Board decision making and diversity: where there is real diversity in the boardroom, the directors are better equipped to address the issues presented to them.

• Author: Raymond, Doug
• Position: LEGAL BRIEF

The duty of care sits at the core of directors' obligations under corporate law. When evaluating a course of action or making a decision, directors have the duty to use that care which "ordinarily careful and prudent persons would use in similar circumstances." This includes the obligation to inform themselves, before acting, of all relevant material information reasonably available to them. In reviewing whether directors have violated their duty of care, courts generally look to the quality of the process by which the board made its decision. As a consequence, thoughtful boards pay attention to how they make decisions and whether they can improve the ways they evaluate information and debate and decide the issues presented to them.

When a board considers how best to optimize its processes for making decisions, it should not take long to conclude that adding meaningful diversity can be a valuable path to pursue. Common sense, as well as an increasing body of academic research, indicates that a diversity of background and opinions will generally foster more creativity and produce a greater range of perspectives and solutions than would otherwise be the case. Where there is real diversity in the boardroom, there is a greater likelihood that the deliberations of the directors will include the evaluation of potential alternatives that either would not occur to a more homogeneous group, or that would be misunderstood or under-appreciated and therefore too quickly dismissed. If these varying experiences and points of view are shared collaboratively and respectfully, all of the directors are better equipped to address the issues with which they are presented.

However, even a board with diversity among the directors may not realize the benefits of this diversity unless all of the directors feel free to express their opinions and their views are heard and considered by the other directors. As psychologists and sociologists have demonstrated, if only one person voices a different opinion or perspective, it is less likely to be attended to by the others in the group, and before too long that person will begin to feel constrained. Boards that are committed to improving their decision-making process should structure the boardroom to create an atmosphere where all directors are comfortable challenging their peers and the group is receptive to different perspectives. In most cases, this can be accomplished by greater diversity.

While an all-Caucasian...