The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards are well documented, and efforts to create greater representation of minority and gender in boardrooms are beginning to pay off. However, the impact of this diversity on the performance of corporations is not fully understood.

A common argument is that a greater diversity of demographics expands a board’s knowledge base and provides it with knowledge which would be lacking from a homogeneous group of men or women. A board that is more diverse is expected to be more “cognitive” and will explore many options when it comes to how to move a company forward.

There are other elements in play. Minorities or tokens in groups might self-censor, and avoid expressing beliefs and opinions which are in opposition to the majority. In the end, the board may not be able to fully take full benefit of the cognitive diversity it has brought into its composition.

In addition, although academic research indicates that demographic diversity could influence board decisions, it shows that this is not the only factor that is important. Other aspects, like board member independence and education qualifications, as measured by number of years of college that are beyond a bachelor’s level can significantly impact performance.

To get new members, companies should be creative in searching for them. Companies could, for instance think about reaching out to businesses and universities to find potential candidates. They might also consider creating task forces that are charged to look into areas where most suitable candidates aren’t obvious. This is a more effective method of increasing the diversity of the board than relying on external or internal consultants to suggest names.

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