Professional Expertise and Board Diversity

49 Pages Posted: 5 Jul 2013 Last revised: 17 Jan 2014

See all articles by Stephen Gray

Stephen Gray

University of Queensland - Business School; Duke University - Fuqua School of Business; Financial Research Network (FIRN)

John Nowland

City University of Hong Kong

Date Written: January 17, 2014

Abstract

Boards of directors have received limited guidance about the types and diversity of professional expertise expected on corporate boards. This is because little is actually known about the expertise that exists on corporate boards. In this study, we categorize directors by 11 types of professional expertise and examine the diversity of professional expertise on corporate boards and implications for shareholder value. We find the most common types of professional expertise are business executives, accountants, bankers, scientists, lawyers and engineers. The primary determinants of professional expertise diversity are board size, industry and location, with certain types of professional expertise (academics, bankers, doctors, engineers and scientists) clustered in specific industries. Overall, we find no relationship between professional expertise diversity and firm value. However, we find evidence that shareholders benefit when firms limit their board diversity to a specific subset of professional expertise (lawyers, accountants, consultants, bankers and other CEOs). Our results suggest that further diversity beyond this subset is not in the best interests of shareholders.

Keywords: board diversity, board of directors, director appointments, professional expertise

JEL Classification: G30, G34, J44

Suggested Citation

Gray, Stephen and Nowland, John, Professional Expertise and Board Diversity (January 17, 2014). Available at SSRN: https://ssrn.com/abstract=2289689 or http://dx.doi.org/10.2139/ssrn.2289689

Stephen Gray

University of Queensland - Business School ( email )

University of Queensland
Brisbane, Queensland 4072
Australia

Duke University - Fuqua School of Business

Box 90120
Durham, NC 27708-0120
United States

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

John Nowland (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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