Impact of Board Composition on Pension De‐risking Strategies

Abstract

Pension de‐risking strategies have been widely adopted by firms with defined‐benefit (DB) pension plans to reduce pension risk. This paper investigates the influence of board composition on pension de‐risking strategies within the UK, focusing particularly on three strategies: changes to pension asset allocations, switches from DB to defined‐contribution (DC) pension plans and pension buy‐ins and buy‐outs. Our findings suggest that firms with larger boards and more independent directors are less likely to invest their pension assets in equities. Survival analysis shows that firms with larger boards are slower to switch from DB to DC pension plans. This is consistent with stakeholder theory, in that firms with large boards or more independent directors are more likely to protect employees’ benefits when de‐risking their DB pension plans. However, firms with more female directors are faster to switch fully from DB to DC pension plans and slower to engage in pension buy‐in and buy‐out transactions. This suggests that female directors encourage fully switching DB pension plans, while they are concerned with the significant costs of pension buy‐in or buy‐out. This research provides clear evidence that pension de‐risking strategies are influenced by board composition. UK pension trustees play a key role in determining switches from DB to DC pension plans, mitigating the impact of independent directors.

Are Reshoring Decisions Influenced by External Stakeholders and Country‐Level Environmental Regulation?

“…However, this is no longer possible for foreign directors, who may not have the necessary proximity with the host country and thus hold limited familiarity and knowledge of the host country's market. In these cases, MNEs may find that reshoring decisions are the best mechanism for reducing costs and feel assured that their collective interests are not compromised (Mallin, Michelon and Raggi, 2013). This is particularly true for minority‐owned subsidiaries, which are more likely to be reshored in the case of stringent environmental regulation.…”

“…corporate pension policies, corporate social responsibility decisions and innovation decisions), they are inconclusive about how increasing diversity through the involvement of different types of stakeholders (e.g. internal and external stakeholders) affects these decisions (Harjoto, Laksmana and Lee, 2015;Li and Al-Najjar, 2022;Rao and Tilt, 2016). Some of these studies suggest that external stakeholders affiliated with firms may contribute significantly to decision-making by bringing new and diverse insights into the conventional perspectives of majority directors (Choi, Park and Yoo, 2007;Harjoto, Laksmana and Lee, 2015;Westphal and Milton, 2000).…”