The Impact of Board Diversity on Corporate Performance

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

A popular argument is that a board comprised of a greater diversity of ages and genders will have a broader knowledge base. This information would not be accessible to people of all ages and women who are all the same. In the same way the board that is diverse is expected to have more “cognitive variety” and be able to explore different options when deciding on how to move the company forward than a less-diverse one.

But there are other factors in play. People who are seen as to be minorities or tokens within a group may self-censor and refrain from expressing opinions and beliefs that are in opposition to the majority. The board might not be able to take full advantage of its cognitive diversity.

Additionally, even though research in the field of academia suggests that demographic diversity has a positive impact on board decisions, research also shows that it’s not the only factor that is important. Other aspects, such as board member independence and education qualifications, as measured by amount of years of education that are beyond a bachelor’s level are able to influence performance.

To attract new members, businesses must be innovative when searching for them. For instance, they should think about reaching out to business schools and universities to identify potential candidates. They may also consider forming task forces charged with identifying areas where right candidates might not be obvious. This is a more efficient strategy to increase diversity rather instead of relying solely on consultants whether external or internal.

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