Diversity in boardrooms has become an ongoing topic. Shareholders and institutional investors are increasing the pressure on companies to increase their diversity. A diverse board can show that a business is progressive, which will enhance the reputation of the brand. It also helps improve company culture by creating more of an open and equal environment.
However, the evidence regarding impact of board diversity is mixed. Many https://boardroomsales.com/ studies have found positive results, but other studies have shown that different forms of diversity may have different impact. For instance, gender diversity, is related to company performance 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.
In addition it has been observed that people who are minorities or tokens in the group tend to self-censor by not sharing their beliefs and opinions that are contrary to those of the majority of the group. This could prevent the full benefits of cognitive variety from being realized. The age of directors can also influence the way they make decisions in the boardroom. Managers who are older are less likely to embrace new ideas and change than younger managers. This is known as the “selection bias” effect. This is why it’s vital to include young directors on a board and not just focus on gender diversity.
