Diversity in boardrooms has been an ongoing topic. Shareholders and institutional investors are increasing the pressure on companies to increase their diversity. A diverse board can prove that a company is forward-thinking, which will aid in improving the image of the brand. It also benefits the company’s culture by encouraging an inclusive and open environment.
The evidence is mixed on the impact of diversity on boards. Numerous studies have found positive effects, but others have shown different effects. For example, related to firm performance when it comes to accounting returns however, not returns on markets. 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.
In addition it has been discovered that minorities or tokens of an organization tend to self-censor by not communicating their beliefs and opinions that are contrary to those of the majority of the group. This may prevent cognitive diversity from bringing full-on benefits. The age of a director will also impact the way they make decisions in a boardroom. Managers of older age are less likely to adopt new ideas and change than younger managers. This is known as the «selection biased» effect. It is important to include young directors on a board, and not just focus exclusively on gender diversity.