The Impact of Board Diversity on Corporate Performance

The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards are well-documented, and efforts to achieve greater representation of women and minorities in boardrooms have begun pay off. The impact of diversity on the performance of companies is still not well understood.

A popular argument is the fact that a board with greater diversity of ages and genders will have a larger knowledge base. This information would not be available to people of all ages and women who are the same. In the same way the board that is diverse is expected to have more “cognitive diversity” and be able to explore more options when deciding what direction to take the company forward than a less-diverse one.

There are other factors that are at play. Minorities or tokens within groups can self-censor, holding back from having opinions and beliefs which are in opposition to the majority. The board might not be able fully to take benefit of its cognitive diversity.

Additionally, even though academic research suggests that demographic diversity has a positive impact on board decisions, research shows that it’s not the only factor to consider. Other aspects, such as board member independence and educational qualifications, measured by the number of years of college that are beyond a bachelor’s level are able to influence performance.

To get new members, companies should be creative when searching for them. For instance, they could consider reaching out at business schools and universities to identify potential candidates. They could also set up task forces tasked with exploring areas where the best candidates may not be visible. This is a more efficient method of increasing diversity than relying solely on consultants either external or internal.

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