When and Why Diversity Improves Your Board’s Performance  

2 May 2019:

On January 1, California law said that all locally headquartered publicly traded companies must have at least one female director by 2020. While new to the U.S., mandates to increase gender diversity on corporate boards are common elsewhere. For example, Norway, Spain, France, and Iceland all have laws requiring that women comprise at least 40% of boards at publicly listed companies.

Evidence that board diversity benefits firms, however, has been mixed. A 2015 meta-analysis of 140 research studies of the relationship between female board representation and performance found a positive relationship with accounting returns, but no significant relationship with market performance. Other research has found no relationship to performance at all.

We interviewed 19 board directors (15 women and four men) to learn whether and how corporate boards were benefiting from diversity. Combined, the board members held seats on 47 corporate boards in the U.S. across a variety of industries. The research found that diversity doesn’t guarantee a better performing board and firm; rather, the culture of the board is what can affect how well diverse boards perform their duties and oversee their firms. Based on these findings, we worked with Mike Fucci, Chairman of the Board at Deloitte, to develop recommendations for how board chairs and directors can create more egalitarian board cultures and improve their governance.

Expand the view of diversity
Board diversity matters but concentrating on only one form of diversity isn’t enough. Our interviewees suggested that social diversity (e.g., gender, race/ethnicity, and age diversity) and professional diversity are both important for increasing the diversity of perspectives represented on the board.

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Source: Harvard Business Review

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