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. The impact of diversity on the performance of companies is not fully understood.
One common argument is that a greater diversity of demographics enhances the knowledge base of a board and provides it with knowledge that isn’t available to an homogenous group of men or women. In the same way an organization that is diverse is expected to have more “cognitive variety” and explore more options in deciding how to move the business ahead than a board with less diversity.
There are a variety of other factors in play. People who are viewed as to be minorities or tokens within a group may self-censor and refrain from expressing opinions and beliefs that do not agree with the majority. The board may not be able fully to take benefit of its cognitive diversity.
Furthermore, while research from academics suggests that demographic diversity can have a positive effect on board decisions, research suggests that it isn’t the only factor to consider. Other aspects, like the independence of board members and their educational qualifications measured by the amount of years of education attained beyond a bachelor’s degree are able to be significant in determining performance.
Companies looking to improve their boardroom composition should be innovative in the search for new members. For instance, companies could think about reaching out to businesses and universities to identify potential candidates. They could also set up task forces tasked with exploring areas where the best candidates aren’t readily apparent. This is a more effective strategy to increase diversity rather instead of relying solely on consultants who are either external or internal.