Diversity on Corporate Boards: How Much Difference Does Difference Make?

Abstract

In recent years, increasing attention has focused on the influence of gender and racial diversity on boards of directors. Sixteen countries now require quotas to increase women's representation on boards, and many more have voluntary quotas in corporate governance codes. In the United States, support for diversity has grown in principle, but progress has lagged in practice, and controversy has centered on whether and why diversity matters. The stakes in this debate are substantial. Corporate boards affect the lives of millions of employees and consumers, and the policies and practices of the global marketplace. As recent scandals demonstrate, failures in board governance can carry an enormous cost; Enron is a notorious example. Who gains access to these boards is therefore an issue of broad social importance.

This article argues that increasing diversity should be a social priority, but not for the reasons often assumed. Part II begins the discussion by reviewing the underrepresentation of women and minorities on corporate boards.

Part III provides a comprehensive review of the research on board diversity, financial performance, and good governance and concludes that the "business case for diversity" is less compelling than other reasons rooted in social justice, equal opportunity, and corporate reputation. Part IV turns to the barriers to achieving greater diversity, and Part V explores strategies that could address them.

Keywords: Diversity, Corporate Boards, Board Diversity, Corporate Governance, Race, Gender, Women, Minorities, Directors

JEL Classification: G30, J15, J16, K22, L21