LTP News Sharing:
Corporations have often justified their discriminatory DEI programs by claiming that forced diversity is good for business.
In a commentary published at RealClearMarkets, Free Enterprise Project Executive Director Stefan Padfield debunks that claim:
Where is the data showing forced diversity causes an increased share price? The SEC was recently unable to make that claim after reviewing all the relevant studies, and existing studies showing the reverse effect likely have to be willfully ignored to make that claim….
Rather than forced diversity leading to better outcomes, what we actually find is that it quite predictably leads to worse outcomes.
Read Stefan’s commentary below.
Not that long ago, corporate-sponsored discrimination on the basis of race under the guise of DEI (diversity, equity, and inclusion) programs was justified on moral grounds. Among other things, we were told that this corporate neo-Marxist neo-racism is necessary because corporate America is systemically racist, and because all blacks are oppressed while all straight white males are oppressors.

Stefan Padfield
This justification has since withered away, after the Supreme Court struck down affirmative action in colleges, and people started asking inconvenient questions about how the Obamas could be deemed oppressed while the white guy who just lost his job to offshoring was deemed an oppressor.
First we were told DEI is necessary because blacks are oppressed; now we’re being told DEI is necessary because black Americans’ spending power “sits between $1.4 trillion and $1.8 trillion annually.”
The moral justification typically included a claim that diversity is good for business, but that claim is now carrying all the weight of these programs. Unfortunately, that claim won’t fare any better under serious scrutiny than the old one did.
To begin with, where is the data showing forced diversity causes an increased share price? The SEC was recently unable to make that claim after reviewing all the relevant studies, and existing studies showing the reverse effect likely have to be willfully ignored to make that claim. As Harvard law professor Jesse Fried has noted: “Nasdaq cannot cite any high-quality study showing that board gender or ethnic diversity boosts returns, because there has been none. In fact, there is a sizeable body of academic work reporting the opposite result: diversifying boards can harm financial performance.”
And even if someone were to announce such results tomorrow, the track record of such studies has been so bad that one should expect the claims to be debunked shortly.
As an aside, there is a good argument to be made that all the executives and directors who have been justifying their DEI programs with platitudes about diversity being good for business while they knew or should have known that the data doesn’t support such claims (and apparently without making any attempts to collect and analyze relevant internal data) are in breach of their duty to make informed decisions, possibly rising to the level of bad faith willful blindness in at least some cases.
There is also the problem of a form of race essentialism underlying the claim that diversity is good for business. For example, Costco’s recent defense of its DEI programs as improving “originality and creativity” suggests it views blacks as inherently different from whites such that replacing some of Costco’s white employees with black employees will automatically improve outcomes.
Here’s an idea: If you want more creativity and originality, hire the most creative and original people you can.
The same criticism can be levied against the oft-repeated trope that businesses perform better when they reflect the demographics of the communities they serve. Do executives spouting this justification believe their customers are really so racist that they make their purchase decisions based on the color of an employee’s skin? The recent California wildfires have been tragic, but one commentator made the related point that: “Surely, if a Filipino immigrant’s house was saved by the LAFD in recent days, the homeowner didn’t say, ‘Oh, thank goodness — but I hope at least one Pacific Islander was part of the crew.’”
Of course, it is fair to argue that a distinct black culture exists and that this is what makes diversity good for business. However, there are at least a couple of problems with that justification.
First, if one embraces this justification then one must also include in one’s analysis the cultural explanations for lower test scores and higher criminality, as well as single-parent households, among the black population, which is an explanation for the pipeline problem leading to under-representation in the first place. (A similar argument can be made for the alleged gender pay gap being a result of academic and career choices made by women. For example, a recent adjusted pay gap study found that “women make $0.99 for every $1 that men make,” as opposed to the 84 cents we are incessantly lectured about.)
Second, this “cultural differences” explanation must be compelling enough to overcome our societal rejection of racial discrimination. It is this societal rejection which likely explains why DEI is currently in retreat. Again, one glaring question here is: Where is the data? Rather than forced diversity leading to better outcomes, what we actually find is that it quite predictably leads to worse outcomes.
Finally, is discriminating on the basis of race really the best we can do to address inequality and promote business success?
At the very least, the legal and reputational risks of corporate racial discrimination strongly suggest that, for example, income inequality should be addressed by helping poor people without reference to race, whether that be via corporate charity or expanded entry-level job openings. And, again, when it comes to goals like improving creativity, finding the most creative people should be the focus – not creepily using blackness as a proxy for creativity.
The next time you hear someone justify corporate racial discrimination on the basis of some claimed ancillary benefit – and I hear this from corporate executives a lot – ask them why it isn’t racist to assume, for example, that hiring more blacks will result in more originality and creativity in the workforce, and why they aren’t just hiring for creativity and originality without discriminating on the basis of race.
Author: Stefan Padfield