A new report by Scottish Widows and Dr Johanne Grosvold at University of Bath ‘Great minds don’t think alike’ calls on companies to do more to understand cognitive diversity. This includes fostering a culture of ‘constructive disagreement’ within their boardrooms to make better decisions. How can this positively impact schemes and savers? 

Cognitive diversity is best defined as bringing together a range of different styles of thinking among members of a group. According to Scottish Widows, that can include – but is not limited to – different perspectives, abilities, knowledge, attitudes, information styles, and demographic characteristics, or any combination of these. 

Despite an increasing focus on improving gender and ethnic diversity within leadership positions, many companies can still be hindered by ‘groupthink’, with too many executives from similar backgrounds and similar viewpoints.  

Head of pension investments and responsible investments at Scottish Widows, Maria Nazarova-Doyle said that groupthink limits the potential growth of customers’ savings in future: “In order to deliver the best possible returns for customers, it’s important that boards come from diverse backgrounds, have different styles and approaches.” 

In addition to key findings on cognitive diversity, the report makes several recommendations on how to improve it, and in the coming weeks Scottish Widows will write to the top 50 companies it invests in to encourage them to put cognitive diversity on their agendas.  

“Doing it in practice takes time and commitment, and we recognise that all companies can do better, including ourselves,” said Nazarova-Doyle. “As an active steward, we will engage with our investee companies to achieve better corporate governance through broader diversity and set this as the standard against which we expect those companies to perform.” 

Report findings and recommendations 

The report found that the right leadership is essential to realising the potential of a cognitively balanced team. Such a team takes less time to solve problems and numerous studies have also shown a positive relationship between diversity and financial performance. 

Although regulators are encouraging cognitive diversity among decision makers, action by companies is limited. Using publicly available information from each of Scottish Widows’ top 25 holdings, the study found only one firm which specifically mentions ‘cognitive diversity’ as something it considers in its working practices. 

“The report shows that companies are aware of the issue of cognitive diversity but are not yet taking systematic action to ensure corporate boards benefit from it,” said associate professor of corporate governance and corporate social responsibility at University of Bath, Johanne Grosvold. “In the meantime, companies are exposed to the drawbacks of being governed by a group of people who may be characterised by narrow thinking and less diversity of views.” 

Not treating this subject seriously will soon become a regulatory risk, the report says. Therefore, it lists recommendations to boards which include the following: before hiring, the report recommends revisiting recruitment criteria and looking again at which skills really are essential. Strict criteria will restrict broader representation and reduce cognitive diversity. Once hired, board members need to feel confident and comfortable to be able to ask sometimes difficult and challenging questions. Quality inductions and support outside the boardroom will allow time to focus on discussion and strategy during the meeting, the report recommends. 

Going one step further 

Although the report has brought to light the importance of gender and ethnicity for cognitive diversity, it doesn’t mention disability or other areas of intersectionality. Johnny Timpson, financial inclusion commissioner, says this is a great start - but it needs to go further: “It was a really good piece of work they’ve done, but I was a bit miffed that there was no reference to disability, and I wish there was.” 

According to a report by the Trades Union Congress in March this year, one in eight workers was forced out of the labour market due to ill health before state pension age.  

“I think it speaks to a lot of the dialogue and debate at the minute that takes place in the pension sector. Particularly, we don’t talk about the one in eight and I think we need to,” said Timpson. “Having a more diverse group of decision makers at all levels would maybe help bring some of these issues to light.” 

Up until recently, Timpson was the inaugural cabinet disability and access ambassador for the insurance industry and banking sector. With this and other experience, Timpson said that if disability was included in the report, he would recommend that all organisations in the UK, especially all financial organisations, set up a reference group if they haven’t already.  

“A reference group where the membership is drawn from charities, from consumer groups, and from disabled people’s organisations that enables [people] to bounce their thinking off people with lived experience and get some guidance and get a view. I think that would better help shape policies,” he says.