The End of DEI

Diversity, equity, and inclusion (‘DEI’) is among the most controversial issues facing business today. Advocates contend that DEI initiatives broaden a company’s recruitment pool and identify high-ability candidates who might otherwise be overlooked. Moreover, firm performance depends on not only employees’ individual abilities but also how effectively they collaborate as a team. DEI can foster a workforce that encompasses a range of backgrounds, experiences, and problem-solving approaches, where the whole exceeds the sum of its parts. This perspective is supported by evidence claiming a strong correlation between DEI and performance, eg, McKinsey (2015, 2018, 2020, 2023) and the academic studies summarized by Gorte (2024). 

In contrast, opponents argue that DEI can undermine meritocracy by prioritizing demographic characteristics over ability. This concern has fueled a DEI backlash, particularly in the US where policymakers have rolled back DEI initiatives, activists have pressured companies to abandon DEI programs, and courts have ruled DEI policies illegal. (For example, the US Court of Appeals struck down Nasdaq’s board diversity rules in December 2024, and the US Supreme Court struck down race-based college admission policies in June 2023.) While some critics view this opposition as politically motivated, others point to weaknesses in the widely cited evidence for DEI’s benefits (eg, Green and Hand’s (2024) critiques of the McKinsey studies) and note that the most rigorous academic research finds no link, and sometimes a negative link (Fried, 2021). 

The current practice of DEI is thus highly polarizing and partisan. Within companies, it is often championed by DEI specialists, HR professionals and corporate responsibility departments but sometimes resisted by operating or commercial units which view it as necessarily reducing performance. DEI policies tend to be supported by minority employees but perceived by non-minorities as being at their expense. Within society, left-leaning politicians and voters typically support DEI initiatives, whereas those on the right view them as discriminatory. In short, DEI is viewed as redistributing the pie towards some groups and away from others, reducing the debate to a simple question: ‘whose side are you on?’

However, this controversy arises from simplistic implementations of DEI. The principle of DEI, when correctly applied, need not be divisive; instead, it can grow the pie for the benefit of all. Diversity, when understood in a multidimensional rather than purely demographic way, can lead to the highest-quality people being recruited and the best team being formed. Equity, if viewed as equality of opportunity rather than outcome, ensures that employees are treated fairly and that results reflect merit. Inclusion involves creating an environment where people from different backgrounds can thrive, contribute fully to company success, and share dissenting viewpoints.

In 2023, I published The End of ESG. The title was not anti-ESG; instead, it highlighted how the practice of ESG had become niche and partisan—championed mainly by ESG specialists and opposed by those without ESG titles or on the political right—and involved ticking ESG boxes rather than creating long-term value. Later that year, Applying Economics – Not Gut Feel – To ESG showed how ESG issues can be analyzed with rigor rather than ideology. The trilogy concluded with Rational Sustainability, which proposed a new approach to ESG—one that fully harnesses its benefits while addressing its criticisms. 

In a new article, The End of DEI, I similarly propose a way forward for DEI that seeks to harness its benefits while addressing its challenges. Its title arises not because it is anti-DEI, but because it seeks to achieve two goals. First, it emphasizes that DEI should not be seen as a polarized issue, supported unquestioningly by some groups or rejected outright by others, but one that—properly implemented—can benefit all sides. Second, it stresses the need to move beyond current DEI practices, which reduce a complex and nuanced issue to checklist compliance, thereby failing to achieve DEI’s aims and creating serious unintended consequences.

However, this essay does not seek merely to repeat the narrative of ‘The End of ESG’ and apply it to DEI. Nor does it begin a new trilogy in which the solution only appears in the final installment. Instead, it offers a way forward within this article—that DEI evolve into the pursuit of Potential, Synergy, and Inclusion—offering practical guidance for boards, executives, investors, and policymakers seeking to move beyond divisive DEI debates and improve organizational performance. 

Potential highlights that, when hiring an employee or admitting a student, what matters is their likely future contribution rather than past achievements. It can be fully meritocratic to select someone with lower current performance (such as exam scores) if they are on a steeper trajectory. That trajectory may be shaped by traditional DEI factors such as gender and ethnicity, but also by many others such as socioeconomic or educational background. Moreover, ‘potential’ underscores the importance of not just hiring effectively but enabling people to realize their potential. In contrast, current ‘add diversity and stir’ approaches assume that it is sufficient to recruit a demographically diverse team, then sit back and wait for diversity to work its magic. 

Synergy stresses that an organization should seek to build the best team, not simply assemble the best set of individuals. One source of synergy is different viewpoints, which demographic diversity can contribute to. Psychological research shows that men and women, or a mix of ethnicities, may bring different approaches. But cognitive diversity extends far beyond demographics: it includes variation in expertise, experiences, information, perspectives, and ways of thinking. Moreover, synergy can sometimes arise from similar viewpoints, such as a quant fund benefiting from a concentration of quantitative skills. Beyond viewpoints, synergy has other sources, such as complementary skills—just as a football team needs goalkeepers, defenders, midfielders and strikers even if they rarely exchange ideas, or a construction firm requires bricklayers, electricians, and plasterers.

Inclusion remains from the current DEI acronym, but what changes is its prominence and practice. Current approaches to DEI often view inclusion as third-order, but it is central to the realization of potential and synergy. Without inclusion, employees from underrepresented groups may feel marginalized, preventing them from performing at their best. Beyond freedom from discrimination, inclusion involves having the confidence to challenge, question, and highlight blind spots, particularly with senior colleagues. Indeed, some approaches to DEI are not inclusive of alternative perspectives on DEI. 

This article does not advocate renaming DEI to PSI, nor that companies hire ‘PSI’ professionals, devise ‘PSI’ metrics or introduce ‘PSI’ policies. Indeed, it does not propose any three-letter abbreviation for Potential, Synergy, and Inclusion: DEI does not need another acronym or a rebranding. Instead, I argue for a fundamental reform of practice: to hire people based on their potential and help them to realize it; to build teams around synergy and complementarity; and to foster inclusive environments that encourage a range of perspectives. These are not merely HR concerns or left-wing issues: every employee and department can aim to integrate them into organizational practice, and all policymakers can embed them within society. DEI advocates should not dismiss every challenge to DEI as being politically motivated; instead, they can learn from the critiques and use them to improve practice. Likewise, DEI skeptics should not throw the baby out with the bathwater and allow concerns with unmeritocratic diversity policies to blind them to the benefits of potential, synergy, and inclusion. 

The author’s full article can be found here. 

Alex Edmans is Professor of Finance at London Business School.