The Impact of Board Diversity on Corporate Performance

board of directors

The advantages of diversity on boards are now well-documented, and the efforts to ensure more representation of minorities and gender in boardrooms are beginning to pay off. The impact of diversity on performance remains largely unknown.

One of the most common arguments is that increasing diversity in the demographics increases the knowledge base of a board by providing it with information that isn't available to a homogeneous group of men or women. In other words that a board with more diversity is expected to have more "cognitive diversity" and consider more options in deciding which direction to take the business forward than a less-diverse one.

But there are other factors that are at play. Individuals who are considered to be minorities or tokens within a group may self-censor and avoid expressing opinions and beliefs that contradict the majority. The board may not be able take full advantage of its cognitive diversity.

Additionally, while research from academics suggests that demographic diversity can have a positive effect on board decisions, research also shows that it's not the only factor to consider. Other factors, like the independence of board members and their education qualifications, as measured by number of years of schooling that have been completed beyond a bachelor's degree are able to significantly impact performance.

To find new members, companies should be innovative in their search for them. For instance, they could consider reaching out at businesses and universities to identify potential candidates. They could also think about forming task forces that are charged with identifying areas where right candidates might not be easily identified. This is a better strategy to increase diversity rather than relying on consultants who are either external or internal.

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