‘Diversity is our strength’ is almost as fatuous a mantra as ‘Islam is a religion of peace’. Says who? Still, no matter that they’re obvious nonsense, these nostrums are parroted by the chattering classes almost by reflex. They’re memes in the true sense that Richard Dawkins meant when he coined the term – literally a mind virus.
Sometimes they can be traced to a specific origin. For example, the meme that ‘science says bumblebees shouldn’t fly’ originated in the 1930s, when aerodynamicists like August Magnan, concluded that bumblebees shouldn’t be able to fly based on their size and wing area. Magnan soon realised his own error, though: he had worked from the assumption that bumblebee wings were rigid, like aeroplane wings. But bumblebees aren’t gliders: they’re helicopters.
Once you ditch the erroneous initial assumption, everything becomes clear: bumblebees can fly and science doesn’t say they can’t.
Are there erroneous assumptions behind the ‘diversity is our strength’ mind virus? Oh, you betcha.
As Jello Biafra once told me, whenever somebody asserts some ‘fact’ you know is bullshit, press them for their source. You’ll find that they’re just parroting what ‘everybody knows’. But what everybody knows too often just ain’t so. Push harder and you might find a single, dubious source that has only gained a kind of pseudo-veracity by nothing but endless repetition.
‘Diversity is our strength’ is no different.
Its origins go back to famous management consulting firm McKinsey & Company. Over the years they’ve published multiple reports: 2015’s “Diversity Matters”, 2018’s “Delivering Through Diversity”, 2020’s “Diversity Wins” and 2023’s “Diversity Matters Even More”. The only problem is that all of those reports are merely repeating the same guff based on the same original paper – which was bullshit all along.
As London Business School professor of finance Alex Edmans writes:
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.
No!
The first inconvenient question we might ask is: where’s the causal relationship? What’s McKinsey’s basis for claiming that diversity causes greater profitability, rather than, say, DEI policies being a luxury indulgence for already-profitable companies?
As it happens, this sort of cart-before-the-horse thinking is exactly the fast one McKinsey pulled.
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.”
So, they’re using ‘diversity’ data that came after the profitability that they’re trying to prove. It’s as if they’ve taken the case of the richest club in the league in 2023 that also happened to score the most tries in the 2024 season and concluded that scoring more tries makes the club richer. Is that really true, or was it truer that the richest club in 2023 was able to afford to recruit the best players for the 2024 season?
The answer is obvious.
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. (Indeed, my own work finds that financial strength is associated with superior future diversity, equity, and inclusion).
The case for ‘diversity is our strength’ gets even worse when you measure long-term performance. An airline flush with cash from years of successful performance can afford to indulge in hiring black, transgender, bisexual, amputee pilots – but their long-term profitability will crash even faster than their planes.
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.
The notable thing about such booming tech companies is how un-diverse their founders tend to be. One Silicon Valley investor analysed the founding teams of more than 150 ‘unicorn’ start ups that ended up with valuations in the billions. Only three had female founders: all part of husband-wife pairs.
If, on the other hand, the ‘diversity is our strength’ is as true as the prattling ninnies insist, then investing ought to be a doddle. Just rifle through the pictures of their board members and count how many tick off the most ‘diversity’ boxes, then sit back and count your money.
Funnily enough, no one actually does that. It’s almost like they don’t really believe their own bullshit.
