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As I’ve written before, so many conventional wisdoms are built on foundations of quicksand. From the firmly held belief in “Settler Colonialism” in the New World to the endlessly asserted claims of low immigrant crime, so much that we’re furiously finger-wagged is “fact”, is anything but.
Interviewing Jello Biafra during the 80s Great Satanic Panic, he said, whenever such a claim is made, press the claimant for their source. Almost always, the “sources” can almost all be traced back to just one or two fringe whackos spinning “I Just Reckons” out of nothing.
The same is true, it turns out, of the endlessly parroted “Diversity is Our Strength” mantra.
Is it, really?
Such scepticism is always greeted with a flurry on indignant, “Studies show…!”
Which studies? Do they, really?
It’s no surprise to find that nearly all the “studies” claiming to prove that “Diversity is Our Strength” come from the same source — and they’re as dodgy as hell.
McKinsey & Company, the famous management consulting firm, has published a number of wildly popular reports during the Great Awokening—such as 2015’s “Diversity Matters,” 2018’s “Delivering Through Diversity,” 2020’s “Diversity Wins,” and 2023’s “Diversity Matters Even More”—asserting that gender and ethnic diversity in corporate management is a magic bullet for making money.
McKinsey is a (highly) for-profit entity not otherwise known for doing disinterested scientific research just to advance the frontiers of knowledge. Then again, neither is McKinsey an investor trying to pick undervalued stocks. Instead, it makes its money telling the C-suite what the bosses want to hear.
That doesn’t, of course, ipso facto prove McKinsey’s claims wrong. If they’re based on sound methodology, then the financial motives are irrelevant.
The trouble is, nobody really knows what their methodology even is. For all we know, they’ve just pulled it out of their arses.
“The paper is remarkably non-transparent about its methodology. The body of the paper never describes the sample of firms included in the study, what their dependent and independent variables are, and so on. This may be to stop people replicating their study as their prior research was found to be irreplicable. It is as if they hope that people will accept the results because they want them to be true, and not ask any questions (again, the opposite of diversity of thought).”
What we do know is that McKinsey have committed a cardinal sin in the world of science and statistics: citing correlation as causation.
The single most fundamental rule of thumb for thinking about causality is that X couldn’t likely have caused Y if Y happened before X. But not in McKinsey’s world:
“But the McKinsey study makes an even more basic error absent from the other studies: they measure diversity after they measure financial performance! In their own words, “The analysis of this report is based on 2022 data on diversity in leadership teams and 2017-2021 data on financial performance.””
Think of it in terms of sports teams: do rich, successful teams win because they invest in star players, or does being rich and successful mean they can afford star players who help them win?
“This makes it very likely that any relationship is due to reverse causality: it is financial performance that allows companies to invest in diversity, rather than diversity causing financial performance.
McKinsey is also cherry-picking its data, by reporting only one measure of profitability, Earnings Before Income and Taxes (EBIT). When other measures of profitability are tested, McKinsey’s DEI=profitability claims collapse.
The most relevant performance is (long-term) Total Shareholder Return. TSR is what investors actually receive. TSR is far more comprehensive than EBIT (or any profitability measure). If a company announces a new patent or wins a big customer contract, it will boost the stock price but not immediately lift EBIT. More importantly, TSR is forward looking. Many tech companies have enjoyed soaring TSR despite modest profits due to their long-term potential.”
And, as is all too common with leftist theorists, McKinsey fudges the data to get the result they want. For instance, by re-defining Asians or Jews as “white” or “white-adjacent”.
If Asians like Jensen Huang of Nvidia, the graphics processing unit chipmaker that is the third most valuable publicly traded firm in the world, are redefined as white-adjacent, then the founders of tech companies are notoriously nondiverse. A legendary Silicon Valley investor once told me he’d analyzed the founding teams of over 150 “unicorn” start-ups with valuations of at least one billion dollars. Only three had female founders, and they were part of husband-wife pairs.
In the end, though, the market grinds away such ideological nostrums.
Anybody could have sat in his pajamas and counted the diversity of publicly traded firms’ leadership and invested in the most diverse ones. Yet, I’ve seldom heard of anybody trying to beat the market by doing it.
Takimag
There’s a reason “Get Woke, Go Broke” is an adage.
And, unlike “Diversity is Our Strength”, it’s founded on empirical reality.
