IMF managing director Christine Lagarde is widely quoted for her suggestion that the global financial crisis of 2008-09 might have been quite different if an important investment bank at that time had been Lehman Sisters rather than Lehman Brothers.
And there is plenty of hard data to support her view. A report by Barclays Capital entitled Affirmative Investing: Women and Minority Owned Hedge Funds found that, on average, the performance of asset management firms that are owned by women and minorities, both in terms of absolute returns and risk-adjusted returns, is stronger than the performance of firms not owned by minorities. Further, this superior performance is evident across all asset classes. Over the five years ended March 2011 – a period that includes the global financial crisis and the aftermath – a fund-weighted index of single-manager women and minority-owned hedge funds generated a cumulative return of 82.39 per cent; conversely, an index of single-manager non-diversity funds returned only 51.00 per cent.
Collectively, key decisionmakers in Australia’s world-class super and investment industry understand diversity goes hand in hand with good governance. Women On Boards tracks the number of female directors in Australia on corporate, government and NGO boards, as well as the boards of super funds. In its 2015 survey, Women On Boards found that 254 of the 955 trustees across 135 super funds surveyed – or 26.6 per cent – were women.
In 2013, just 20.9 per cent of super fund trustees were women, which means there has been real progress. And we also know Australia’s super sector is well ahead of ASX-listed public companies, with 81 of the companies in the ASX-300 index having all-male boards.
But like your pension fund cousins around the world, Australian funds still have further to go. Globally, the 30% Club argues that 30 per cent is the minimum percentage of board members that should be women. And while I agree with this initiative, I also argue that it’s not just about gender diversity, but also about diversity in general: diversity of culture, of race, of age, of background, of education, of experience.
This is no mere rallying cry; the data proves it. Professor Scott Page at the University of Michigan has developed a mathematical calculation for diversity that finds that if you’re trying to solve a truly difficult problem, the best results come from a diverse group of people with dissimilar intellects. He often talks about a famous example: when smallpox was ravaging Europe in the late 18th century, an English farmer named Benjamin Jesty managed to protect his family with a homemade cowpox-based vaccine – he had noticed milkmaids didn’t get smallpox after they suffered cowpox. Renowned scientist and physician Edward Jenner is credited with creating the vaccine – yet he did so because he paid attention to Jesty’s solution.
So, I suggest boards – be they of companies or funds – strive for diversity not because it is a moral imperative, but because it drives better results. All too often we lean on the politically correct notion that we want diversity because it’s “the right thing to do”. But it can’t be some sort of global super-ego driving us to be inclusive. We need to look at the evidence.
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Two questions for super fund trustees
That begs an important question for super fund trustees: who should be the leading advocate for diversity on a super fund board? I would argue that diversity needs to be part of a vision for success and that vision should be the chief executive officer’s. Other people within an organisation will generally do what the CEO thinks is important. If a super fund CEO wants to hit a particular key performance indicator (KPI) in terms of investment performance or reducing costs to members, then everyone else will usually work hard to make it happen. It is the same with diversity. If a CEO thinks that it is imperative to find a diverse team of people with dissimilar backgrounds and different ideas for the board, more likely than not it will happen.
In this magazine just last month, I noted David Gonski, one of Australia’s most eminent of corporate chairmen, fully understands the importance of women on boards. He endorses the objectives of the 30% Club and its Australian chapter. Gonski says this: “I am totally convinced that men and women look at things differently and therefore I feel that there are very few businesses that couldn’t prosper and do well from different views coming from around the table. The most dangerous board that I have ever been on is a board where I look around the room and they are all like me.”
So, where do the other members of a super fund board fit into this? If they are truly keen on promoting best practices in governance, they will persuade the CEO to build a diverse team. They will convince him (usually, but sometimes, her) that it is a way to produce winning outcomes.
The 30% Club’s stance on a minimum level of gender diversity on boards begs a second important question, and one that applies to super fund trustees as well as directors on other boards. That question is: how many minority representatives do you need on the board in order to be sure that there is enough diversity?
I think that question can be answered with a mantra: “diversity loves company”. Bottom line, one minority person is not enough. A super fund board that embraces diversity will appreciate the benefits and find that diversity should be an aim in itself. Such a board will enjoy new perspectives. It will deeply appreciate new ideas. It will be delighted with the concrete results in terms of KPIs. Every super fund board that is committed to governance of the highest order can – and should – do more to promote diversity.
Mellody Hobson is President of Ariel Investments, LLC, and chairman of the board of trustees for Ariel Investment Trust. She is also chairman of the board for DreamWorks Animation SKG Inc, as well as director of the The Estée Lauder Companies Inc. and Starbucks Corporation.
