A business’ board of directors can have a big impact on its success. Board members lend their expertise, offer advice on big decisions and help fill in those areas where business leadership might be weak. To put it simply, with the right board in place, a business can grow quickly and continue to thrive for many years. With the wrong board, a business can falter and eventually go under.
One mistake many business leaders make in choosing board members is that they gather a team of people exactly like themselves. In actuality, diversity has been directly connected to a business’ success. One McKinsey & Company study found that businesses with diverse boards had returns on equity that were 53% higher than less diverse businesses. Here are several reasons a diverse board will benefit your business.
When choosing board members, the easiest course of action is to pull from your existing network. You likely have colleagues and friends who would willingly serve as advisors for your growing business. These are people you respect and admire and, most importantly, they work in your industry and know the unique challenges you face.
While all of these things may bring success, they can also limit your perspective. By expanding your group of advisors beyond your immediate network, you’ll be able to bring completely new perspectives to your business decisions. When placing your board, it’s important to look for diversity of backgrounds, diversity of experience and diversity of business networks in addition to diverse genders and races.
A study from Wake Forest found that diverse boards were more likely to rein in risks, leading to bigger potential payoffs to shareholders. While a certain element of risk can help a new business succeed, a diverse board can help identify when those risks aren’t strategically wise and suggest better alternatives. Diverse boards bring their own personal experiences to the discussion and can warn against risks that might not pay off in the long term.
When placing a diverse board, it’s important to ensure that each board member is aware of the company’s long-term and short-term goals. As long as all members are operating under the same mission, any discussion will be geared toward furthering that mission. When board members operate under different agendas, hours can be wasted on unproductive arguments and eventually the board could fracture.
Better Customer Understanding
A diverse board brings with it a diverse understanding of your business’ customer base. Whether you’re selling products or services, operate a B2B or direct-to-customer business model, or you’re reaching out to customers online or locally, your customer base likely reaches far and wide. A diverse board has an understanding of the variety of backgrounds these customers have and can see things from their perspectives.
In addition to bringing those perspectives to the decision-making process, diverse board members can also help by spreading the word about what your business is doing. When a board member believes in your company’s mission and posts about it online, that post instantly expands your reach. Through social networking and word of mouth, your board can help spread the word about your mission and increase your bottom line.
Build More Diverse Staffs
With a diverse board in place, a business is more likely to build diverse teams. This comes in part through having a diverse team guiding and advising it. That diversity flows downward, with team leaders choosing diverse job candidates who are a fit for the company’s mission. Business leaders may also turn to their diverse board members to spread the word about any job openings within their own networks, bringing people from varied backgrounds to the application process.
When diversity exists throughout an organization, all of the above-mentioned benefits are magnified. Instead of building teams of people that tend to come from just a few backgrounds, entrepreneurs can pull from a wide array of perspectives.
When it’s time to put together a board, it’s important that entrepreneurs cast a wide net. Devote time consistently to increasing the size of your network and broadening your horizons. There are many well-documented benefits of having diverse boards in place, and these benefits can be seen when putting managers and teams in place as well.
Besides acquiring a diverse board of advisors, continue to our next article to see 5 ways to turning your first year into a successful one.