The Impact of Board Diversity on Corporate Performance

The advantages of diversity on boards are well documented, and the efforts to ensure greater representation of minority and gender in boardrooms are beginning to pay off. However the impact of this diversity on the performance of corporations is not fully understood.

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

There are also other factors in play. People who are considered to be minorities or tokens within groups can self-censor, refusing to speaking out about beliefs and opinions that do not align with the majority. The board may not be able to take full advantage of its cognitive diversity.

Additionally, while studies show that demographic diversity could influence 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 college that go beyond a bachelor’s, can be significant in determining performance.

Companies seeking to improve their boardroom composition must be innovative in the search for new members. For instance, companies should, consider reaching out to business schools and universities to identify potential candidates. They might also consider creating task forces that are tasked with investigating areas where right candidates might not be visible. This is a much more effective method of increasing diversity than relying on consultants who are either external or internal.