The path to wealth may not be paved with diversity, equity, and inclusion after all.
The two economists looked at three studies that argue there are bottom-line benefits to diversity in corporate leadership. They found that the association did not exist.
Researchers — Jeremiah Green, associate professor of accounting at Texas A&M University Mays School of Business, and John Hand, University of North Carolina Kenan-Flagler Business School — found There was no statistically significant correlation between the racial and ethnic diversity of a company’s management team and its financial success.
The paper, published in Econ Journal Watch in March, joins a highly influential series of studies by McKinsey & Company that claim to have found a link between diversity in executive teams and increased profits. is being verified. These studies have encouraged many companies to pursue more aggressive diversity, equity, and inclusion (DEI) programs.
Hand and Green write:
[W]A quasi-replication of McKinsey’s test using data for U.S. S&P 500 companies as of December 31, 2019 found that McKinsey’s executive racial/ethnic diversity measures and industry-adjusted EBIT margin alone found that the relationship was not statistically significant. Industry-adjusted sales growth, gross profit margin, return on assets, return on equity, and total shareholder return are also included.
This new paper adds to the backlash against companies’ efforts to adopt DEI policies. Critics argue that DEI policies harm companies and create racial discrimination against executives, which is not seen as increasing the “diversity” of a company’s executive ranks.
Sarah Todd writes about an early draft of the paper in Quartz. report There are methodological problems with McKinsey’s research.
Additional research Green and Hand call for includes ways to better examine whether there is a causal relationship between a company’s diversity and its financial performance. As McKinsey itself admits, it only looks at correlations. Green and Hand found that by collecting historical data on the racial and ethnic composition of companies’ management teams in different years and examining companies’ financial performance before, during, and after those years. I am working on a longitudinal study to examine the relationship. [Emphasis added]
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From an academic researcher’s perspective, he says: It’s unclear whether McKinsey only looks at the top third or bottom third of companies for diversity, or whether it doesn’t segment companies at all. It’s also unclear why McKinsey’s research focuses on whether the most and least diverse companies are more profitable than the industry average. “The most standard method is to compare the average profitability of diversified companies to the average profitability of non-diversified companies,” he says. [Emphasis added]
Alex Edmunds, a professor of finance at London Business School, said this when reviewing the research in a 2017 TEDx talk. “Uncritically,” he says.
Other academic experts, such as Wharton management professor Katherine Klein, wrote in a post examining two meta-analyses on board diversity that the This suggests that there is no (virtually zero) relationship with performance. or a very weak positive. ”
Robin Ellin, professor of business administration at Harvard Business School, and David Thomas, president of Morehouse College, a historically black college, wrote in an article for Harvard Business that “increasing diversity improves financial outcomes. “Academic researchers have rarely found that it leads to improvement.” review.
Now, many companies seem to understand that DEI doesn’t necessarily lead to improved performance.
Any mention of DEI or diversity, equity, and inclusion Dropped According to Axios, this is a dramatic increase from the peak in 2021.
Johnny Taylor, president of the Society for Human Resource Management, said in an interview in January: I mean, in a way I’ve never really seen before. Since George Floyd’s death, CEOs have literally put the brakes on DE&I efforts that were well underway. ”
Sean Moran is a policy reporter at Breitbart News. Follow him on Twitter @SeanMoran3.
