There’s been a lot of media attention around the issue of diversity in the boardrooms. Shareholders and institutional investors are increasing the pressure on companies to increase their diversity. A diverse board can also show that a business is growing, which can aid in improving the image of the brand. It can also help improve the culture of the company by creating a more open, equal environment.
However, the evidence on effects of diversity on board members is mixed. Numerous studies have demonstrated positive effects, however some studies have found different effects. Gender diversity is, for instance, correlated 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 found that those who are considered to be tokens or minorities in a group tend not to share their opinions or beliefs if they conflict with those of the majority. This may prevent the full benefits of cognitive diversity from being realised. In addition, the age of a director may affect how they make decisions in the boardroom. Managers of older age are less likely to embrace new ideas and changes than younger managers. This is known as the “selection biased” effect. This is the reason it’s crucial to include young directors in the board, and not just concentrate on gender diversity.
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