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Beyond Representation: Dr. Yun Liu’s Publication Examines Inclusivity and Multiple Dimensions of Diversity Among Board Directors

While diversity has gotten much attention in recent years, less emphasis is placed on inclusion. This issue is explored in Keck Graduate Institute (KGI) Finance Professor Dr. Yun Liu‘s publication “Director diversity and inclusion: At the table but in the game?”, which recently appeared in Financial Management (FM).

The editorial team voted the article one of the best three papers in the Spring 2022 issue. It will be presented in a special session at the 2022 European FMA conference devoted to honoring the top papers on recent topics.

FM is the flagship journal of the Financial Management Association International, one of the largest professional organizations in finance academics, students, and practitioners. FM is amongst the most selective top finance journals.

The paper focuses on individuals serving as board directors who act on behalf of shareholders in monitoring and advising managers in public corporations. Many studies have investigated the presence of diverse directors on boards. Still, few examine the inclusion or the engagement, activity, and ultimate influence of an individual on the organization they serve on.

In the study—which spans from 2004 to 2019 and includes 8,758 companies across a broad range of sectors and sizes—Liu and her team examine multiple dimensions of diversity, including age, gender, ethnicity, geographic location, career experience, and skill set. They consider diversity as a within-board attribute—a director’s attribute relative to the remaining directors on a board.

“For example, if most board members are Asian females, you might want to bring in a white male,” Liu said. “They may not be considered a minority if you look at America as a whole, but this person could potentially offer a lot of fresh perspectives and additional insights for this particular board.”

One factor the paper examines is turnover rate, which impacts a director’s ability to make a long-lasting impact on the board. Additionally, it examines promotion to board leadership positions, which is correlated with the director’s overall level of influence on the board.

From the study, Liu and her team found that directors possessing greater skill diversity are more likely to be retained and promoted. Although female directors are less likely to be promoted to leadership positions, the result is insignificant to skills controls, suggesting that gender matters less once skills are accounted for.

Another key finding was that directors who are diverse from others on the board in terms of age and ethnicity are less likely to be promoted or retained. This finding can be explained by the “birds of a feather flock together” phenomenon in which individuals gravitate toward and experience compatibility with those who are most like themselves.

By contrast, those who are dissimilar are more likely to engage in conflict, leading to a turnover. Thus, when bringing in diverse individuals, organizations should ensure that these individuals are set up for success from the beginning.

“Once we bring someone on board, we need to create an encouraging, supportive environment,” Liu said. “It’s not enough to bring them to the table. We must help them feel included and create a sense of community, so their voices are heard, and their opinions are allowed and valued.”

Liu believes that KGI has done an excellent job honoring diversity across multiple dimensions, as reflected in the students, faculty, staff, and those in key leadership positions. This is particularly true regarding skills diversity, as demonstrated in KGI’s multidisciplinary approach.

“I am a business faculty, but I work closely with our science and engineering faculty,” Liu said. “We are not siloed. That’s something you don’t get in larger state universities. We are all trained to approach things similarly within each of these fields. But now, in the workforce with my KGI colleagues, I am learning to approach things from a different perspective.”

Moving forward, Liu encourages the KGI community to continue advocating for situation-specific, contextualized diversity and inclusivity that goes deeper than mere representation.

“Also, people can succeed in different ways,” Liu said. “I believe each of my colleagues has their own superpower.”

“We promote teamwork for our students, and we want to lead by example by playing off each other’s strengths and utilizing our diverse backgrounds and skillsets to our advantage.”

Liu commends KGI for fostering a vibrant community.

“As a minority myself, I feel cherished,” Liu said. “I am grateful to be part of this very diverse community. We are small, but we are a family that builds each other up.”