There is an increasing awareness of corporate leaders and investors that diverse boards can help companies better serve their customers, consumers as well as their employees and communities. Additionally recent debates over gender and racial equity in the workplace have led to state legislation to promote and encourage diversity in corporate boardrooms.
Numerous studies have shown that a diverse board is associated with better company performance. These studies include the 2015 McKinsey report that found companies that were in the top quarter of diversity in race were 33 percent more likely to beat those in the bottom quartile and a 2016 study which found that women on boards are linked to lower earnings volatility, higher stock liquidity and higher perceptions by investors of the firm’s value.
These findings support the notion that cognitive diversity improves board decision-making and improves the ability of the board to effectively mentor and monitor management. The diversity of demographic characteristics, such as race, age, and gender, helps create an inclusive and respectful culture in the boardroom. This promotes healthy discussions and open exchange of ideas.
Functional diversity is an additional aspect. This refers to the diverse types of education and experience that are brought to the board by members. The diversity of functional attributes like tenure and educational background improves the ability of the board to comprehend the cognitive resources of the group members (such as skills and knowledge) which leads to better click for more board decisions.
Boards must be proactive when it comes to diversity and use a range of strategies to attract new members. The most important thing to do is to make sure that all directors comprehend the importance of incorporating diverse viewpoints into boardroom discussions. Boards will naturally encourage exchange of perspectives in the event that everyone is aware of the benefits for the company.