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Culture War Roundup for the week of February 13, 2023

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There exists an entire consulting industry that performs research on the benefits of DEI training, the benefits of a more diverse workforce, the success of organizations which have more women/LGBT people in leadership positions, etc. Here is the consulting company Accenture's summary of the benefits of DEI to companies and organizations that adopt their practices.

I am of the belief that it is people's knowledge, experience and competence that determines whether or not an organization will be successful in its goals. It seems extremely unlikely to me that any problem corporations are interested in solving becomes easier the more members of your project team possess a uterus. Likewise, it seems unlikely your organization will gain magical insight into any real problem of interest by virtue hand-selecting team members whose ancestors have a specific continent of origin. And I have a hard time believing there is a benefit to adding more members of your team who are sexually aroused by humans who share their same sex organs (or adding members of your team who wish to change their sex organs via surgery or chemical sterization).

My priors are stacked so incredibly hard against studies which demonstrate that there is actually a benefit to structuring teams based on hand-selecting people who are LGBT, people from Africa, or adding more women. Indeed, it feels like if you lower qualifications to hire people from these groups, it can only result in organizations which are less qualified.

I'm wondering how it is possible that these consulting companies succeed in designing studies that show the opposite of (what I believe to be) reality. Is it all publication bias and p-hacking? My intuition says that it is. But there are some pretty powerful-looking studies that seem to be hard to explain via that explanation alone. Looking at an example of one of the studies done by McKinsey in the above link:

Earnings Before Interests and Taxes (EBIT) margins

McKinsey & Company’s global study of more than 1,000 companies in 15 countries found that organizations in the top quartile of gender diversity were more likely to outperform on profitability—25% more likely for gender diverse executive teams and 28% more likely for gender-diverse boards. Organizations in the top quartile for ethnic/cultural diversity among executives were 36% more likely to achieve above-average profitability. At the other end of the spectrum, companies in the bottom quartile for both gender and ethnic/cultural diversity were 27% less likely to experience profitability above the industry average. Researchers measured profitability by using average EBIT margins

What is the plausible mechanism behind which research that shows these kind of results are created? Are they measuring something that is real (i.e. does a more diverse workforce actually make companies more money)? Or are the brilliant people at McKinsey meticulously hand-selecting the companies to design studies which will show the opposite of reality?

The most obvious thing is reversed causality -- only profitable companies can afford the extra cost of DEI efforts and useless people on the board.

My understanding is that when studies actually follow changes to diversity -- such as when Norway mandated a certain percent of women on corporate boards -- you actually see a drop in profit. I'm not sure how robust that is, as one could imagine the overall economic situation changed, but still, AFAIK none of the studies that claim to show diversity helps profit do anything about causality.

But don't take my word for it: even the HBR (very DEI supportive) acknowledges it: https://hbr.org/2020/11/getting-serious-about-diversity-enough-already-with-the-business-case

Let’s start with the claim that putting more women on corporate boards leads to economic gains. That’s a fallacy, probably fueled by studies that went viral a decade ago reporting that the more women directors a company has, the better its financial performance. But those studies show correlations, not causality. In all likelihood, some other factor—such as industry or firm size—is responsible for both increases in the number of women directors and improvement in a firm’s performance.

In any case, the research touting the link was conducted by consulting firms and financial institutions and fails to pass muster when subjected to scholarly scrutiny. Meta-analyses of rigorous, peer-reviewed studies found no significant relationships—causal or otherwise—between board gender diversity and firm performance. That could be because women directors may not differ from their male counterparts in the characteristics presumed to affect board decisions, and even if they do differ, their voices may be marginalized. What is more pertinent, however, is that board decisions are typically too far removed from firms’ bottom-line performance to exert a direct or unconditional effect.

  • As for studies citing the positive impact of racial diversity on corporate financial performance, they do not stand up to scrutiny either.* Indeed, we know of no evidence to suggest that replacing, say, two or three white male directors with people from underrepresented groups is likely to enhance the profits of a Fortune 500 company.

The economic argument for diversity is no more valid when it’s applied to changing the makeup of the overall workforce. A 2015 survey of Harvard Business School alumni revealed that 76% of those in senior executive positions believe that “a more diverse workforce improves the organization’s financial performance.” But scholarly researchers have rarely found that increased diversity leads to improved financial outcomes. They have found that it leads to higher-quality work, better decision-making, greater team satisfaction, and more equality—under certain circumstances. Although those outcomes could conceivably make some aspects of the business more profitable, they would need to be extraordinarily consequential to affect a firm’s bottom line.

I like it.

Alice: We need to have more DIE.

Bob:Why?

Alice: It's because it is wonderful for company performance! Diverse companies do so much better financially?

Bob: This looks like confusing correlation with causation and maybe also we need some kind of confounder analysis?

Alice: Well, we need to put some women in our coprorate board and surely the results would show it!

Bob: OK, we did that and there is no significant relationship between women on board and performance.

Alice: Surely that's because women were always marginalized. This is what always happens.

Bob: So, how many women we need on the board to see some performance results that were promised?

Alice: Oh, come on, enough with that. Who cares about the financial performance anyway? It improves equality and team satisfaction (under certain circumstances)!

Bob: Why "equality" is even a goal - is it a communist cooperative? If I work better than Steve over there, why should we have equal outcomes? What "under certain circumstances" means - do we have the same circumstances here? And I heard people who are unhappy with DIE may have trouble staying employed in some places - would it confound the results on satisfaction with DIE?

Alice: Completely unrelated, you now have an appointment with HR tomorrow at 9am. They want to send you to a new exciting training "Avoiding offensive microagressions at the workplace". I'm sure it would be so much fun!