• Login
  • Register
The Daily Sceptic
No Result
View All Result
  • Articles
  • About
  • Archive
    • ARCHIVE
    • NEWS ROUND-UPS
  • Podcasts
  • Newsletter
  • Premium
  • Donate
  • Log In
The Daily Sceptic
No Result
View All Result

There’s No ‘Business Case’ for Diversity

by Noah Carl
3 April 2024 9:00 AM

Is diversity our strength? Our leaders certainly seem to think so. And many multinational corporations are of the same mind. In a series of influential reports with cringeworthy titles like ‘Diversity Wins’, researchers at McKinsey have put forward the officious-sounding “business case for diversity”. In short, they claim that more ‘diverse’ management leads to better company performance.

As for proposed mechanisms, they list several: ‘diverse’ teams are more innovative, ‘diverse’ companies have a more positive global image, and employees in ‘diverse’ companies feel a greater sense of belonging.

The WEF promoting the “business case for diversity”.

The image below details some of their findings. Each chart is a comparison between firms in the bottom 25% and top 25% for executive ‘diversity’, with the outcome being the likelihood of financial outperformance (a measure of company performance). So for example, the 2014 report ‘Diversity Matters’ found that firms in the top 25% for executive ‘diversity’ were 35% more likely to achieve financial outperformance than those in the bottom 25%.

Chart from ‘Diversity Wins: How Inclusion Matters’.

The McKinsey researchers measured ‘diversity’ using something called the Herfindahl–Hirschman index. This sounds very complicated, but it just means squaring the proportions of different racial groups in the company’s management, and then adding up the results. For example, if a company’s management was 70% white and 30% black, the index would be (0.7*0.7) + (0.3*0.3) = 0.58.

Enter Jeremiah Green and John Hand – two U.S. economists who tried to replicate McKinsey’s findings. In a new paper published in Econ Journal Watch, they summarise what they found.

To begin with, McKinsey would not provide Green and Hand with their data. Nor would they even share the names of the relevant firms. (This is obviously bad scientific practice on McKinsey’s part.) Hence the authors decided to focus on public U.S. companies in the S&P 500 – a sample that likely overlaps substantially with the one used by McKinsey. They also used data from the same pre-Covid time window.

What did the authors find? McKinsey’s “business case for diversity” is built on sand.

Their main finding is shown below. Each chart plots company performance from 2015–2019 on the y-axis against executive ‘diversity’ in 2020 on the x-axis. The left-hand chart uses eight racial categories to calculate diversity, while the right-hand chart uses five. In both cases, there is zero association between the two variables: companies with more executive ‘diversity’ do not perform better than those with less.

Charts from ‘McKinsey’s Diversity Matters/ Delivers/Wins Results Revisited’.

And as Green and Hand point out, there’s an additional problem with McKinsey’s argument. Even if company performance was associated with executive ‘diversity’, that wouldn’t prove the latter causes the former. After all, it could be the other around: perhaps companies that perform better can afford the luxury of greater executive diversity.

In a separate paper co-authored with Sekou Bermiss, the economists show that nine measures of executive ‘diversity’ do not predict any of six measures of company performance in the next financial year. So their null result appears to be very consistent.

Green and Hand have not conclusively falsified the claim that more ‘diverse’ management leads to better company performance; that would require studies that can get around the problem of reverse-causality mentioned above. Nonetheless, they have shown that evidence supporting the “business case for diversity” in fact does no such thing.

Tags: Diversity and InclusionMcKinseyWoke

Donate

We depend on your donations to keep this site going. Please give what you can.

Donate Today

Comment on this Article

You’ll need to set up an account to comment if you don’t already have one. We ask for a minimum donation of £5 if you'd like to make a comment or post in our Forums.

Sign Up
Previous Post

Nick Dixon and Toby Young Talk About J.K. Rowling’s Heroic Defiance of Police Scotland, the Coming Civil War on the Right and the Desecration of Yet Another British Flag

Next Post

Will People Waving Their Arms Around and Making Strange Noises in Public Really Help Dismantle Anti-Autistic Prejudice, or Just Make Them Look Like They Are Mocking the Disabled?

Subscribe
Login
Notify of
Please log in to comment

To join in with the discussion please make a donation to The Daily Sceptic.

Profanity and abuse will be removed and may lead to a permanent ban.

30 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments

NEWSLETTER

View today’s newsletter

To receive our latest news in the form of a daily email, enter your details here:

DONATE

PODCAST

Episode 36 of the Sceptic: Karl Williams on Starmer’s Phoney Immigration Crackdown, Dan Hitchens on the Assisted Suicide Bill and Tom Jones on Reform’s Local Council Challenge

by Richard Eldred
16 May 2025
0

LISTED ARTICLES

  • Most Read
  • Most Commented
  • Editor’s Picks

Chinese ‘Kill Switches’ Found in US Solar Farms

15 May 2025
by Will Jones

News Round-Up

16 May 2025
by Richard Eldred

Spy Agency Report on the Alleged “Extremism” of AfD Turns Out to Be So Stupid That it Destroys all Momentum for Banning the Party

16 May 2025
by Eugyppius

The Folly of Solar – a Dot on the Horizon Versus a Blight on the Land

16 May 2025
by Ben Pile

Civil Servants Threaten to Strike Over Trans Ban in Women’s Lavatories

16 May 2025
by Will Jones

The Folly of Solar – a Dot on the Horizon Versus a Blight on the Land

29

Civil Servants Threaten to Strike Over Trans Ban in Women’s Lavatories

26

Spy Agency Report on the Alleged “Extremism” of AfD Turns Out to Be So Stupid That it Destroys all Momentum for Banning the Party

19

News Round-Up

18

Chinese ‘Kill Switches’ Found in US Solar Farms

27

Trump’s Lesson in Remedial Education

16 May 2025
by Dr James Allan

Spy Agency Report on the Alleged “Extremism” of AfD Turns Out to Be So Stupid That it Destroys all Momentum for Banning the Party

16 May 2025
by Eugyppius

The Folly of Solar – a Dot on the Horizon Versus a Blight on the Land

16 May 2025
by Ben Pile

Renaud Camus on the Destruction of Western Education

15 May 2025
by Dr Nicholas Tate

‘Why Can’t We Talk About This?’

15 May 2025
by Richard Eldred

POSTS BY DATE

April 2024
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
2930  
« Mar   May »

SOCIAL LINKS

Free Speech Union
  • Home
  • About us
  • Donate
  • Privacy Policy

Facebook

  • X

Instagram

RSS

Subscribe to our newsletter

© Skeptics Ltd.

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms below to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • Articles
  • About
  • Archive
    • ARCHIVE
    • NEWS ROUND-UPS
  • Podcasts
  • Newsletter
  • Premium
  • Donate
  • Log In

© Skeptics Ltd.

wpDiscuz
You are going to send email to

Move Comment
Perfecty
Do you wish to receive notifications of new articles?
Notifications preferences