Board Diversity and Firm Performance: Essay

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This inexperience and youthfulness, according to these researchers and theorists, led to an overall drop in stock prices for the firms affected by this law as investors became wary about the direction of the firm (Ahern & Dittmar, 2012). This research was specifically concerned with the perception of firm performance on the part of investors, however, and not with actual measures of firm performance from within the companies themselves, which means it does not actually provide useful information regarding the direct impact of board diversity on performance, though it does suggest a potential problem in maintaining confidence (Ahern & Dittmar, 2012).

More performance-oriented research conducted in the United States during the 1990s, however, found that firm diversity does appear to have a direct correlation with actual firm performance, at least when measured on a strictly financial basis (Erhardt et al., 2003). This research performed a strictly quantitative analysis on over one hundred firms in the United States with varying levels of diversity on their boards, and the results suggest a significant improvement in overall financial performance when boards are more diverse across different demographic measures (Erhardt et al., 2003). This research does not explain why this is the case, however.

For that, Miller and Triana (2009) provide some possible explanations, having conducted similar research yet from a very different (though not at all contradictory or conflicting) theoretical perspectives and coming to the conclusions that racial and gender diversity in firms definitely causes better performance through increasing innovation and firm reputation.

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Racial diversity in a firm's board was seen to directly correlate with higher levels of firm reputation and of recognized innovation within the firm, suggesting that the diversity extends far deeper in such organizations' structures than the surface racial mix of the board (Miller & Triana, 2009). Gender diversity had less to do with the reputation of these organizations, but there was a definite relationship between gender diversity on company boards and innovation within these companies established (Miller & Triana, 2009).

Conclusion

While Norway's law appears to have had a subdued effect on business in the country and probably even a harmful one, it seems fairly clear that diversity in general is a desirable trait for the board of any business organization. Increasing innovation, reputation, financial performance, and possibly (assuming other factors are properly aligned) investor confidence is certainly advantageous for any firm, and increasing board diversity is actually a relatively simple way to begin a process of achieving all of these things. This does not necessarily mean that such diversity should be required by law, but it does give grounds for further consideration......

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