The Impact of Board Diversity

There’s been much publicity around the issue of diversity in boardrooms. Companies are under increasing pressure from shareholders and institutional investors to improve their diversity. They are also being pressured to improve their diversity because the presence of diverse boards can show that a company is advancing, which is good for the image of the brand. It also benefits company culture, by fostering more of an www.boardroomsales.com/impact-of-board-diversity-on-company-performance/ open and equal environment.

The evidence is mixed on the impact of board diversity. Many studies have shown positive effects, but others have shown different effects. Gender diversity, for instance is associated with company performance in terms of the accounting return, but not the 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 minorities or tokens in a particular group are less likely to share their opinions and opinions if they do not align with the majority. This could prevent cognitive diversity from bringing its full benefits. In addition, the age of a director’s career can influence their decisions in the boardroom. Older managers are less likely to embrace new ideas and make changes than younger managers. This is known as the « selection bias » effect. It is important to have young directors on boards and not focus exclusively on gender diversity.