Board experiential diversity and corporate radical innovation

Abstract

AbstractResearch SummaryHow does board experiential diversity affect corporate radical innovation? We find that the combined diversity of directors' educational, industrial, and organizational experiences spurs the quantity and quality of path‐breaking patents developed at a firm. Instrumental variable analysis leveraging exogenous variation in firm access to the nonlocal supply of directors with diverse experiences indicates causality, which is corroborated by difference‐in‐differences tests. Firm heterogeneity suggests experientially diverse directors spur radical innovation by better serving the firm's advisory needs rather than via improved governance. Our findings enrich theoretical insights into how corporate board leadership may affect innovation and long‐term value creation at the firm.Managerial SummaryThis study offers practical guidance on director recruitment. Board directors with diverse educational, industrial, and organizational experiences can support the invention of radical technology. This type of innovation can create substantial economic and social value. Noting the benefits of diverse experiences in the boardroom, corporate executives can search beyond the traditional director pedigree (e.g., Ivy League‐educated financiers), where female and minority individuals remain underrepresented. In doing so, the firm can find more qualified candidates to assemble a demographically and intellectually diverse board, thus cultivating an inclusive corporate culture conducive to shareholder and stakeholder value creation.