Founder, Chief Investment Officer, Consultant- Beagle Partners LLP Sustainability Champion and Mentor/Exec Coach
Alex Edmans on form pointing out the shortcomings again of so much published to support an argument that while deserving of support fails to attract robust and objectively critical analysis. Sadly not untypical of the level of proof demonstrated with claims that associate one variable with the output of what is a complex system. Simple correlations from gathered uncontrolled data sets with a systems overall output invariably oversimplify and permit uncritical confirmation bias in interpretation. The classic assumption that correlation is causation, a lack of a process explanation or thesis testing of how they link, failure to explore other factors and explanations the list goes on. Like any interrogation with leading questions and enough time and manipulation statistics can be made to confess to almost anything. The rational for positive outcomes from DEI practices is that when making decisions, seeking opinions and innovating effectively you consciously seek diverse input and critical discussion to be better informed, have more effectively tested and risk assessed outcomes. Diversity can lead to better outcomes and performance BUT - To use a creative analysis if you are painting a good mix of colours can generate a fantastic pictures but if you just mix the paint up without care, thought, skill or deliberation you bet a muddy brown outcome. Diverse thought must be managed and so the culture and leadership that surrounds a diverse group of people is key to how productive and how well they synthesis their diversity to a potentially outstanding outcome. Studies of DEI impact need to look in granularity and measure and account for actual cultural and leadership styles. I suspect mismanaged diversity can be as destructive to performance as positive and in more likely to impede productivity compared to mismanaged non-DEI groups who while they may do things wrong or badly will nonetheless get things done. Culture and Leadership are needed to translate DEI workforces into an amazing picture of excellence and performance.
Professor of Finance, non-executive director, author, TED speaker
McKinsey's (2015, 2018, 2020) reports claiming that diversity improves performance have already been discredited. They've doubled down in their latest report, entitled "Diversity Matters Even More", claiming that "the business case is the strongest it has been". While they are not alone in producing flimsy research on diversity, the concerns here are particularly serious for the following reasons: 1. The Errors are Particularly Basic They correlate diversity in 2022 with financial performance in 2017-21. This makes it particularly likely that financial performance causes diversity, rather than diversity causes financial performance. This is an even more basic error than made by other papers (e.g. failing to control for industry). Yet their belief that diversity improves performance is so entrenched, and their confirmation bias so strong, that they dismiss this possibility without any analysis, even though their research design makes it very likely: "It is theoretically possible that financial outperformance enables companies to achieve greater levels of diversity ... However, in practice this seems unlikely." This is the opposite of diversity of thought. 2. The Errors Have Been Extensively Documented Green and Hand (2021) previously showed that the McKinsey studies are irreplicable even with their chosen performance measure (EBIT) and preferred methodology. Moreover, there is no link between diversity and other performance measures, or with more established methodologies that do not throw away data. McKinsey are aware of the critique since Green and Hand called one of the authors. Yet they do not address any of the critiques, using the same flawed methodology as prior papers for "consistency". But continuing to do something wrong and refusing to heed suggestions for improvement is the opposite of diversity of thought. Indeed, McKinsey have gone the other way and obfuscated their methodology (they don't even say how they collect their sample) to prevent future replication. 3. The Errors Contradict McKinsey's Own Research McKinsey produces a gamut of papers claiming to have identified the secret sauce that improves performance. Yet they control for none of these factors in their tests. They simply link diversity to whether performance is above the industry average with no controls. Even if you are an advocate of DEI (as I am, properly practiced), you should be concerned about such papers. They blind you to the fact that properly-measured DEI, that doesn't reduce a person to their gender and ethnicity, may be genuinely correlated with performance, or that DEI initiatives can be justified on social grounds. #MayContainLies https://lnkd.in/eRGn6_BM
