Even in 2015, very few corporate boards can be considered diverse; women make up only 18% of FTSE 350 boards, with 25 Executive Directors, and eight women chairpersons. A boardroom comprised of talented individuals from varied backgrounds and ages can lead to greater insight, and thus represent shareholder interests to a greater degree than a single gender or ethnicity board can. Highlighted below are four reasons why actively considering board diversity is essential.

1. Performance

Successful companies have women on their board. A 2008 study published in the Journal of Business Ethics showed that companies with the most women in senior positions, and on the board, returned 10% higher equity, and saw an average 1.7 times higher growth in stock price [1]. Successful companies are generally in a better position to hire the best senior female figures, but even considering this, multiple studies have shown that having a diverse board improves equity returns, market-to-book value, and value, over a sustained period of time.

European quotas for 40% female Non-Executive Directors (NED), and 33% of boards represented by women aren’t going to instantly improve performance – which is why the UK instead operates a voluntary system. However, if the correct individuals are chosen, then it’s not difficult to see why a company would return better results with a diverse board than without.

2. Attracting talent

A board representative of the general population will attract the best talent, as well as reducing employee turnover. Having a diverse board shows that a company takes the issue of gender discrimination seriously, making both men and women more likely to actively seek employment. In addition to just hiring new talent, an environment of diversity leads to a reduction in employee turnover in all demographics, as an inclusive workplace is generally a more effective and positive one, due to a range of leadership qualities being present. [2]

3. Reputation

The very biggest companies in the UK have a high representation of women on their boards: Admiral Group (41.7%), HSBC Holdings (35.3%), Experian (33.3%), and AstraZeneca (30.8%) are FTSE 100 examples. These are the same companies that have the greatest levels of corporate social responsibility, and, in line with this, a Harvard Business School study found that gender-diverse leadership leads to greater corporate philanthropy. [3] Having a diverse board can improve a company’s image not only by giving more, but by better representing the demographics of the final customer.

4. Innovation

One of the reasons boardrooms exist is because it’s far easier to solve a difficult problem collectively than it is individually. Having a diverse board generally improves dynamics and attendance, meaning that when difficult issues arise, it’s easier to creatively think of innovative solutions. In addition, ‘organisation innovation’, which is how a new idea is adopted, is greatly improved with a diverse boardroom, as opposed to one that’s single-gender or ethnicity.

Appointing a perfectly diverse board isn’t going to instantly improve performance and reputation, attract the best new talent, and lead to innovation, but with the right people from a plethora of backgrounds and ages, a company will likely achieve more of these factors than a company that refuses to acknowledge the changing times.

[1] http://link.springer.com/article/10.1007/s10551-007-9656-1

[2] http://onlinelibrary.wiley.com/doi/10.1002/hrm.20413/abstract

[3] http://www.catalyst.org/knowledge/gender-and-corporate-social-responsibility-its-matter-sustainability