How trustees can make better investment decisions
From the blog: Put people under the stress of ambiguity and you will evoke their most primitive anxieties – and their most basic psychological defences.
This causes huge problems for groups of pension scheme trustees trying to make investment decisions, an area fraught with uncertainty. But there are solutions.
Wilfred Bion, the pioneer of research into group dynamics, said a group is “compelled, whenever the pressure of anxiety becomes too great, to take defensive action”.
Far from embracing the complexity of the issue at hand, the group is tempted to reject it. A group member who simplistically splits everything into good and bad may come to dominate. Or perhaps the group will stonewall, find nothing to say and follow the path of least resistance.
Realise what's happening
The long-term antidote is to learn to think under fire – which means noticing what’s going on inside oneself and inside the group, especially any unwillingness to really consider the issue at hand.
Easier said than done but, over time, any awareness of behaviour can be surprisingly effective.
Shorter-term, there are a range of procedures a group can put in place to help it remain grounded in reality.
Play devil's advocate
The first procedural solution concerns the issue of a dominant personality emerging within the group.
For example, in the context of a board of UK defined benefit scheme trustees discussing interest rate hedging, one member of the group, who is convinced rates are going to rise, may drown out the more nuanced views of others.
The recommended solution lies with the chair of trustees. He or she should be inquisitive but generally silent, to encourage everyone to put forward what they know and say what they genuinely think.
Is the dominant personality also the chair? There is a gambit that may help the other trustees – the devil’s advocate.
You express an opposing point of view, apparently for the sake of presenting an alternative perspective. If the argument goes the other way you dissociate yourself from what you said.
Write it down
What if the group is falling into the deeper line of defence of stonewalling? Apply the Delphi method: get the trustees to make a written note of their views before any discussion begins.
The effect of merely writing down an opinion can be enough to encourage group members to put forward their opinions.
Give trustees clear roles
And give trustees clearly-defined roles. This means giving individuals responsibility for looking into specific components and reporting on them to the group. Everyone now has a duty to say what they know, and the group is formally required to listen.
Because so much of human behaviour is unconscious it is notoriously resistant to a quick fix. Genuine progress can take a considerable amount of patient effort.
But the effort is worthwhile. For pension schemes, better decision-making is among the best ways to ensure members receive the benefits they have been promised.
William Hutchings is associate director at consultancy P-Solve