The evidence of correlations between diversity and performance is substantial: An analysis by McKinsey found that “companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians”; that “companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians”; that companies in the bottom quartile both for gender and for ethnicity and race lag in financial performance; that every 10% greater proportion of non-whites on senior-executive teams is associated with 0.8% greater earnings before interest and taxes; and that every 10% greater proportion of women on senior-executive teams is related to 3.5% greater earnings before interest and taxes in the UK.[4]
However, when we revisit McKinsey’s tests using recent data for US S&P 500® firms, we find statistically insignificant relations between McKinsey’s inverse normalized Herfindahl-Hirschman measures of executive racial/ethnic diversity and not only industry-adjusted EBIT margin, but also industry-adjusted sales growth, gross margin, ROA, ROE, and TSR. Our results suggest that despite the imprimatur often given to McKinsey’s (2015, 2018, 2020) studies, caution is warranted in relying on their findings to support the view that US publicly traded firms can deliver improved financial performance if they increase the racial/ethnic diversity of their executives.
Worth noting that this study failed to replicate: