The Impact of Board Diversity on Corporate Performance

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The benefits of diversity on 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 popular argument is the fact that a board comprised of a greater variety of genders and ages will have a greater knowledge base. This information will not be accessible to people of all ages and women who are the same. A board with greater diversity is expected to be more “cognitive” and will explore more options when deciding on how to move a company forward.

However, there are other factors that are at play. People who are seen as minorities or tokens in a group may self-censor and refuse to express opinions and beliefs that do not agree with the majority. The board may not be able to take full benefit of its cognitive diversity.

Furthermore, while academic research suggests that demographic diversity can have a positive effect on board decisions, research also shows that it’s not the only factor that is important. Other aspects, like board independence and educational qualifications, which are measured by the number of years of schooling beyond a bachelor’s degree can also have a significant impact on the performance.

To find new members, companies must be innovative when searching for them. For instance, they could consider reaching out at business schools and universities to identify potential candidates. They might also consider creating task teams that are tasked with investigating areas where appropriate candidates may not be evident. This is a more effective method of enhancing the diversity in the boardroom than relying on internal or external consultants to suggest names.

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