High Performance Boards, 2nd Edition

CHAPTER 19Effective Diversity

Diversity is Good … But Why; and When?

The assertion that diversity is good has become a mantra in business. Many studies demonstrate the advantages of diversity for companies in search of new ideas, observations, strategic directions, and competitive advantage. Organisations may derive tangible task-related benefits from diversity, because having a variety of expertise enables a firm to assign each part of a task to people with the relevant knowledge. Diversity also has innovation-driving benefits, because people with different perspectives see things differently. This can lead to creativity and a questioning of assumptions, and ultimately to new synergies.

However, diversity also comes with downsides, because it raises barriers to alignment. These include communication-related barriers. People's different frames of reference mean that words and actions can have very different significance: this makes communication less efficient and can lead to conflict that may be difficult to resolve. Other barriers arising from greater diversity are related to identity and trust: we find it harder to identify with and deeply trust people who are different to us.

When there is a strong need for innovation, and shareholders represent divergent views, diversity is a key strategic advantage. But the situation is different when there is a single shareholder with a clear view of what needs to be accomplished, and when the need for innovation is limited – for example, ...