Study Says Committee Styles Mirror Members

The vast majority of investment committee members surveyed said they prefer a democratic approach. 

In fact, 89% of some 200 institutional investors overseeing plan assets surveyed by Vanguard stated that that was the preferred leadership style for those committees.  Perhaps not surprisingly, 80% of survey respondents characterized their own style as “democratic,” while just 6% characterized themselves as autocratic, with 14% citing laissez-faire.   

“The clear majority of respondents not only describe their committee’s leadership style as democratic, they also said they strongly desire this type of structure,” said Catherine Gordon, who leads Vanguard Institutional Advisory Services.  In unveiling the findings, she added that they were surprised to find that committees’ decisions and behaviors were largely similar across leadership styles. 

Asked to characterize their investment committee’s group decision-making process: 

43% – the leader inspires extra effort among the members to try harder, complete more than expected to do, and have a heightened desire to succeed 

30% – said there was a tendency to discuss only the information that was available to the group’s members before the discussion – which Vanguard noted could lead to “shared information bias” 

16% – noted that the committee contained members who do not make meaningful decisions 

10% – cited a tendency for the group to acquire information that confirms the group’s views, and to disregard information that runs counter to those views – which Vanguard cited as “confirmation bias” 

10% – said that members were more interested in avoiding conflict and maintaining unanimity that realistically appraising the various courses of action (“group think”) 

6% – acknowledged a tendency to develop “unduly optimistic” forecasts of the future 


"Shared information bias means that the committee members follow an insular process and don’t seek out new information from each other that may broaden their perspective and inform their decision-making," said Jill Marshall, an investment analyst with Vanguard Investment Strategy Group and a coauthor of the leadership styles study. "As for the leader’s ability to get the most out of committee members, this is definitely an area to pay attention to since the demands on investment committees are so great." 

Best Practices 

The survey also highlighted best practices and committee behavior: 

  • 97% - review asset allocation at least annually  
  • 92% - document meetings, attendance, member contributions, reasons for manager change, etc.  
  • 91% - conduct regular meetings on all aspects of the portfolio, both administrative and investment-related  
  • 90% - ensure that the process used to oversee the portfolio conforms to committee documents (such as the investment policy statement)  
  • 82% - reviews the investment policy statement at least annually  
  • 77% - regularly assesses whether portfolio fees are reasonable relative to performance expectations  
  • 76% - assess portfolio risk at least annually 

On the other hand, only 35% encouraged additional education or training for members on relevant investment topics.   

The survey, conducted in November/December 2010, is the third of Vanguard’s annual investment committee surveys and is part of a broader research agenda to better understand the dynamics of decision-making by investment committees.  It solicited responses from more than 200 institutional investors overseeing defined benefit, defined contribution, and nonprofit assets.  

The full results from the survey will be available in June.