Forcing companies to add minorities or women can damage their performance by leading to the hiring of unqualified or less qualified people. After Norway adopted gender quotas for corporate boards — requiring companies to have boards of directors comprised of at least 40 percent women — large numbers of inexperienced people ended up as corporate directors. “A study by the University of Michigan found that this led to large numbers of inexperienced women being appointed to boards, and that this has seriously damaged those firms’ performance.”
A 2009 study in the Journal of Financial Economics found that the “average effect of gender diversity on firm performance is negative,” so “mandating gender quotas for directors can reduce firm value for well-governed firms.” (See Renee B. Adams & Daniel Ferreira, “Women in the boardroom and their impact on governance and performance,” Volume 94, Issue 2, November 2009, Pages 291-309)
Yet, demands that companies hire more women or minorities are often accompanied by claims that firms perform better when they have diverse staffs or boards.
There are diverse companies that do better than non-diverse companies — but their diversity is due to their growth, rather than their growth being due to their diversity. Affirmative action plays no role in their success.
With each passing year, the percentage of minority college graduates grows, because young people as a group are more heavily minority than their elders, due to immigration — immigrants are disproportionately Asian or Hispanic — and the higher black and Hispanic birthrate.
So a company that is not growing and hires few new people will naturally have a smaller percentage of minorities in its ranks than a company that is growing and hiring new people. An expanding company’s success does not occur because of the rising number of minorities in the company; rather, the company’s expansion results in it hiring new employees, who are disproportionately minorities compared to its original workforce. That gradually results in more “diverse” workforce, even without any affirmative action or racial preferences in hiring.
My brother’s investment firm was much more heavily minority than the financial industry as a whole, but it did not practice affirmative action, and would have regarding doing so as bizarre. The reason for its high minority percentage was because the company’s managers were young, and young people as a group are more heavily minority and more heavily non-white than their elders.