559: Professor of Finance at London Business School, Alex Edmans, on Why ESG and DEI Data May Contain Lies

The Strategy Skills Podcast: Strategy | Leadership | Critical Thinking | Problem-Solving

In this episode, finance professor and author, Alex Edmans, offers a rigorous examination of the narratives surrounding diversity, equity, and inclusion (DEI) in corporate strategy. Drawing on his critique of widely cited studies, including those from McKinsey and BlackRock, Edmans illustrates how flawed data interpretations and confirmation bias contribute to the persistence of questionable claims. He warns against relying on correlation-based research that lacks causal rigor, especially when such findings are used to justify high-stakes decisions in boardrooms and policy circles.

Edmans identifies three recurring issues in the current DEI discourse: cherry-picked performance metrics that ignore long-term shareholder value; reverse causality, where strong performance leads to more diversity, not the other way around; and omitted variable bias, such as industry effects that confound diversity claims. He also critiques the narrow definition of diversity, which often reduces individuals to surface-level demographic traits while ignoring cognitive and experiential variation that may be more relevant to performance.

The conversation extends beyond DEI to explore the structural incentives within academia, consulting, and media that reward oversimplified narratives. Edmans notes that when ideas become dominant, dissenters face not only reputational risk but also institutional hurdles that discourage honest debate. The result is a professional ecosystem in which flawed research is amplified and poorly contextualized advice is recycled across geographies and sectors without regard for applicability.

Other key themes include:

• The difference between demographic and cognitive diversity in strategic decision-making

• The dangers of universalizing business practices without accounting for local context

• Why flawed performance metrics (e.g., EBITDA) misrepresent firm success

• How misaligned incentives distort executive behavior and perpetuate ineffective initiatives

• The role of institutional culture in suppressing dissent and reinforcing groupthink

For senior leaders navigating complex decisions, Edmans’ commentary offers a timely reminder: even widely accepted practices warrant scrutiny. In environments where performance is difficult to measure and cause-effect relationships are opaque, intellectual discipline, not ideological alignment, is essential.

Learn more about Alex Edmans here: https://alexedmans.com/

Get Alex’s book here:

May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases—And What We Can Do about It. https://maycontainlies.com/

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