Do Diverse Directors Influence DEI Outcomes?

Abstract

We examine whether greater board diversity is associated with more diverse workforce hiring, more equitable pay practices, and more inclusive corporate cultures. Using a variety of quasi-experimental designs, we document increases in managerial and staff diversity in the years following a diverse director's appointment, consistent with diversity initiatives ``trickling down'' within a firm. We also find that employees perceive improvements in the culture, stronger community-building norms, and approve more of senior management. We, however, see limited real effects in terms of gender and racial pay gaps. Additional findings show board diversity works through allyship, homophily, and cognitive diversity channels. Finally, we examine the extent to which environmental, social, governance (ESG) ratings capture these within-firm social gains and document discrepancies.

Keywords: Corporate Governance, Board of Directors, Board Diversity, Gender, Corporate Culture, Ethnicity, Diversity, Equity, Inclusion, and Belonging, Institutional investors, Shareholder activism

JEL Classification: G32, G24, G28, J48, J20, M12, M14