The business case for diversity in the workplace is now underwhelming

When rosy narratives meet the harsh bite of reality

Photo by Jonathan Kemper on Unsplash

What is the "business case" for diversity and how did it become the prevailing narrative in corporate circles?

The prevailing narrative surrounding diversity often leans towards the feel-good notion that businesses prosper by adhering to ethical practices. Many in the business realm treat diversity as a proverbial free lunch, a form of justice that pays dividends. In 2019, Vijay Eswaran, contributing to the World Economic Forum, confidently asserted that "the business case for diversity in the workplace is now overwhelming," buttressing his argument with studies from revered sources like McKinsey and BCG, beloved among the executive echelons. This sentiment finds resonance among senior suits, as evidenced by a 2015 survey among Harvard Business School alumni, which revealed that 76% of those in executive positions sincerely believe in the positive impact of "a more diverse workforce on the organization's financial performance." Hence, it comes as no surprise that, as per a recent study, approximately 80% of Fortune 500 companies advocate the business case for diversity, emphasizing its value for organizational performance, while, in contrast, fewer than 5% underscore fairness or justice-based arguments, framing diversity as the right thing to do, an end in itself.

Yet, a deep dive into nearly half a century of social science research reveals the flimsiness of this simplistic amalgamation of ethics and profits. Moreover, seemingly benign affirmations of fairness and diversity commitments from organizations can paradoxically undermine genuine strides towards non-discrimination. For those truly invested in workplace justice, it becomes increasingly apparent that articulating the 'value of diversity' demands acknowledging the moral quagmire and scientific vacuity that underpin the purported business rationale, a narrative fraught with pitfalls and counterproductive inclinations.

The shift from justifications based on justice to those centered around performance can be traced back to the 1980s, a period marked by a neoliberal resurgence that saw a backlash against civil rights legislation advocating for equal employment opportunities. Simultaneously, within economic realms, there was a concerted effort to repackage existing anti-discrimination measures with fresh narratives. Furthermore, the influential "Workforce 2000" report predicted that, by the year 2000, the majority of job seekers would consist of women, underrepresented groups, and immigrants, emphasizing the crucial need for "managing diversity" as a strategic imperative to lure talent from these demographics and stave off a skilled labor deficit. This narrative bolstered the ascent of the business case as the prevailing narrative in corporate corridors. Moreover, business consultants played a pivotal role in the inception and advocacy of the business case for diversity within organizations. Business consultants bask in an elevated status, often boasting a clientele of business leaders who themselves may be alumni of these very firms. Unsurprisingly, their studies and recommendations on diversity are frequently touted in corporate circles. While ostensibly advancing scientific ideas, these studies often parade a rather pitiful facade of academic rigor. Not without irony, their dissemination is frequently tainted by an unmistakable conflict of interest, driven by the very consultants who seek to peddle purported solutions to an array of diversity challenges. Given this context, many consultancy-published studies emerge as either scientifically anemic or a mere sleight of hand. Take, for instance, the widely acclaimed McKinsey studies (2015, 2018, 2020, 2023). They not only fail to provide basic statistical parameters like significance levels and standard errors but have also been exposed as non-reproducible in a recent quasi-replication effort by Green and Hand (2024). Green and Hand not only failed to replicate the studies' findings but also brought to light another significant flaw: McKinsey's methodology evaluates causality in reverse. Specifically, McKinsey's researchers examined each firm's financial performance in the years leading up to the capture of executive demographics. Essentially, as Green and Hand suggest, the positive correlations observed by McKinsey may result from "better firm financial performance causing companies to diversify the racial/ethnic composition of their executives, not the reverse."

The business case for diversity is scientifically flawed, morally perilous, and ultimately counterproductive

The scientific discourse presents a stark departure from the rosy narrative espoused by corporate evangelists. Over the past five decades, a plethora of rigorous, peer-reviewed studies on identity and demographic diversity have materialized. However, a nuanced synthesis of these investigations reveals a strikingly tepid relationship between demographic diversity and performance. Positive effects on performance, when discernible, often hinge on demographic diversity serving as a proxy for cognitive divergence. Meta-analyses by Post and Byron (2015) and Pletzer et al. (2015) underscore the feeble correlation between board gender diversity and company performance, while Jeong and Harrison (2017) unveil a statistically significant yet practically negligible link between CEO gender diversity and long-term company performance.

The ethical quandaries inherent in the instrumental rhetoric surrounding diversity cannot be understated. While it's true that performance-based arguments are deeply ingrained in the essence of corporations, there are instances where appealing solely to self-interest is inappropriate, especially when moral principles should take precedence. Jason Brennan cogently argues against the instrumentalization of moral imperatives for corporate gain, asserting that businesses ought to uphold ethical standards for their intrinsic merit rather than as a means to bolster profitability. He asserts that "businesses should be honest because it is right, not because honesty leads to a good reputation which increases their profitability in the long run. They should avoid exploiting workers because exploiting workers is wrong, not because paying avoiding exploitation turns out to be profitable in the long run. And so on. If violating these norms turned out to reduce profits, they should do them anyway. One does not become exempt from basic ethical requirements by announcing one intends to seek profits." Diversity—in whatever form it may take to genuinely further workplace justice, without committing to a specific interpretation—should be revered as intrinsically valuable, rather than viewed as necessitating managerial transformation into tangible economic utility to realize its true worth.

From a pragmatic standpoint, embracing a free-lunch mentality risks trivializing the complexities of managing diversity. Corporate managers, seduced by the promise of effortless benefits, may overlook the inherent challenges and potential conflicts that accompany diversity initiatives. This ignorance can precipitate counterproductive inclusion strategies, fostering distrust and exacerbating tensions within teams. Effectively harnessing the potential benefits of diversity demands diligent managerial efforts and necessitates a systematic approach that encourages employees to learn from each other in a conducive environment, characterized by an understanding of common goals and a sense of egalitarianism amongst others.

Moreover, the convergence of managerial perspectives with legal discourse poses a moral hazard. When diversity rhetoric becomes ensnared in narratives of commercial success, there arises a risk of "managerialization" of the law, a distortion wherein managerial values infiltrate legal concepts, potentially diluting the moral underpinnings of antidiscrimination legislation. A managerial version of the law may conflict with its legal counterpart, which is founded on moral considerations rather than on efficacy. While the managerial interpretation may be enticing as it extends legal ideals beyond the confines of antidiscrimination law, exerting a broad impact, the intrusion of businesses into inherently democratic processes is not without concern. While corporations aspire to shape broader societal narratives, they must tread cautiously to avoid usurping democratic processes in favor of profit-driven agendas.

Corporations don't merely aim to shift the diversity landscape within their walls; it's not just a conceptual framework but a tangible pillar of their diversity agendas. Take PepsiCo's CEO, Ramon Laguarta, who articulated a comprehensive perspective, stating, "We see ourselves as not only responsible for moving diversity in PepsiCo, but moving diversity as part of a much bigger ecosystem. And obviously, with scale, we have a lot of influence on our suppliers, we have a lot of influence on our customers and our communities that we operate, and we see ourselves as moving and inspiring those communities, those suppliers, those organizations to move along with us at the same speed." While some may find such aspirations inspiring and praiseworthy, a note of caution must be sounded. There is a risk that corporations could overstep boundaries traditionally reserved for democratic processes, potentially championing social causes not rooted in societal consensus but driven by bottom-line considerations. This concern is driven home by the brazen double-dealing of certain corporations in their diversity charades. The genuine desire for moral advancement rings hollow when, for example, a company like Warner Bros expresses a commitment "to promote diversity, remove barriers, and create space for all to share ideas and be heard," yet willingly adheres to the dictates of Chinese censors, removing depictions of LGBTQ relationships in their movies. Diversity visions of this type are arguably ill-suited for catalyzing change within larger ecosystems.

Perhaps most notably, instrumental rhetoric for diversity has been demonstrated to be highly counterproductive, often causing alienation among the very individuals it aims to include. A recent study by Georgeac and Rattan highlights that research participants from underrepresented groups, such as LGBTQ individuals, STEM women, and African Americans, who were exposed to reading a business case for diversity compared to those who encountered a fairness or neutral case, experienced diminished belonging, heightened concerns about stereotyping, and perceptions of interchangeability.

Why does the business case for diversity persist in corporate realms?

The enduring presence of the business case for diversity within corporate spheres poses a curious conundrum. Despite compelling counterarguments, why do these narratives persist? Unraveling this enigma requires a deep dive into historical antecedents and the sway wielded by consultants in upper echelons of management. Remarkably, these consultants, endowed with an aura of credibility, advocate for study outcomes that directly contradict decades of robust academic research, further confounding the puzzle.

What else could elucidate this phenomenon? Some might attribute it to ulterior motives and cynicism. Conceivably, corporations may overtly champion the business case while covertly pursuing "cognitive diversity." Alternatively, they may leverage diversity rhetoric as a corporate branding tool, anticipating future commercial benefits by attracting university graduates. Evidence suggests that among young professionals, diversity commitments significantly influence job decisions, with 79% considering it "very important," according to the National Association of Colleges and Employers. A recent PEW poll further corroborates this trend, revealing that among 19–28-year-old employees, 68% believe that focusing on diversity at work is primarily a positive thing.

Nevertheless, such explanations risk oversimplification and excessive pessimism. Many corporations genuinely espouse principles of justice and nondiscrimination, driven by individuals who seek to create value and recognize the imperative of moral progress. Ignorance and convenience also play significant roles. Grappling with the complexities of myriad peer-reviewed diversity studies or deciphering intricate meta-analyses laden with scientific jargon proves far more arduous than digesting a succinct McKinsey or BCG report, particularly if the latter promises a proverbial free lunch for embracing societal good. Moreover, advocates may fear that admitting the lack of empirical support for broad diversity claims could undermine the broader cause. Hence, the emphasis on the bottom line and instrumental managerial rhetoric may stem from prudential motives, assuming economic arguments hold more influence and legitimacy within business circles than moral appeals when addressing social issues like workplace justice.

Why the justice-based arguments are more persuasive, and why action over words is more appealing

However, in light of overwhelming evidence challenging the purported business case for diversity, performance-based arguments appear conspicuously unfounded and, perhaps more significantly, unnecessary. What many fail to recognize is the heartening reality that there is no compelling business case against diversity either. Economically, homogeneity fails to demonstrate superiority as a profitable venture, and discrimination does not prove to be a financially lucrative strategy. This should, in theory, make it more straightforward for corporations to genuinely prioritize the more convincing justice-based arguments for diversity. Alternatively, in accordance with Georgeac and Rattan's suggestion, drawn from their observation that the juxtaposition of fairness versus a neutral case may still alienate underrepresented groups, albeit to a lesser extent, organizations should contemplate abstaining entirely from rationalizing their dedication to diversity and instead simply state "their commitment to diversity as a matter of fact, that is, as something that requires no justification and is simply part of the organization’s core purpose." Deeds hold more weight than rehearsed rhetoric. Instead of making a fuss about their commitments, corporations should instead take action to promote fairness, end discrimination, and embody integrity and true character.

Moreover, social scientists should demonstrate increased courage and intellectual honesty by openly challenging unfounded assertions, instead of silently recoiling from activism or advocacy rooted in distorted interpretations of research findings. This is also vital for upholding the credibility of their field of study. Business consultants should refrain from peddling services based on deceptive claims and, at the very least, contextualize their studies within the broader landscape of the social sciences to foster scholarly integrity and establish themselves as trustworthy partners in driving meaningful diversity initiatives. Portraying diversity as a commodity or economic calculation is not only inaccurate and morally precarious but has also been proven to harm the very individuals these initiatives aim to support and protect. Justice and nondiscrimination possess intrinsic value and merit communication that reflects this significance.