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McKinsey’s Diversity Fog

🌈 Abstract

The article discusses a study by McKinsey & Company that claimed corporations with more diverse leadership were more profitable. It then examines a new paper that questions McKinsey's methodology and suggests the findings may have gotten the causation backward.

🙋 Q&A

[01] The McKinsey Study

1. What were the key findings of the McKinsey studies on diversity and profitability?

  • The McKinsey studies from 2015, 2018, and 2020 claimed to find a positive correlation between diverse leadership (more women and racial minorities in executive positions) and financial performance of corporations.
  • These findings were widely cited across industries and government institutions as proof of the financial benefits of diversity-focused hiring policies.

2. What did the new paper by Green and Hand find?

  • Green and Hand were unable to replicate the results of McKinsey's first three studies using the same data.
  • They found that McKinsey had analyzed the data backwards - looking at financial performance in the years leading up to a given year's executive demographics, rather than the other way around.
  • This suggests the positive correlations observed by McKinsey may have reflected "better firm financial performance causing companies to diversify the racial/ethnic composition of their executives, not the reverse."

3. What were the methodological concerns raised about the McKinsey studies?

  • McKinsey had reviewed each firm's financial performance in the 4-5 years leading up to the year in which they snapshots the executive demographics, rather than looking at diversity in the years leading up to financial performance.
  • This methodological flaw may have resulted in the studies observing positive correlations that reflected financial success leading to diversity, rather than diversity leading to financial success.

4. How have the McKinsey studies been used to justify diversity hiring practices?

  • Major corporations and government entities have cited the McKinsey studies to justify "antimeritocratic hiring practices."
  • For example, Intel executive Jackie Sturn cited the McKinsey research as evidence that "diversity is pivotal for long-term economic growth."

5. What is the author's perspective on the use of the McKinsey studies?

  • The author argues that the "hyping" of the McKinsey studies reflects progressives' "inability to grapple with or even admit the existence of tradeoffs" when it comes to diversity hiring programs.
  • The author suggests that diversity programs may come with inherent costs, and that firms may suffer a "corresponding drag in performance" by hiring candidates partially for reasons unrelated to their qualifications.

[02] Broader Implications

1. How does the author view the progressive approach to justifying policy preferences?

  • The author argues that progressives do not see debates over policies like diversity hiring as involving tradeoffs.
  • Instead, they present their preferred policies as definitive advances with no corresponding downsides.
  • The author gives the example of progressives arguing that decarceration "makes us less safe," rather than making the normative case that the legal system is unjust.

2. What is the author's view on the need for empirical studies to justify common sense observations?

  • The author suggests that it "doesn't take a social scientist" to deduce that hiring people for important positions based on irrelevant criteria like race and sex will result in "some corresponding decline in performance."
  • The author argues that firms do not need "a multimillion-dollar study to tell you what common sense makes obvious."
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