Professional Expertise and Board Diversity

Abstract

Boards of directors have received limited guidance about the types and diversity of professional expertise expected on corporate boards. This is because little is actually known about the expertise that exists on corporate boards. In this study, we categorize directors by 11 types of professional expertise and examine the diversity of professional expertise on corporate boards and implications for shareholder value. We find the most common types of professional expertise are business executives, accountants, bankers, scientists, lawyers and engineers. The primary determinants of professional expertise diversity are board size, industry and location, with certain types of professional expertise (academics, bankers, doctors, engineers and scientists) clustered in specific industries. Overall, we find no relationship between professional expertise diversity and firm value. However, we find evidence that shareholders benefit when firms limit their board diversity to a specific subset of professional expertise (lawyers, accountants, consultants, bankers and other CEOs). Our results suggest that further diversity beyond this subset is not in the best interests of shareholders.