Diversity on Corporate Boards – Limits to the Business Rationale and the Connection between Supporting Rationales and the Appropriate Response of the Law

Abstract

It has often been suggested that diversity on corporate boards of directors will lead to new perspectives and hence better decision-making by the board. It would seem to follow that improved decision-making will lead to better corporate performance and thus presents a “business case” for increasing diversity on corporate boards. This essay explores the limits of the business case and some of the alternative rationales for increasing diversity on corporate boards and the extent to which those rationales provide a basis for the law mandating or encouraging increased diversity. The essay concludes that the recently adopted SEC rule mandating disclosure of any policies relating to the role of diversity in board selection is a measured response to the current rationales, although it could have gone a bit further. Although, the current rationales for increased diversity do not provide a clear mandate for more proactive government intervention, these rationales clearly support regulatory intervention.

Keywords: Corporate Governance, Corporations, Diversity