The truth about ‘boardroom diversity’

We all know that increasing the diversity of your boardroom increases the success of your company because politicians, business leaders and academics keep telling us so. No one has ever got into trouble for making this assertion and, in any case, we have the scientific evidence to prove it – in the form of four studies pumped out by management consultants McKinsey & Company over the past decade.

The first of these, Why Diversity Matters (2015), claimed, for example, that companies in the top quartile for gender diversity were 15 per cent more likely to outperform the median company in their industry, and companies in the top quartile for racial/ethnic diversity were 35 per cent more likely to outperform the median.

But what if diversity doesn’t really make a difference to a company’s performance? To date, McKinsey’s work has gone largely unchallenged, but a couple of economists, Jeremiah Green of Texas A&M University and John R.M. Hand of the University of North Carolina, have recently attempted to reproduce the management consultants’ claim – and say they have failed.

McKinsey didn’t publish a list of the companies whose performance was used in their studies – the 2015 version states that it used 366: 186 based in the US and Canada; 107 in Britain; 73 in Latin America. Green and Hand say the firm would not divulge those companies’ names. So what they did instead, in a study published in the online journal Econ Journal Watch, was to repeat McKinsey’s experiment on all 500 companies in the S&P 500 share index.

The difference in results was stark. McKinsey said it found that 58 per cent of companies in the top quartile for ethnic diversity outperformed the median company in their industry, compared with only 43 per cent in the bottom quartile.