Beyond the Hype: Examining the Claims of Diversity and Company Performance

Does diversity benefit businesses?

There has been a growing trend in business circles that diverse boards lead to better company performance. This belief is supported by studies from top companies, regulators such as the Financial Reporting Council (FRC), and renowned consulting firms. However, there are concerns about the validity of this claim. Is it possible that people are accepting this idea without proper scrutiny simply because they want it to be true?

Upon closer examination of the evidence, it becomes clear that there are significant flaws in these well-regarded diversity studies. For example, the FRC’s report claiming that higher gender diversity among FTSE 350 boards correlates with better financial performance was based on 90 tests comparing diversity to financial performance, yet no relationship was found in any of them.

It is also important to be aware of studies that find a correlation between company performance and diversity but may be the result of data-mining. One McKinsey report claimed to find a strong link between diversity and earnings before interest and tax (EBIT), but total shareholder return (TSR) is just as important, if not more, as it measures what you actually get from investing in a company. In conclusion, while diversity can certainly bring benefits to a business, it is crucial to approach claims about its impact on company performance with caution and critical thinking.

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