Studies purporting that racial diversity amongst corporate executives drove better financial performance were found to be unreliable and are not capable of being replicated.
Four studies the international consulting agency McKinsey & Company released between 2015-2023 pushed the idea that diversity and equity measures would lead to improved results.
The company claimed that racial diversity among a corporation’s leadership helps to drive better financial outcomes for the given corporation.
The McKinsey studies alleged that firms with an ethnically diverse executive team are more likely to financially outperform than they are to underperform compared to companies without diverse executive teams.
However, this assertion is being challenged by authors Jeremiah Green and John R. M. Hand who contend that McKinsey’s findings are illegitimate because they were unable to replicate the findings that McKinsey had reached.
In their own review of the studies, Green and Hand explained that since McKinsey has not made public the detailed datasets, nor the names of the firms studied, they were forced to perform a quasi-replication using companies listed on the S&P 500 index to test McKinsey’s findings empirically.
Measuring earnings before income and tax, the duo found that there was no statistically significant difference between firms with a “diverse” executive team and those without one.
“The key takeaway…is that, in contrast to McKinsey’s results, we do not find a statistically significant positive correlation between McKinsey’s measures of the racial/ethnic diversity of the executive teams of firms in the S&P 500® Index,” wrote the authors.
Green and Hand’s report criticized McKinsey’s conclusion from their already questionable results. Notably, the conclusion that racial diversity allows firms to earn more may be flawed, and that instead greater financial performance may lead companies to diversify their workforce.
McKinsey – a multinational consulting firm – has fully dedicated itself to promoting diversity, equity, and inclusion and championing its commitment to environmental and social governance.
McKinsey has been criticized for their role in advising governments during the Covid-19 pandemic, as well as their collaboration with corrupt and authoritarian governments around the world.
McKinsey clients over the years have included the governments of China, Turkey, Russia, South Africa, Saudi Arabia, and more.
Under Prime Minister Justin Trudeau, the Canadian government has seen an exponential increase in its reliance on McKinsey’s services, primarily by Immigration, Refugees and Citizenship Canada and the Canadian Border Services Agency.