The Importance of Diversity of Perspective on Boards

DMS Governance is pleased to share the recent article published by Vanora Madigan in the Irish Funds, Funds Focus Newsletter.

It has been shown that one of the most effective ways to enhance corporate governance is through board diversity. In general terms diversity looks at the board composition of individual directors to allow for a balanced board which is the essence of corporate governance. Boardroom diversity covers age, background, gender and ethnic diversity, and also diversity in terms of skills, thinking, competencies, experiences, and careers.

Depth of perspective leads to a better dynamic and manifests in better compliance and corporate governance. Where the directors have different points of view there is less likelihood of “group think”, which leads to a more agile board and better performance. Diversity of thinking and perspective assists the board in fulfilling its ongoing oversight responsibilities.

A key benefit of board diversity is more effective decision making. A diverse board with different skills, background, and experiences will look at topics with a broader perspective which leads to more critical analysis and a different board dynamic. Having multiple views on any action and its outcome makes for decision making that is more than likely to take into account the risks and implications of possible actions. This leads to a more thoughtful and considered decision making process and allows for more comprehensive oversight.