The Impact of Board Diversity on Corporate Performance


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

The most common argument is the fact that a board comprised of a greater variety of genders and ages will have a wider knowledge base. This knowledge would not be accessible to a group of men and women who are all the same. A board with more diversity is expected to be more “cognitive” and explore different options when deciding how to move the company forward.

However, there are other factors to consider. Individuals who are considered tokens or minorities in the group might self-censor and avoid expressing opinions and beliefs that are in opposition to the majority. The board may not be able take full benefit of its cognitive diversity.

In addition, although studies show that demographic diversity can be beneficial to board decisions, it also suggests that this isn’t the only thing that matters. Other aspects, such as board member independence and educational qualifications as measured by the number of years of education that go beyond a bachelor’s, can have a significant impact on performance.

Companies seeking 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 may also think about creating task teams that are tasked with investigating areas where appropriate candidates may not be obvious. This is a more efficient strategy to increase diversity rather than relying on consultants, whether internal or external.