The benefits of diversity in 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 the diversity of corporate performance is not yet fully understood.
One popular argument is that increased demographic diversity enhances the knowledge base of a board by providing it with information that would be missing from an homogenous group of men or women. A board that is more diverse is expected to be more “cognitive” and explore many options when it comes to the best way to move a business forward.
There are other factors to consider. The people who are considered to be tokens or minorities in the group might self-censor and not express opinions or opinions that are contrary to the majority. As a result, the board may not be able full advantage of the intellectual diversity it has included in its composition.
Furthermore, while academic research suggests that a demographic diversity has a positive impact on board decisions, research also suggests that it isn’t the only factor to consider. Other characteristics, such as board independence and educational qualifications, measured by number years of education beyond a bachelor’s degree can also have a significant impact on performance.
Companies looking to enhance their boardroom composition must be creative in the search for new members. Companies should, for example think about reaching out to business schools and universities to identify potential candidates. They could also think about forming task forces that are tasked to look into areas where appropriate candidates may not be evident. This is a more effective method of increasing diversity than relying on consultants, whether internal or external.