Board diversity: not enough or too much?

The problem is working out what the question should be. Are we looking for boards that reflect the constituencies we serve? Are we looking for boards that monitor the performance of management? Are we looking for boards that produce a higher return on investment? Are we looking for boards that would produce a higher return on investment under different criteria for what constitutes return? Are we looking for boards that project a better image? Are we looking for boards that produce a better next generation of managers and directors?

All of the above. And that's the problem with boards. These largely part-time helpers have the world resting on their shoulders. These questions leap out from the pages of a literature review on board diversity undertaken by two scholars at the Rock Center at Stanford University. They've done an admirable job of reading both theoretical and empirical studies of the value and drawbacks of having greater numbers of women and racial, ethnic and religious groups on boards, in America, yes, but around the world as well. The picture is mixed. The relationship between diversity and financial performance has not been convincingly established, they note, though there's some basis for believing that when diversity is well managed, it can improve decision making and can enhance a corporation's public image. "To achieve such benefits, however, diversity must extend beyond tokenism and corporations must be held more accountable for their progress," they conclude. That's a pretty small outcome, given the political heat and public policy pressure for more diverse boards. Perhaps we have yet asked the right questions. What is it we really want the board to do?

Source document: The working paper "Diversity on Corporate Boards: How Much Difference Does Difference Make?" by Deborah Rhode and Amanda Packel of Stanford Law School, is a 26-page pdf file.