New Study Calls Into Question Whether DEI Programs Really Boost Corporate Earnings

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Commentary

It’s safe to say that diversity, equity, and inclusion (DEI) is one of the more controversial ideas of our time (and a multibillion-dollar industry).

Some, such as Elon Musk, argue that DEI—which, definitionally speaking, means addressing structural inequalities in society—constitutes blatant racism. Others contend that DEI is simply about creating more equitable and harmonious workplaces and offers clear financial benefits to companies as well.

“Study after study has proved that diverse companies perform better than their more homogeneous counterparts,” Inc. reported in 2023. “Companies that don’t foster an inclusive environment or prioritize diversity initiatives do so at their own peril.”

“Proved” is a heavy (and inaccurate) word here, but Inc. isn’t wrong about the abundance of evidence showing that DEI initiatives make companies more profitable. Between 2015 and 2023, McKinsey & Co., a multinational strategy and management consulting firm, released four separate studies showing that DEI initiatives boost corporate earnings. Unfortunately for DEI advocates, the research appears to be bunk.

A new study published in Econ Journal Watch, a semiannual peer-reviewed academic journal, shows that researchers were unable to replicate the results of all four McKinsey studies.

“Our results indicate that despite the imprimatur often given to McKinsey’s 2015, 2018, 2020, and 2023 studies, McKinsey’s studies neither conceptually ... nor empirically ... support the argument that large US public firms can expect on average to deliver improved financial performance if they increase the racial/ethnic diversity of their executives,” professors John R.M. Hand and Jeremiah Green found.

This is not the only research that shows that DEI initiatives are not the panacea for corporate earnings that supporters claim them to be. Writing in the Harvard Business Review, Robin J. Ely, a professor of business administration at Harvard, and David A. Thomas, president of Morehouse College, pointed out that “the rallying cries for more diversity in companies” are not supported “by robust research findings.”

Ms. Ely and Mr. Thomas said, “We say this as scholars who were among the first to demonstrate the potential benefits of more race and gender heterogeneity in organizations.”

The idea that all these studies showing clear financial benefits to DEI are rubbish might be shocking to some readers, but it’s a familiar academic pattern. For more than a decade, scholars and media have publicly worried about the “replication crisis” in science. It turns out that an astonishing number of findings in various fields—from psychology and economics to sociology, medicine, and beyond—fail to hold up when other researchers attempt to replicate the findings, as Vox has explained.

None of this is to say that diversity and inclusion are inherently bad, of course.

I value diversity and am an inclusive person, and I encourage others to be the same. It’s the means that we choose to achieve diversity and inclusion that is the problem, as well as that word wedged in between them: equity. To many, advancing social equity is a paramount value. Because of this, many support illiberal means (in the classical sense) to achieve this end—including supporting policies that actively discriminate on the basis of race.

Coleman Hughes, a fellow at the Manhattan Institute and author of “The End of Race Politics,” recently appeared on “The View” and offered a better approach.

“My argument is that we should try our very best to treat people without regard to race, both in our personal lives and our public policy,” Mr. Hughes told the hosts (who accused him of being “co-opted” by the right).

He is right to say that this is the North Star that we should be aiming for: the equal treatment of all people regardless of race or class.

The great orator and abolitionist Frederick Douglass saw that such a view is the true path to progress.

“In a composite nation like ours, as before the law, there should be no rich, no poor, no high, no low, no white, no black, but common country, common citizenship, equal rights, and a common destiny,” Mr. Douglass noted in a speech in 1867.

The ethos of DEI runs counter to this, which is precisely why both the concept and the industry should be scrapped. A good place to start would be to dispense with the fiction that DEI programs are a rainbow leading to a pot of gold in corporate profits.

Originally published by the Washington Examiner

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.