Over the summer, we’ve taken some time to read through the new SEC-mandated disclosures on board diversity that companies have been required to make since February. The results are, frankly, a bit soporific. Company after company claims to value diversity and says it makes board discussions more robust and better informed. However, exactly how this happens is not explained. Moreover, companies’ definitions of diversity typically lump together all kinds of personal and professional characteristics. The disclosures don’t cast much light at all on what we think is the most interesting question about board diversity: what difference does it make, performance-wise, to have women and members of racial and ethnic minority groups serve on corporate boards?
Fortunately, academics have been investigating this question for a number of years, with intriguing results. Empirical studies suggest that the personal aspects of diversity---especially gender diversity-- intensify board oversight and help boards make more accurate assessments of value. These characteristics may not always translate into better performance for individual stocks, but they are likely to improve the performance of large portfolios and of the economy generally. This suggests that institutional investors and governments have a financial interest in promoting gender and racial diversity on boards, quite apart from considerations of equality or social justice. All of this is explained in greater detail in the report we’re releasing today, "Beyond the Boilerplate: The Performance Impacts of Board Diversity,” available as a free download from The Corporate Library's online store.
Kimberly Gladman, Director of Research and Risk Analytics
