Is McKinsey wrong about the financial benefits of diversity?

If you’ve read an article about the importance of diversity in the workplace in the past few years, chances are you’ve come across the assertion that more diverse companies turn out higher profits.

Key to the popularization of this idea are three McKinsey studies, released in 2015, 2018, and 2020, which showed that companies with greater racial, ethnic, and gender diversity in their leadership tended to perform better financially. The Wall Street Journal, the New York Times, the World Economic Forum, and the women’s leadership nonprofit Catalyst have all cited McKinsey’s findings, along with work from the Boston Consulting Group and other consultancies, to support the idea that investing in diversity is in companies’ best interests.

Academic research, however, is less clear on whether there is any relationship between diverse leadership and company profits—let alone a causal one. A new paper, posted on the open-access research platform SSRN, offers one more reason to be cautious in making claims about the business case for diversity. The authors applied McKinsey’s approach to companies in the S&P 500 index, and did not find a link between racial and ethnic diversity and financial performance.

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