No evidence diverse management teams boost profits, says study

Hiring more ethnically diverse management teams does not boost profits, new research has claimed, casting doubts on previous studies. A study in Econ Journal Watch says that previous studies by the consultancy firm McKinsey claiming that racial diversity “is a business imperative that drives real business results” are based on data that cannot be replicated. The authors write: “In contrast to McKinsey’s results, the key finding of our study is that we observe no statistically significant difference between the likelihood of financial outperformance as measured by the industry-adjusted EBIT margin of S&P 500 firms during the years 2015-2019 in the top versus bottom quartiles of S&P 500 firms ranked on McKinsey’s executive racial/ethnic diversity metric measured in mid-2020.” The McKinsey research has been widely used by business groups and campaigners to advocate for changes in the way employers recruit staff and apprentices. And so the leading companies in our datasets are pursuing diversity because it’s a business imperative and driving real business results.” According to one of the McKinsey reports: “Our latest research finds that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians.” But the researchers behind the new study say that the McKinsey papers “should not be relied on”.