The Impact of Board Diversity

Diversity in boardrooms has been the talk of the town. Shareholders and institutional investors are putting the pressure on companies to improve their diversity. A diverse board can show that a business is forward-thinking, which will enhance the reputation of the brand. It can also improve company culture by creating a more open, equal environment.

The evidence is mixed on the impact of diversity on board members. Many studies have shown positive results, but other studies have found that different forms of diversity could have different impact. Gender diversity, for instance, associated with the performance of a company in accounting returns but not for returns from markets. 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 proven that those who are considered to be tokens or minorities in a group tend to express their opinions and opinions discover here if they do not align with those of the majority. This can prevent cognitive variety from reaping the full benefits. Additionally the age of a director may affect their decisions in the boardroom. Older managers are less likely to adopt new ideas and make changes than younger managers. This is known as the « selection biased » effect. It is important to include young directors on boards and not focus exclusively on gender diversity.