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The Impact of Diversity on Board Outcomes

As recently as 30 years ago, board composition was all white males, and even though modern society promotes equality between genders or minorities, that hasn’t changed. Many studies would prove or disprove the importance of board diversity and its impact on the bottom line, but there is no clear answer to whether it is good or bad. In this article, we will highlight the disadvantages and advantages of board diversity and its impact on results.

Research versus Board Diversity

So, the issue of board diversity and its impact on performance is a troubling question, and there has been a lot of research based on it. Thus, the study conducted in the period from 2014-2016 showed that the diversity of board members not only makes no difference but also reduces efficiency. The word “diversity” refers not only to ethnicity but also to gender, age, and other social minorities. Furthermore, studies have noted that the issue of diversity is built more on moral values than on the expectation of increased efficiency. Thus, the disadvantages of diversity include:

  • Small effective interpersonal dynamics

Communication between different social, ethnic, and biological board members is often difficult. In this case, even age can hinder and cause misunderstandings between people. This is connected with the fact that different representatives of minorities have very different views and preconceptions about this or that topic. Thus, coming to a unified decision noticeably slows down, which is a big disadvantage, especially when the council must make immediate decisions.

  • Decreasing trust between board members

Studies have proven that trust is higher between people from the same culture than between people from different cultures. Therefore, if there are trust issues within the board, it often leads to conflicts and disruptions of meetings.

Research in favor of diversity

At the same time, more recent research shows that board diversity has an effect far from a negative one. For example, statistics have shown that almost half of the time, diversified companies have consistently had above-average profits. The presence of women on the board of directors also positively affected companies that went public. Women were also more involved in fundraising and advocating for public policy. Nonprofits focusing on education have greater success with black minority members on their boards, and younger participants have success with internationally oriented nonprofits.

Other benefits of diversity are:

  • Better customer focus

Given today’s global economy and the diversity of society in the United States, it is safe to assume that a diverse board will better understand its client base and needs. This will make it easier to solve complex problems.

  • Higher employee satisfaction

On the other side of the “distrust” coin, we can see an organizational culture of inclusiveness. If the board fosters this, each participant will be free to express their innovative ideas and suggestions, activating brainstorming. When participants are so active, the productivity of the meeting also increases, which means that participants will be able to come to a common decision much more effectively. In addition, it boosts the confidence and self-esteem of the participants.

  • Positive reputation of the firm

In today’s society, we cannot underestimate the relevance of values, namely the inclusion of social minorities in socio-political and public affairs. A diverse board of directors indicates that the firm is aligned with contemporary values and interests. Therefore the status of the firm will be markedly higher than where this uniformity is absent.