Do Diverse Companies Produce Better Earnings? These Academics Say No.

[Dashinka 24,479]

I tend to agree with them.  Diversity doesn't always lead to better performance, rather performers tend to perform regardless of diversity.  It is interesting that McKinsey would not provide any background of their conclusions for peer review.

 

Do Diverse Companies Produce Better Earnings? These Academics Say No.

 

Dame Vivian Hunt, McKinsey’s managing partner in the UK and Ireland at the time and a coauthor on all four of McKinsey’s studies, crystalizes McKinsey’s view that greater racial/ethnic diversity in a firm’s executive team drives better firm financial performance: “What our data shows is that companies that have more diverse leadership teams are more successful. And so the leading companies in our datasets are pursuing diversity because it’s a business imperative and driving real business results”

 

...the goal of our paper is to revisit McKinsey’s results by means of a quasi-replication. We do so by applying McKinsey’s empirical testing approach to those firms that were in the S&P 500® Index on 12/31/19. We choose 12/31/19 so as to keep our quasi replication within the same pre-covid time window as McKinsey’s 2015, 2018, and 2020 studies. We focus on the large public US companies in the S&P 500® for two reasons. First, McKinsey would not provide us with their detailed datasets, nor the names of the firms in their datasets, so we were unable to directly replicate or investigate their analyses...

 

In contrast to McKinsey’s results, the key finding of our study is that we observe no statistically significant difference between the likelihood of financial outperformance as measured by the industry-adjusted EBIT margin of S&P 500® firms during the years 2015–2019 in the top vs. bottom quartiles of S&P 500® firms ranked on McKinsey’s executive racial/ethnic diversity metric measured in mid-2020.Instead, we find that 54.0 percent of S&P500® firms in the top executive race/ethnicity-ranked quartile have a positive industry-adjusted EBIT margin vs. 51.2 percent in the bottom quartile, with the z-statistic on the difference of 2.8 percent being a not statistically significant 0.5 (p-value = 0.65).

 

In conclusion, our results indicate that despite the imprimatur often given to McKinsey’s 2015, 2018, 2020, and 2023 studies, McKinsey’s studies neither conceptually (in terms of the correct direction of causality) nor empirically (in terms of their set of large US public firms) support the argument that large US public firms can expect on average to deliver improved financial performance if they increase the racial/ethnic diversity of their executives.

 

https://hotair.com/john-s-2/2024/04/04/do-diverse-companies-produce-better-earnings-these-academics-say-no-n3785938

[TBoneTX 45,250]

9 hours ago, Dashinka said:

performers tend to perform regardless of diversity

Bingo.  The fallacy is like judging a Christmas present by its wrapping paper rather than what's inside.