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Market-Based Solutions to Vital Economic Issues
Research
Nov 3, 2021

Does Diversity Deliver Better Firm Financial Performance? We don’t know.

Consultants and business leaders frequently declare that a strong business case exists for firms to increase the racial/ethnic diversity of their employees. Unfortunately, the reality is that in terms of robust empirical evidence, the jury is still out. Bear with us as we explain.

A key piece of evidence put forward in support of the business case comes from McKinsey & Company. In a series of three studies, McKinsey report a statistically significant positive relation between the likelihood of financial outperformance and the racial/ethnic diversity of their executives in global sets of large public firms.

These numbers are impressive, and because they come from arguably the most prestigious consulting firm in the world, they carry great weight with businesspeople.  Indeed, McKinsey do a remarkable job collecting data on diversity and other important topics. Nevertheless, we want to highlight three ways in which McKinsey’s studies do not rigorously support the popularly promoted “business case for diversity”.


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