There is a growing awareness of corporate leaders and investors that diverse boards can help companies better serve customers, consumers, employees and communities. Recent debates about gender and race-based equality in the workplace have also led to state-level laws that encourage and encourage diversity in the corporate boardroom.
A number of studies have linked higher levels of board diversity with better performance. This includes an article from 2015 by McKinsey report that found that companies with the highest quartile of diversity in race were 33 percent more likely than those in the bottom quartile; and a study in 2016 which found that women on boards are associated with lower volatility of earnings, higher stock liquidity and more positive perceptions by investors about the firm’s value.
These findings support the notion that cognitive diversity can improve board decision-making as well as the capacity of the board to effectively mentor and oversee management. The diversity of demographic characteristics, such as race, age and gender, also helps create an inclusive and respectful culture in the boardroom. This helps to promote healthy discussions and open discussions of ideas.
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Functional diversity is a key aspect. This is referring to the different types of experience and education that are brought to the board by board members. Having diverse functional attributes, such as tenure and education, enhances the abilities of the board to recognize the cognitive resources of group members (like abilities and knowledge) and, in turn, leads to better board decision-making.
Boards must be proactive when it comes to promoting diversity and should use different strategies to find new members. But the most important factor is to ensure that all directors are the importance of incorporating diverse viewpoints in boardroom discussions. Boards will naturally encourage the exchange of ideas as long as everyone understands the advantages to the business.
