Musk Says DEI is Racist. Cuban Says It’s Good Business - Here’s the Data
After researching 1,600 public companies, As You Sow statistically linked diversity to financial outperformance.
Written By Andrew Behar, As You Sow & Meredith Benton, Whistle Stop Capital
Why are Elon Musk and Mark Cuban publicly feuding over workforce diversity? The billionaire beef is part of a larger conversation making headlines on corporate programs meant to improve diversity, equity, and inclusion (DEI) in the workplace. Elon claims the programs are “racist” against white men because they result in hiring practices that prioritize optics over “merit.” Mark says the same diversity programs are a competitive advantage and “good business.” So who’s right? You may be surprised.
Many metrics can measure merit. As shareholder advocates, we focus on transparency, capital discipline, and fiduciary duty to see how these best practices translate into return on investment. We analyzed more than 1.3 million publicly available data points on workplace diversity over a five-year period from over 1,600 publicly traded companies. Our recently published report showed a statistically significant correlation that diverse management outperforms all-White management on eight key financial metrics: enterprise value growth rate, free cash flow per share, income after tax, long-term growth mean, 10-year price change, mean return on equity (ROE), return on invested capital (ROIC), and 10-year total revenue compound annual growth rate (CAGR).
As management teams become more diverse, shareholders see increased ten-year stock returns. Inversely, the whiter the management team, the lower the returns.
Our results flip the “merit” argument on its head. If financial performance is the gauge, then Elon should be promoting programs that diversify management teams. For someone famously driven by data, Elon has yet to post metrics showing why he believes all White and male management teams deserve to be in charge. Instead, he spreads the overtly anti-Semitic and racist Great Replacement theory - the one about White men being “replaced” by minorities - as the “actual truth.”
Meanwhile, fellow celebrity billionaire Mark Cuban rejects Elon’s fact-free attacks on diversity programs. He understands that increased diversity in management is the invisible hand of the market optimizing corporate financial performance. Here is a synopsis of how Mark effectively outlined why each letter in DEI is important for his business ventures:
Diversity: I take it as a given that there are people of various races, ethnicities, orientation, etc. who are regularly excluded from hiring consideration… The loss of DEI-Phobic companies is my gain.
Equity: Put your employees in a position to succeed. Recognize their differences and play to their strengths wherever possible.
Inclusion: Making all employees, no matter who they are or how they see themselves, feel comfortable in their environment and able to do their jobs.
Mark Cuban effectively explained why DEI is good for business and our research showed that he’s correct. Thankfully, CEOs across the country are doubling down on investments into their DEI programs. They understand what our results show: Without correcting possible bias and discrimination in the workplace, companies enable underperforming White men and miss out on the diversity dividend.
Many may remember the “meritocracy” argument used to claim efforts to increase women in leadership were “sexist” against men. Turns out, women earn their jobs against this sexist headwind, as study after study shows their inclusion in management leads to financial outperformance. We now see similar positive results for increased racial and ethnic diversity in management. It seems that 'meritocracy' proponents are less concerned with actual merit and more concerned about protecting a status quo that benefits them.
Smart shareholders reject the argument that White men are in charge because they deserve to be while minority leadership only exists for optics. Diversity is good for business and therefore shareholders have a fiduciary duty to demand full disclosure from companies. The sooner we stop using outdated rhetoric to prevent equitable workplaces, the sooner we can shift our focus to growing an economy that benefits all participants.