Unmasking McKinsey: Revisiting Diversity’s Impact on Financial Performance
In a series of highly influential studies conducted by the consulting firm McKinsey spanning from 2015 to 2023, it was reported that there is a positive correlation between the diversity of executives in large public firms and their financial performance.
But while many jumped on the diversity bandwagon, Drs. Jeremiah Green and John R.M. Hand thought it wise to take a closer look under the hood. In a recently published in-depth review of McKinsey’s findings, they reanalysed the data using information from firms in the S&P 500 as of 2019. Revealingly, their analysis shows no statistically significant relationships between executive diversity and key financial metrics such as earnings, sales growth and return on equity over the preceding five years.
Moreover, they suggest that flaws in McKinsey’s methodology, potentially influenced by reverse causality, may have skewed the results. They conclude by cautioning against relying solely on McKinsey’s studies to support the idea that increasing racial and ethnic diversity among executives directly correlates with improved financial performance.
Their Econ Journal Watch article makes for fascinating reading and can be seen below:
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Mckinsey a bunch of grifters if ever i met any of them, they employ grads straight from university who have never worked in industry but who sure can produce some very colourful and clever charts and graphs, they send them in en masse to companies, where they spend a few weeks/months at very high day rates “collecting information” through asking the wrong questions of employees and execs about a business they do not understand or haveever worked in, they then produce a report demonstrating the multi millions that could be saved/made by sacking key members of the workforce and by doing things in a new way. They then walk away with their millions, leaving the business and its employees in a wore state than when they started, as they move onto the next water hole to poison.
Personally I should thank them, because I built a strong business on going into the “consulted too” businesses and helping them to correct the disasters made by the children who were allowed to play at being execs.
Yes this has been my experience too
During the 90s when I was in marketing with a high tech business I was regularly in contact with “consultants” who were preparing reports on our sector. I would spend extended periods giving them my views and projections for that business and would find my comments verbatim in reports that they wanted to sell back to me. There was zero insight in their reports.
I’ve been hearing this idea for years and I am not surprised at all that it is not supported by data. It is such a wildly improbable hypothesis. For it to be true we would have to find that a) people from different heritages have different perspectives, b) that these perspectives add value that a more homogenous board would not be able to find and c) that these perspectives are all acted on to create that value. Given that all the people who make it to the boardroom are all cut from the same cloth, whatever their heritage, ‘a’ is improbable. Given that almost all companies follow the same strategy as their competitors in their domain (with more or less effectiveness depending on a variety of factors), then ‘b’ is also improbable. Then the idea that the people in the boardroom from different heritages come up with ideas that are seized upon by the board and effectively implemented is the least improbable of all. In my experience boards add little to no value to companies apart from investor relations, at best.
Indeed. What is more plausible is that deliberate hiring for diversity would lead to a decline in performance because you stop hiring the best people for the job. It may be the case that “diversity hires” are more frequently to be found in unproductive areas of the business such as HR.
Why is it the countries whence these diversities come are not all economic miracles instead of siht-holes?
And if all it takes is diversity and inclusivity why don’t they and the alphabet people and feminists form exclusively diverse inclusive businesses and become multi-billionaires?
“it was reported that there is a positive correlation between the diversity of executives in large public firms and their financial performance.”
Logical fallacy alert: post hoc ergo propter hoc.
And, everyone’s favourite, confirmation bias – it supports what I think so it must be right, because I am just so clever.
Social Engineering 0 Free markets 5. ———–Social Engineering is now relegated to Human League Division 2.
‘Tragically’ McKinsey has announced large scale redundancies this week.