From charterworks: What research actually says about the link between board diversity and financial performance
on how diverse boards affect their companies’ bottom line. Here are excerpts from our conversation, lightly edited for length and clarity:
The first thing I always do is lead with science and say, what is it that we actually know when we think about the relationship of diversity to any type of performance outcomes? What we know is that the research does not typically find that diversity can harm firm performance. It’s a hypothesis that these folks who are anti-diversity have, but this has been tested.
So, the bank is failing. The bank has some amount of heterogeneity, though it’s still overwhelmingly a white male board. We have two things happening at the same time: We have a firm that is increasing its commitments to ESG and to diversity, and we also have a bank that has a highly risky portfolio. It’s not surprising that a bank that has a highly risky portfolio, when the economic conditions start pressuring it, would start to struggle.
The other one is a cost-lowering mechanism: turnover intent. When employees turn over, that is an operating cost, because it costs more relatively to hire and onboard new employees than to keep your employees happy. So we look at how diversity helps to convince more people, particularly people from underrepresented groups, that they should stay in that organization and not leave.
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