The Impact of Board Diversity on Corporate Performance

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The benefits of diversity on boards are well-documented and efforts to increase the representation of minorities and women in boardrooms have begun pay off. However the impact of this diversity on corporate performance is not well understood.

A common argument is that a greater diversity of demographics expands a board’s knowledge base by providing it with information that would not be available to a homogeneous group of men or women. A board with greater diversity is expected to be more “cognitive” and explore more options when deciding the best way to move a business forward.

But there are other elements in play. People who are viewed as minorities or tokens of a group may self-censor and avoid expressing opinions and beliefs that do not agree with the majority. As a result, the board may not be able to take full advantage of the intellectual diversity it has incorporated into its composition.

Additionally, even though research in the field of academia suggests that demographic diversity has a positive impact on board decisions, research shows that it’s not the only factor that matters. Other factors, like the independence of board members and their educational qualifications measured by the number of years of schooling that are beyond a bachelor’s level, can have a significant impact on performance.

In order to find new members, companies should be creative in searching for them. For instance, companies could consider contacting business schools and universities to find potential candidates. They could also set up task forces tasked with exploring the areas in which the most promising candidates aren’t readily apparent. This is a more effective method of increasing diversity instead of relying only on consultants whether external or internal.