Influence of Board Diversity on Firm Performance and Sustainability in Kenya

Purpose: The aim of the study was to examine the influence of board diversity on firm performance and sustainability. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: diversity on corporate boards, whether in terms of gender, ethnicity, age, or cultural background, has consistently shown positive correlations with financial performance metrics, innovation outputs, ethical governance practices, and corporate social responsibility efforts. The study suggests that diverse boards are better equipped to navigate challenges, capitalize on opportunities, and enhance stakeholder engagement. Unique


INTRODUCTION
Firm performance and sustainability in developed economies like the United States and Japan have shown notable trends in recent years.For instance, in the USA, companies that prioritize sustainability initiatives have seen significant financial benefits.Research by Jones and Bartlett (2017) highlights that firms engaging in sustainable practices tend to achieve higher profitability and market valuation, attributing this success to enhanced brand reputation and operational efficiencies (Jones & Bartlett, 2017).Similarly, in Japan, where corporate sustainability has been integrated deeply into business strategies, companies have experienced improved resilience to market fluctuations and strengthened investor confidence due to transparent sustainability reporting (Smith & Tanaka, 2019).
In the UK, firms focusing on sustainability have also demonstrated superior performance metrics.According to a study by Green et al. (2018), British companies implementing sustainable practices not only contribute positively to environmental conservation but also drive innovation and attract a more engaged workforce, leading to enhanced long-term financial performance (Green et al., 2018).These examples underscore the growing importance of sustainability in driving competitive advantage and financial outcomes in developed economies.
In Germany, firms integrating sustainability into their business strategies have demonstrated improved financial performance and risk management capabilities.Research by Schmidt and Schneider (2019) indicates that German companies with strong sustainability practices experience lower operational costs and higher employee productivity, contributing to overall profitability and market competitiveness (Schmidt & Schneider, 2019).This trend is supported by robust regulatory frameworks and a strong emphasis on corporate responsibility in the German business environment.
Similarly, in Sweden, renowned for its sustainability initiatives, companies have leveraged environmental, social, and governance (ESG) principles to drive innovation and customer loyalty.Studies by Berg and Svensson (2020) highlight that Swedish firms investing in sustainable technologies and practices not only enhance their market value but also attract sustainable-minded investors, positioning themselves as leaders in global sustainability rankings (Berg & Svensson, 2020).These examples underscore how sustainability has become integral to business strategies across diverse developed economies, influencing both financial performance and competitive advantage.
Canadian companies have increasingly recognized the strategic importance of sustainability in enhancing their competitiveness and long-term viability.Research by Anderson and Li (2020) underscores that Canadian firms integrating sustainability into their business strategies not only achieve improved financial performance but also foster stakeholder trust and loyalty.This trend is particularly evident as companies in Canada navigate regulatory pressures and respond to evolving consumer expectations regarding environmental stewardship and corporate responsibility.
In Australia, corporate sustainability has become integral to business strategies across various sectors.Jackson and Smith (2018) highlight that Australian firms investing in sustainable practices not only reduce operational costs but also enhance brand reputation and resilience in volatile economic environments.The adoption of sustainable technologies and practices is seen as a critical driver of innovation and competitiveness, positioning Australian companies favorably in global markets.
Dutch firms are renowned for their leadership in sustainable business practices, particularly in promoting circular economy principles and renewable energy solutions.Research by van der Velden and Pieters (2019) reveals that companies in the Netherlands that prioritize sustainability initiatives achieve not only cost savings and operational efficiencies but also drive innovation and attract sustainable investment capital.This strategic focus on sustainability not only aligns with national policies but also enhances the Netherlands' global reputation as a hub for sustainable business innovation.
In developing economies such as Brazil and South Africa, sustainability practices are becoming pivotal for firms aiming to achieve long-term growth and mitigate environmental impacts.Brazilian companies, for instance, are leveraging sustainable practices to not only comply with regulatory requirements but also to enhance operational efficiency and reduce costs.Research by Silva and Pereira (2017) indicates that firms in Brazil that prioritize sustainability initiatives experience improved financial performance and resilience during economic downturns, positioning sustainability as a strategic driver of competitive advantage.
Similarly, in South Africa, companies are integrating sustainability into their business models to enhance brand reputation and attract international investment.Studies by Obi and Opute (2018) highlight that South African firms adopting sustainable practices not only contribute positively to environmental conservation but also achieve improved financial performance and stakeholder engagement.These firms leverage sustainability reporting frameworks to communicate their commitment to sustainable development goals, fostering transparency and trust among investors and consumers.
In India and China, rapid industrialization and urbanization have spurred interest in sustainable business practices as a means to address environmental challenges and enhance operational efficiencies.Indian companies, for example, are increasingly investing in renewable energy and resource-efficient technologies to reduce their carbon footprint and comply with stringent environmental regulations (Mishra & Sharma, 2020).Similarly, Chinese firms are embracing sustainability to improve resource management and gain competitive advantages in global markets, aligning with national policies promoting green development and innovation (Li & Zhao, 2019).
Mexican firms are increasingly adopting sustainability practices to address environmental challenges and enhance operational efficiency.Research by Gomez and Martinez (2020) highlights that companies in Mexico focusing on sustainability initiatives not only achieve cost savings through resource efficiency but also improve their market competitiveness by attracting environmentally conscious consumers and investors (Gomez & Martinez, 2020).This strategic focus on sustainability is crucial for Mexican businesses navigating regulatory complexities and global market demands, positioning them for long-term growth and resilience.
In Vietnam, sustainable business practices are becoming integral to corporate strategies across various industries.Companies in Vietnam are investing in renewable energy, waste management solutions, and ethical supply chain practices to enhance their environmental footprint and comply with international standards (Tran & Le, 2019).Research by Tran and Le (2019) suggests that Vietnamese firms embracing sustainability not only improve their operational efficiencies but also attract foreign investment and strengthen their market positioning in a competitive global economy.
In Kenya, sustainability practices are increasingly seen as essential for driving business growth and resilience.Companies are adopting measures such as renewable energy adoption, waste reduction initiatives, and community engagement programs to enhance their environmental and social impacts (Okinda & Muturi, 2021).Research by Okinda and Muturi (2021) indicates that Kenyan firms embracing sustainability not only improve their operational efficiency but also strengthen their brand reputation and attract socially responsible investors, positioning themselves as leaders in sustainable business practices within the region.
In Nigeria, companies are increasingly recognizing the strategic importance of sustainability in achieving long-term growth and mitigating environmental impacts.Nigerian firms are implementing initiatives such as environmental management systems, ethical sourcing practices, and social responsibility programs to enhance their operational efficiency and stakeholder engagement (Ogbo, 2020).Research by Ogbo (2020) suggests that Nigerian companies that prioritize sustainability not only enhance their financial performance but also contribute positively to sustainable development goals, addressing societal challenges while creating value for their shareholders.
Ghanaian firms are also embracing sustainability practices to improve their competitiveness and sustainability.Studies by Amoako-Tuffour and Boso (2019) highlight that Ghanaian companies implementing sustainable strategies, such as resource efficiency measures and corporate social responsibility initiatives, experience improved operational performance and stakeholder satisfaction.These firms leverage sustainability as a tool for enhancing brand loyalty, attracting talent, and complying with international standards, contributing to Ghana's sustainable development agenda (Amoako-Tuffour & Boso, 2019).
Board diversity, encompassing factors such as gender, ethnicity, age, and expertise, has been increasingly recognized for its potential influence on firm performance and sustainability.Firstly, diverse boards can enhance decision-making processes by incorporating a wider range of perspectives and experiences.Research indicates that boards with diverse compositions are more likely to consider a broader array of strategic options, leading to more innovative and adaptive responses to challenges and opportunities in the business environment (Erhardt, Werbel, & Shrader, 2003).Secondly, board diversity can improve corporate governance practices and mitigate risks associated with groupthink.By fostering constructive debate and scrutiny, diverse boards are better equipped to identify and address potential ethical lapses or governance failures, thereby enhancing overall organizational resilience and stakeholder trust (Carter, Simkins, & Simpson, 2003).
Moreover, board diversity can positively impact corporate reputation and stakeholder relations.Companies perceived as promoting diversity and inclusion on their boards often enjoy enhanced brand reputation and attractiveness to diverse talent pools.This reputation can translate into improved employee engagement and customer loyalty, contributing to long-term sustainability and competitive advantage (Huang & Kisgen, 2013).Lastly, diverse boards are better positioned to understand and navigate diverse markets and regulatory environments.Boards that reflect the demographics and cultural nuances of their markets can make more informed decisions regarding market expansion, product adaptation, and compliance with local regulations, thereby fostering sustainable growth and market penetration (Post & Byron, 2015).

Statement of the Problem
Despite increasing recognition of the potential benefits of board diversity in enhancing firm performance and sustainability, significant gaps remain in understanding the precise mechanisms and outcomes of diverse board compositions.While several studies have indicated a positive correlation between board diversity and various measures of corporate success (Erhardt, Werbel, & Shrader, 2003;Carter, Simkins, & Simpson, 2003), there is a need for further empirical research to explore the specific channels through which diversity influences organizational outcomes.Moreover, the effectiveness of diversity policies and practices in different organizational contexts, particularly in emerging markets and sectors traditionally dominated by homogeneous boards, requires deeper investigation (Post & Byron, 2015).Additionally, the impact of board diversity on long-term sustainability metrics, including environmental and social governance (ESG) factors, remains underexplored, necessitating robust empirical analysis to inform strategic governance practices (Huang & Kisgen, 2013).

Resource Dependence Theory
Originating from Pfeffer and Salancik in the 1970s, Resource Dependence Theory posits that organizations depend on external resources to survive and thrive.In the context of board diversity, this theory suggests that diverse boards can access a broader range of external networks, resources, and perspectives.This diversity helps organizations navigate complex environments, adapt to changing market conditions, and enhance their sustainability by leveraging diverse stakeholder relationships (Pfeffer & Salancik, 1978).

Agency Theory
Developed by Jensen and Meckling in the 1970s, Agency Theory explores the relationship between principals (shareholders) and agents (management) in organizations.It posits that board diversity can mitigate agency problems by bringing diverse viewpoints and independent oversight to decision-making processes.Diverse boards are more likely to scrutinize management decisions impartially, aligning corporate strategies with long-term shareholder interests and improving firm performance (Jensen & Meckling, 1976).

Institutional Theory
Institutional Theory, as developed by Meyer and Rowan in the 1970s, examines how organizations conform to external institutional pressures, norms, and expectations.In the context of board diversity, this theory suggests that organizations adopt diversity practices not only to comply with regulatory requirements but also to gain legitimacy and enhance their reputation.Boards that reflect diversity are perceived as more socially responsible and are better able to attract talent and investment, contributing to sustained organizational performance and long-term sustainability (Meyer & Rowan, 1977).

Empirical Review
Smith and Johnson (2017) conducted a longitudinal analysis aimed at assessing the impact of gender diversity on corporate boards on financial performance.Over a span of 10 years, they examined data from Fortune 500 companies, correlating board gender diversity with metrics such as return on equity and return on assets.Their findings indicated that companies with higher gender diversity on boards tended to exhibit better financial performance.They recommended that organizations consider increasing gender diversity on their boards to potentially enhance their financial outcomes.Roberts and Alvarez (2018) conducted a case study analysis to explore the impact of ethnic diversity on corporate boards on governance practices and firm sustainability.Through interviews with board members and stakeholders across various industries, they examined how ethnic diversity influenced governance dynamics and sustainability initiatives.Their findings suggested that greater ethnic diversity on boards enhanced governance practices and contributed positively to sustainability efforts and stakeholder engagement.They recommended that organizations prioritize ethnic diversity in board appointments to strengthen their governance frameworks and sustainability agendas.Zhang and Rajagopalan (2016) conducted a quantitative study focusing on the relationship between board diversity (gender and age) and corporate social responsibility (CSR) performance among European firms.They analyzed CSR reports and board composition data to assess the impact of diverse boards on CSR outcomes and corporate reputation.Their findings indicated that boards with diverse gender and age profiles tended to exhibit higher levels of CSR performance and enhanced corporate reputation.They recommended that organizations promote diversity in board composition to strengthen CSR initiatives and bolster their reputation among stakeholders.
Williams and O'Reilly (2018) conducted a survey-based study to investigate the influence of board diversity on innovation and firm competitiveness within Silicon Valley technology firms.They gathered data on board diversity (gender and ethnicity) and innovation metrics to assess the impact of diverse boards on innovation outputs and competitive advantage.Their findings revealed a positive correlation between board diversity and increased innovation outputs, highlighting the strategic advantage of diverse perspectives in driving innovation within organizations.They recommended that technology firms prioritize diversity in board appointments to maintain their competitive edge in dynamic markets.Adams and Ferreira (2016) conducted a comparative analysis to examine the relationship between board diversity (gender and ethnicity) and financial risk management practices across UK and US listed firms.Using regression analysis, they evaluated the association between board diversity metrics and the transparency of financial risk disclosures.Their findings indicated that boards with diverse gender and ethnicity profiles exhibited stronger risk management practices and greater transparency in financial disclosures.They recommended that organizations enhance board diversity to improve financial risk oversight and transparency, thereby enhancing investor confidence and organizational resilience.Campbell and Minguez-Vera (2018) conducted a panel data analysis to explore the impact of board diversity on organizational resilience and governance effectiveness across global corporations.They examined board diversity indices and metrics of organizational resilience during economic downturns to assess the resilience-enhancing effects of diverse boards.Their findings suggested that boards with diverse gender and cultural backgrounds contributed to more resilient governance structures and effective crisis management strategies.They recommended that organizations promote diverse board compositions to strengthen their resilience against economic uncertainties and governance challenges.Terjesen and Sealy (2016) conducted a regression analysis to investigate the impact of board diversity (gender and age) on corporate financial performance in emerging markets.They analyzed data from firms across emerging economies to assess the relationship between board diversity metrics and financial performance indicators such as profitability and market valuation.Their findings indicated that boards with diverse gender and age profiles tended to achieve higher financial performance outcomes, suggesting a positive impact of diversity on shareholder value creation.They recommended that organizations in emerging markets prioritize board diversity to enhance their financial competitiveness and market position.Wirtz and Powell (2017) conducted a cross-sectional study to explore the relationship between board diversity (ethnicity and gender) and ethical governance practices across multinational corporations.They examined governance indices and ethical performance metrics to assess the ethical governance frameworks established by diverse boards.Their findings indicated that boards with diverse ethnic and gender compositions contributed to stronger ethical governance practices and enhanced corporate reputation.They recommended that organizations embrace board diversity to strengthen their ethical governance frameworks and foster trust among stakeholders.Carter and D'Souza (2015) conducted an event study analysis to investigate the impact of board diversity (gender and ethnicity) announcements on shareholder value creation in US and European firms.They analyzed stock market reactions to announcements of diverse board appointments to assess their impact on shareholder returns.Their findings indicated that companies announcing diverse board appointments experienced positive abnormal returns, suggesting that investors perceive board diversity as a driver of shareholder value creation.They recommended that firms prioritize board diversity as a strategic initiative to enhance shareholder value and market competitiveness.

METHODOLOGY
This study adopted a desk methodology.A desk study research design is commonly known as secondary data collection.This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research.Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.

RESULTS
Conceptual Gaps: The conceptual gaps in the existing literature on board diversity primarily revolve around the consistency and clarity in defining and measuring diversity.Studies vary in their focus, with some emphasizing gender diversity while others include ethnicity and age.Harmonizing these definitions and measurement frameworks would enable more accurate comparisons and generalizations across different studies and contexts.Furthermore, there is a need to delve deeper into the mechanisms through which diversity influences organizational outcomes such as financial performance, innovation, and corporate social responsibility.Understanding these mechanisms would provide clearer insights into how diversity translates into tangible benefits for organizations, beyond mere correlation.Addressing these conceptual gaps would enhance the theoretical foundations of board diversity research and offer practical implications for organizational governance strategies (Smith and Johnson, 2017;Williams and O'Reilly, 2018).
Contextual Gaps: The contextual gaps in the literature on board diversity largely stem from the limited representation of industries and organizational sizes.Most studies focus on large corporations within Western economies, particularly the US and Europe, overlooking the variability that exists across different industries and organizational contexts.There is a significant gap in understanding how board diversity impacts smaller firms, startups, and medium-sized enterprises, which may have different dynamics and governance needs compared to large multinational corporations.Exploring these diverse contexts would provide a more nuanced understanding of the applicability and effectiveness of board diversity initiatives across various organizational settings.Addressing these contextual gaps would broaden the scope of board diversity research and offer insights applicable to a wider range of organizational types and industries (Roberts and Alvarez, 2018;Terjesen and Sealy, 2016).
Geographical Gaps: Geographical gaps in the research on board diversity are evident in the predominance of studies focused on developed economies, particularly the US and Europe.While these studies provide valuable insights, there is a need for more research in emerging markets and other global regions such as Asia, Africa, and Latin America.Emerging markets present unique challenges and opportunities regarding board diversity, influenced by cultural, regulatory, and economic factors distinct from those in developed economies.Understanding the impact of board diversity in diverse global contexts would enrich our understanding of its implications on firm performance, governance practices, and stakeholder engagement worldwide.Addressing these geographical gaps would contribute to a more comprehensive and globally relevant body of knowledge on board diversity, fostering cross-cultural comparisons and insights beneficial for both theory and practice (Zhang and Rajagopalan, 2016;Campbell and Minguez-Vera, 2018).

Conclusion
In conclusion, the influence of board diversity on firm performance and sustainability is increasingly recognized as pivotal in contemporary corporate governance.Across various studies, diversity on corporate boards, whether in terms of gender, ethnicity, age, or cultural background, has consistently shown positive correlations with financial performance metrics, innovation outputs, ethical governance practices, and corporate social responsibility efforts.The evidence suggests that diverse boards are better equipped to navigate challenges, capitalize on opportunities, and enhance stakeholder engagement.However, to fully harness the benefits of board diversity, addressing conceptual inconsistencies, exploring diverse industry and organizational contexts, and expanding geographical representation in research are essential.By doing so, organizations can foster inclusive decision-making processes that not only drive financial success but also contribute to sustainable business practices and long-term value creation in a globally interconnected marketplace.

Recommendations Theory
Further Exploration of Mechanisms: Researchers should delve deeper into the specific mechanisms through which board diversity influences firm performance and sustainability outcomes.This includes understanding how diverse perspectives lead to enhanced decisionmaking processes, innovation, risk management, and stakeholder engagement.By elucidating these mechanisms, theoretical frameworks can be refined to provide a more nuanced understanding of the causal pathways linking board diversity to organizational success.
Integration with Other Governance Factors: Future research should explore how board diversity interacts with other governance factors such as board size, composition, leadership structure, and corporate culture.Understanding these interactions can provide insights into the optimal governance configurations that maximize the benefits of diversity while maintaining effective governance oversight.

Practice
Promotion of Inclusive Board Recruitment Practices: Organizations should prioritize inclusive board recruitment practices that actively seek out diverse candidates based on gender, ethnicity, age, skills, and cultural backgrounds.This proactive approach ensures that boards reflect the diversity of their stakeholders and leverage a broader range of perspectives to drive innovation, resilience, and sustainable practices.

Development of Diversity
Training and Education: Boards and senior management teams should invest in diversity training and education programs that promote awareness, sensitivity, and inclusion.These programs can help board members recognize unconscious biases, foster a culture of openness and respect, and enhance collaboration across diverse teams, thereby maximizing the potential benefits of board diversity.

Policy
Enhancement of Regulatory Guidelines: Policymakers should consider enhancing regulatory guidelines that encourage transparency and accountability in board diversity disclosures.Clear reporting requirements on board composition, diversity metrics, and diversity initiatives can incentivize organizations to prioritize diversity as a strategic imperative and promote greater board diversity across industries and sectors.Support for Diversity Initiatives: Governments and regulatory bodies can support diversity initiatives through incentives, grants, and recognition programs for organizations that demonstrate exemplary board diversity practices.By incentivizing diversity at the governance level, policymakers can foster a business environment where diversity is seen as a driver of organizational resilience, innovation, and long-term sustainability.