Our Take, With Doug Sheridan
The Times UK writes, “influential” research by McKinsey & Company that found companies with diverse leadership teams perform better than rivals was flawed and should not be “relied on”,
Our Take, With Doug Sheridan
The Times UK writes, “influential” research by McKinsey & Company that found companies with diverse leadership teams perform better than rivals was flawed and should not be “relied on”, academics have found.
Widely quoted studies by the management consultancy that suggested increasing racial and ethnic diversity at the executive level can improve a company’s financial performance were called into question in research published in Econ Journal Watch, an academic journal.
Its authors said they'd tried to replicate McKinsey’s work but had found “no statistically significant difference between the likelihood of financial outperformance” between businesses with diverse leadership teams and those without. McKinsey has released four studies said to support the financial case for increasing diversity at the top of companies.
Dame Vivian Hunt, McKinsey’s managing partner in the UK and Ireland at the time and a co-author of the studies, had said they showed that “companies that have more diverse leadership teams are more successful” and that pursuing diversity was “driving real business results.”
Jeremiah Green, an assoc professor at the Mays Business School - Texas A&M University in Texas, and John Hand, professor of accounting at UNC Kenan-Flagler Business School-Flagler Business School in North Carolina, authors of the article, say the McKinsey studies had been “very influential.”
However, they said, “McKinsey’s studies neither conceptually nor empirically 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.”
They said McKinsey’s tests were “erroneous” and could not be replicated when academics used data from businesses in the S&P 500. Green and Hand issued a working paper on the McKinsey studies in 2021. Last month, their work was published after peer review in Econ Journal Watch.
Their tests found no “statistically significant relations” between ethnic diversity of executives and profits, sales growth, gross margin, return on assets, return on equity and total shareholder return over the period from 2015 to 2019.
Our Take 1: Green and Hand say their findings speak to the “lack of robustness” of McKinsey’s studies. Good on them. They will no doubt face criticism from their academic colleagues for calling out an outfit like McKinsey. We hope they hold firm... and that more in academia challenge the myriad other weak claims of compromised consultancies.
Our Take 2: There was a time when a McKinsey study was highly regarded outside of boardrooms. Those days seem long gone.
Our Take 3: We looked up one of the McKinsey reports examined by the professors. Its publish date is May 2020, right when the world was losing its mind over everything from COVID-19 to climate change to fossil fuels. So what the hell... why not culture and leadership as well? A golden era of corporate farce, to be sure.