Evidence that board diversity benefits firms is mixed. A 2015 meta-analysis of 140 research studies of the relationship between female board representation and performance found a positive relationship with accounting returns, but no significant relationship with market performance. Other research has found no relationship to performance at all.
Researchers interviewed 19 board directors (15 women and four men) to learn whether and how corporate boards were benefiting from diversity. Combined, the board members held seats on 47 corporate boards in the U.S. across a variety of industries. The research found that diversity doesn’t guarantee a better performing board and firm; rather, the culture of the board is what can affect how well diverse boards perform their duties and oversee their firms. Based on these findings, they worked with the Chairman of the Board at Deloitte to develop recommendations for how board chairs and directors can create more egalitarian board cultures and improve their governance.
On January 1, California law said that all locally headquartered publicly traded companies must have at least one female director by 2020. While new to the U.S., mandates to increase gender diversity on corporate boards are common elsewhere. For example, Norway, Spain, France, and Iceland all have laws requiring that women comprise at least 40% of boards at publicly listed companies.
Evidence that board diversity benefits firms, however, has been mixed. A 2015 meta-analysis of 140 research studies of the relationship between female board representation and performance found a positive relationship with accounting returns, but no significant relationship with market performance. Other research has found no relationship to performance at all.
We interviewed 19 board directors (15 women and four men) to learn whether and how corporate boards were benefiting from diversity. Combined, the board members held seats on 47 corporate boards in the U.S. across a variety of industries. The research found that diversity doesn’t guarantee a better performing board and firm; rather, the culture of the board is what can affect how well diverse boards perform their duties and oversee their firms. Based on these findings, we worked with Mike Fucci, Chairman of the Board at Deloitte, to develop recommendations for how board chairs and directors can create more egalitarian board cultures and improve their governance.
Board diversity matters but concentrating on only one form of diversity isn’t enough. Our interviewees suggested that social diversity (e.g., gender, race/ethnicity, and age diversity) and professional diversity are both important for increasing the diversity of perspectives represented on the board.
Many of our interviewees suggested that their boards had made progress on gender diversity but not on other forms of social diversity — such as race, nationality, and age. They also raised concerns with what they referred to as “checking the box” initiatives and “tokenism” for the sake of board diversity. One interviewee revealed how she turned down a board position because she felt that the interviewing board members were not able to comment on her expertise — only their desire to have gender diversity on the board. She shared, “I can understand what it means to be a token person. I don’t like that … I said, ‘If you think my only value is the fact that I’m a female, I can’t add value to your board.’”
Other interviewees similarly addressed concerns for tokenism: “I think that there’s so much conversation right now about adding more females to boards and everyone feels like, ‘Okay if we have ten board members, we should recruit three women.’ But I think we need to make sure they have the right skills. Idea diversity is also important.”
To offset these concerns, some boards are ensuring that skills and expertise, along with demographics, are front and center in their recruiting processes.
