Tech, I assume you have carefully tested this? Before making these absolute claims? Your assumptions about what Google thought and did are nothing more than assumptions and/or hearsay. Folks like you are the problem with SEO today.
OP you were referring to business directories as means of diversifying and "humanizing" your link profile. Ya? Do they help in that regard? And do they improve organic rank? While I can't make any definitive claims to humanization or diversification helping improve rank, because unlike Tech I don't work at or own Google, I can say it would make a little bit of sense. And I think there are a lot of folks that would agree that anything you can do to keep your link profile looking as natural as possible, goes a long way to, at the very least, the longevity of your site in the SERPs - especially if you are being otherwise aggressive. In fact, come to think of it, some of the SEOs I respect most, who are known for their tireless testing were using local directories in this way long before I ever caught on to it.
Many of the good local directories are no follow, that doesn't mean definitively that they don't help. I have never run a test to see if just building no follow local directories improve rank, but if someone offers you a free high DA/PA link from a top Alexa site, would you turn it down? No, because more than likely it is going to help one way or another. I would be interested in doing a test like this one day, but I suspect I already know the answer. There are many do follow local directories, and if you'd like to PM me I would be more than happy to send a long a list of my favs.
For me, regardless if I have an address or not (if you, I will use local directories and other citation sources as part of my tier 1. They are free, easy to create and I can sleep well at night. I got a bit further to build links to them (more common practice than you'd think), which appears to give them a bit of a boost, as well as pushes them up in the SERPs. Time and time again, I have seen this formula improve organic rankings. I've done this well over 500 times, and tracked rankings for each one of those 500+ sites, and the large majority of them saw organic improvement. Far from an isolated test, but too many instances of success to turn the other way. I've done likely just as many time without pounding the citations with links, and seen organic movement there too. Mind you, don't expect PBN movement, but we have PBN and the like for that. In no way should local directories make up your total organic effort. They should be a supplement at best.
There has been much talk of co-citations helping rank, though I haven't seen any proof. I think Slawski might of written on a Google patent to do with them, and how Google is using them in their algo.
Finally, it should be noted that the local algo in most instances today is blended (much research online to back that up), which means it incorporates both pure local and organic algos (and this). It is not uncommon to see sites with little to no citations be very successful in the local results because they are appealing to the organic half of the blended algo. Often very thin sites, EMDs with very poor backlinks profiles. You hardly need to be superior in every way.