The Impact of Board Diversity on the Performance of International FMCG Companies Operating in the USA and European Markets

As a result of globalization, the boundaries of the national markets have faded, and the integration of different cultures inside companies of all sizes has increased. Companies have been nudged into expanding outside their national markets, increasing the number and diversity of stakeholders the company had to interact with (Laurence, Svizzero, & Tisdell, 2001). With the rise of global markets, customer diversity increased as well, fueling the need for innovative strategies from the apex of international companies (Kim, Burns, & Prescott, 2009). One of the most discussed approaches in the literature to this novel problem is to foster diversity at the very top of international companies, aiming at better representing the interests of stakeholders, and hence increasing economic performance (Storvik & Teigen, 2010). With regard to this approach, there are two major opposing views in the literature. On the one hand, diversity at the top of the firm, specifically in the board of directors, increases the dialectic, foster creativity, and helps to more effectively represent the stakeholders, reflecting these improvements on the company’s performance (Miller & Triana, 2009; Erhardt, Werbel, & Shrader, 2003; Terjesen, Couto, & Morais, 2016). On the other hand, many studies proved no correlation between board diversity and economic performance (Ahern & Dittmar, 2012; Carter, D'Souza, Simkins, & Simpson, 2010; Taljaard, Ward, & Muller, 2015). Hence the dilemma that originated our research. The scope of our study is to investigate whether board diversity in international FMCG companies is related to better economic performance. Moreover, we want to investigate if the results are the same across both the US and EU market, or if instead are market dependent. We found that the literature studying the relationship between board diversity and performance is extensive, though very few papers focus on cross-market studies on a specific industry (Saeed, Yousaf, & Alharbi, 2017 ; Grosvold, Brammer, & Rayton, 2007; Terjesen, Couto, & Morais, 2016). We want to address this gap in the literature by answering the following research questions: RQ1: Does BOD diversity, in the form of gender, age, and culture, affect the performance of international FMCG companies? RQ2: Is the effect of BOD diversity, as defined in RQ1, different across the US and the EU FMCG markets? The empirical study which we developed has as object the influence of board composition on the company’s performance, and as subject the influence of board diversity on the performance of international FMCG companies. We address the first research question by investigating the presence of a relationship between the performance of international FMCG companies and four diversity traits, gender and age diversity – surface-level diversity –, nationality and culture – deep-level diversity –. Then, to address the second research question, we performed a cross-markets study in which we compared the correlation results of US companies with their EU counterparts. We found that board diversity is related to the performance of international FMCG companies and that the effect on performance is strongly dependent on the market of reference. Specifically, in the US we found a positive correlation between surface-level diversity traits and performance, while the results were negative in Europe; as well as a strong negative correlation between deep-level diversity and the performance of US firms, while the results in EU were positive. Our findings are particularly relevant for international companies operating in these markets; in fact, we provide evidence of the positive and negative effects of different governance strategies on the performance of FMCG companies depending on the market of reference.