Social capital as a new board diversity rationale for enhanced corporate governance

Abstract

PurposeThe benefits of board diversity are often categorized into five distinct business rationales: talent rationale, market rationale, litigation rationale, employee relations rationale and governance rationale. However, if resource dependency theory’s focus on the director’s ability to secure important resources for the firm is considered, social capital as a viable additional rationale for board diversity can also be considered. The purpose of this paper is to argue that diverse members of the board are likely to have social capital that differs from non-diverse members of the board. Consequently, that diverse social capital can bridge the board to new resources for advice and counsel, legitimacy, channels for communication and access to important external elements, thus making a strong argument to be included as a rationale for board diversity.Design/methodology/approachIt is intended to provide a conceptual discussion on whether enhancing the board’s social capital is perhaps a viable and overlooked rationale for board diversity.FindingsConsistent with the other five rationales for board diversity, this analysis suggests that social capital should be considered as a sixth rationale for board diversity. Social capital serves a role in governance and rises to the standard of other rationales for board diversity.Practical implicationsBoards may not recognize that social capital is a strategic resource and sufficiently diverse groups such as women and minorities may be more likely to contribute non-overlapping social capital networks, which may translate into greater external influence and thus additional resources for the firm. This paper may help to influence the viewpoints of directors on who is valuable as a board member.Originality/valueExisting board diversity rationales do not include social capital as a primary rationale for board diversity. It may be possible that social capital becomes a legitimate sixth rationale for board diversity.