The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards have been documented for years, and the efforts to ensure greater representation of minority and gender in boardrooms are beginning to pay off. The impact of diversity on corporate performance is still not well understood.

One of the most common arguments is that increasing diversity in the demographics can increase the knowledge base of a board and provides it with information that would be missing from a homogeneous group of males or women. In other words an organization with more diversity is likely to have more “cognitive diversity” and have more options for deciding how to move the business forward than a less diverse one.

There are a variety of other factors that are at play. People who are considered minorities or tokens in groups may self-censor, avoiding expressing beliefs and opinions which are in opposition to the majority. As a result, the board might not be able full advantage of the cognitive diversity it has incorporated into its makeup.

Additionally, even though research in the field of academia suggests that demographic diversity has a positive impact on board decisions, research also indicates that it is not the only factor that matters. Other attributes such as board independence and education qualifications, as measured by the amount of years of education that go beyond a bachelor’s degree, can be significant on performance.

Companies looking to improve their boardroom composition should be innovative in their search for new members. Companies could, for instance consider contacting businesses and universities to find potential candidates. They could also create task forces to investigate the areas in which the most promising candidates might not be easily identified. This is a more effective strategy to increase diversity rather than relying on consultants either external or internal.