CHAPTER ONE INTRODUCTION 1.0 BACKGROUND TO THE STUDY Board diversity in corporate governance structure is beginning to be of growing importance when it comes to the interest of shareholders and firm performance nowadays. With evidence shown from notable studies from, (Erhardt, Werbek & Shrader, 2003; Lee & Far, 2004; Bergen & Massey, 2005; Robertson & parker, 2007: Adams and Ferreira, 2007; Harris and Raviv, 2008; Ferreira, 2010). Recently, scholars like: (Marimuthu, 2011; Darmadi, 2011; Omoye, Alade, & Eriki, 2013; Cimerovaa, Dodda, & Frijnsa, 2014), and much more have also investigated board diversity and its effects to an entity. There is an accelerated focus on the study of board composition: board independence; board size and board diversity, (Carter, Simikins & Simpson, 2003; Erhardt, Werbek & Shrader, 2003; Garba & Abubakar, 2014 & Heyvon, 2014). The promotion of diversity in the board has been a frequent subject of recent in literature due to the potential benefits from having a wealth of different individual quality and experience on in a single board. Hambick & Mason, (1984), observed that management heterogeneity has a greater tendency to bring about quality decision making. Similarly, with Hambick and Mason, Other studies such as that of Wiersema & Bantel (1992); Watson, Kumar, & Michaelsen, (1993); Cox, (1993) has also spelt out the importance of corporate board diversity. The work of Adams & Ferreira, (2009) in particular highlighted the potential benefits of corporate board diversity to a firm as it brings about: Creativity, variety of views and perspectives; more resource accessibility and more connections; Public relations, legitimacy and investor relations and finally career incentives through mentoring and signaling.
Carter, D’souza, Simkins, & Simpson (2007) looked into Fortune 500 board narrowing their scope by using gender and racial diversity between the year 1998-2002 and they observed that gender and racial diversity have positive effects on firms’ performance. However, various forms of diversity, such as race, sex, age, and ethnicity could result in tension, conflict, and hinder corporation and affect communication thereby reducing firm’s performance. This satisfies the definition of Ferreira, (2010) that a corporate board of a firm is viewed as the composition of separate individuals who are controlled by different bias and varying preconceived notions and are affected by social constraint & power relation.