DEI Is Hollowing Out America’s Business Leadership

D EI (diversity, equity, and inclusion) has radically changed hiring and promotions. Instead of seeking the most experienced, capable individuals, the goal is to balance the racial and gender identities and sexual orientation of directors, executives, and employees so that they approximate the proportion of each cohort in the American population, with particular attention to blacks and women.

Boards and senior management are unlikely to reflect America’s racial and gender composition, for many reasons, including shifting demographics; the education, experience, and career path previously required for leadership, shaped by demographics and choices made 20 to 60 years ago; income disparities, and, importantly, individual choice. Many women took time off to raise children. Black and Hispanic families were less affluent than white families and had fewer choices. Incarceration, addiction, and dropout rates vary. People of different backgrounds pursued their chosen courses of study and careers in differing proportions.

According to the U.S. Census Bureau, as of July 2021, the U.S. was 61.6 percent non-Hispanic white, 18.5 percent Hispanic, 13.4 percent black, and 5.9 percent Asian. In 2021, women were 38.5 percent of MBA students, and blacks were 8 percent. But, in 1970, when today’s younger CEOs were born, the U.S. was 87.4 percent white, and when today’s experienced executives received their degrees, there were proportionally fewer women and minority students in professional schools.

Nonetheless, as government, investors, and corporations adopt DEI as their lodestar, and progressives demand immediate results, enterprises have a dilemma. Merely adopting DEI for hiring and promotions, impractical though that may be given the disparity between “equity” and the distribution of qualified candidates, won’t change the overall numbers quickly enough. The stunning solution is to throw caution and qualifications to the wind. If hiring and promotion of favored groups exceeds their proportionate percentages in the qualified pool or, for blacks, even in the general population, the enterprise can reach nirvana much more quickly. While some companies stand accused of scheduling fake interviews to boost their DEI statistics, the overall results are quite real.

At the top, boards of directors are the stewards, charged with directing corporations to maximize shareholder value. Search firm Heidrick & Struggles reports that last year, 26 percent of all new directors of public companies were black, and 45 percent were women. In 2020, 28 percent of newly elected directors were black. This overweighting cannot be filled from the usual pool of 50- and 60-year-old C-suite executives, investment bankers, and law-firm partners. Accordingly, H&S reports that a record 43 percent of these newly elected directors had no prior board experience, including about 60 percent of the newly appointed black directors.

Of first-time directors, just 24 percent have served as a CEO, 10 percent as COO, 9 percent as CFO, and 23 percent as head of a global unit. These numbers are not additive, because directors account for multiple positions. For experienced directors, 52 percent served as a CEO, 21 percent as COO, 17 percent as CFO, and 26 percent as head of a global unit.

Last year, the Washington Post determined that about 8 percent of C-suite executives (a company’s top management) in the 50 largest companies are black, though the black percentage at least equaled America’s black population at ten of those companies, and reached at least 20 percent at Merck, UPS, AT&T, UnitedHealth Group, and Home Depot. The black percentage reached or exceeded the black percentage of the traditional pool of qualified candidates in almost all of these companies.

In February 2020, a Stanford Business School survey found that at Fortune 100 companies, 94 percent of CEOs were men, 85 percent were white, and 3 percent were black. For CFOs, 83 percent were men, 92 percent were white, and 1 percent were black. For other C-level positions, women and blacks often fare better. For example, about 13 percent of the heads of human-resources departments were black, and 71 percent were women. Women also accounted for 35 percent of general counsels and chief marketing officers, and for most of the occasional chief sales officers and chief administrative officers. Blacks held 43 percent of the CAO titles. Despite slow turnover at the top, it is likely that 2022 data would show more blacks and women in many of these positions.

More broadly, according to the Bureau of Labor Statistics, from 2019 to 2021, while the number of CEOs grew by 3.9 percent, the number of black and women CEOs increased by 49.5 percent and 9.5 percent, respectively. During this period, the number of general and operations managers grew by 2.6 percent, while the number of blacks and women holding these positions grew by 44.5 percent and 22 percent, respectively. On a combined basis, Asian and Hispanic employment in these three positions increased by 25.5 percent and 1.4 percent, respectively. Despite the increased number of total positions, the number of whites and men holding these positions each declined by about 1 percent, as white, male senior executives were replaced, and most newly created top executive positions were filled by a woman and/or a minority candidate.

In the rush to hire blacks and women, it seems that Hispanics have been left to the side. There are no reliable numbers for LGTBQ hiring and promotion.

As with board positions, to fill senior-executive positions with blacks and women at this rate, companies must reach deeper into the bench of aspiring candidates, bypassing more-experienced executives. The individuals passed over must either report to less capable bosses or leave, compounding the problem.

It should be axiomatic that less capable boards and executives will fail to guide business and innovation with the same results as more capable leadership. From the time of Adam Smith’s Wealth of Nations in 1776, “human capital” has been recognized as a critical driver of business success; in many fields, particularly those in which the United States is a global leader, such as technology, sciences, and services, it is the most important driver.

DEI hiring and promotion decisions also are tainted by successive rounds of DEI and affirmative action. A 2017 Brookings study shows that there are statistically significant differences in the SAT performance of minority students. Brookings estimates that in 2016, at most, 2,200 blacks and 4,900 Hispanics scored above 700 on the math section, compared to roughly 48,000 whites and 52,800 Asians. If blacks and Hispanics had performed proportionately (21 percent of test-takers were Hispanic and 14 percent were black), there would have been 15,106 blacks and 22,659 Hispanics scoring over 700. That is an 85 percent underperformance for blacks and 78 percent for Hispanics. Brookings observed that this gap goes back to at least 1996. Extensive data show that when underperforming students are admitted through affirmative action, the “mismatch” leads to reduced performance of its beneficiaries. Many professional schools require affirmations of DEI from businesses permitted to recruit on campus, advancing underperforming minority students into their next credential.

For most corporations, making employment decisions based on race, gender identity, or sexual orientation violates state laws and the Civil Rights Act of 1964. Reducing opportunities for men also is contributing to a widening education gap. The number of men attending college has declined each year since 2012. Women now account for the majority in colleges and in law, medical, and graduate school.

Conversely, DEI unfairly penalizes those members of minority groups who would excel without preferences. Lumped in with individuals who advanced because of their cohort rather than because of their individual merit, they are deprived of the pride and recognition to which they are entitled for their achievements. A Yale study released this month concludes that blacks, LGTBQ+ MBAs, and women seeking jobs in science, technology, engineering, and math felt “depersonalized” by businesses that justified DEI as broadening perspectives or experience. Perhaps implicitly acknowledging the falsehood, they were more comfortable simply arguing that DEI is “fair.”

If enterprises select human capital based on equity rather than on intelligence, aptitude, interests, experience, and relationships, all stakeholders, including employees, will suffer. Individual liberties, equal opportunity, capitalism, and advancing merit are the engines of America’s prosperity and liberties. Racism and social engineering have never come close, and DEI won’t be the exception.