BlackRock, the world’s largest fund manager, may have thought it had come up with a winner when last week it published a report claiming investing in women “lifts” financial performance in companies. Unfortunately, the paper has prompted many to take pot shots at the study’s methodology and conclusions.

The latest critic is leading business professor Alex Edmans of London Business School who, in a blogpost, claims that readers can take “almost nothing” positive away from BlackRock’s efforts to establish the place of women in the engine of business.

Edmans concludes BlackRock’s study, Lifting financial performance by investing in women, “makes fundamental errors”, uses “dubious” measures of financial performance”, “dubious” measures of gender diversity and is also guilty of “omitting basic controls”.

Edmans’ intervention came after some business luminaries endorsed the study. Nicolai Tangen, chief executive of Norges Bank Investment Management, the world’s largest sovereign wealth fund, messaged on LinkedIn: “Better gender balance means more money! Now proven!”

The Financial Times reported the study, as did other outlets, saying that it would “strengthen the case of investment firms that contend it is part of their fiduciary duty to consider gender representation and other social factors in the investment process”.

Edmans’ blog, meanwhile, argues little in BlackRock’s study stands up to scrutiny. In one example, Edmans takes aim at BlackRock’s use of “return on investment” as a measure of performance when there are many other accounting measures and investors are generally interested in “total shareholder return”, which he describes as “far more comprehensive”.

He also argues the performance measures switch inexplicably, at least five times in the study.

Another example is a claim that “women-friendly” workplaces help boost company performance, using maternity leave as a proxy measure. Edmans points out that, while this could be a useful measure of culture, maternity leave does not constitute the “workplace”, which may involve other variables.

Edmans is not alone is his scepticism of BlackRock’s work. Fellow London Business School staffer Tom Gosling revealed his own reservations. This week, Alison Taylor, professor at NYU Stern School of Business, offered Edmans her support, declaring the BlackRock methodology was “full of holes”. She adds: “This is a problem because it further politicises the conversation.”

Taylor argues: “Even more important, how did we start acting as if proving the business case is the only thing that matters? What about inclusion, dignity and respect? Not everything can be quantified. And just because something can’t be, doesn’t automatically render it irrelevant.”

Attuned response

Taylor received support on LinkedIn. Sidney Madison Prescott, global head of automation at Spotify, the music streaming service, posts: “It is unethical to focus on gender diversity as a way to boost financial performance, rather than a way to ensure equality of opportunity regardless of gender.”

Susan Watson, dean of the University of Auckland Business School, writes in response: “Isn’t the point that evidence shows gender diversity does NOT [sic] affect financial performance—as some might have argued once.

“The focus can then turn to the equal opportunity imperatives and also an examination of the other benefits over the long term that diverse leadership might bring over time.”

This is not the first time academics have voiced concern about research from consultants or business that claims to show that diversity results in improved performance.

A 2020 study by McKinsey, Diversity Wins: Inclusion matters is often potlighted as problematic too. When US university researchers Jeremiah Green and John Hand attempted to reproduce the results using McKinsey’s methodology, they point out they failed. Edmans too has taken on McKinsey’s research.

Diversity continues to be controversial. But at least the debate now seems centred on whether diversity needs a business case or whether it should be pursued for other reasons. Work on a “business case” looks like an act of appeasement to those who would otherwise continue their equivocation, at best, or opposition, at worst, to tackling fair representation in boardrooms and workplaces.

Edmans sums up: “The misrepresentation of the business case for diversity is particularly disappointing since it may be that no business case is needed at all.

“Even without a business case for diversity, there are strong moral and ethical cases.” And as such, like it or not, diversity remains a key corporate governance concern.