The results of key studies by corporate consultant McKinsey and Company, which have been used to promote the tenets of diversity equity, and inclusion (DEI) in corporations, government departments, and even the US Military, have been called into question over flaws in their methodology.
According to an independent analysis by a pair of business professors, McKinsey’s findings could not be replicated and “should not be relied on to support the view that US publicly traded firms can expect to deliver improved financial performance if they increase the racial/ethnic diversity of their executives.”
In a series of studies with titles like “Diversity Wins,” “Diversity Matters,” and “Delivering Through Diversity,” the influential consulting firm determined that the use of DEI policies in the corporate world led to increased efficiency and profitability. According to McKinsey, the more diverse the executive suite at a company, the more productive its employees will be. The firm reported that these results were consistent in 2015, 2018, 2020, and 2023.
However, a separate review published by accounting Professor Jeremiah Green at Texas A&M and accounting Professor John Hand in Econ Journal Watch called these four studies into question.
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As the professors indicated, the McKinsey study measured “firm financial performance over the four or five years leading up to the year in which they judge the race/ethnicity of firms’ executives,” a testing structure that cannot be replicated to substantiate the claim.
“In contrast to McKinsey’s results, the key finding of our study is that we observe no statistically significant difference between the likelihood of financial outperformance as measured by the industry-adjusted EBIT margin of S&P 500® firms during the years 2015–2019 in the top vs. bottom quartiles of S&P 500® firms ranked on McKinsey’s executive racial/ethnic diversity metric measured in mid-2020,” the professors said.
Green and Hand also cite a Bloomberg interview with Dame Vivian Hunt, McKinsey’s managing partner in the UK and Ireland who co-authored the studies, which “crystalizes McKinsey’s view that greater racial/ethnic diversity in a firm’s executive team drives better firm financial performance.”
In the interview, Hunt states “What our data shows is that companies that have more diverse leadership teams are more successful. And so the leading companies in our datasets are pursuing diversity because it’s a business imperative and driving real business results.”
Hunt has also been quoted as saying that meritocratic systems are “just not good enough” to overcome biases and promote antiracism. “You have to proactively stand for an antiracism environment, an anti-bias environment, to positively include people who’ve been historically excluded,” she said.
As the report reveals, McKinsey’s findings were applied far beyond the corporate world, extending even into the government and military under President Joe Biden’s Executive Order 14035 in June 2021. Throughout various pieces of departmental literature, McKinsey studies are explicitly cited to justify the administration’s DEI push.
Related: Pentagon Requests $114 Million For 2024 DEI Programs
“[T]here is a business case for the Department’s prioritization of DEI as normal operations,” reads a newsletter from the Defense Civilian Personnel Advisory Service. “McKinsey & Company reports diversity in executive teams makes them stronger and ‘the most diverse companies are now more likely than ever to outperform less diverse peers on profitability.”
Multiple documents published by the Navy, the Defense Equal Opportunity Management Institute, and the Pentagon have also invoked McKinsey as a source of authority on the matter.
Between fiscal years 2022 and 2024, the DOD has spent as much as $270 million on the DEI agenda.
The full study from the Econ Journal Watch can be read below:
Connor Walcott is a staff writer for Valuetainment.com. Follow Connor on X and look for him on VT’s “The Unusual Suspects.”
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