The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards are well-documented, and efforts to increase the representation of women and minorities in boardrooms are beginning to pay off. However the impact of this diversity on the performance of corporations is not well understood.

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 would not be available to people of all ages and women who are the same. A board with more diversity is expected to be more «cognitive» and explore different options when deciding how to move a company forward.

There are a variety of other factors to consider. The people who are considered to be minorities or tokens in a group may self-censor or not express opinions or beliefs that are in opposition to the majority. As a result, the board may not be able full benefit of the diversity of thought it has included in its composition.

Additionally, while research from academics suggests that demographic diversity has a positive impact on board decisions, research also shows that it’s not the only factor that is important. Other factors, such as board independence and education qualifications, which are measured by the number of years of schooling beyond a bachelor’s degree, can be significant on performance.

In order to attract new members, businesses should be innovative in their search for them. For example, companies should think about reaching out to business schools and universities to find potential candidates. They may also think about creating task forces charged with investigating areas where best candidates may not be visible. This is a more efficient method of increasing diversity than relying solely on consultants either external or internal.

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