In my wrap-up post yesterday, I pressed all of the bloggers to clarify, defend, or elaborate on the underlying assumption that board diversity is good for business – an assumption that, I argued, is not supported (and in some cases is contradicted) by the quantitative research on board diversity. In the following post, Aaron responds.
Many thanks for your terrific summary of the day's posts, Kim – as well as the invitation to think harder about rationales for diversification.
As you've noted, I've said that diversity may positively impact firm decision-making and overall governance. This was a dominant theme that came out of my interviews. So much so, that it's really impossible to ignore. And unlike your terrific study with John and Lissa, my interviewees supported their general observations with concrete examples of diversity’s importance. In my book, I've called this a “modified business case” (not very creative). I see this as different from the business case as typically discussed in the U.S. The benefits that flow from the modified case - such as more rigorous deliberations, risk assessment, and monitoring - may be very difficult to quantify using traditional financial metrics. So this isn't an attempt to link diversification with profitability indicators such as return on equity, return on assets, and Tobin’s Q. Rather, my results dovetail with the broader scholarly literature on “collective intelligence” and group decision-making, which suggests that groups that are heterogeneous along certain identity-based lines often outperform uniform groups, such as when heterogeneous groups are charged with analyzing and finding solutions to complex issues.
That said, even the modified business case has difficulties and only goes so far. And so, in my book, I argue that going forward it will be essential to revisit the underlying rationales for diversity and to further build a social case for it that is tied neither to the traditional business case nor the modified business case. The focus on instrumentalist rationales has, in my view, impeded the development of the social case (a point that Lisa makes in her excellent 2011 North Carolina Law Review piece), and an overemphasis on the modified business case would only compound that problem. The social case for diversity recognizes the exclusionary nature of current board recruitment practices. It is rooted in a desire to democratize power and equitably distribute access to opportunities. And it rests on the assumption that qualified women and other underrepresented groups ought to be participants in corporate governance because the boardroom represents a core location of social and economic power.
The “What’s The Return On Equality?” Mini-Symposium: