The Impact of Board Diversity

Diversity in boardrooms has been an ongoing topic. Companies are being pressured from institutional investors and shareholders to increase their diversity. A diverse board can also demonstrate that a business is growing, which can enhance the reputation of the brand. It also helps improve company culture by encouraging more of an open and equal environment.

The evidence is inconsistent on the impact of diversity on board members. Numerous https://boardroomsales.com/setting-strong-goals-for-a-board-of-directors/ studies have found positive effects, but others have found different effects. Gender diversity, for instance is associated with the performance of a company in terms of accounting returns, but not to market returns. It has also been found that functional diversity, such as a mix of educational, industry/sector-specific and role-specific experience, improves board effectiveness by better managing external dependencies and challenging managerial assumptions.

It has also been observed that people who are considered tokens or minorities in a particular group are less likely to share their opinions or beliefs when they are in conflict with those of the majority. This can hinder the full benefits of cognitive diversity from being realized. The age of directors can also affect how they make decisions in a boardroom. The older managers are less likely to change their minds and implement new ideas than younger managers. This has been referred to as the “selection bias” effect. It is important to have young directors on boards, and not just focus exclusively on gender diversity.