Recent academic research has cast significant doubt on the widely cited McKinsey & Company studies asserting a direct link between diverse workforces and increased corporate profits. Accounting professors Jeremiah Green of Texas A&M University and John R. M. Hand of the University of North Carolina have published findings indicating they could not replicate McKinsey's results when applying similar methodologies to S&P 500 companies. This challenge brings into question the foundational empirical basis for many corporate diversity, equity, and inclusion (DEI) initiatives.
McKinsey has released a series of influential reports since 2015, including "Diversity Matters," "Diversity Wins," and "Diversity Delivers," which posited that companies with greater gender and ethnic diversity in leadership were significantly more likely to outperform financially. These studies became a cornerstone for the business case for diversity, widely adopted across various industries and government bodies.
However, Green and Hand's paper, published in Econ Journal Watch, critically examined McKinsey's methodology and attempted to replicate its findings using publicly available data for S&P 500 firms. They analyzed various financial metrics, including earnings before interest and taxes (EBIT), sales growth, gross margin, return on assets, return on equity, and total shareholder return. Their analysis, covering the same pre-COVID time window as McKinsey's studies (2015-2019), found no statistically significant correlation between executive diversity and improved financial performance.
Critics, including author Santi Ruiz, have long expressed skepticism about the McKinsey studies, with Ruiz stating in a recent tweet, "The McKinsey study that claimed diverse workforces lead to bigger profits was always fake (they won't share data, it doesn't replicate for the S&P500 or other settings, and it doesn't make sense)." This criticism highlights the lack of transparency, as McKinsey has not made its detailed datasets or the names of the firms studied publicly available, hindering independent verification.
Furthermore, the academic critique suggests a potential reverse causality: rather than diversity driving profitability, it is more plausible that already profitable companies have the resources and stability to pursue and implement diversity initiatives. As Green and Hand noted, "better firm financial performance causes firms to diversify the racial/ethnic composition of their executives, not the reverse." This perspective reframes the relationship, suggesting that diversity might be a consequence of success rather than its direct cause.
The ongoing debate underscores the need for rigorous, replicable research in the field of organizational behavior and business strategy. The inability to replicate such influential findings raises important questions about the empirical foundations of corporate DEI strategies and the broader landscape of social science research.