The Impact of Board Diversity on Corporate Performance

The benefits of diversity in boards are well documented, and the efforts to achieve more representation of minorities and gender in boardrooms are beginning pay off. The impact of diversity on performance is still largely unexplored.

A common argument is that greater diversity in the population expands a board’s knowledge base, providing it with information that would be missing from an homogenous group of men or women. In other words that a board with more diversity is expected to have more «cognitive diversity» and be able to explore more options in deciding how to move the business forward than one with less diversity.

However, there are other factors in play. People who are seen as tokens or minorities in an organization may self-censor and refrain from expressing opinions and beliefs that are in opposition to the majority. This means that the board may not be able full benefit of the cognitive diversity it has included in its composition.

Additionally, although academic research suggests that demographic diversity has a positive impact on board decisions, research also indicates that it is not the only factor to consider. Other aspects, such as board member independence and educational qualifications measured by the amount of years of education that are beyond a bachelor’s level are able to be significant in determining performance.

Companies that want to improve their boardroom composition must be creative in their search for new members. Companies should, for example, consider reaching out to business schools and universities to find potential candidates. They may also think about creating task forces charged with investigating areas where appropriate candidates may not be visible. This is a more efficient method to increase diversity instead of relying only on consultants who are either external or internal.

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