A boardroom is where company decisions are made. Company boards must be diverse, representing all stakeholders to make sound, informed decisions for the organization. Since the modern-day corporate world relies on innovation and creativity, it's crucial for companies to seek out diversity in their boards to keep up with today's global economy.
Diversity in the boardroom can take many forms: gender, race, and ethnicity. However, diversity is not just about what you look like - it's also about how you think and who you are. In 2019, 59% of the directors added to the boards of S&P 500 companies were women or belonged to a minority racial group. Diversity in the boardroom isn't just about fairness and equality, either. Research has shown that companies with diverse boards enjoy a 15% higher return on investment (ROI). Here are three major reasons why your company must have a diverse boardroom.
Diverse Teams Make Better Decisions
The most obvious reason why your company benefits from diverse boards is that it brings different viewpoints into decision-making. Numerous studies have shown that diverse groups of people make better decisions than homogeneous teams. Researchers say it's not necessarily demographic diversity such as color, gender, age, or race that makes groups better decision-makers. It's cognitive diversity, such as different perspectives and dissenting opinions, that makes all the difference. Some scholars see cognitive diversity as the "antidote" to groupthink, which occurs when members of a group try too hard to reach consensus and don't consider any views outside the norm. Groupthink has been blamed for major corporate failures, including the infamous Volkswagen emissions scandal and the failure to forecast the global financial crisis.
They Are Better Problem Solvers
Furthermore, cognitive diversity is essential because it can lead to new ways of solving problems, generating ideas, or even looking at challenges differently—all things an organization needs to succeed. And considering how quickly the world is changing, an organization must have a team that can adapt rapidly and anticipate changes. A study published by the Harvard Business Review, which analyzed six teams, showed "a correlation between high cognitive diversity and high performance."
Diverse Teams Are More Creative
Finally, teams that are more diverse in their cognitive abilities have been found to be more creative. When people with different backgrounds work together and challenge one another's views, the result is often more innovation, which your company may need today. A 2016 study published by Forbes found that diverse teams develop more ideas and take better risks than their homogeneous counterparts. The findings are based on the work of scholars such as Carmit Tadmor of Tel Aviv University, who found that bi-cultural individuals "were able to identify with both their home and host cultures showed enhanced creativity."
"Creative "aha" moments do not happen by themselves," writes Tendayi Viki, the author of the Forbes article.
"Management have to design their companies for serendipity. Therefore, as much as working with people from other cultures can be difficult, the town called Eureka is a diverse, multicultural place where creativity genius thrives, and innovative new products are developed," he added.
The bottom line: Companies with diverse boards are more profitable than those without them. If you want your company to succeed both now and in the future, diversity must be a priority.