Board of Directors Terms & Definitions >



Diversification in the context of a corporate board of directors refers to the practice of having directors with varied backgrounds, experiences, skills, and perspectives on a board. A diverse board may include individuals with different genders, ages, ethnicities, and professional backgrounds. Having diversity in the boardroom can lead to better decision-making, increased creativity, and a broader understanding of different stakeholders’ perspectives. Additionally, diverse boards can also better reflect the customer base and help businesses understand and meet the needs of a broader market.

Board of Directors Terms: Diversification

Diversification is a crucial factor for the success of any company. Modern corporations are no longer limited by geographical boundaries and offer products and services to a broader and diverse range of customers. In this context, a diversified board of directors is essential for effective decision-making and sustainable growth. In this article, we will discuss why diversification is important for board of directors and how companies can implement diversity strategies to ensure the success of their boards.

Why Diversification is Important for Board of Directors

Board diversity doesn't just increase representation of traditionally marginalized or underrepresented groups, it also ensures varied perspectives and ideas are represented in all levels of the business. Board of directors that come from different professional backgrounds, races, ethnicities, genders, sexual orientations, and age groups provide fresh perspectives, innovation, and a unique blend of skills that could not otherwise be achieved. It’s important to understand that diversity on the board needs to be more than just fitting into a particular characteristic or category, but rather bringing new perspectives and ideas to the table.

Understanding the Role of Board of Directors in Diversification

Boards of directors play a critical role in shaping the company's culture and vision, which in turn drives its success. It's their job to ensure that the organization's values align with the needs and interests of the society it operates in and its shareholders. Board diversification ensures that the board reflects society's changing demographics in terms of consumer preferences, investor demands, and global trends. This is especially crucial because the board must make crucial decisions that can impact the company's finances, reputation, and ultimately, its future.

Benefits and Challenges of Diversification for Board of Directors

While diversification can bring numerous advantages, it can also pose some challenges that need to be addressed effectively. One of the most significant obstacles is the difficulty of bringing different perspectives into consensus. However, this challenge can be overcome by proper communication channels, mutual understanding, and an appreciation of differences. Effective diversification can provide various advantages such as better decision-making, higher financial performance, increased innovation, greater risk management, and enhanced reputation. Companies that fail to achieve diversity goals may jeopardize their growth, reputation, and ultimately face legal or social consequences.

How to Implement Diversification in Board of Directors Terms

Implementing a diversification strategy requires careful planning and execution. One can start with developing a plan with specific goals for board composition, identify underrepresented groups, and outline strategies to address the gaps. Inclusion and transparency are essential factors in implementing a diversification strategy. Companies can offer training and development programs that identify unconscious biases and provide a more inclusive work setting. The selection of new board members should be based on their skills, qualifications, and whether they can contribute to achieving the company's goals, mission, and vision.

Best Practices for Successful Diversification in Board of Directors

Successful diversification in the board can only be realized by adopting the best practices, such as setting clear goals, creating a culture of inclusion, and modeling values that reflect diversity. Clear communication and transparent guidelines can build trust, establish a shared understanding, and ensure accountability. An inclusive board can hold itself accountable by setting up a diversity dashboard, tracking progress, and sharing it with stakeholders. It can also use tools and techniques to evaluate board diversity, such as measuring demographic factors, assessing skillssets and experiences, and conducting surveys or focus group discussions.

The Impact of Diversity on Board of Directors Decision Making

Diversity has been shown to positively impact decision-making processes and outcomes. A diverse board considers varied perspectives and evaluates issues from multiple angles. A board composed of individuals with different backgrounds offers complementary skills and experiences, thereby avoiding groupthink and making better decisions. Furthermore, diverse board compositions can create a positive effect on the company's financial and operating performance. Research studies have shown that diverse boards are more innovative, have higher employee satisfaction, and better stakeholder relationships. Overall, diversity in the boardroom can bring innumerous benefits not just from a moral, ethical standpoint, but from a financial and business perspective too.

Case Studies: Successful Examples of Diversified Boards

Several companies have already diversified their board composition and achieved remarkable success. For instance, Morgan Stanley Investment Management has embraced a diversity strategy in their board and saw an increase in client assets, higher financial performance, and an increase in revenue. Similarly, Salesforce, a prominent software company, has created an inclusion program that promotes and respects socially diverse backgrounds and helps them in achieving leadership positions. Jeffrey Lurie, owner of the Philadelphia Eagles, added three women to his board of directors, increasing its diversity and promoting respect for diversity and women's leadership roles. These and other similar companies promote best practices in diversification and provide useful case studies that illustrate the benefits of diversification.

Tools and Techniques for Evaluating and Measuring Diversity on the Board

Tools and techniques for evaluating and measuring diversity should be applied to determine board members' diversity and track diversity progress. The first step in ensuring diversity in the boardroom is identifying and analyzing the board's current composition. Demographic factors such as age, gender, ethnicity, and nationality should be evaluated to determine the board's diversity. Companies can also use other methods such as self-reporting, interviews, and focus group discussions. There are several established benchmarks to measure board diversity, such as the women on boards' initiative, which creates a registry of companies with women on boards that measures and reports their progress towards gender diversity.

Overcoming Resistance to Diversification: Strategies for Success

Finally, it's essential to acknowledge that resistance is part of the diversification process. It can stem from several reasons, such as the discomfort of leaving a comfort zone, fear of change, or lingering misconceptions about diversity and its role in the board. It's important to overcome resistance by implementing education and awareness programs that reach all board members, establishing shared goals and principles, and supporting diversity initiatives by providing sufficient resources and policies. Incentives can be utilized to encourage board members to pursue diversification. The board also needs to be transparent about its diversity progress and communicate its benefits to the entire organization.


Board of directors' diversification is a crucial step towards ensuring an inclusive company culture and sustainable growth. Diversified boards have been shown to improve decision-making processes and outcomes, increase innovation and financial performance, and lay the groundwork for long-term success. Companies must recognize that implementing diversity strategies requires careful planning, communication, and transparency. Successful diversification requires the establishment of clear goals, best practices, tools, and techniques for evaluation and measurement, and strategies for overcoming resistance. Our hope is that this article will provide a comprehensive guide for companies striving to create a board of directors that is diverse and succeeds in promoting innovation, great decision-making, and achieving their goals.

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