J Bus Ethics (2016) 133:179–191

DOI 10.1007/s10551-014-2352-z

The Influence of Board Diversity, Board Diversity Policies

and Practices, and Board Inclusion Behaviors on Nonprofit
Governance Practices
Kathleen Buse • Ruth Sessler Bernstein •

Diana Bilimoria

Received: 9 December 2013 / Accepted: 2 September 2014 / Published online: 11 September 2014
 Springer Science+Business Media Dordrecht 2014

Abstract This study examines how and when nonprofit The relationship between boardroom diversity and board
board performance is impacted by board diversity. Spe- performance continues to be of great interest to scholars,
cifically, we investigate board diversity policies and prac- policy makers, and practitioners alike. In the present study,
tices as well as board inclusion behaviors as mediating we empirically examine the relationship between board
mechanisms for the influence of age, gender, and racial/ (age, gender, and racial/ethnic) diversity and board per-
ethnic diversity of the board on effective board governance formance outcomes in a sample of 1,456 nonprofit orga-
practices. The empirical analysis, using a sample of 1,456 nizations. We test the mediating effects of board diversity
nonprofit board chief executive officers, finds that board policies and procedures as well as board inclusion behav-
governance practices are directly influenced by the gender iors on this relationship, seeking to answer the question:
and racial diversity of the board and that board inclusion How and when can board diversity enable effective gov-
behaviors together with diversity policies and practices ernance practices?
mediate the influence of the board’s gender and racial It is commonly held that there is inherent value in
diversity on internal and external governance practices. diversity that diverse groups, as compared with homoge-
Additionally, we found an interaction effect that indicates neous groups, provide a broader range of information,
when boards have greater gender diversity, the negative knowledge, and perspectives (Cox et al. 1991; Ely and
impact of racial diversity on governance practices is miti- Thomas 2001). But empirically, the benefits of diversity
gated. The findings suggest that board governance can be are complex to ascertain. Scholarly research on diversity in
improved with more diverse membership, but only if the the workplace remains an enigma, sometimes supporting
board behaves inclusively and there are policies and and sometimes undermining performance outcomes (Hor-
practices in place to allow the diverse members to have an witz and Horwitz 2007; Jehn and Bezrukova 2004; Joshi
impact. and Roh 2009; Milliken and Martins 1996; Pitts 2006;
Ugboro and Obeng 2009; van Knippenberg and Schippers
Keywords Diversity
Diversity policies and practices
2007; Williams and O’Reilly 1998). Kochan et al. (2003)
Inclusion behavior
Board effectiveness
Nonprofit boards found racial and gender diversity to have neither a positive
nor a negative effect on performance or group processes.
Williams and O’Reilly (1998) analyzed 40 years of
K. Buse (&)
D. Bilimoria
diversity research and concluded that many of these
Weatherhead School of Management, Case Western University,
Cleveland, OH, USA inconsistent results might be attributed to an oversimplified
e-mail: [email protected] approach to diversity.
D. Bilimoria Horwitz and Horwitz’s (2007) meta-analytic review of
e-mail: [email protected] group-level diversity on outcomes and performance found
that varying team member characteristics, such as age,
R. S. Bernstein
ethnicity, and expertise, are negatively associated with
School of Business, Pacific Lutheran University, Tacoma, WA,
USA performance outcomes (Jackson et al. 1995; Milliken and
e-mail: [email protected] Martins 1996). However, task-related diversity positively

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180 K. Buse et al.

impacted the quality and quantity of team performance. justified so as to enable board representation that is
Horwitz and Horwitz, therefore, recommend that high- equivalent or at least similar to the organization’s
performing teams be created with members who have task- stakeholders.
relevant heterogeneity, instead of bio-demographic attri- Concepts and terminology from the diversity literature
butes. Joshi and Roh’s (2009) meta-analytic review noted as well as that on board practices are used in this empirical
that the majority of studies investigating the relationship study. Here, we define the terms used, starting with
between diversity and group outcomes yielded ‘‘non-sig- Cornforth’s (2012) definition of governance as the ‘‘sys-
nificant, direct relationships between team diversity and tems and processes concerned with ensuring the overall
performance’’ (p. 599). Within these studies, the authors direction, control, and accountability of the organization’’
found that ‘‘approximately 60 % of the direct effects (p. 1121). Governance practices are those essential duties,
reported…were non-significant for various attributes. functions, and competencies related to this direction, con-
Among the remainder, 20 % of the effects reported were trol and accountability (Fredette and Bradshaw 2010).
significantly positive, and 20 percent were significantly Board diversity policies and practices are those procedures
negative’’ (p. 601). Suboptimal performance in diverse adopted by boards with the intent to promote diversity.
teams is associated with negative outcomes, including Board diversity policies and practices describe ‘‘practices
decreased cohesion, commitment, and performance (Jehn and procedures that are commonly believed to enhance
et al. 1999) and may occur when the work context diversity and improve the experience for minority group
enhances stereotypes and biases toward minority groups members, such as diversity statements, policies, commit-
and, also, where others perceive teams with higher repre- tees or taskforces dedicated to diversity and inclusion,
sentatives of minority groups of subpar performance (Joshi diversity training for board members, and integration of
and Roh 2009). More recently, Hafsi and Turgut (2013) diversity into the core mission and values’’ (Bernstein and
determined empirically that diversity in boards, specifically Bilimoria 2013, p. 641). Board inclusion behaviors are the
gender (positively) and age (negatively), impact corporate actions of board members that enable members from
social performance (related to corporate social minority and marginalized communities to feel respected
responsibility). and engaged in the organization’s governance (Fredette
Projected demographic changes predict that the majority and Bradshaw 2010). These behaviors include ‘‘the intra-
of the U.S. workforce will be composed of nonwhite, race- group communication, influence and power interactions
based minorities, including Hispanics, African-Americans, that the dominant members of small groups engage in
and Asians, by 2039 (Treuhaft et al. 2011), however, little consciously or unconsciously which signal the authentic
has been accomplished in diversifying the boardroom in inclusion of diversity’’ (Bernstein and Bilimoria 2013,
either the for-profit or nonprofit sectors. Caucasian men p. 640).
held 73 % of board seats in the Fortune 500 companies in In the present study, we hypothesize that board diversity
2012, while minority men held 10 %, Caucasian women policies and practices as well as board inclusion behaviors
held 13 %, and only 3 % of board seats were held by are influenced by the board’s diversity and will mediate the
minority women (Alliance for Board Diversity 2013). On effects of diversity on governance practices. Because pre-
the nonprofit board side, 82 % of board members are vious studies have shown mixed results on the impact of
Caucasian and this has not changed in the last two decades diversity, we have chosen to examine the impact of
(BoardSource 2012). 57 % of nonprofit board members are mediating mechanisms as well as interaction effects related
men, and 59 % are over the age of 50 (BoardSource 2012). to gender, age, and racial/ethnic diversity. We hypothesize
Only 23 % of nonprofit chief executives report satisfaction a model that includes diversity policies and practices as
with the diversity of their boards (BoardSource 2012). well as inclusion behaviors to explain how diversity
Diversity within nonprofit boards holds potential for impacts board performance of internal and external gov-
insuring that organizational programs and services reflect ernance. Figure 1 displays the hypothesized model where
the needs and interests of the community, for bringing board diversity is linked to governance practices through
multiple perspectives into boardrooms that promote a cul- diversity policies and practices as well as inclusion
ture of inquiry and generative thinking, and for breaking behaviors.
the cycle of power and privilege in the United States
(Carter et al. 2003; Erhardt et al. 2003; Ferreira 2010;
Miller and Triana 2009). However, in practice, such Theory Development and Hypotheses
transformational aspects of diversification have eluded
most nonprofit boards of directors (Bradshaw and Fredette Governance practices are measures of board effectiveness
2011). In light of these varied studies, further examination as these practices reflect the board’s capacity to perform
of nonprofit board diversity and governance practices is various functions and competencies (Fredette and

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Influence of Diversity on Board Practices 181

Fig. 1 Hypothesized model

Bradshaw 2010). They pertain to how competently board performance and firm value (Campbell and Mı́nguez-Vera
members perform essential governance duties and func- 2008; Francoeur et al. 2008). Other studies show that
tions. A variety of strategies have been suggested in the gender board diversity impacts other factors important to
literature for assessing the performance of the board on organizations including the extent of diversity in the top
essential practices (Bradshaw et al. 1992; Callen et al. management team (Bilimoria 2006, 2000). Bernstein and
2010; Chait et al. 1991; Cornforth 2001; Green and Grie- Davidson (2012) found that racial/ethnic diversity had an
singer 1996; Herman and Renz 1998; Herman et al. 1996; impact on nonprofit board performance when inclusion
Jackson and Holland 1998, Nobbie and Brudney 2003). behavior was used as a mediator. In the corporate
Internal practices represent work undertaken by board boardroom, racial and gender diversity have been shown
members within the boardroom or organization while to positively influence firm performance (Carter et al.
external practices occur outside the boardroom or organi- 2003; Erhardt et al. 2003).
zation. The assessment of the board’s performance of Applying the rationale that diverse membership pro-
internal practices includes strategic planning, legal, ethical, vides a broader range of knowledge, information, and
and financial oversight, evaluating, guiding, and supporting perspectives, we hypothesize that board member demo-
the CEO, monitoring performance, understanding the graphic diversity (gender, age, and race/ethnicity) will have
board’s roles and responsibilities, and include the board’s a positive and direct impact on internal and external gov-
level of commitment and involvement. The assessment of ernance practices.
the board’s performance of external practices includes
Hypothesis 1 Internal governance practices of a non-
fundraising, community relations and outreach, and
profit board are positively and directly impacted by the
recruiting new board members.
(a) gender, (b) age, and (c) racial/ethnic diversity of board
Board composition studies have generally focused on
members.
examining the relationship between board diversity and
performance, on the assumption that who serves on the Hypothesis 2 External governance practices of a non-
board has an impact on board outcomes (Brown 2002; profit board are positively and directly impacted by the
Bradshaw et al. 1996; Duca 1996; Gitin 2001; Siciliano (a) gender, (b) age, and (c) racial/ethnic diversity of the
1996; Stone and Ostrower 2007). However, some studies board members.
assessing the impact of diversity on governance practices
in a range of contexts collectively have resulted in mixed
findings, often attributed to the complexity of the rela- Mechanisms Facilitating Board Effectiveness
tionships between diversity and performance. For exam-
ple, Siciliano (1996) found that age diversity in board Two mechanisms likely enable the ability of diverse board
members was linked to higher levels of donations, but was members to effectively undertake governance practices—
insignificant with respect to the organization’s social adoption of specific diversity policies and practices at the
performance. The same study suggested that gender board level, and behaviors facilitating inclusion among
diversity had a positive impact on the organization’s board members themselves (Bernstein and Bilimoria 2013;
social performance, but a negative impact on fundraising. Ely and Thomas 2001). Board diversity policies and
Subsequent studies of for-profit firms have demonstrated practices, or those procedures that boards adopt with the
that gender and age diversity have a significant impact on intent to promote diversity, are commonly believed to
corporate social performance (Boulouta 2013; Hafsi and enhance diversity and improve the experience for minority
Turgut 2013; Zhang et al. 2013). Several studies show that group members. These policies and practices frequently
increased gender board diversity generates economic include diversity statements, diversity policies, committees
gains, resulting in a positive impact on financial or taskforces dedicated to diversity and inclusion, diversity

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182 K. Buse et al.

training for board members, and integration of diversity for their recruitment, performance, and retention, all indi-
into the organization’s core mission and values. cators of successful diversification at the board level.
Bradshaw and Fredette (2012) found that boards Organizations that employ an integration and learning
adopting diversity practices and policies at the board level motivation perspective for board diversity and focus on
have more success in recruiting minority board members. encouraging their majority group members to engage in
Management practices such as inclusion of explicit inclusive behaviors, rather than solely on diversity-focused
statements allow members to critically reflect on the policies and procedures, engendered racial/ethnic minority
organization’s norms and values so as to facilitate change board members’ greater experiences of inclusion (Bern-
in their cognitive frames and schemas (Hanappi-Egger stein and Bilimoria 2013: Ely and Thomas 2001). Simi-
2012). Many nonprofit organizations, for example, 31 % larly, Bernstein and Davidson (2012) found that inclusive
in New York City (McGill et al. 2009) and 59 % in behaviors mediated the impact of racial/ethnic diversity on
Michigan (Miller et al. 2009), have formal diversity and/ governance practices. Thus, we hypothesize that
or inclusion policies. One third of respondents in 2009
Hypothesis 4 Board inclusion behaviors positively and
BoardSource survey indicated that having such a policy
directly impact (a) internal and (b) external governance
was the second most important route to inclusivity. Based
practices of a nonprofit board.
on this empirical evidence, we hypothesize that the
effective use of board diversity policies and practices will Acknowledging the contradictory results found in the
positively influence a minority board member’s experi- literature examining the impact of diversity on nonprofit
ence of inclusion and will positively impact the ability of governance practices cited above, we hypothesize two
the board to perform effective internal and external gov- mediating factors. Fredette and Bradshaw (2010) suggested
ernance practices. that the adoption of functional inclusion (‘‘goal-driven and
purposeful inclusion of individuals identified as from
Hypothesis 3 Board diversity policies and practices
diverse or traditionally marginalized communities,’’ p. 8)
positively and directly impact (a) internal and (b) external
was more impactful than social inclusion (‘‘embeddedness
governance practices of a nonprofit board.
in the actual social context and fabric of the board of
A second mechanism, board inclusion behaviors, also directors, based on authentic relational bonds,’’ p. 10). In
likely influences how board diversity enables effective fact, without paying attention to the task-oriented activities
governance practices. Board inclusion behaviors describe that are functionally inclusive, social inclusion may not be
actions by board members through which ‘‘members of as impactful. Investigation of the mediation hypotheses
diverse and traditionally marginalized communities are enables further understanding of the relationships in non-
present on boards and meaningfully engaged in the gov- profit organizations between board diversity (gender, age,
ernance of their organization’’ (Fredette and Bradshaw and racial/ethnic) and the board’s internal and external
2010, p. 8). Drawing on extant conceptualizations in the governance practices. Therefore, to further our under-
literature (Pelled et al. 1999; Mor Barak 2000; Roberson standing of the impact of diversity on governance practices,
2006; Janssens and Zanoni 2007), inclusion refers to an we hypothesize that board diversity policies and practices,
individual’s or subgroup’s sense of efficacy, belonging and as well as inclusion behaviors, will mediate the impact of
value in a work system. Board inclusion behaviors describe board diversity on governance practices.
the intragroup communication, influence and power inter-
Hypothesis 5 Board diversity policies and practices
actions that the dominant members of small groups engage
mediate the relationship between board (a) gender, (b) age,
in consciously or unconsciously which signal the authentic
and (c) racial/ethnic diversity and internal governance
inclusion of minority members or other members of the
practices of a nonprofit board.
non-dominant subgroup. Examples of such behaviors may
be whether there exists among board members a consensus Hypothesis 6 Board diversity policies and practices
about the value and benefits of expanding diversity of the mediate the relationship between board (a) gender, (b) age,
board and a culture that promotes inclusive board dynam- and (c) racial/ethnic diversity and external governance
ics. Such behaviors may be perceived and interpreted by practices of a nonprofit board.
minority members as reflecting their true value and treat-
Hypothesis 7 Board inclusion behaviors mediate the
ment by majority members. The experience of inclusion
relationship between board (a) gender, (b) age, and
comprises involvement in meaningful groups, access to
(c) racial/ethnic diversity and internal governance practices
information and resources necessary for effective job per-
of a nonprofit board.
formance, influence in decision-making, and job security
(Mor Barak 2000). The inclusion experienced by minority Hypothesis 8 Board inclusion behaviors mediate the
board members is important because it has consequences relationship between board (a) gender, (b) age, and

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Influence of Diversity on Board Practices 183

(c) racial/ethnic diversity and external governance prac- Table 2 Type of nonprofit organizations
tices of a nonprofit board. Type of nonprofit Number of Percent
organizations

Methods Arts and culture 104 7.1

Business/industry 35 2.4
Participants and Procedures Community/economic 55 3.8
development
School/college/university 136 9.3
BoardSource has operated as a resource for nonprofit
Environment 44 3.0
organizations for more than 25 years with a mission to
Health care 220 15.1
improve organizational effectiveness by strengthening
Housing and shelter 92 6.3
nonprofit boards (BoardSource 2012). Member organiza-
Human/social services 424 29.1
tions of BoardSource are surveyed biannually using the
BoardSource Nonprofit Governance Index (BSGI). This International development 15 1.0
survey includes multiple-choice and open-ended questions Philanthropy/grant making 111 7.6
to collect chief executive officer (CEO) and board member Religious congregation 13 .9
demographics, organizational characteristics, board struc- Science and technology 11 .8
ture, diversity and inclusion, board meeting practices, Sports and recreation 22 1.5
compliance with basic governance roles and responsibili- Youth development 88 6.0
ties, and collaborative leadership practices. The survey Other 81 5.6
asks the respondents to rate their board on the performance Total 1,451 99.7
of 14 competency areas or practices, including strategic Missing 5 0.3
thinking, monitoring organizational performance, financial
oversight, fundraising, and community outreach are
assessed by the CEO’s (BoardSource 2012). For the current Table 3 CEO respondents: gender and race
study, we partnered with BoardSource and obtained the CEO race Female Male Total
raw data from the 2012 CEO survey. From the original
Caucasian 806 530 1,336
dataset, we extracted the responses of 1,456 chief executive
African-American/Black 34 20 54
officers from nonprofit organizations whose mission
Hispanic, Latino or Spanish 22 7 29
included fundraising. Responses came from all 50 states in
Two or more races 11 2 13
the U.S. and included a diverse mix of nonprofit charities,
Asian 6 2 8
foundations, and associations. Table 1 shows the break-
down of these organizations by annual operating budget American-Indian/Alaskan 2 3 5
and Table 2 details the nonprofit sectors. Native Hawaiian/Pacific Islander 1 0 1
A little more than half of the CEOs of these organiza- Race missing 7 3 10
tions described themselves as Caucasian women (55 %) Total 889 567 1,456
with 39 % between 50 and 64 years of age. Two tables
detail the demographics of the CEOs, Table 3 shows gen- Table 4 CEO respondents: gender and age
der and race while Table 4 includes the age by CEO
CEO age range in years Female Male Total
gender.
Under 40 55 31 86
Table 1 Organizations’ annual Operating budget 40–49 178 113 291
50–64 567 343 910
Annual operating budget Number of organizations Percent
65 and older 88 79 167
Under $250,000 82 5.6 Age missing 1 1 2
$250–$499,000 164 11.3 Total 889 567 1,456
$500–$999,000 223 15.3
$1–4.9 million 517 35.5
$5–$9.9 million 184 12.6
$10–24.9 million 172 11.8
Measures
$25 million or more 114 7.8
Nine items were used to measure Internal Governance
Total 1,456 100.0
Practices including ‘‘Grade your board’s performance in

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184 K. Buse et al.

understanding your organization’s mission’’ and ‘‘Grade Table 5 Board race/ethnicity distribution as reported by CEOs
your board’s performance in understanding the board’s Board member race/ethnicity
roles and responsibilities’’ with responses 1 = Fail to American-Indian or Alaska Native 0.7 %
5 = Excellent. Three items were used to measure External
African-American/Black 8.5 %
Governance Practices including ‘‘Grade your board’s
Asian (includes Asian Indian, Chinese, Filipino, Japanese, 3.0 %
performance in Fundraising,’’ ‘‘Grade your board’s per- Korean, Vietnamese, or other Asian)
formance in community relations and outreach,’’ and Grade Caucasian 82.4 %
your board’s performance in recruiting new members’’ Hispanic, Latino, or Spanish (includes Mexican, Mexican- 4.3 %
with responses of 1 = Fail to 5 = Excellent. American, Chicano, Puerto Rican, Cuban, and other
Board diversity policies and practices employed eight Hispanic, Latin, or Spanish origins)
items such as ‘‘Has your organization incorporated diver- Native Hawaiian or Pacific Islander 0.2 %
sity into the organization’s core values?’’ and ‘‘Has your Two or more races 0.9 %
organization actively recruited board members from
diverse backgrounds?’’ Board Inclusion Behaviors was
measured using 8 items such as ‘‘Rate the extent to which Table 6 Board age distribution Board members age range
board members from diverse backgrounds work together as reported by CEOs
Under 30 .1 %
and interact with one another’’ and ‘‘Board members value 30–39 years 11.5 %
the contributions of diverse members to the board’s tasks’’ 40–49 years 27.7 %
and ‘‘Diverse members make contributions to the board’s 50–64 years 42.7 %
critical tasks.’’ The ratings ranged from 1 = Not at all to
65 years or older 15.9 %
5 = To a Great Extent.
Gender Diversity, Age Diversity, and Racial/Ethnic
Diversity were measured using Blau’s (1977) Index as it is
an optimal measure to capture variations within a group and racial/ethnicity distribution as shown in Tables 5
(Harrison and Klein 2007). As a measure of board diver- and 6.
sity, the Blau Index meets all four of the following criteria: Exploratory factor analysis (EFA) and confirmatory
a zero point to represent complete homogeneity; larger factor analysis (CFA) were employed to verify the uni-
numbers indicate greater diversity; positive values; and dimensionality, validity, and reliability of the model con-
frequent use (Miller and Triana 2009; Harrison and Sin structs. SPSS for Windows (PASW Statistics Gradpack
2006). A gender diversity index was calculated for each 17.0, 2009) was used to conduct the EFA. AMOS 17.0.2
board using the number of board members and number of was used for the CFA and the structural equation models
women board members. A board with no gender diversity (SEM). The choice of SEM analysis was made so as to
would score a 0 and an equal gender distributed board examine a series of dependence relationships simulta-
would be a 0.5. The age diversity index was calculated for neously. SEM is particularly useful in testing theories that
each board from CEO responses on the number of board contain multiple equations involving dependence relation-
members in the following age groups: under 30, 30 to 39, ships using multivariate analysis techniques (Hair et al.
40 to 49, 50 to 64, and over 65. Racial/ethnic diversity was 2010). The mediation hypotheses were tested using the
calculated for each board from CEO responses on the method recommended by Preacher and Hayes (2008).
number of board members in the following racial/ethnic
categories: (1) American-Indian, (2) African-American/
Black, (3) Asian including Asian Indian, Chinese, Filipino, Results
Japanese, Korean, Vietnamese or other Asian, (4) Cauca-
sian, (5) Hispanic, Latino or Spanish including Mexican- The effects of board diversity regarding age, race/ethnicity,
American, Chicano, Puerto Rican, Cuban and other His- and gender were simultaneously examined to explore the
panic, (6) Native Hawaiian or Pacific Islander, and (7) Two impact on governance practices both internally and exter-
or more races. A detailed description of the measures used nally. A mediation model was hypothesized where board
in this study is provided in the Appendix. diversity policies and practices in addition to board inclu-
sion behavior were tested as having an impact in devel-
oping a structural equation model. Lastly, the interaction
Data Analysis effects of the diversity factors were tested in terms of their
impact on governance practices. The means, standard
The 1,456 boards were comprised of mostly Caucasian deviations, reliabilities, and correlation between the study
(82 %) members of whom 43 % are women with the age variables are shown in Table 7.

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Influence of Diversity on Board Practices 185

Table 7 Means, standard Mean SD 1 2 3 4 5 6

deviations, Cronbach’s alphas
and correlations for board 1. Internal governance practices 2.91 .684 .882
source data
2. External governance practices 2.02 .840 .734 .794
3. Board inclusion behaviors 3.02 .790 .284 .266 .944
4. Board diversity policies and practices 4.16 2.02 .285 .256 .361
5. Age diversity .500 .167 .011 .060 .110 .105
N = 1,456 6. Race/ethnic diversity .221 .194 .059 .041 .474 .334 .166
Cronbach’s alphas in bold on 7. Gender diversity .407 .121 .091 .079 .062 .076 .030 .070
the diagonal

Several analyses substantiated the validity, uni-dimen- diversity on both internal (b = -.15, p \ 0.001) and
sionality, and reliability of the measurement models cor- external governance practices (b = -.16, p \ 0.001)
responding to the model constructs. Bartlett’s test of hypotheses H1c and H2c are not supported as these are
sphericity was highly significant (v2 = 17,868; df = 171; negative relationships.
p \ 0.000) implying that the strength of the relationship H3a and H3b are supported as board diversity policies
among variables is strong. The Kaiser–Meyer–Olkin and practices directly impact internal governance practices
(KMO) measure of sampling adequacy was 0.927, well (b = .23, p \ 0.001) and external governance practices
above the acceptable level of 0.70 indicating the data were (b = .21, p \ 0.001). H4a and H4b are supported as board
adequate for factoring. The reliability of each construct as inclusion behaviors directly impact internal governance
measured by Cronbach’s a were all above 0.60 (Churchill practices (b = .27, p \ 0.001) and external governance
1979) and are detailed in Table 7. The confirmatory factor practices (b = .26, p \ 0.001).
analysis showed that the model had acceptable fit with
n = 1,456 where v2 = 606, df = 204, v2/df = 2.97, Mediation Effects
CFI = 0.978, RMSEA = 0.037. Convergent and discrim-
inant validity was established using criteria from Hair et al. The results presented in Table 8 and Fig. 2 indicate that
(2010). board diversity policies and practices partially mediate the
Additional testing was completed to ensure that there relationship between gender diversity and internal gover-
was no bias due to the common method for data collection. nance practices as well as between gender diversity and
A common method bias may be indicated if an examination external governance practices, supporting H5a and H6a.
of the correlation table of the latent variables shows cor- Similarly, board diversity policies and practices partially
relation above 0.90 (Pavlou et al. 2007). As shown in mediate the relationship between racial/ethnic diversity and
Table 7, the correlations in this study are all far below internal governance practices as well as between racial/
0.90. Further to assess for methods bias, a confirmatory ethnic diversity and external governance practices, sup-
factor analysis was conducted in which the baseline model porting H5c and H6c. However, no support was found for
included a common method factor where each item is H5b and H6b as board diversity policies and practices did
linked to this factor (Podsakoff et al. 2003). The variance not mediate the relationship between board age diversity
associated with the measurement model was more than and internal or external governance practices. Board
three times greater than the variance associated with the inclusion behavior partially mediates the relationship
common factor indicating that common method variance between racial/ethnic diversity and internal governance
does not bias the results of this study. practices as well as between racial/ethnic diversity and
external governance practices, supporting H7c and H8c. No
Direct Effects within the Structural Equation Model support was found for board inclusion behavior partially
mediating the relationship between gender diversity and
As shown in Fig. 2, hypotheses H1a and H2a are supported internal or external governance practices (H7a and H8a) or
in the structural equation model as there are positive, between age diversity and internal or external governance
direct, significant effects of board gender diversity on both practices (H7b and H8b).
internal (b = .07, p \ 0.05) and external governance Table 8 includes the direct, indirect, and total effects for
practices (b = .06, p \ 0.05). There was no support for gender, age and racial/ethnic diversity on board inclusive
H1b or H2b as age diversity was not found to impact these behaviors, and internal and external governance practices.
practices, however, age diversity was found to impact This table shows that as a mediator board inclusion
board diversity policies and practices (b = .08, p \ 0.001). behavior links board diversity policies and practices to
While we found direct significant effects of racial/ethnic governance practices. Board inclusion behaviors explain

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186 K. Buse et al.

Fig. 2 Standardized solution for internal and external board governance practices

Table 8 Direct, indirect, and total effects of variables on board inclusion behaviors, internal and external governance practices
Board inclusion behaviors Internal governance practices External governance practices
Direct Indirect Total Direct Indirect Total Direct Indirect Total

Gender diversity .067* .012 .079* .063* .011 .074*

Age diversity .024 .024 .023 .023
Race/ethnic diversity .397*** .073* .471*** -.151*** .202** .051* -.161*** .193*** .032*
Diversity policies and practices .233*** .062* .295*** .214*** .060* .275***
Inclusion behaviors .269*** .269*** .264*** .264***
* p \ .05, ** p \ .01, *** p \ .001

how diversity policies and practices impact governance

practices. Further, the mediation testing shows that board
inclusion behaviors are the mechanism through which
gender and racial/ethnic diversity impact board policies
and procedures.

Interaction Effect

While not hypothesized, we examined the interaction

effects of board diversity on internal and external gover-
nance practices. We found that the board’s external gov-
ernance practices are impacted by an interaction between
gender and racial/ethnic diversity (see Fig. 3). As detailed
earlier, there is an inverse relationship between racial/eth-
nic diversity and external governance practices, where
more racial/ethnic diversity results in less effective external
governance practices. However, the level of gender diver- Fig. 3 Interaction effect of gender and race on external governance
sity was found to moderate the impact of racial/ethnic practices
diversity on the effectiveness of external governance
practices such that when there is greater gender diversity it positive influence on external governance practices when
dampens the inverse relationship between racial diversity there is greater gender diversity. This finding suggests that
and external board practices. The most interesting aspect of board diversity dimensions have complex effects on board
this analysis is that racial/ethnic diversity becomes a performance factors.

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Influence of Diversity on Board Practices 187

Discussion has evolved from meeting quotas dictated by federal law to

the current focus on fostering inclusion and achieving
The present study of nonprofit boards reveals four impor- maximum success. Many organizations use diversity poli-
tant findings describing how and when board diversity cies and practices as only a part of an encompassing culture
impacts governance practices. First, the study supports of diversity which expects and fosters inclusive behaviors
previous work in the for-profit and nonprofit sectors that a (Anand and Winters 2008).
board’s diversity impacts the effective performance of its The second main finding indicates that policies and
governance duties and responsibilities. Second, a board’s practices related to diversity positively impact governance
diversity policies and practices as well as its inclusion practices in nonprofit organizations. The development of
behaviors impact the effectiveness of its governance these diversity policies and practices is influenced by the
practices. Third, board diversity aspects of gender, age, and diversity of the board, and the greater the diversity (gender,
race/ethnicity impact its diversity policies and practices. age, and racial/ethnic) the more there are diversity-related
These diversity policies and practices are the mechanisms policies and practices. Additionally, behaviors related to
through which board diversity impacts internal and exter- including board members directly impact the performance
nal governance practices. Lastly, the relationship between of both internal and external governance practices. These
governance practices and the racial/ethnic diversity of the board inclusion behaviors are influenced by the diversity
board is complex as it is impacted by board diversity policies and practices within the board. The behaviors
policies and practices, the inclusive behaviors of the board related to inclusion also are influenced by racial/ethnic
and also an interaction effect related to the gender diversity diversity. Board diversity policies and practices partially
of the board. Not only do these findings add to the literature mediate the impact of racial/ethnic diversity on board
on boards and diversity, but these findings can be used by inclusion behaviors.
nonprofit CEOs and board directors to more effectively A third key contribution of this study is support for the
leverage board diversity to influence governance practices adoption of board diversity policies and practices as a mech-
thereby fulfilling the mission of the organization. anism that enables board diversity to influence governance
The first main finding is that board diversity impacts practices. Board diversity policies and practices provide the
governance practices but that this impact is manifested dif- foundation, setting up the minimum standards to include
ferently for gender, age, and racial/ethnic diversity. The diverse members. These policies and practices articulate the
results showed that gender diversity on nonprofit boards not values of the board and establish a common language that is
only impacts board internal and external governance prac- used to overcome visible differences between board members.
tices but also impacts the policies and practices of the board As boards establish more policies and practices related to
related to diversity and inclusion. Simply stated, a board that diversity, the effective performance of internal and external
has greater gender diversity has more effective governance governance practices will be improved.
practices and is more likely to have policies and practices Understanding the dynamics involved with the racial/
related to diversity. This is an important finding because ethnic diversity of the boards involves a series of small
many question the value of diversity and the findings offer steps. First, it is important to understand the distribution of
clear evidence that greater gender diversity leads to more race/ethnicity within the study’s sample as these boards
effective performance of internal and external governance comprised of mostly Caucasians (82 %) with almost 9 %
practices. The finding that gender diversity directly impacts African-American/Black, 4 % Hispanic, and 3 % Asian as
governance practices is consistent with studies of for-profit detailed in Table 3. Next, looking at the direct relationship
boards which have concluded that gender diversity signifi- between racial/ethnic diversity and the performance of
cantly impacts board and firm performance (e.g., Boulouta governance practices, both internal and external, it is an
2013; Campbell and Mı́nguez-Vera 2008; Carter et al. 2003; inverse relationship such that more racial/ethnic diversity
Erhardt et al. 2003; Francoeur et al. 2008; Hafsi and Turgut means less performance of these effective governance
2013; Zhang et al. 2013). practices. These findings, while consistent with previous
The age diversity of the nonprofit boards in this study nonprofit studies (Bernstein and Davidson 2012) are
was skewed toward an older population and this variable inconsistent with Carter et al. (2003) and Erhardt et al.
significantly impacted only the board’s diversity policies (2003) determination that racial diversity has been shown to
and practices. This finding is consistent with the propensity positively influence for-profit firm performance. However,
for organizations to adopt normative diversity policies and within the multivariate data analysis, the presence of
practices in the later 20th century. An explanation of this diversity and diversity policies and practices together with
finding may be that older board members feel more com- inclusion behaviors by the board creates a positive influence
fortable focusing on diversity policies and practices that shifting the overall impact of racial/ethnic diversity on
have been in place for a while. Today, workplace diversity governance practices to a positive overall influence (see

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188 K. Buse et al.

Table 8). The mechanism for positively influencing gover- surveys of organizations to investigate important issues and
nance practices with racial/ethnic diversity is to have theories for the nonprofit sector. Similarly, secondary analyses
diversity policies and practices in place along with inclusion of these surveys can lead to improvements in subsequent
behaviors. The evidence presented here suggests that in the surveys, yielding valuable findings and insights for nonprofit
absence of diversity policies and practices and/or inclusion leaders and researchers. The examination of previous and
behaviors, greater racial/ethnic diversity will likely result in future BoardSource Governance Indices is recommended as
less effective governance practices. the survey data are rich and analyses can add to deeper and
A fourth important finding from this study is that effec- broader understanding of how nonprofit boards function. We
tive external governance practices were influenced by an also suggest that further work be done to determine additional
interaction effect between racial/ethnic diversity and gender factors, including mediators and moderators, that impact
diversity. Because the direct impact of racial/ethnic diversity effective governance practices. Finally, we recommend that
on effective governance practices is an inverse relationship, future studies examine the relationships presently studied in
having more gender diversity, regardless of the level of sectors other than nonprofit boards.
board diversity policies and practices or inclusion behavior,
will serve to mitigate the direct effect. Boards that are more Implications for Practice
diverse in race/ethnicity will have more effective gover-
nance practices when the gender diversity is higher. From a practical standpoint, this study shows how research
The relevant literature has been reviewed and well-docu- can be used by leaders to benefit their organization’s ability
mented methods have been employed to obtain the findings, to attain its mission. Boards seeking to improve their
however, several limitations to this study should be noted. The governance effectiveness should include diverse board
data used to develop the model were reported only by each members, but must be certain that there are diversity pol-
nonprofit organization’s CEO. A rigorous methodological icies and practices in place to allow the diverse members to
approach of theory testing has been adopted that it seems to have a positive impact. Inclusion behaviors and an inclu-
confirm the adequacy of the structural equation model but it is sive culture have an impact on the ability of diverse
possible that other dimensions impacting board performance members to positively impact the board, especially when
have not been included. The separation of the constructs there is greater racial/ethnic diversity. The findings indicate
related to internal and external governance practices may also that boards with more gender and racial/ethnic diversity
be a limitation. The model shows subtle differences in the will have more effective governance practices than those
factors that impact these dependent variables, however, ade- with less diversity; thus board chairs and nominating
quate validity and reliability were established in the explor- committees should seek both gender and racial/ethnic
atory and confirmatory factor analyses. Finally, the study used diversity when recruiting new members. When diverse
data collected by BoardSource from its members who are board members are encouraged to participate fully through
nonprofit organizations’ chief executive officers. A study of meaningful diversity policies and practices as well as
random nonprofit organizations may yield different insights. inclusive behaviors among members, board diversity pos-
Despite these limitations, this study provides a rigorous itively impacts board performance.
quantitative examination of board diversity and performance
in the nonprofit sector. Acknowledgments The authors thank BoardSource for providing
us with the data from the 2012 Governance Index Survey for Chief
Executives and the two anonymous reviewers for their suggestions to
Future Research improve the manuscript.

The use of the 2012 BoardSource Governance Index (BSGI)

Survey for Chief Executives highlights the value of using Appendix: Study Measures

Construct Measurement Scale

Age diversity Compiled using Blau (1977) Method where 1 = Under 30

BIAge = 1 - R(pi)2 2 = 30–39
p is the percent of each age group, and i is the number 3 = 40–49
of groups. Continuous 0–1.0 4 = 50–64
5 = Over 65

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Influence of Diversity on Board Practices 189

continued
Construct Measurement Scale

Gender diversity BIGender = 1 - [(pf)2?(pm)2] 1 = male

p is the percent of each gender group, f is female and m 2 = female
is male. Continuous 0–0.5
Racial/ethnic BIRace = 1 - R(pi)2 CEO reported total number of board members and total number of
diversity p is the percent of each racial group and i is the number each racial/ethnic group: Caucasian, African-American,
of groups. Continuous 0–1.0 Hispanic, Pacific/Hawaiian
Asian, American-Indian/Alaskan, and two or more races
Board diversity Has your organization or board done the following? 1. Incorporated diversity into the organization’s core values
policies and 1 = Yes or 2 = No for each question 2. Modified organizational policies and procedures to be more
practices inclusive
P&P = RAll responses
3. Conducted diversity training for staff
4. Conducted diversity training for board members
5. Developed a detailed plan of action for the board to become
inclusive
6. Evaluated and modified its recruitment efforts specifically to
reach members with more diverse backgrounds
7. Actively recruited board members from diverse backgrounds
8. Discussed the values and benefits of expanding diversity of the
board
Board inclusion Please rate the extent to which board members from 1. Board members initiate social interactions with members’ from
behavior diverse backgrounds work together and interact with diverse backgrounds
one another 2. Board members value the contributions of diverse members to
1 = Not at all the board’s tasks
5 = Great extent 3. Diverse members participate in developing the board’s most
important policies
4. Members take a personal interest in board members from
diverse backgrounds
5. Diverse members make contributions to the board’s critical
tasks
6. Diverse members become friends with the other members of the
board
7. Diverse members are influential in the board’s routine activities
8. Diverse members share their personal ideas, feelings, and hopes
with other members of the board
Internal Grade your board’s performance in the following areas 1. Understanding your organization’s mission
governance 1 = Fail 2. Strategic planning and thinking strategically
practices
5 = Excellent 3. Knowledge of your organizations programs
4. Monitoring organizational performance and impact
5. Legal and ethical oversight
6. Financial oversight
7. Evaluating the chief executive
8. Providing guidance and support to the chief executive
9. Understanding the board’s roles and responsibilities
External Grade your board’s performance in the following areas 1. Fundraising
governance 1 = Fail 2. Community relations and outreach
practices
5 = Excellent 3. Recruiting new board members

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190 K. Buse et al.

Churchill, J. G. (1979). A Paradigm for Developing Better Measures

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