The Impact of Board Diversity on Corporate Performance

The advantages of diversity on boards are well-documented and efforts to create greater gender and minority representation in boardrooms are beginning to pay off. However, the impact of this diversity on corporate site here performance is not yet fully understood.

An argument that is often cited is that a board with a greater variety of ages and genders will have a broader knowledge base. This knowledge will not be available to people of all ages and women who are all the same. In the same way the board with more diversity is expected to have more “cognitive variety” and consider more options in deciding how to move the business forward than one with less diversity.

However, there are other factors in play. Minorities or tokens in groups may self-censor, holding back from having opinions and beliefs which are in opposition to the majority. The board might not be able to fully take benefit of its cognitive diversity.

Additionally, while research from academics suggests that demographic diversity can have a positive influence on board decisions, it also indicates that this isn’t the only thing that matters. Other attributes such as board independence and educational qualifications, which are measured by the number years of education beyond a bachelor’s degree, can have a significant impact on the performance.

Companies seeking to improve their boardroom composition must be innovative in the search for new members. For example, companies should consider reaching out to universities and business programmes to identify potential candidates. They may also think about creating task forces that are tasked to look into areas where right candidates might not be easily identified. This is a more efficient approach to increasing diversity instead of relying solely on consultants either external or internal.