No, DEI is not good for business

The case for DEI is collapsing before our eyes. New research emerged this week that rubbishes the well-worn claim that ‘diversity, equity and inclusion’ practices are good for business.

McKinsey and Company, a management-consulting firm, has been prolific in producing research that makes the ‘business case’ for DEI. Over the past nine years, McKinsey has released four studies claiming to show that increasing racial and ethnic diversity at the executive level can improve a company’s financial performance.

Published under titles such as ‘Diversity wins: How inclusion matters’ and ‘Diversity matters even more’, these studies have been held up by diversity practitioners as ‘proof’ that DEI is not only a moral good, as they see it, but also good for business. The problem is, this just isn’t true.

A new study published this week on Econ Journal Watch shows that none of the findings in the McKinsey studies can be replicated. Accounting professors Jeremiah Green and John RM Hand say that they could not find any ‘statistically relevant relations’ between ‘measures of executive racial / ethnic diversity’ and measures of company success, whether that’s based on ‘industry-adjusted earnings… or industry-adjusted sales growth, gross margin, return on assets, return on equity and total shareholder return’. They conclude: ‘Despite the imprimatur given to McKinsey’s studies, they should not be relied on to support the view that US publicly traded firms can expect to deliver improved financial performance if they increase the racial / ethnic diversity of their executives.’

Green and Hand’s research is not saying that DEI is necessarily bad for business. But rather that the oft-cited McKinsey research suggesting it is good for business should be taken with a generous pinch of salt. As economist Chris Brunet points out on X, another study published in July 2023 reached a similar conclusion. Ian Gardner found that McKinsey’s dataset ‘is not sufficiently representative’ and therefore its research is ‘unreliable and cannot be generalised’.

So what’s going on here? Perhaps the problem is that McKinsey is not a neutral arbiter in this. It has its own DEI training packages that it wants to sell to businesses. So we should hardly be surprised that it has repeatedly bigged up the results of these initiatives.

Indeed, DEI has become a hugely lucrative industry in recent years. In the US in 2022, it was worth a whopping $9.4 billion. That number is set to reach $24.4 billion by 2030. There are plenty of organisations, consultants and professional activists who are determined to keep the DEI bandwagon rolling.

Yet it now seems that just about every benefit of DEI has been overhyped or mis-sold. Even the claim that DEI-style training can reduce racism in the workplace seems to be based on cant. Recently published research shows that, in many cases, DEI training even actually increase tension in the workplace. ‘People often leave diversity training feeling angry and with greater animosity toward other groups’, a leading academic found. It turns out that telling employees that they are hamstrung by ‘institutional racism’ or infected with ‘white privilege’ doesn’t exactly foster a positive working environment.

The case against DEI is really just based on common sense. You don’t need an MBA to recognise that hiring the best possible candidate for a role is probably better for your business than hiring people based on their race, gender or sexuality. All to meet some artificial quota. What’s more, requiring your employees to stop doing actual work and instead sit through hours of inclusivity-training courses clearly isn’t going to boost your company’s productivity.

There really is no good reason for businesses to adopt the DEI agenda. This is a racket that deserves to be exposed.

Lauren Smith is a staff writer at spiked.