds into the good decision making as well, so yes plenty of things that trustee boards can do that is not too costly and doesn't take too much time.
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Chris
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Yes, thanks Charlotte, that's really helpful, there is a lot that trustee boards can do and as you and Richard have been saying they are easy wins.
Right Richard, I'd like to come back to you now please and I'll ask about about the strategy of the pensions Regulator and what its plans are for the future?
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Richard
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A lot of this is common sense and there's straightforward steps to take, so I won't spend too long thinking about what the Regulator is doing, because what trustees need to focus on is the easy wins.
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Chris
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What they can do yes.
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Richard
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Yes, exactly, but the Regulator's creating working with the working group a lot of good stuff, there's a strategy and an action plan on the Regulator's website but again in terms of easy wins there's a really short and accessible blog post from David Fairs from the Regulator from November last year which covers the key points to focus on.
It's worth mentioning that the Regulator obviously has a large element of this as an internal focus, working out what it can do as an organisation around equality, diversity and inclusion, but also a lot on what's most relevant for trustees which is the plans for the industry or the regulated community as a whole and the commitment from the Regulator is really there's a big focus on supporting trustees and others in the industry through this which I think is key, and then it's really about identifying barriers to diversity and as I said before highlighting best practice, so it's all, certainly at the moment, it's all in that kind of sphere as I said although there will be some plans set out with the Regulator for collecting data on diversity and setting expectations around equality and diversity and inclusion in the forthcoming single modular code, at the moment focus really is on supporting trustees rather than having pressure.
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Chris
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And interesting I saw that in that action plan, the point we were talking about earlier about decision making being improved by diversity, the Regulator is clearly of the view that diversity improves decision making, they said a diverse pensions governing body made up of people who have a broad range of characteristics, backgrounds, life experiences, expertise and skills will tend to lead to wider discussion and better decision making, which should result in long-term improvements to savers outcomes, and interestingly going back to the point Charlotte made about about having an effective chair on that because they go on to say that to improve equality and diversity the Board needs a culture of inclusion and an effective chair who promotes this, so part of The Regulators thinking a very big role for the for the chair on trustee boards.
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Richard
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Yes absolutely.
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Helen
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You mentioned support from the Regulator, do you have any sense of how that's going to come about? I know that you're, as mentioned on the industry-wide working group, and can you tell us a bit more about your role within that?
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Richard
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Yes absolutely, so very grateful for the Regulator for establishing that group and there are around 60 of us being involved and participating in that, and it all fed into some of the strategy and an action plan, but one of the key ways the Regulator is committed to support trustees and everyone in the industry is by providing practical guides both for trustees and for employers and that's really what we're focusing on at the moment in the working group, it's been a case of marginal experience from across very different parts of the industry to give practical examples and case studies and many of those are the examples that Charlotte's already mentioned around things like how boards and meetings are run and things like taking down barriers to trust your recruitment by myth busting and also retention which is often to do with a part of inclusion making sure people are actively involved in trustee meetings.
Personally I find it really fascinating to be part of that group and hear everyone's experience and I think we're now distilling that down into these practical guides which again as I say will focus on there are a lot of quite easy things for trustees to do to address all of this and feeding back to your point earlier Chris, one area we're focusing on is effective chairs because there is a really significant role for chairs in setting how a board is run and promoting good governance and as part of that equality, diversity and inclusion.
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Chris
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Yes, absolutely those guides will be really helpful.
What about challenges or the barriers you mentioned to implementing D&I policies, Charlotte?
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Charlotte
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Thank you, Chris, so yes, I do agree that diversity is important to be on agendas, but I do feel there could be resistance to this and although the intention is not to lead to positive discrimination or tokenism, I do think this is a real risk.
Taking a pure merit-based approach to the best individual should be appointed for the position. I think the views of minorities also need to be considered as well because no one wants to think they're appointed because they have a particular characteristic or tick a box, so if we really do go for merit-based approach, and this links into what I was saying at the beginning about equal opportunities, this should really then lead to diversity and inclusion completely naturally without needing to resort to positive discrimination or tokenism.
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Helen
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Charlotte, do you think it's important to consider inclusion in the context of members as well as just the trustee boards?
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Charlotte
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Yes definitely, I think especially since automatic enrolment there's a lot more people contributing to pension schemes and this is from a much wider pool of people and I think pensions is notoriously full of jargon and it's so important that we communicate clearly with members so they're really focused on the information they need to make decisions and also that communications are clear and they're accessible, so for example if someone needs it in braille or they prefer to get it by email rather than post. I mean this was something that schemes should be doing anyway, but just to really focus on it from the D&I angle as well.
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Chris
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Yes, thanks Charlotte. So, coming to the end of the podcast just a couple of last questions to wrap up, Richard what should trustees be doing on EDI at the moment, would you say?
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Richard
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Yes, it's a really good question Chris, I've said there's lots of easy wins so the obvious push to me is well, what are those easy wins. I think at the moment really it's taking it seriously and starting to think about it as a board. We talked about the role of the chair in formulating people's approach and decision making, because there is a lot of guidance out there but the Regulator's guidance, which we were working on as part of the industry-wide working group, will come out over the next few months and good practical examples, so I think it is reasonable to wait for that before implementing certain steps but have actively on the agenda and start thinking about some of the obvious things, like the example Charlotte's mentioned, and then move in the future to thinking about whether the Board needs any training on it and auditing practices and things around setting up policies for example, I think the main point at the moment is to start properly thinking about it and address anything that obviously occurs.
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Chris
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Yes okay that's really helpful, and will you and Charlotte come and speak to us again when the Regulator has published it's EDI guidance?
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Richard
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I don't know, what do you think Charlotte?
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Charlotte
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Yes definitely, very happy to do that.
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Chris
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Thank you Charlotte and thank you Richard. Thank you for coming on the podcast, it's been great talking with you both.
Thank you for listening to the Burges Salmon Pensions Pod, that was episode three of season three and you can get all the other episodes on Apple, Spotify or wherever you listen to your podcasts. So, don't forget to subscribe and thanks for listening.
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