Research on the Benefits of Diversity
Numerous studies have found strong correlations between the number or proportion of women on boards and financial performance (McKinsey (2010). Women Matter: women at the top of Corporation). It has been hard to demonstrate a clear, causal link, but the weight of evidence strongly suggests there is such a link. Such microeconomic benefit aggregates to macroeconomic benefit.
In addition, research suggests a causal link between the proportion of women on the board and the quality of corporate governance (Adams and Ferreira, Journal of Financial Economics, 2008). This suggests overall macroeconomic risk, of which we have become acutely aware in recent years, will be reduced when there are more women on company boards.
Sir David Walker in his 2009 Review of Corporate Governance highlighted the dangers of overly collegiate "groupthink" and how more diverse boards would avoid its pitfalls. Groupthink is a psychological phenomenon defined as “A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action" (Irving Janis, Victims of Groupthink: a Psychological Study of Foreign-Policy Decisions and Fiascoes. Boston: Houghton Mifflin)
Speaking before the House of Commons Treasury Select Committee on 22nd May 2012, Sir David described the need for "challenge" in the board room and how gender diversity can help avoid groupthink: "The word I have been very keen to deploy and promote, greatly irritating some, is "challenge." Diversity is likely to provide, invite, elicit challenge and women are part of it."
The Lord Davies of Abersoch CBE in in his 2011 Report and Recommendations, Women on Boards, reiterated the significance of gender diversity for corporate performance:
"The business case for increasing the number of women on corporate boards is clear Evidence suggests that companies with a strong female representation at board and top management level perform better than those without and that gender-diverse boards have a positive impact on performance. It is clear that boards make better decisions where a range of voices, drawing on different life experiences, can be heard. That mix of voices must include women."
The UK Government has itself highlighted some of the benefits of greater diversity on company boards, with Vince Cable, Secretary of State for business stating that:
"Diverse boards are better boards: benefiting from fresh perspectives, talent, new ideas and broader experience which enables businesses to better reflect and respond to the needs of their customers. This is good for women, good for companies who need to be the best they can be in order to compete in today’s tough global market place, and ultimately good for the UK economy as a whole. It is essential that Executive Search Firms and Chairs continue to use the Code to increase this rate of change."
Improving financial performance, corporate governance and allowing greater innovation through diverse boards seem particularly pertinent in today’s global economic crisis. Writing in 2005, Peninah Thomson noted in her book (co-authored by Tom Lloyd) that "The problems that face our world are so complex and difficult that we will need all the talent available to solve them" (A Woman’s Place is in the Boardroom, Palgrave Macmillan). Not applying the talent of half the population to deal with that crisis represents an enormous waste of resources and one of our prime motivations is to address this failure.