The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards are well-documented and efforts to create more representation of minorities and gender in boardrooms are starting to pay off. The impact of diversity on performance is not fully understood.

One of the most common arguments is that a greater diversity of demographics can increase the knowledge base of a board and provides it with information that isn’t available to an homogenous group of men or women. A board that is more diverse is expected to be more “cognitive” and will be able to consider different options when deciding how to move the company forward.

But there are other factors to consider. Individuals who are considered to be minorities or tokens within a group may self-censor or refrain from expressing opinions and beliefs that do not agree with the majority. The board might not be able to fully take advantage of its cognitive diversity.

Additionally, while academic research indicates that demographic diversity could be beneficial to board decisions, it shows that this is not the only thing to consider. Other aspects, such as the independence of board members and their educational qualifications as measured by the amount of years of education that are beyond a bachelor’s level could influence performance.

In order to attract new members, businesses should be creative when searching for them. For instance, companies should think about reaching out to business schools and universities to identify potential candidates. They could also think about forming task forces that are charged with investigating areas where right candidates might not be visible. This is a much more effective approach to increasing diversity than relying solely on consultants, whether internal or external.

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