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Mustafa Abbas

Degree:

EMBA

Location:

United Kingdom

Industry:

Finance

Year:

Sep 2018 - May 2020

By Mustafa Abbas

Diversity of Thought

We learnt about Governance and Ethics. Not only was the module insightful and interactive with group presentations, but it also served to enrich our critical faculties and moral compass.

The Board of a corporation is the most important element of the ‘corporate mind’ because it sets the corporation’s objectives. We might further add – as did our Professor – that a ‘meta-contract’, or the rules and norms that the company’s representatives are prepared to avow publicly, should take centre stage, even to the extent that we could declare that well-governed firms are those that have a Board that consistently reflects this meta-contract. The Said Business School at Oxford for example could be considered to have an explicit or implicit meta-contract that includes the promotion of critical thinking, aside from teaching the cohorts the language and tools of business. The Board should serve this meta-contract.

It would seem self evident then to suggest that diversity in the boardroom makes for better decision-making through offering differing perspectives, which the Board can then deliberate over as they serve the meta-contract. However, the evidence on performance is mixed. According to Adams and Ferreira (JFE 2009), female participation in boardrooms leads to better attendance records certainly, but according to their study the average effect of diversity on firm performance is negative. Negative? How could we square this result with our intuition that diversity matters?

Just as every well-diversified portfolio must have enough stocks to remove idiosyncratic risk, perhaps it is simply that Board composition must provide for well-diversified opinions, so that distractions from the meta-contract are deliberated away. Diversified opinion and deliberation over these opinions helps eliminate the idiosyncratic elements of the individual Boardroom players. This might help explain the results: only diversity of opinion matters. Gender, race or class diversity per se matters only if it increases the diversity of opinion in the Boardroom. Although not necessarily the case, it is probable that gender, race or class diversity would improve variations of opinion. The next problem of course is to ensure that the deliberation of these well-diversified opinions is fair and that all members are given the psychological space to express their views fully. This is possibly a much more complex problem than redressing the “isms imbalances,” through quotas. Perhaps appointing the Board based upon diversity of thinking is more fruitful than diversity of opinion, which could be fraught with resistance.

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