Diverse Boards Make Better Decisions

Diverse Boards Make Better Decisions

Previous articles on this blog have shown how leveraging diversity makes individuals and groups smarter.  Recently-published researchreinforces that fact with a look at decision-making and risk-taking by boards that are diverse.  The authors found that diverse boards of directors are “more likely to pay dividends to stockholders.”  Furthermore, they are less likely to engage in “excessive risk taking,” though they may be reluctant to take low-level risks as well.

Agus Harjoto, associate professor of finance at Pepperdine University, Rini Laksmana, associate professor of accounting at Kent State University, and Ya-wen Yang, assistant professor of accounting at the Wake Forest University School of Business, studied over 2,000 companies during a 13-year span.  Looking at a range of aspects of diversity, including gender, race, age, experience, tenure, and expertise, they found that, “On the one hand, diverse boards could reduce the level of corporate risk taking, discouraging innovative and risky projects. On the other hand, if firm management is overly aggressive in its use of corporate funds for investing in risky projects, our results suggest that more diverse boards could perform better oversight of corporate risk taking than less diverse boards.”

Similar positive outcomes can be found for non-profit boards and committees that are diverse.  To support such efforts, the Virginia Center for Inclusive Communities is pleased to once again partner with Nonprofit Learning Point to teach “Building Diverse Boards and Committees.”  The class takes place on September 12 in Richmond.  Register today!

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