Today’s Practical Planning Tip will cover whether it’s important to have a diverse board of directors in order for a company to have good stock market performance?
The short answer is it may be important, but let’s take a step back and unpack this a bit.
First, how are we defining diversity? Diversity of appearance or diversity of opinion? I'm not an expert on these matters (unless it relates to diversification of one's portfolio), but companies that primarily focus on including directors who LOOK different on the outside are misguided. And This is type of misguidedness is exactly what we are seeing with the whole implosion of the Diversity, Equity, and Inclusion, or DEI, movement on college campuses. It was focused on the superficial type of diversity.
On the other hand, having a board with highly intelligent, highly successful folks from a range of different backgrounds, who can respectfully and intelligently discuss and debate the direction of a company IS helpful. They may all look the same, or they may look different, but if their viewpoints are different due to their vast experiences, this may be helpful in future company growth.
The real challenge is how can the common shareholder evaluate the quality of the board without speaking individually to each member and evaluating the qualities that they bring to the table. Most common shareholders don’t have that type of access to the board or the expertise to make these types of evaluations. Given that challenge, I would use other strategies to pick winning investments and NOT rely on board diversity as a criteria.