In 2011 I began to hunt around for a Ph.D. research topic. What was on my mind? Corporate governance failures from the Great Financial Crisis for one. Another, flagging demographics and retirement security. Thirdly, the firsthand experience of working with asset owners, their boards, finance and investment committees, and having seen the mixed performance, some excellent, some not so hot, but constantly shifting over time.
Fourteen years, thousands of research hours, one Ph.D. dissertation, several articles, engagement with hundreds of organizations, many conferences and webinars, subsequent studies (2021 Benchmarking Study of Governance in Higher Education with Commonfund Institute), an online assessment tool and one book later, our team in the finance department at Marquette University published these findings in a top academic journal this week. It is with great pride that we share this work. This research began a national conversation on the role governance plays on driving mission-driven and financial-related outcomes over time. Since that time we have seen governance crises play out not only in the private sector, at the municipal and state levels, but also in our federal government, making the subject of this work in this field all the more urgent and compelling.
For further information and updates, see the Asset Owner Governance Project through the Marquette S-Lab.
Abstract
We examine whether the discretionary governance practices of pension board of trustees have a significant impact on the returns of the plan’s invested assets. We construct a unique database of board practices by analyzing meeting minutes of public plan board of trustees. Employing Principal Component Analysis, we formulate a pension plan Board Engagement Index to capture board dynamics beyond mere board size and composition. Our results demonstrate that pension funds characterized by a higher level of board engagement – reflected in higher index scores – exhibit enhanced fund performance. Our results are robust to endogeneity concerns. On an annual basis, one standard deviation increase in the engagement index corresponds to a 3.9% increase in benchmark-adjusted returns, everything else constant. Our findings underscore the substantial impact that board engagement can exert on a plan’s financial performance.