Diversity in Corporate Leadership Gives Competitive Edge

(3BL Media/Justmeans) – Diversity in top management of a company can deliver tangible benefits, and not just create the image of a good corporate citizen. As the markets become global in character, customers, suppliers, investors, employees and other stakeholders increasingly favor companies that are motivated to build a diverse corporate leadership.

A new study by the University of Missouri and University of Delaware called, “Does Diversity Pay in the Boardroom?,” reveals that while minorities and women are represented on boards of directors of several leading U.S. companies, they often have fewer leadership opportunities within the organization. The average gap in compensation is in the range of three to nine percent, according to the researchers.

The study, which involved a review of more than 1,800 companies and 70,000 board members and their compensation, showed that on average across all firms, minorities and females actually are paid more than the average board member. However, when those boards and leadership opportunities are scrutinized more closely, this higher pay is driven by minorities and females being more likely to serve on boards of higher-paying, more visible firms. Within these boards, they actually earn less on average than their peers.

In their study, Matthew Souther, assistant professor of finance in the Robert J. Trulaske, Sr. College of Business and co-authors Adam Yore, assistant professor of finance, and Laura Field, professor of finance at the University of Delaware, measured how well directors monitored the CEO, the vote totals that directors received to retain their seats on the boards, and each director’s qualifications that included education and professional experience.

The researchers found that minorities and females on boards of directors are more qualified when comparing education, experience and expertise. They also found that it is uncommon for minorities and females to chair or serve on important committees such as audit or compensation committees. Committee chairs or directors who serve on important committees typically are paid additional money for their service.

Although the pay gap is not huge, according to Yore, it is still something that could impact a board because they could be missing a significant perspective by not having a minority or female on the board serving in a leadership role. The researchers also found that the pay gap was larger for those who had served longer, which also is concerning as boards always want to attract and retain the best people.

The researchers suggest that, in order to ensure equity, boards review how they appoint members to certain committees and leadership roles and ensure that their appointment policies help provide a balanced perspective for their companies.

Source: MU News

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