The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards are well documented, and efforts to ensure greater representation of women and minorities in boardrooms are beginning to pay off. The impact of diversity on the performance of companies is not fully understood.

The most common argument is that a board with a greater diversity of genders and ages will have a greater knowledge base. This knowledge will not be accessible to the men and women who are the same. In other words an organization that is more diverse is expected to have more “cognitive diversity” and consider more options for deciding which direction to take the business forward than a less-diverse one.

However, there are other factors at play. Minorities or tokens in groups might self-censor, avoiding having opinions and beliefs that do not align with the majority. In the end, the board may not be able take full advantage of the cognitive diversity it has incorporated into its makeup.

Additionally, while academic research suggests that demographic diversity can have a positive effect on board decisions, research also indicates that it is not the only factor that matters. Other aspects, such as board member independence and educational qualifications as measured by the amount of years of education that have been completed beyond a bachelor’s degree could influence performance.

To find new members, companies should be creative when searching for them. For instance, they should look into reaching out to businesses and universities to identify potential candidates. They could also think about forming task forces that are charged with investigating areas where most suitable candidates aren’t easily identified. This approach is a far more effective method of enhancing the diversity of the board than using external or internal consultants to suggest names.

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