Diversity in boardrooms has been a hot topic. Companies are under increasing pressure from shareholders and institutional investors to increase their diversity. A diverse board can also show that a company is forward-thinking, which will help improve the brand’s reputation. It also helps improve the company’s culture by creating a more inclusive, equal environment.
The evidence is mixed on the impact of board diversity. Numerous studies have found positive effects, however some studies have found different effects. For instance, gender diversity is linked to the performance of a company in terms of accounting returns, but not market returns. 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.
Additionally it has been discovered that people who are minorities or tokens in a group tend to self-censor by not sharing their beliefs or opinions if they contradict those of the majority of the group. This could prevent cognitive diversity from bringing full-on benefits. The age of directors can also affect how they make decisions in the boardroom. Senior managers are less likely to embrace new ideas and change than younger managers. This is referred to as the “selection biased” effect. This is the reason it’s crucial to include young directors in a board and not simply be focused on gender diversity.
