The Impact of Board Diversity on Corporate Performance

The advantages of diversity on boards are well-documented and the efforts to achieve more representation of minorities and gender in boardrooms are beginning pay off. The impact of diversity on performance is still not well understood.

One popular argument is that greater diversity in the population enhances the knowledge base of a board and provides it with information that would be missing from a homogeneous set of men or women. In other words the board with more diversity is likely to have more “cognitive variety” and be able to explore more options when deciding which direction to take the business forward than one with less diversity.

However, there are other factors that are at play. People who are considered minorities or tokens of groups could self-censor, avoiding having opinions and beliefs which are in opposition to the majority. In the end, the board may not be able full advantage of the cognitive diversity it has included in its composition.

In addition, although research shows that demographic diversity can be beneficial to board decisions, it indicates that this isn’t the only factor that is important. Other aspects, such as the independence of board members and their educational qualifications as measured by the number of years of education that go beyond a bachelor’s could influence performance.

To get new members, companies should be creative when searching for them. For instance, companies could think about reaching out to universities and business programs to find potential candidates. They can also establish task forces to investigate the areas where the most qualified candidates might not be easily identified. This is a better method to increase diversity than relying on consultants whether external or internal.