The Impact of Board Diversity on Corporate Performance

The benefits of diversity in boards are well documented and efforts to improve the representation of minorities and women in the boardrooms have begun to pay off. However, the impact of this diversity on performance of companies is not well understood.

A common argument is that a board comprised of a greater variety of ages and genders will have a wider knowledge base. This information will not be accessible to the men and women who are all the same. A board that is more diverse is expected to be more “cognitive” and explore different options when deciding how to move a company forward.

There are a variety of other factors that are at play. People who are seen as minorities or tokens in an organization may self-censor and refuse to express opinions and beliefs that are in opposition to the majority. As a result, the board might not be able full advantage of the cognitive diversity it has included in its composition.

Furthermore, even though academic research indicates that diversity in the demographics can influence board decisions, it suggests that this isn’t the only thing to consider. Other aspects, like the independence of board members and their educational qualifications as measured by the number of years of education that are beyond a bachelor’s level, can have a significant impact on performance.

In order to get new members, companies should be innovative in their search for them. For instance, they should consider reaching out at businesses and universities to identify potential candidates. They could also create task forces to investigate the areas in which the most promising candidates might not be readily available. This is a better approach to increasing diversity instead of relying solely on consultants either external or internal.

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