The Faculty Lounge: What’s The Return On Equality: Lisa Fairfax on Board Diversity’s End Game

March 23, 2015

What’s The Return On Equality: Lisa Fairfax on Board Diversity’s End Game

Next up is Lisa Fairfax, the Leroy Sorenson Merrifield Research Professor of Law at the George Washington University Law School. Lisa teaches courses in the business area including Corporations, a Securities Law Seminar, and Contracts II, and her scholarly interests include corporate governance matters, fiduciary obligations, board diversity, shareholder activism, and securities fraud. Lisa is also the co-director of the DirectWomen Board Institute, which promotes board diversity by identifying and supporting qualified women attorneys to serve as board candidates. Lisa’s 2005 Wisconsin Law Review article on board diversity was actually one of the first law pieces I ever saw on the topic and was one of the first things we read when we embarked on our project, so I’m especially happy that she has agreed to post with us.

Lisa’s post is below.

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Thanks so much to Kim for the invitation to contribute to the discussion on board diversity. I thought I would start by trying to respond to at least one of Kim’s questions: what do diversity advocates hope to achieve, and by extension, what do I hope to achieve?

First and foremost, I think that most diversity advocates today insist that board diversity will improve a corporation’s financial performance. And while the evidence is mixed, there are certainly several studies suggesting a correlation between diverse boards and better financial returns. In this regard, diversity advocates hope—as do I—that diverse boards will have a positive impact on firm performance.

Second, board diversity advocates hope that diverse boards will improve board decision-making by undermining groupthink and encouraging boards to consider a broader range of perspectives when carrying out their fiduciary responsibility. And this is a hope that I share. But as I have said elsewhere, I do think it is important to be realistic about this process. And that realism means acknowledging that sometimes whether diverse directors will add a diverse perspective may depend upon factors such as critical mass and the extent to which boards themselves create a culture in which active questioning is encouraged. That realism also means acknowledging that sometimes when there is true diversity of perspective, the process may take longer, people may feel uncomfortable, groups may feel less cohesive.

Third, diversity advocates hope that diverse boards will be better equipped to navigate the more global and diverse world in which we live, and thus may be better able to relate to corporations’ increasingly diverse employee, customer, consumer, and client base. I certainly hope and believe that a corporation willing to diversify its board is much more likely to relate to our diverse landscape more generally. But I will admit that I hope this sentiment does not mean that homogeneous boards need not seek to relate to such diversity.

Ultimately, however, what I hope diversity efforts will do is diversify boards. To me, that is an end of itself. And that end is important for at least two reasons. First, because there is no good reason for corporate boards not to better reflect the workforce and the population. Second, because part of the reason corporate boards are not more diverse comes back to subtle and unconscious biases that continue to ensure that people replicate themselves in the boardroom and many of the pipelines leading to the boardroom.

So while most diversity advocates would rather focus on arguments suggesting that board diversity is good for business and not just good, my hope is that we can not only diversify boards, but also that we can get to a place where there is no need to justify that diversity as a means to some economic end.

The “What’s The Return On Equality?” Mini-Symposium:

What’s The Return On Equality? A Conversation About Board Diversity

What’s The Return on Equality?: Aaron Dhir on Quotas

What’s The Return On Equality: Kim Krawiec On The Business Case For Board Diversity

What’s The Return On Equality: Lisa Fairfax on Board Diversity’s End Game

What’s The Return On Equality: Darren Rosenblum On Quotas

What’s The Return On Equality: Daria Rothmayr

What’s The Return on Equality: Aaron Dhir On Disclosure

What’s The Return On Equality: Taking Stock of Day 1

What’s The Return On Equality? Lisa Fairfax on Board Vacancies: The Cure and the Problem?

What’s The Return on Equality: Aaron Dhir Responds To Questions

What’s The Return On Equality: John Conley Responds To Daria Roithmayr