As stated by SEC Commissioner Luis A. Aguilar diversity in executive boards leads to better performance. As investors apprehend this information, they actively seek for companies with diverse boards. Companies are now catering to the wants of investors and ‘injecting’ diversity into their board of directors.
To sell the image of diverse boards, companies themselves must believe diversity exists in management. This misperception is evident in Canadian Board Diversity Council’s second annual report card. Utility companies and oil companies both believe they are diverse and their boards comprise of 21.7% of women and 6.6% women respectively. With such a wide range of difference both cannot be diverse.
This misperception can be explained by the contrast effect. Gas and oil companies had virtually no women a few years back and the addition of a few may provoke the image of diversity relative to the company’s past. However, diversity insists adding more than a few individuals. The misperception created by the contrast effect will guide investors into viewing a company as diverse. Consequently, the incentive for companies to diversify will be reduced, as investors are deceived. This will once again halt the integration of diverse, new ideas into corporate boardrooms.