There is an increasing awareness among investors and corporate leaders that diverse boards help businesses better serve their customers, customers employees, communities and employees. Recent debates over gender and race equality in the workplace have also led to state laws that encourage and encourage diversity in the corporate boardroom.
Numerous studies have linked greater diversity on boards with better performance. A 2015 McKinsey study found that companies that were in the top quarters of diversity of race were 33 percent more likely than those in the bottom quarter to perform better than them. Another 2016 study found that women on boards are correlated with lower earnings volatility and a better stock liquidity and also better opinions of investors about the firm’s value.
These findings support that cognitive diversity enhances board decision-making and enhances the ability of boards to effectively supervise and mentor management. The variety of demographic characteristics, such as race and age, and gender, helps create an inclusive and respectful atmosphere within the boardroom. This encourages healthy debates and open discussions of ideas.
Another factor to consider is functional diversity, which site here refers to the wide range of knowledge and experience board members bring to the table. A variety of functional attributes, such as tenure and education, improves the ability of board members to comprehend the cognitive resources of members (like talents and knowledge) and, in turn, can lead to better board decision-making.
Boards must be proactive when it comes to diversity and employ a variety of methods to find new members. The most important thing is to ensure that all directors buy the importance of incorporating diverse viewpoints in boardroom discussions. Boards naturally encourage the exchange of ideas as long as everyone understands the advantages to the business.