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The Impact of Board Diversity

Corporate leaders and investors are becoming more aware that diversity in boards can help companies better serve their customers, employees as well as their communities. In addition recent debates on gender and racial equity at work have led to state legislation to promote and encourage diversity in corporate boardrooms.

Numerous studies have shown that more diversity on boards with better performance. These include the 2015 McKinsey study that found that companies that were in the top quarter of diversity of race were 33 percent more likely than those in the bottom quartile and a 2016 study that found that women on boards are associated with lower volatility in earnings and higher liquidity of stock, as well as higher perceptions by investors of the firm’s value.

These findings support the idea that cognitive diversity improves board decision-making, and enhances the capacity of the board to effectively mentor and monitor management. The diversity of demographic characteristics, such as age and race, and gender, contributes to an inclusive and respectful culture within the boardroom. This encourages healthy debates and open exchange of ideas.

Another key aspect is functional diversity which refers the variety of education and experience board members bring to the table. The variety of functional attributes such as tenure and education background boosts the board’s ability to appreciate the cognitive capabilities of group members (such as their talents and knowledge), leading to better board decisions.

Boards must be proactive when it comes to promoting diversity and should use a variety of techniques to recruit new members. The most important thing to do is to make sure that all directors comprehend the importance of incorporating different perspectives into boardroom discussions. If everyone is aware of the reasons and how this will benefit the company boards will naturally facilitate the exchange of different perspectives.

www.boardroomsales.com/impact-of-board-diversity-on-company-performance/

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