A mix of gender and ethnic differences inside the boardroom is broadly accepted as better for a company’s prospects. Recent research suggests, however, that diversity has more complex facets than previously understood.
Research shows that there is significant value in board diversity. That is, when board members have varied genders and ethnic heritages, their firm performs better than otherwise. Until recently, however, the mechanism responsible for this value creation has been somewhat misunderstood. New research by my coauthors and I reveals that it may not be diversity among the board itself but rather differences in diversity between the board and the CEO that contributes to firm performance. One might expect board effectiveness to be primarily determined by the qualifications, abilities, experience, number of board memberships, and compensation mech