November 03, 2019

The Business Case for More Diversity -- is crap

The quant-brains at the WSJ would make good epidemiologists -- they make the same simple mistakes. They find that big companies with more women among their top people make more money.  An open-and-shut argument for "diversity", right?  Sadly, no.  All it shows is that the companies with smart leadership  are sensitive to social signals and so heed and act on one of the most pounded social signals of all -- the desirability of diversity. 

To simplify, which is it?

* Smart companies hire more women and so make nore money because of that

* Smart companies make more money because they are smart and hire more women because it is also smart to be politically correct. Had it been politically correct to hire baboons, they would have hired baboons

Yes.  I know. Some lamebrain is going to say I have compared women to baboons.  To such people I have no reach.  But I hope the point is clear.  The data behind the story below do not enable us to tell which way the causal arrow points so the claim the authors make is moot.  Their data cannot show what they want it to show.

In their better moments, epidemiologists call such studies a "correlational" study, in full awareness of the basic statistical truth that correlation is not causation

We get some inkling of the real direction of the causal arrow from the finding that smaller companies are less likely to hire women. Such companies are presumably less exposed to social scrutiny

The evidence for benefit from diversity that Leftists normally  quote is the much belaboured report from Kinsey & Co which first came out in 2007 and was reissued in 2015. I debunked that report on 10th. October  We swim in a sea of Leftist bunkum.

Excerpt only below of the WSJ article


DIVERSE AND INCLUSIVE cultures are providing companies with a competitive edge over their peers.

So concluded The Wall Street Journal’s research analysts in their first ranking of corporate sectors, as well as the individual companies in the S&P 500 index, based on how diverse and inclusive they are.

The financial industry overall was the best-performing sector in the study, with banks and insurers dominating the list of the 20 most diverse companies. The communications- services and consumer-staples industries came in a close second and third, while the energy and materials sectors brought up the rear.

Turns out the 20 most diverse companies in the research not only have better operating results on average than the lowest-scoring firms, but their shares generally outperform those of the least-diverse firms, the research shows.

Many of the high-scoring companies in the study say that having a well-rounded workforce has helped them create better products and be more innovative, leading to growth in sales and profit. Analysts agree that diversity can help fuel innovation, which is critical to success in a fastchanging world where technological disruption has become the norm.

Female board representation remains fairly low across the S&P 500.

“Diversity helps create long-term shareholder value,” says Lottie Meggitt, responsible- investment analyst at Newton Investment Management, a unit of Bank of New York Mellon. “Too often we have seen companies fail or make poor decisions where teams are populated with individuals who all think the same, or who are unwilling or unable to challenge the status quo.”

To create the ranking, The Wall Street Journal’s environment, social and governance research analysts gave each company in the S&P 500 a diversity and inclusion score from 0 to 100. The scores were based on 10 metrics, including the age and ethnicity of the company’s workforce, the percentage of women in leadership roles, whether the firm has diversity and inclusion programs in place for employees, and the makeup of the board. (See the full methodology at wsj.com/leadershipreport.)

Among the findings:

Progressive Corp. and JPMorgan Chase & Co. took the top two spots in the ranking, with scores of 85 and 80, respectively. The financial industry overall had an average score of 50.4 followed closely by the communications- services industry at 49.5 and the consumer- staples sector at 48.8. Companies in the energy and materials sectors earned average scores of 40.

Following a string of gender- and racialdiscrimination lawsuits over the past few decades, banking firms in recent years have worked to narrow pay disparities and recruit a more diverse workforce. Other companies in the financial sector have had to make changes to attract and retain millennial workers and to reach an increasingly diverse U.S. customer base.

“Consumers have many different options and higher expectations for products and services that reflect and meet their unique needs,” says Lori Niederst, chief human-resources officer at Progressive. “This makes constant and concerted attention to diversity and inclusion a business imperative.”

Larger companies tended to score better than smaller companies in the research, probably because bigger firms have more resources to devote to D&I programs, the study found. (The average market cap of the top 20 performers is $127 billion, compared with $17 billion for the bottom performers). But some say it could be that smaller companies haven’t faced the same kind of pressure larger companies have to create more diverse and inclusive workplaces.

SOURCE






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