Prominent management consulting firm McKinsey and Company has long contended in various studies that diverse executive workforces are associated with higher corporate profits, a result which two researchers said in a recent paper that they were unable to replicate.
McKinsey has used the results of at least four studies over the past decade to claim there exists a “strong business case for ethnic diversity” as implied by more diverse companies supposedly outperforming less diverse peers. Yet Texas A&M University accounting professor Jeremiah Green and University of North Carolina accounting professor John Hand said that they found “no statistically significant difference between the likelihood of financial outperformance” among firms ranked best and worst on diversity when they repeated the McKinsey methodology.
The researchers examined profitability and other financial metrics at large American firms “by means of a quasi-replication” using a formula created by McKinsey to evaluate the racial identity of executives. Even as McKinsey found that 61% of firms in their top quartile for ethnic diversity and 41% of firms in their bottom quartile saw financial outperformance, Green and Hand found that 54% of firms in their top quartile and 51% of firms in their bottom quartile had financial outperformance, a difference that was not statistically significant.
The new paper remarked that “substantial caution is warranted” when relying on McKinsey studies to support the notion that American publicly traded firms “can deliver improved financial performance” if they increase the ethnic diversity of their executives.
Other studies have likewise cast doubt on the assertions from McKinsey: another paper from Bangor University researcher Ian Gardner published last year indicated that the conclusions made by McKinsey are “unreliable and cannot be generalized.”
The renewed criticism of the McKinsey studies comes as many businesses back away from the diversity, equity, and inclusion movement. One recent analysis from consulting firm Paradigm found that “economic uncertainty” and the “increasing politicization of diversity-related topics” dampened popularity for diversity initiatives, as indicated by a decrease in diversity budgets and a drop in the share of organizations with a diversity strategy over the past year.
