The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards are now well-documented, and efforts to achieve greater gender and minority representation in boardrooms are beginning to pay off. The impact of diversity on performance remains largely unknown.

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

There are other elements to consider. People who are considered to be minorities or tokens in groups may self-censor, and avoid having opinions and beliefs that do not align with the majority. The board may not be able to take full advantage of its cognitive diversity.

Furthermore, while academic research suggests that a demographic diversity can have a positive effect on board decisions, research shows that it’s not the only factor to consider. Other aspects, like board independence and educational qualifications, as measured by the number years of education beyond a bachelor’s degree, can also have a significant effect on the performance.

Companies looking to enhance their boardroom composition should be creative in their search for new members. For instance, they should consider reaching out to universities and business programmes to identify potential candidates. They may also think about creating task forces that are charged with exploring areas where the most suitable candidates aren’t easily identified. This approach is a far more effective method of enhancing the diversity in the board than relying on external or internal consultants to recommend names.