New research analysing two decades of corporate data suggests that greater board interpersonal diversity is associated with lower levels of aggressive tax avoidance. The findings indicate that diversity among board members can strengthen oversight and introduce a broader range of perspectives into corporate decision-making, highlighting the importance of appointing directors from varied genetic and interpersonal backgrounds.

Eric Boahen and his co-authors examined thousands of UK-listed firms between 1999 and 2019 using a broader measure of diversity designed to capture differences in background, communication styles, interpersonal behaviour and approaches to problem-solving among board members. The researchers then compared this diversity measure with levels of corporate tax avoidance across companies.

Across multiple statistical models and robustness checks, the results remained consistent: firms with more interpersonally diverse boards tended to engage in less aggressive tax avoidance. Published in the International Journal of Finance & Economics, the study suggests that boards with wider-ranging perspectives are less likely to rely on shared assumptions when making strategic decisions.

The researchers argue that interpersonal diversity encourages greater discussion, questioning and scrutiny of management decisions, including those related to tax planning. As a result, aggressive or questionable tax strategies may be more likely to face challenge and resistance. Board interpersonal diversity may include differences in how people communicate, assess risk, solve problems and draw on their personal and professional experiences.

The study, which was co-authored with academics from Birkbeck Business School and University of Greenwich, also found that although companies may continue to use accounting techniques to manage profits, interpersonal diversity on boards may help limit excessive tax avoidance overall. The findings suggest that diverse boards can contribute to stronger governance and more balanced decision-making processes.

“Tax decisions often involve judgement and risk,” said Dr Boahen. “While we do not claim a direct causal relationship, our findings show that boards made up of people with different perspectives and ways of thinking are better equipped to challenge management and strengthen oversight. This can lead to more responsible tax behaviour.” The researchers say the findings have important implications for policymakers and businesses, suggesting that board composition is not only a matter of representation but also a practical tool for improving corporate governance and accountability.

More information: Eric Boahen et al, Mitigating Tax Avoidance: The Role of Board Interpersonal Diversity in the United Kingdom, International Journal of Finance & Economics. DOI: 10.1002/ijfe.70213

Journal information: International Journal of Finance & Economics Provided by University of East London