Navigating Disruption: Why Board Diversity Leads to Better Outcomes

Key Takeaways

• Diverse boards bring a varied skillset to decision making
• Their social networks are similarly more expansive, encompassing a wider range of external relationships
• Together, these human and social capital advantages afford diverse boards an advantage in dealing with disruptive change

Diversity offers many benefits to competitive firms. Innovation, strategy and performance (both financial and social) are among the outcomes improved for reason of diversity, particularly at the board level[1]. It is there, after all, that the overall tone and direction of the firm are set.

Arguably, board leadership is never more essential than when the firm is beset by disruptive influences. Technological discontinuities, (de)globalization pressures and social challenges (such as the COVID-19 pandemic) are among the destabilizing events that pose a grave risk to contemporary firms. Research shows it is under these conditions — contexts of elevated uncertainty — that board diversity poses the greatest benefit[2].

What explains the advantage of diversity in disruptive settings? And more to the point, how is it that diverse boards mitigate the conflicts and slowed decision making that typically accompany the blending of diverse perspectives to arrive at a rapid and effective response? In an ongoing study, my colleagues and I set out to understand their methods. To gain perspective, we examined public firms experiencing the collapse of industry and competitive boundaries due to rapidly evolving technology.

Our data reveal that when boards are composed of directors whose mix of gender, race and ethnicity are more varied, so too is their aggregate skillset. This corresponds with the tendency for minority (i.e., non-white, non-male, non-Anglo) directors to be drawn from a wider range of educational and professional backgrounds. Some hail from business, but others are recruited from law, government and academia. Experience in these different domains expands the board’s repertoire. Knowledge of different contexts and methods of addressing challenges is broadened, as is the network of organizations and entities with which the board is linked.

The most successful boards capitalize plainly on these advantages. They tap individualized areas of expertise resident among diverse members and utilize directors’ external connections to both validate assumptions and fill gaps with real-time information. In many cases, the networks are also used to secure partnerships and other resources needed to effect adaptive change. Together, these practices allow diverse boards to better screen and assess disruptive threats — and ultimately outpace their more homogenous rivals in mounting a response.

With each day, diversity and inclusion are becoming more pressing mandates. This research lends new insight into how diversity at the very apex of the firm works— and does so to the advantage of the firm. In bringing individuals of different race, gender and ethnicity onboard, organizations gain not only new reserves of human capital but also richly variegated social capital — resources well-suited to an era of unprecedented change.