Those who seek greater gender or ethnic diversity on corporate boards of directors work under the self-imposed burden to show that board-level diversity adds value to the firm in some tangible way. In a perfect world, board diversity follows naturally from the fair distribution of talent and skill between the genders and among ethnicities when selection is based on merit. But our world is grossly imperfect, with residual bias (conscious and implicit), a long legacy of discrimination and inequality, and with pervasive, artificial and self-serving social construals of what merit-based selection means. In this imperfect world, sadly, the strategy of claiming and documenting the economic value of diversity seems to be strategic necessity.
Unfortunately, the value added by board diversity is hard to prove with any rigor, as the indeterminate findings in the extensive empirical literature on the subject—including some of the contributions to this symposium—amply demonstrates. To be sure, the intuitions seem persuasive enough. If one treats the board as a work group, under the right circumstances having differing perspectives and differing backgrounds should prompt more creative problem-solving and blunt the tendencies toward “groupthink.” And as stakeholder groups (employees, customers, suppliers, etc.) become more diverse, having board members who are especially attuned to their interests and values should be productive, and also send a positive signal of firm sensitivity.
So why is it so hard to find tangible evidence of added value? My commentary will focus on two of the symposium contributions: the wonderfully interesting field study by Broome, Conley, and Krawiec (“BCK”), who asked board members to talk about their own observations of value added by having more diversity on corporate boards, and the intriguing empirical study by Dobbin and Jung (“DJ”), who try to explain troubling evidence that both share value and non-blockholding institutional ownership appear to drop when women are added to boards, even though there is no evidence that firm financial or accounting performance declines as a result. Before turning specifically to these, however, I want to explore a bit what may be a cause of the muddle—the fact that we have no coherent, consistent explanation for how boards themselves add value to the firm. Without knowing what boards really do in terms of economic value, it is hard to develop and test any useful hypothesis about their diversity.