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McKinsey's diversity report faces criticism from academics

McKinsey's diversity report faces criticism from academics

Consulting Humor
July 08, 2024

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Top story: McKinsey’s Diversity Study Under Fire: Flawed Findings, Big Impact

Source: CNBC

Challenged Findings: Recent academic scrutiny reveals that McKinsey's 2015 study linking executive diversity to higher profits lacks reproducibility, questioning the validity of its conclusions.

Influential Yet Flawed: Despite its methodological flaws, McKinsey's research significantly influenced corporate policies and investment strategies, promoting diversity under the premise of financial benefits.

Correlation ≠ Causation: The persistent misconception that diversity directly drives profitability highlights the critical need for rigorous evaluation and cautious interpretation of such studies in strategic decision-making.

In 2015, McKinsey's research linking executive racial and gender diversity to higher profits was groundbreaking.

It spurred investors, lobbyists, and regulators to advocate for more diverse boards and justify investments in companies with such diversity.

However, the research’s conclusions have not held up under scrutiny.

While diverse leadership is beneficial for society, providing role models and promoting talent irrespective of race or gender, this doesn’t necessarily translate to increased profits. Academics have been unable to replicate McKinsey's findings, revealing flaws in the methodology that cast doubt on the supposed link between diversity and profitability.

McKinsey attempted to address these issues by revising their approach, analyzing diversity at the start of the period rather than the end. Yet, they still face criticism for implying causation rather than mere correlation. Despite this, McKinsey maintains that their findings indicate a correlation between diverse leadership and financial success.

McKinsey may be forced to defend themselves, as the real-world impact of the study has been significant.

It influenced policies and investment strategies, such as BlackRock’s board diversity targets and Nasdaq’s diversity rules. However, financial products based on the premise of diversity-driven profitability, like certain ETFs, have underperformed compared to broader market indices.

The debate over the benefits of diversity underscores a broader lesson: correlation does not imply causation. Just as the Aztecs mistakenly linked human sacrifices to the continuation of the world, investors should critically evaluate the studies guiding their decisions to avoid misleading conclusions.