The present woes of America’s elite universities highlight the risks of empowering illiberal “diversity, equity and inclusion” offices. Spawned by legislative attempts to correct for historical discrimination, such university offices have morphed into a parasitical industry of bloated bureaucracies that advocate for discriminatory admissions policies, restrictions on free speech and for coddling students from campus “microaggressions”.

Bizarrely, just as America is waking up to these horrors, the British government wants to entrench diversity, equity and inclusion in finance. The Financial Conduct Authority recently held a consultation on introducing mandatory diversity and inclusion strategies for firms with more than 251 employees. Among other requirements, companies would need to aggregate and disclose workforces’ demographic data, including on gender, ethnicity, religion and sexual orientation, before setting “stretching but realistic targets” to “address underrepresentation” at various organisational levels, reporting to the regulator. Diversity and inclusion shortfalls would be treated as a “non-financial risk”.

Armed with such information, one can imagine future binding government targets. The FCA says it wants companies to voluntarily report on workers’ gender identities and socio-economic backgrounds, too, hinting towards future obligatory disclosures. Even if direct state mandates never arise, America’s experience shows that internal compliance bureaucracies can run amok with softer regulations, diluting the pursuit of business profit and excellence.

Certainly, various diversity and inclusiveness initiatives can benefit companies. Many businesses already collate information about employees, aiming to obtain a competitive edge. But behind this policy lies a more perverse ideological belief. Demographic groups are seen not as collections of individuals requiring equal rights, but as categories with indistinguishable abilities and preferences. “Underrepresentation” is thus logically perceived to be synonymous with discrimination or unfairness, requiring intervention.

Alex Edmans, professor of finance at London Business School, is a nuanced and thoughtful critic. He points out that the FCA’s role is to protect financial consumers, not to enforce workplace social justice. He fears that the regulator is engaged in motivated reasoning, “reverse engineering a justification” for the mandates by implying that they help to meet its goals for consumer protection, competition and protecting the integrity of British financial system.

The FCA argues that demographic diversity will reduce company groupthink, for example, so improving governance and risk management. If that is true, it’s unclear why profit-making companies couldn’t work this out for themselves. In any case, Edmans’ submission shows that the FCA misrepresents the academic evidence. While just and equitable treatment of employees correlates with better company financial performance, the impact of demographic diversity is mixed, if not negative. Which is unsurprising, given that it’s cognitive, not demographic, diversity that surely matters for better decision-making.

This negates the case for any sort of quota regulation, but the FCA also claims that more diverse boardrooms, senior leadership teams and workforces will help firms to reach more diverse customer bases. Again, no empirical evidence is provided. As Edmans suggests, given that the FCA’s responsibility is to customers, surely a better use of its time would be understanding why certain demographic groups have lesser access to financial services in the first place.

Most ludicrous of all is the idea that setting diversity targets will bolster UK finance’s international competitiveness. Contrarily, diversity mandates can foster division within businesses by breeding doubts about the competence of minority employees in senior roles, stoking resentment among those overlooked for “diversity hires” and encouraging gaming to hit arbitrary targets. The idea that regulatory requirements to gather and disclose information somehow improves the business environment is fanciful. Devoting resources to hit targets, rather than improving inclusion in ways that generate value, is the real “non-financial risk”.

Unfortunately, such sloppy thinking in government is par for the course. For the past 13 years, the Conservatives have practiced moderation — implementing initiatives like this to appease “woke” progressives, while trying to avoid regulatory overreach. They must understand: campaigners will never be satiated while unequal outcomes exist. The Tories would rue this stimulus to the diversity, equity and inclusion industry.