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The Impact of Board Diversity on Corporate Performance

The benefits of diversity on boards are well documented, and efforts to ensure greater representation of women and minorities in boardrooms have begun to pay off. The impact of diversity on corporate performance is not fully understood.

A common argument is that increasing diversity in the demographics can increase the knowledge base of a board and provides it with information that would not be available to a homogeneous group of males or women. A board with more diversity is expected to be more “cognitive” and to explore more options when deciding on what to do to move a company forward.

There are a variety of other factors involved. People who are considered minorities or tokens in groups may self-censor, refusing to the expression of opinions and beliefs which are in opposition to the majority. The board might not be able take full advantage of its cognitive diversity.

Furthermore, while academic research suggests that demographic diversity has a positive impact on board decisions, research suggests that it isn’t the only factor to consider. Other attributes, such as board member independence and educational qualifications measured by the number of years of college that go beyond a bachelor’s could be significant in determining performance.

In order to find new members, companies must be innovative when searching for them. For instance, companies should think about reaching out to universities and business programs to find potential candidates. They may also consider forming task forces that are tasked with exploring areas where the best candidates may not be easily identified. This is a more effective method to increase diversity instead of relying only on consultants, whether internal or external.

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