Board Diversity Paramount for Achieving Corporate Benefits

Earlier this year, there was some interesting research published about board diversity, as it relates to achieving corporate benefits. Specifically:

Board diversity improves governance and product development especially in firms led by White men CEOs. There are at least two important implications of these findings. First, we have no evidence that firms with White CEOs and diverse boards experience greater conflict than other firms due to distrust, lack of social similarity, or resultant communication barriers. Indeed, it appears that the presence of ethnic diversity on the governing body only advances strong corporate governance.

I should clarify that the researchers acknowledged the limitations of their findings because they limited their sample to Fortune 500 companies. The second implication:

Diverse leaders may bring perspectives, priorities, and ideas to organizations that significantly affect organizational trajectories. In particular, minority leaders at the board level affect the likelihood that a firm will pursue strong governance and effective product development. This strongly supports the business case for diversity. Our findings also suggest that relative numbers and influence on the board in conjunction with the CEO matter for realizing the benefits of diversity. Both the percentage of minorities on the board and the presence of influential minorities significantly impact governance and product innovation when traditional leaders serve as CEOs.

This is certainly not the first study published about the importance of board diversity, but I find this one particularly interesting because it puts things in the context of corporate benefits, which is something that I would think might be more likely to motivate action.

The researchers also draw attention to a specific avenue for further research: top management teams. I would suspect that we might find a similar effect, with regard to diversity, when studying the composition of top management teams. The importance being that different perspectives are represented and diversity is one of the ways to do that. It could be, however, that this same effect doesn’t hold when analyzing the level of top management teams, which would then increase the importance of having diversity within board composition.

Cook, A., & Glass, C. (2014). Do minority leaders affect corporate practice? Analyzing the effect of leadership composition on governance and product development Strategic Organization, 13 (2), 117-140 DOI: 10.1177/1476127014564109