Corporate leaders and investors are becoming more aware that diverse boards can help businesses better serve their customers, employees as well as their communities. Recent debates regarding gender and race equality in the workplace has been a catalyst for state-level legislation to promote and encourage diversity in the corporate boardroom.
Numerous studies have proven that greater board diversity is associated with superior company performance. A 2015 McKinsey study found that companies in the top quarters for diversification of race were 33 percent more likely than those in the bottom quarter to beat them. Another study from 2016 found that board members with women are associated with lower volatility of earnings and higher stock liquidity, as well as better opinion of investors on the value of the firm.
These findings support that cognitive diversity can enhance board decision making and increases the board’s ability to effectively supervise and mentor management. The diversity of demographic traits, such as race, age, and gender, helps to create a welcoming and respectful environment within the boardroom. This encourages healthy discussions and open exchanges of ideas.
Another factor to consider is functional diversity which refers to the variety of education and experience that board members bring to the table. A variety of functional characteristics, like tenure www.boardroomsales.com/setting-strong-goals-for-a-board-of-directors/ and education, enhances the ability of boards to appreciate the cognitive resources of group members (like talents and knowledge), which in turn can lead to better board decision-making.
Boards should be proactive in encouraging diversity and should employ different strategies to recruit new members. But the most important factor is to ensure that all directors are in to the importance of considering diverse perspectives in boardroom discussions. Boards will naturally encourage exchange of perspectives when everyone is aware of the benefits to the company.
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