The benefits of diversity on boards are now well-documented, and the efforts to achieve greater gender and minority representation in boardrooms are starting to pay off. However the impact of this diversity on corporate performance is not yet fully understood.
A popular argument is that a board with greater diversity of genders and ages will have a wider knowledge base. This knowledge would 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 what to do to move a company forward.
However, there are other factors at play. The people who are considered to be to be minorities or tokens within an organization may self-censor and not express opinions or beliefs that do not agree with the majority. The board might not be able fully to take advantage of its cognitive diversity.
Furthermore, while 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, which are measured by the number of years of college education beyond a bachelor’s degree, can also have a significant effect on performance.
Companies that want to improve their boardroom composition should be innovative in their search for new members. Companies should, for example, consider reaching out to businesses and universities to find potential candidates. They might also consider creating task teams that are tasked with exploring areas where the appropriate candidates may not be easily identified. This is a more effective method of increasing the diversity of the boardroom than relying on internal or external consultants to suggest names.
