The Link of Diversity to Profit Was a Lie

From the Wall Street Journal (by way of MSN)... Diversity Was Supposed to Make Us Rich. Not So Much.

Statistics are math, and as we all know, math is hard, but in this case I think it is more of case of proving what they wanted to prove. Lies, damn lies, and statistics.

The whole push for diversity in corporate America originates from McKinsey. That should be enough to call it into question. McKinsey is described by the Guardian as The firm that built the house of Enron. They turned Enron from a stodgy energy company into a disaster. Along the way, they turned it into an energy trading powerhouse, just before it all came crashing down on everyone.

But back to the story of today.

McKinsey did a "study" that showed either a correlation between corporate diversity and profits, or outright causation. (They are backpedaling today, but they continue to act like it is causation.)

Even the correlation is in doubt. Academics can’t replicate McKinsey’s study precisely, because it keeps secret the names of the companies it used. But a paper published this year finds that McKinsey’s methodology doesn’t show benefits from diversity for S&P 500 companies for a range of profitability metrics. It isn’t that a lack of diversity is good for profits either, it’s just there’s no link.

Merit is what moves you forward. If you have a good idea you can make money. If you don't have a good idea, or you can't execute in the marketplace, you won't make money.

This matters, because the McKinsey study was hugely influential. McKinsey’s research figures first in BlackRock’s references for supporting a board diversity target of 30% in its proxy voting guidelines. It featured prominently among studies used by a Securities and Exchange Commission commissioner in 2020 to explain why she supported corporate disclosure of diversity metrics. Nasdaq cited it as evidence when the exchange applied to the SEC for a rule requiring companies it lists to have minimum diversity on boards, or explain why they don’t. It has been cited by dozens of campaign groups pushing for rules to support consideration of social issues by pension funds and others, too.

And this doesn't even consider what it has done to pop culture, which is how I tripped over this. This is the Nerdrotic Daily video YOU DON'T SAY! "Diversity Was Supposed To Make Us Rich... NOT SO MUCH!" (I believe that this is an excerpt from Wednesday's Nerdrotic Nooner podcast.