The Impact of Board Diversity

23-10-2023 | Property Development

Diversity in boardrooms has become an ongoing topic. Shareholders and institutional investors are increasing the pressure on companies to improve their diversity. They are also under pressure to do this because the presence of diverse boards can show that a company is progressive which can improve its branding reputation. It can also improve company culture by creating more inclusive, equal environment.

The evidence is mixed regarding the impact of diversity on boards. Numerous studies have demonstrated positive impacts, but others have shown that different forms of diversity may have different effects. Gender diversity, for example can affect the performance of a company in terms of the accounting return, but not the 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.

It has also been proven that people who are considered to be tokens or minorities in a particular group are less likely to express their opinions and beliefs if they conflict with those of the majority. This could prevent cognitive diversity from bringing full-on benefits. The age of a director can also influence the way they make decisions in the boardroom. Older managers tend to be less willing to alter their thinking and try new ideas than younger managers. This has been described as the “selection bias” effect. It is essential to include young directors on a board, and not just focus exclusively on gender diversity.


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