Board Diversity: Moving the Field Forward

• Author: Hans Ees,Siri Terjesen,Renée B. Adams,Jakob Haan
• Date: 01 March 2015
• Published date: 01 March 2015
• DOI: http://doi.org/10.1111/corg.12106

Editorial

Board Diversity: Moving the Field Forward

Renée B. Adams, Jakob de Haan*, Siri Terjesen and Hans van Ees

INTRODUCTION

Board diversity represents both challenges and opportuni-

ties for board practiceand research. It is possible to distin-

guish between task-related diversity, such as educational or

functional background, non-task-related diversity, such as

gender,age, race, or nationality, as well as structural diversity,

i.e., board independence and CEO non-duality. Diversity can

have both benef‌itsand costs. Regardless ofits effects, diversity

has been the subject of active policy making which makes it

even more important to understand the role it plays.

Diversity can havepositive effects on board performance. A

growing body of research suggests that board member diver-

sity brings unique perspectives to boards (e.g., Arfken, Bellar

& Helms, 2004; Van der Walt, Ingley, Shergill, & Townsend,

2006). If individual private information is valuable and not

fully correlated across board members, a more diverse board

will collectively possess more information and will have the

potential to make better decisions. Diversity can enhance a

board’s independence of thought so that the board can better

perform its monitoring function (Adams& Ferreira, 2009). Di-

versity can also have negative effects on board performance.

For instance, diversity may cause higher decision-making

costs in boards, and increase the likelihood of conf‌licts and

factions in teams.

Although there are ample reasons to suggest that diversity

should be considered a key parameter in the design of effec-

tive governance, boards remain remarkably homogeneous

and quite stable in their make-up (Catalyst, 2015; Dhir,

2015). Research suggests that the vast gender differences in

top management will not change quickly with only organic

processes (Kogut,Colomer, & Belinky, 2014). As a result, gen-

der diversity has become a topic of active policy making in

many countries.

To stimulate a cross-discipline exchange of views, the Uni-

versity of Groningen and De NederlandscheBank, in collabo-

ration with Corporate Governance: An International Review,

organized a workshop on diversity in boards, with a special

emphasis on board diversity in f‌inancial institutions. Four of

the papers presented at the workshop have been selected for

publication inthis special issue. The included research articles

and commentaries elaborate on the theoretical mechanisms

and empirical f‌indings most relevant to board diversity

research. This introductory article contextualizes these contri-

butions. We have ordered the contributions based on their

f‌indings about the effects of diversity.

GENDER DIVERSITY AND POLICY

The board’s key responsibility is to take strategic decisions

(Adams, Hermalin, & Weisbach, 2010; Forbes & Milliken,

1999), for example related to mergers, acquisitions, executive

hiring/f‌iring, and f‌inancial structure. Corporate scandals

have led to closer scrutiny of boards’decisions and

composition, and raised the issue of diversity. Many institu-

tions (e.g., the New York Stock Exchange) as well as legisla-

tion (e.g., Sarbanes-Oxley) stipulate that the board should be

largely comprised of independent directors. Moreover, there

are now gender quotas for boards in 14 countries, and codes

in another 16.

Several papers haveexamined the effect of such quotarules

on f‌irm performance, often concluding that they had a nega-

tive effect. Butdo we really know the impact of suchpolicies?

In his commentary in this special issue, which is based on his

keynote address at the workshop, Ferreira (2015) challenges

the results of two well-known papers on the introduction of

gender quotas in Norway (Ahern & Dittmar, 2012 and Matsa

& Miller,2013). He discusses f‌ive diff‌iculties that are common

to all papers that use the Norway quota as a natural experi-

ment to identify the effect of female directors on f‌irm perfor-

mance, namely, the timing of the experiment, choice of the

control group, sample selection, confounding effects, and the

mechanism explaining the results. Ferreira concludes that:

“there are too many problems with the ‘causal’evidence on

the effect of quotas on performance. It’s fair to say that we

don’t really know whetherand how quotas affect the f‌inancial

performance of f‌irms.”

BOARD DIVERSITY AND FIRM

PERFORMANCE: MIXED RESULTS TO DATE

As pointed out in the commentary by Hillman (2015) in this

special issue, decision making in groups may improve with

diversity as creativity may increase and a broader set of

© 2015 JohnWiley & Sons Ltd

doi:10.1111/corg.12106

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Corporate Governance: An International Review, 2015, 23(2): 77–82