I am reminded of the scam that is management consulting by an article at Econ Journal Watch, “McKinsey’s Diversity Matters/Delivers/Wins Results Revisited“. (McKinsey is McKinsey & Company, a prestigious consulting firm founded in 1926.) I have read the article, and it firmly support the claims made in its abstract:
In a series of very influential studies, McKinsey (2015; 2018; 2020; 2023) reports finding statistically significant positive relations between the industry-adjusted earnings before interest and taxes margins of global McKinsey-chosen sets of large public firms and the racial/ethnic diversity of their executives. However, when we revisit McKinsey’s tests using data for firms in the publicly observable S&P 500® as of 12/31/2019, we do not find statistically significant relations between McKinsey’s inverse normalized Herfindahl-Hirschman measures of executive racial/ethnic diversity at mid-2020 and either industry-adjusted earnings before interest and taxes margin or industry-adjusted sales growth, gross margin, return on assets, return on equity, and total shareholder return over the prior five years 2015–2019. Combined with the erroneous reverse-causality nature of McKinsey’s tests, our inability to quasi-replicate their results suggests that despite the imprimatur given to McKinsey’s studies, they should not be relied on to support the view that US publicly traded firms can expect to deliver improved financial performance if they increase the racial/ethnic diversity of their executives [emphasis added].
McKinsey’s studies about the supposed benefits of diversity were produced for corporate clients. Specifically, they would have been produced for senior executives of corporations, most likely at the direction of or with the close involvement of vice presidents for human resources (i.e., personnel). I would be willing to place a wager that McKinsey’s results were just what the clients wanted, corporate culture being what it had become by the time McKinsey was called in to ratify diversity.
In that respect, McKinsey is far from alone. I worked at a not-for-profit consulting firm in the Washington DC area for 30 years. We looked down on the for-profit firms of which McKinsey is one of dozens (if not hundreds). They were known crudely but with some justice as Beltway Bandits, and more accurately as Highway Helpers. Their job (unacknowledged but obvious to anyone who read their output) was to deliver findings that served their clients’ interests. Those interests, in most cases were the justification of systems and processes being considered for procurement by government agencies. When the clients were government agencies, the findings justified whatever systems and processes were favored by those agencies.
But, to be candid, the same kind of relationship often existed between non-for-profits (like the one I worked for) and their government clients. We knew what the clients wanted to hear, and we often found ways to deliver results that made them happy. The first major project to which I was assigned went that way, and I observed (and sometimes participated in) projects that were similarly biased. One time, when I delivered to an admiral a candid — and negative — appraisal of his pet project, I was declared persona non grata in his branch of the Navy’s DC establishment.
The main exception to this kind of behavior occurred in the field, where my former employer’s analysts worked with Navy and Marine Corps operators to evaluate the effectiveness of systems and tactics — sometimes in actual combat situations. There, where lives were at stake (or could be at stake), operators usually wanted the unvarnished facts. And that’s what they got from the analysts in the field. But those analysts comprised (and still comprise) a tiny fraction of the thousands of analysts who worked for Beltway Bandits/Highway Helpers and their not-for-profit brethren.
Consulting to U.S.-government agencies on a grand scale grew out of the perceived successes in World War II of civilian analysts who were embedded in military organizations. To the extent that the civilian analysts were actually helpful,* it was because they focused on specific operations, such as methods of searching for enemy submarines. In such cases, the government client can benefit from an outside look at the effectiveness of the operations, the identification of failure points, and suggestions for changes in weapons and tactics that are informed by first-hand observation of military operations.
Beyond that, however, outsiders are of little help, and may be a hindrance, as in the case cited in a Politico article that I address here. (Which is far from unique.) Outsiders can’t really grasp the dynamics and unwritten rules of organizational cultures that embed decades of learning and adaptation.
The consulting game is now (and has been for decades) an invasive species. It is a perverse outgrowth of operations research as it was developed in World War II. Too much of a “good thing” is a bad thing — as I saw for myself many years ago.
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* The success of the U.S. Navy’s antisubmarine warfare (ASW) operations had been for decades ascribed to the pioneering civilian organization known as the Antisubmarine Warfare Operations Research Group (ASWORG), the predecessor of the organization for which I worked. However, with the publication of The Ultra Secret in 1974 (and subsequent revelations), it became known that codebreaking may have contributed greatly to the success of various operations against enemy forces, including ASW.
See also “Modeling Is Not Science”, “Analytical and Scientific Arrogance”, and “Management Science” in “The Balderdash Chronicles”.