The Impact of Board Diversity on Corporate Performance

The benefits of diversity in boards are well documented and efforts to ensure greater representation of women and minorities in the boardrooms have begun to pay off. The impact of diversity on corporate performance remains largely unknown.

A popular argument is that a board with greater variety of ages and genders will have a wider knowledge base. This knowledge will not be available to a group of men and women who are all the same. In other words that a board with more diversity is likely to have more “cognitive diversity” and have more options in deciding how to move the company forward than one with less diversity.

There are other factors in play. Individuals who are considered tokens or minorities in the group might self-censor and refuse to express opinions and beliefs that contradict the majority. The board might not be able fully to take benefit of its cognitive diversity.

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

In order to get new members, companies should be creative when searching for them. For instance, companies should think about reaching out to businesses and universities to identify potential candidates. They could also create task forces tasked with exploring areas where the best candidates aren’t readily apparent. This approach is a far more effective way to increase the diversity of a board than simply relying on external or internal consultants to suggest names.