Profit or principle? Unpacking the diversity debates

By Helena Wacko, Equity, Diversity & Inclusion Researcher

The corporate world has long debated the impact of EDI (Equity, Diversity and Inclusion) initiatives aimed at addressing systemic barriers faced by marginalised employees – such as women and marginalised genders. These initiatives have faced renewed scrutiny in the wake of recent and growing EDI backlash and anti-gender sentiments.[i] Critics have questioned whether such measures are truly effective or if they fail to deliver measurable value – the most critical of which question their need in the first place.

A prominent example of this debate centres around McKinsey & Company’s findings that already in 2015 established a link between diversity and profitability – in turn providing a financial incentive for EDI programmes.[ii] While McKinsey’s research has often been cited as evidence of the business case for diversity, critics have seized upon recent methodological controversy – where findings were challenged and failed to be replicated – to cast doubt not only on these specific studies, but also on the broader case for EDI initiatives.[iii]

But does the questioning of McKinsey’s methodology justify dismissing diversity efforts altogether? And what are the tensions and implications of relying on financial incentives to drive EDI? We unpack the nuances of this debate and explore the evidence that supports diversity efforts, including gender equity, in the workplace.

Nuance Matters: what is being challenged in the McKinsey claim, and broader EDI debates

It is crucial to distinguish between what opponents of EDI are challenging and what they are not. They have eagerly leveraged critiques of McKinsey’s studies as validation for their long-held scepticism, extrapolating their critiques to dismiss diversity initiatives – in some cases narrating EDI as a “scam” – and branding these efforts as unnecessary or counterproductive. Yet, the contention in the McKinsey debate lies specifically in the claimed link between diversity and financial performance – not in the broader validity of EDI principles. This distinction is critical. The debate should not overshadow the moral and ethical imperatives of equitable representation and inclusion, nor should it ignore robust evidence from other sources that affirm the positive impacts of diversity. In turn, this raises an important question: why should EDI be pursued solely for bottom-line benefits?

Framing the value of EDI solely in terms of financial performance is a double-edged sword, and the exploration of links between diversity and performance can be inherently problematic. By investigating this relationship researchers risk producing findings that could be misused by anti-gender agendas to argue that diversity hinders performance. This then shifts the blame onto marginalised individuals and provides justification for their exclusion, all while ignoring broader systemic contexts. While we now understand EDI’s impact on business performance, especially regarding innovation capability, it is important to remember that diversity was never intended to be about profit or performance. EDI was about creating fairness and equity within organisations and societies.

Also, findings from the many studies exploring links between diversity and performance, for example gender diversity and performance, that do not find any positive relationship, are inevitably partial or incomplete, as they only measure levels of diversity, as opposed to inclusion. [iv] This is another important distinction overlooked in the debate over EDI. Studies that measure diversity are typically overlooking factors such as actual levels of inclusion (not simply representation), poor implementation of gender equity, the failure of organisations to address specific workplace barriers for women and marginalised genders or the additional burdens placed on marginalised employees to “prove” the value of diversity.

In other words, studies looking at diversity and performance that fail to account for levels of actual inclusion can create the idea that diversity is bad for business. Diversity alone is not a predictor of enhanced business performance, rather these studies must also consider the workplace system, inclusion and culture — rather than focusing on representation ratios alone.

Evidence beyond McKinsey: A broader look at EDI’s impact

While McKinsey’s “Diversity Wins” series has been influential, it is just one piece of the puzzle. Although financial incentives should and cannot drive EDI alone, there is a wealth of research highlights the positive relationship between gender diversity and business performance. For example, a study by the Peterson Institute in 2016 found that firms with 30% female leadership saw a 15% increase in net revenue margins, while research from Cloverpop in 2017 revealed that inclusive decision-making improved business outcomes 87% of the time.

Similarly, the Boston Consulting Group reported in 2018 that companies with diverse leadership teams experienced a 10% increase in innovation revenue. Further reinforcing these findings, S&P Global noted in 2019 that female CEOs drove a 20% increase in stock price momentum, and female CFOs boosted profitability by 6%. Finally, Credit Suisse found in 2012 that firms with women on their boards achieved 26% higher returns on equity compared to those without. Together, these studies consistently demonstrate the positive relationship between gender diversity and business performance, underscoring the connections beyond McKinsey’s findings.

When the business case for diversity backfires: countering misinformation and simplified research findings

Critics often weaponise a variation of a “diversity is a scam” narrative, claiming that diversity efforts undermine meritocracy – particularly in light of the controversy around the McKinsey methodology. This is a false dichotomy. The debate is not about prioritising diversity over skill but about dismantling the barriers that prevent skilled individuals from diverse backgrounds from accessing opportunities. Again, it was never about profitability to begin with, or as aptly articulated in a Wall Street Journal article on the matter; “doing it because it is the right thing is not the same as doing it because it makes more money”. [v]

When ’doing diversity’ solely for profit-driven gains, marginalised workers might actually be harmed in the process, when becoming subjected to tokenism or ‘onlyness’.

Furthermore, public debates often oversimplify research findings. For example, opponents of EDI may conflate correlation with causation to discredit the evidence linking diversity to positive outcomes. While causation is less commonly used in social sciences compared to correlation studies, the consistent correlations across multiple studies are scientifically recognised to examine social phenomena and offer valuable insights into EDI’s impact on a workforce – and most of all on benefits to the lived experiences of marginalised employees.

Implications of incentivising diversity with financial gain and performance

This misrepresentation of the McKinsey debate has far-reaching implications and simply put: “the fact that we’re still debating the value of a diverse and inclusive workforce is painful, given the clear differentiator true diversity is.”[vi] This is because, and perhaps most importantly, these debates detract from the lived experiences of marginalised employees. Research overwhelmingly demonstrates that systemic and interlocking barriers, faced by marginalised identities, such as women and diverse genders, remain pervasive (as evidenced in our most recent report here). Tackling these barriers – and creating cohesive, representative and inclusive workplaces – should be reason enough to invest in gender equity and broader EDI initiatives, even without the financial justification.

Beyond the bottom line: the broader case for gender equity and shifting the narrative

The debate over McKinsey’s findings highlights a larger issue: the persistent undervaluing of diversity’s broader benefits. While financial performance is important, it should not be the sole driver of diversity efforts, including those centred on gendered equity, nor should it overshadow the deeper, intrinsic value of equitable representation. Systemic inequities demand systemic solutions, and diversity initiatives are a vital part of this equation. Businesses must shift the narrative, recognising that gender equity, as well as broader EDI efforts, are both a strategic advantage and a moral responsibility – and about creating fair and thriving workplaces.

What does this all mean for your organisation?

As the evidence demonstrates, the business case for inclusion and diversity is compelling, making it essential for companies to reflect the communities and markets they serve. However, it is vital to keep the moral case at the heart of EDI initiatives.

A powerful way to achieve this is by mobilising your leadership teams to commit to the moral case, while anchoring their responsibilities to both their workplaces and society.

Key actions might include:

• Align EDI with the ESG agenda: Establish precise alignment between the broader ESG framework and specific EDI metrics to create measurable, impactful outcomes.
• Tell stories of impact: Conduct listening exercises with your workforce and share anonymised experiences. This approach helps executives humanise the issue and build an emotional connection to EDI.
• Connect to organisational values and purpose: Link EDI initiatives to the organisation’s core mission and values to ensure authenticity and alignment.
• Challenge legacy thinking: Inspire your executive team to embrace a human-centric leadership legacy. Encourage reflective questions, such as: “How do I want to be remembered as this organisation’s CEO?”
• Provide evidence of stakeholder expectations: Highlight ethical and practical demands from employees, clients, shareholders, and other key stakeholders to strengthen the moral case for EDI.

Ultimately, the question is not whether diversity matters – it is how we measure and communicate its value. As the evidence shows, the case for inclusivity and diversity remains compelling. Now, in a time of EDI backlash and anti-gender sentiments and increased blurred lines between factual research and sensationalised misread research, businesses must continue to champion diversity.

Ready to accelerate gender equality in your organisation? Shape Talent is an award-winning gender equity consulting firm with a vision to accelerate gender equality in business and beyond. Contact us today to explore how we can support your gender equity initiatives.

References

[i] https://www.ft.com/content/18a8e9c4-d515-4d9b-aac1-d88c02b46028
[ii] https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-matters-even-more-the-case-for-holistic-impact
[iii] https://www.thetimes.com/article/diversity-does-not-improve-financial-performance-report-finds-hnqpd3nxq
[iv] https://www.researchgate.net/publication/362510061_The_Impact_of_Workforce_Diversity_on_Organizational_Performance_A_Review
[v] https://www.wsj.com/finance/investing/diversity-was-supposed-to-make-us-rich-not-so-much-39da6a23
[vi] https://www.forbes.com/sites/roncarucci/2024/01/24/one-more-time-why-diversity-leads-to-better-team-performance/