The Impact of Board Diversity on Corporate Performance

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

One common argument is that increased demographic diversity expands a board’s knowledge base and provides it with information that would not be available to a homogeneous group of males or women. In the same way an organization with more diversity is expected to have more “cognitive diversity” and be able to explore different options when deciding on what direction to take the company forward than a less diverse one.

But there are other factors that are at play. Individuals who are deemed minorities or tokens within groups can self-censor, avoiding having opinions and beliefs that are contrary to the majority. As a result, the board may not be able to fully take full advantage of the intellectual diversity it has incorporated into its makeup.

Additionally, while research shows that demographic diversity could have a positive influence on board decisions, it also shows that this isn’t the only thing to consider. Other characteristics, such as board independence and educational qualifications, which are measured by the number of years of schooling beyond a bachelor’s degree, can also have a significant impact on performance.

To find new members, companies should be innovative in their search for them. Companies should, for example think about reaching out to business schools and universities to find potential candidates. They could also think about forming task forces that are tasked with investigating areas where appropriate candidates may not be obvious. This is a more effective way to increase the diversity of an organization than relying on external or internal consultants to recommend names.

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