The Impact of Board Diversity on Corporate Performance

The discover here benefits of diversity in boards are well documented, and efforts to achieve greater representation of women and minorities in boardrooms are beginning to pay off. However, the impact of this diversity on performance of companies is still largely unknown.

A common argument is that increased demographic diversity increases the knowledge base of a board and provides it with information that would be missing from an homogenous group of men or women. A board with greater diversity is expected to be more “cognitive” and will explore many options when it comes to how to move the company forward.

There are other factors in play. Individuals who are deemed minorities or tokens in groups might self-censor, and avoid having opinions and beliefs that contradict those of the majority. The board may not be able fully to take advantage of its cognitive diversity.

In addition, although studies show that demographic diversity could have a positive influence on board decisions, it also suggests that this isn’t the only factor to consider. Other factors, such as board independence and education qualifications, measured by number of years of schooling beyond a bachelor’s degree can be significant on performance.

In order to get new members, companies should be innovative in their search for them. Companies could, for instance, consider reaching out to businesses and universities to identify potential candidates. They could also set up task forces tasked with exploring the areas where the best candidates might not be easily identified. This is a more effective method of increasing the diversity of the boardroom than relying on external or internal consultants to recommend names.