Diversity in Business Management: Benefits and Possible Reverse Effects

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Diversity may come from many perspectives, it can be as observable as gender, age, nationality, religion, or have more complex definitions like personalities and characters of individuals, different backgrounds and cultures, and distinct mindsets. Conventional speaking, diversity is good for boards and businesses. But when it comes to reality, very few boards would see significant changes and positive returns when pursuing diversity. Instead, many even end up with a vicious circle that can’t self-correct. In my perspective, failure to adopt diversity as a strategy does not mean give in and avoid it, but need to work on the solutions to minimize the friction that diversity introduces.

Why Diversity Necessary

Globalization started decades ago, therefore diversity is inevitable. Nowadays, nearly all companies excel in their recruiting efforts to extend the variety of its pool of candidates. which implies, demographic and cultural diversity becomes the daily tasks for many of the companies. One fun fact is that the California law requires all locally headquartered publicly traded companies must have a minimum of one female director by 2020. While in Norway, Spain, France, and Iceland, laws are requiring that ladies comprise a minimum of 40% of boards at publicly listed companies (Harvard Business Review, 2019).

Many pieces of research have suggested that boards make better decisions when adding diversities to the representatives. Diversity improves innovation and creative problem solving, and also helps to acquire talent and employee relationships. A heterogeneous board will have a better understanding of the marketplace, as well as Gain access to thorough resources and wilder networks. More importantly, by including women and minorities (ethnic, religious, etc.) on the board, firms can enhance their reputation as responsible citizens (Ram Mishra and Shital Jhunjhunwala, 2013).

Claude, Waild, Taïeb and Réal (2011) have proved that in firms whose largest shareholder is an institutional investor, high levels of DD (Demographic Diversity) seems to be beneficial to the quality of board strategic decisions (Ben-Amar et al., 2011).

Similar results provided by Post and Byron show the advantages of board diversity in 2015, through a meta-analysis of 140 research studies of the relationship between female board representation and performance. In research, Post and Byron found a positive relationship with accounting returns. They think it because the boards with female representatives were more motivated to use different knowledge, experience, and values that each member brings (Post and Byron, 2015).

Why Diversity Backfire and How to Avoid It

It seems to be a lot easier to talk than to make diversity function well. Despite lots of benefits which it can bring back boards and businesses as a full, without proper procedures and management, diversity often results in endless arguments and conflicts.

Corporate board members are also experts in many fields, like company financials, human resources, marketing and data technologies, only a few of them are experts in understanding team dynamics. During the meeting, everyone involves the table with filters in their mind. to get rid of those filters, one must bear in mind of them first (Parrish Partners, LLC, 2010).

In the article ‘Why Diversity Can Backfire On Company Boards’ (Barsoux, 2010), the authors distinguished that for all the conflicts and gridlock, attributes should be the one in charge. People tend to stereotype themselves et al and develop a pattern of ‘us-and-them’ relation over time. More or less, people feel threatened when facing different ideas, especially within the boards, even “constructive disagreements spill over into personal battles” (Barsoux, 2010). Under this circumstance, conflicts are unavoidable.

To solve the matter and unlock the advantages, Jean, Paul, and Jean-Louis mentioned in their article that the boards must learn to figure with colleagues who were selected not because they slot in – but because they don’t. And when elected newcomers, the board has to choose the member carefully initially, as they ought to looking to rent a replacement director who should also guard against biased thinking during the interview stage; then existing member should assist newcomers by helping them make a contribution without seeming presumptuous; more importantly, the chairman or lead director must clear the way and make it easy for members to precise ideas and concerns, and confirm all views are widely shared (Barsoux, 2010).

Stephanie, Mary, Sakshi and Jared (2019) express their investigation outcome that to create diverse boards more practical, boards have to have a more egalitarian culture — one that elevates different voices, integrates contrasting insights, and welcomes conversations about diversity. One key point is collegial boards are more likely to simply accept and integrate differences of opinion. “Members of those boards believe that both their expertise and willingness to find out is recognized and incorporated into the board’s work” (Harvard Business Review, 2019).

Parrish Partners noted this can be an ideal opportunity to have interaction C.O.R.E. leadership. Removing these filters takes time and energy, therefore corporate boards must take time out to strengthen ‘Continuously Monitoring Perspective’ members to get rid of their filters (Parrish Partners, LLC, 2010).

Conclusion

As diversity becomes a must have in business, boards will must develop procedures and framework that assist them to form the foremost of diversity. Just as Ram and Shital mentioned at the end of their book, to enhance board performance and make the most use of the value that diverse board could generate, members must: “Recognize the diversities. Appreciate and respect the diversities. Learn to work as a team, irrespective of diversity. Leverage the diversity” (Ram Mishra and Shital Jhunjhunwala, 2013).

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Diversity in Business Management: Benefits and Possible Reverse Effects

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