A study in to how different businesses perform depending on how diverse the people on their boards are has been produced using research from Imperial College Business School. This was published in association with the Organisation Science journal. It found that many businesses are more likely to sacrifice gender and racial diversity on their boards compared to their competitors at times of greater productivity. The study also looked at how the composition of the board can affect how quickly the problem can be fixed and found that when a businesses board may have a chair from a black or minority ethnic background, (BAME), they are less likely to reduce the diversity on the board to fix the problem.
The research was conducted by Dr. HeeJung Jung, Assistant Professor of Entrepreneurship at Imperial College Business School, alongside colleagues from Hong Kong University of Science and Technology and Seoul National University. To conduct the study, the researchers looked at data collected from the boards of seven hundred and thirty three different US companies which were listed in the manufacturing sector over fifteen years. They made over six and a half thousand firm observations and were able to identify both the expertise and ascriptive diversity of the board as well as the changes that were made when the company was underperforming.
The researchers found that underperforming firms are motivated to enlarge their perspectives and to put their efforts to have directors with different expertise from the existing one. However, in doing so, it often leads to a reduction in gender or racial diversity in the boardroom.
Dr HeeJung Jung says:
“A performance downfall is obviously a threat to a firm and to its board. Then the firm will search for expertise for finding a prompt fix, bringing in people with new knowledge while searching for someone of trust. In doing so, existing directors look for someone who are demographically similar to them, overlooking female and racial minorities. At the end, you can see firms becoming less inclusive in the performance downturn.”
He added,
“This research shows the difficulties for female and racial minorities to be represented on the board, despite the persistent call to correct it. By firms choosing those with similar demographic backgrounds, which often means White male directors, female or racial minority directors tend to be dropped from boards and not replaced with those with a similar demographic.”
The study did however find that businesses who have a female or ethnic minority director as a committee chair are more likely to keep and improve the ethnic diversity of the board. This can happen even in a time of crisis when more measures need to be brought in to fix certain problems or acquire more revenue.
Different company boards should reflect the diversity of it’s senior management, it’s employees, shareholders and community. Diversity brings competing perspectives and is an important protection against grouping at the board level. In this regard, diversity of board members ensures that decision-making perspectives are enhanced.
Diversity is also important to reflect a changing customer base and to promote employee morale. Multi-racial representation at the board level ensures that employees identify with board members who may provide an important perspective on certain issues and encourage consideration of additional viewpoints
Everyone in society should be given equal opportunities to reach their full potential. This includes being on the company’s board. If there are more members from minority ethnic groups on the board, this can only improve the service for the business’s customers as they will be able to provide them with a service that highlights equality and satisfies the needs of different communities round the world.
