The Impact of Board Diversity on Corporate Performance

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The benefits of diversity on boards have been documented for years, and the efforts to achieve greater representation of minority and gender in boardrooms are beginning to pay off. The impact of diversity on performance remains largely unknown.

A common argument is that a board with a greater variety of ages and genders will have a larger knowledge base. This knowledge would not be accessible to a group of men and women who are the same. A board with greater diversity is expected to be more «cognitive» and will explore more options when deciding the best way to move a business forward.

However, there are other factors at play. People who are considered minorities or tokens in groups might self-censor, refusing to expressing beliefs and opinions which are in opposition to the majority. The board may not be able to fully take benefit of its cognitive diversity.

Additionally, although academic research suggests that a demographic diversity can have a positive effect on board decisions, research suggests that it isn’t the only factor that is important. Other factors, such as board independence and educational qualifications, measured by number of years of schooling beyond a bachelor’s degree, can be significant on the performance.

Companies looking to improve their boardroom composition must be innovative in their search for new members. For instance, companies should consider reaching out to businesses and universities to identify potential candidates. They may also think about creating task forces that are tasked with exploring areas where the best candidates may not be easily identified. This is a much more effective approach to increasing diversity than relying on consultants, whether internal or external.

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