How to Use Employee Referrals to Increase Workforce but Still be Able to Maintain Diversity within an Organization

How to Use Referrals to Identify Diverse Candidates for a Job
Table of Contents
Introduction 2
Research Findings 3
Theoretical Framework 4
Findings of Literature Research 6
Case 8
Conclusion 11
Bibliography 12
Introduction
As Frank (2018) points out, over 33% of all US employees obtained their job with their current organization by way of referral from another employee there. Although employee referrals are an easy, fast and often tempting way to staff positions, the risk is that doing so can lead to a less diverse workplace, with 40% of all referrals tending to be white men (Payscale, 2018). The central question is: How can HR use employee referrals to increase the workforce but still be able to maintain diversity within the organization? The solution is to consider closely the source of the referral. Different relationships between the referring source and the referral have different workplace outcomes. For example, a referral who is a family member or friend of the referring source is less likely to have a great relationship with management at the organization and is more likely to leave the company at some point than is a referral who is simply part of the referring source’s extended personal network (Payscale, 2018). Thus, HR should be careful to look closely at the relationship between the referring source and the referral. HR should also be careful about how it conducts the process of recruiting candidates: instead of asking for referrals, it may better obtain a diverse staff by asking employees for leads (Ranade, 2020). This paper will examine the findings, theory to apply, and a case example to illustrate why referral-referee relationships matter when it comes ensuring equitability in the workplace and why using search strategies like deliberately asking for diverse referrals or even for leads instead of referrals can help reduce the risk of non-diverse hires.
Research Findings
The theory used to assess the findings for this research was agency theory, which is used to explain the relationship between agents and principles. The theory helps one to understand the limitations of this relationship as well as the function of trust within the relationship. For HR to be mindful of the manner in which referrals from employees, if followed blindly, can be detrimental to the workplace it is helpful to understand agency theory.
Theoretical Framework
Agency theory is the theoretical framework used to analyze the findings here. Agency theory in HR posits that “an agency relationship arises whenever one or more individuals, called principals, hire one or more other individuals, called agents, to perform some service and then delegate decision-making authority to the agents” (ProActive Solutions, 2020). Trust is implicitly the most important aspect of the principle-agent relationship. The problem is that agency relationships cannot be counted on to be totally prejudice-free for the simple fact that people always have a degree of self-interest, conflict of interest, or ulterior motives in what they do. Some examples of how agency theory plays out in the real world can best be seen in the real estate industry, where the Realtor acts as agent for the principle—the home buyer or seller. The Realtor has a degree of self-interest in the transaction because he is awarded a commission on every sale. He is supposed to act, however, in the best interests of the agent. In a workplace setting, a referring source may try to refer someone close to him as a favor to a friend or family member and in this regard would be acting as the agent to the principle who would be the friend or family member. But HR has to be mindful of the fact that ulterior motives or bias may impact the decision of the employee to refer this person and it may not actually be in the best interests of the workplace in terms of establishing diversity. This is why understanding agency theory completely and thoroughly, including the limitations of the agent-principle relationship, is important for HR.
There are ways for trust to be had, but it can never be total. It is recommended by Eisenhardt (1989) that some policing must be put in place so that the agent knows that he is being watched as well. However, in terms of application to HR, policing measures may be impractical and bad for morale. If an employee feels that his job security is on the line he may be reluctant to make referrals at are. Thus, HR has to be strategic in its approach to moderating the effect of self-interest in employee referrals. One proposition mentioned by Eisenhardt (1989) is that “when the principal has information to verify agent behavior, the agent is more likely to behave in the interests of the principal” (p. 60). This means, from an HR perspective, that HR can simply take the steps suggested by Frank (2018), which are discussed more fully in the next section. So long as what the agent, in this case the employee, says is checked up on and looked into, HR can ensure that workplace diversity is not put at risk. However, without a culture that promotes accountability and fosters a sense of duty, agency theory cannot be used to explain why the trust is gone. Thus, culture matters a great deal in this matter.
Maslow’s hierarchy of needs model could also be used to help ensure that the workplace employees have their needs met and are self-actualized individuals. The idea behind Malsow’s theory is that human motivation improves as the hierarchy of basic human needs is met. First are the needs of shelter and sustenance, then love and esteem, then the individual can move on to self-actualization, which is the process of being internally or intrinsically motivated—i.e., motivated for the sake of doing a good work. The more self-actualized an employee is, the more likely he will be to act as a good agent for the organization and assist HR in identifying diverse candidates who will meet the needs of the company.
Findings of Literature Research
Frank (2018) shows that HR must determine the relationship between the referring source and the referral so as to better judge whether this is a candidate that will match what the organization is looking for in terms of right fit. Diverse hires are the number one goal, so if the employee is referring a friend or family member, HR will want to assess whether such a candidate would add to the diversity of the workplace before going ahead with the recruitment. One way to reduce the risk of employee referrals of friends or family, is for HR to ask for leads instead of referrals, as Ranade (2020). This way, the employee is less likely to think of a friend or family member he could help to get a job and more likely to try to think of a candidate who would help the organization to reach its goal for diversity. Frank (2018) also notes that restructuring referral bonus programs so that diverse referrals are rewarded more than non-diverse hires will help the organization to meet its aims of diversity.
Eisenhardt (1989) points out that the principal-agent relationship is built upon trust and that there is no way the relationship can work without implicit trust supporting it. However, there have to be precautions and risk reduction strategies in place so that one is not being naïve with respect to the fact that bias and self-interest can and do play a part in that relationship to some degree. The suggestion for a referral program that rewards diverse referrals, as Frank (2018) calls for, is one such way to reduce the risk of the wrong kind of referral from cropping up. An example of how this can work is that given in the proposition of Jensen and Meckling (1976), who state that outcome-based contracts between the principal and the agent can be used to promote the best interests of the principle, which in this case would be the organization. Still, without some system in place in the real world, there is no guarantee that self-interest and conflicts of interest do not arise. That is why in industries like real estate there are penalties that agents face if they are caught abusing the agent-principle relationship. In the workplace, there is less of a system in place for HR to use to ensure that agents are acting in the best interests of the organization. Though agent opportunism is likely to be averted when the agent’s pay is based upon performance for the principle, this is an impractical strategy in HR. In other words, when the agent’s compensation is determined by whether or not the agent succeeded in facilitating the principle, then it is highly unlikely that the agent will try to do anything corrosive or that is self-interested. But not every industry works the same way and HR should be proactive in determining what is working and what is not by having an evaluation system in place, too (Frank, 2018).
Ranade (2020) also concludes that the best way to get diverse referrals is simply to ask for them. This conclusion supports the argument of Frank (2018) and the study conducted by Payscale (2018) who surveyed over 50,000 HR employees to understand what type of referral system worked best for ensuring diversity in the workplace. Ranade (2020) also suggests that companies should ask employees for leads rather than for referrals because leads gives employees a better sense of what the organization is looking for, whereas asking for referrals just gets workers to think of people they know—friends or family members—who could benefit from having a job with the organization. The idea here is to put the organization first, not second, in the minds of employees when they are suggesting referrals.
Another suggestion that Ranade (2020) gives is that HR conduct unconscious bias training so that employees are better aware of the potential bias they may have in excluding minorities from their list of referrals. By training employees on how to bring bias to the surface so it can be bracketed out, HR can better ensure that diverse candidates are referred as well. Otherwise unconscious bias may be impacting the referral system without anyone even realizing it.
A final recommendation of Ranadae (2020) is to hire a Chief Diversity Officer to help HR ensure that diverse candidates are being hired to meet the diversity needs of the organization. This type of position has been used effectively at companies like Uber, where diversity issues have been a problem in the past. Uber is worth examining as a case study in order to see how the strategies recommended by the literature reviewed here can be put to use.
Blind hiring is another strategy that HR can use to reduce the risk of bias in the hiring of referrals. HR can use a pre-hire test to assess the referral’s knowledge, skill level, and aptitude, and by giving the referral an anonymous ID placing the referral within a pool of other candidates, the referral then becomes an anonymous candidate whose value is determined by the test scores rather than by the fact that an employee referred him to the company (Bussin & Christos, 2018).
Case
The case of Uber is one that shows how the use of a Chief Diversity Officer and the use of a system that focuses on diverse referrals can help to increase diversity in the workplace. Leading up to 2017, Uber faced a great deal of criticism for its lack of diversity in the workplace and problems it faced stemming from male chauvinism and harassment surrounding its CEO. A toxic culture had take hold of Uber and that culture needed to be addressed through the implementation of a diverse referral system overseen by HR and a new Chief Diversity Officer. The person hired to oversee that change was Ms. Saint John (CBS News, 2017).
Uber implemented a host of new policies to address the issues it was facing, including the following:
1. Develop and Implement an Employee Diversity Advisory Board.
2. Routinely Publish Internal Diversity Statistics.
3. Target Diverse Sources of Talent Using a Diverse Referral Program.
4. Implement a Blind Hiring Process.
5. Adopt a Version of the “Rooney Rule” to Ensure Minorities are Interviewed for Leadership Roles
6. Implement and Promote a Sponsorship Program for Minorities.
7. Recognize, Facilitate and Honor Employee Diversity Efforts.
8. Identify and Reward Managers for their Diversity Efforts.
9. Review Benefits Offerings to Include Diversity Awareness.
10. Develop an Unconscious Bias Training Program for Employees.
11. Coordinate Efforts with the Chief Diversity Officer and HR.
12. Obtain Feedback from Employees (Larcker & Tayan, 2017).
Each of these steps was implemented with the purpose being to facilitate the development of a more diverse workplace and each helped to advance the company’s diversity policy. Some of the ways in which the company succeeded in establishing a sense of diversity was through the use of measurement practices—i.e., the gathering and publishing of diversity statistics, which would show the extent to which the company was meeting its diversity guidelines.
Another method was that suggested by Ranade (2020), the use of a diverse referral program. This program enabled Uber to ask employees for diverse referrals directly instead of attempting to focus on potential leads and hope they would turn out to lead to diverse candidates. By being direct in what it was attempting to do, Uber was able to address the situation head-on rather than approach it in a roundabout manner. Its deliberate focus on building up a diverse workplace and locating candidates through a referral system that rewarded employees for referring candidates who were a good fit for the company’s needs and who fit the diversity protocol helped Uber to develop a more diverse workforce.
The company also engaged in blind hiring processes so as to remove any risk of bias or prejudice in denying referrals a chance at a job based on characteristics, such as race, gender, age or ethnicity. By engaging in blind hiring the company was able to prevent the circumstances which had handcuffed the organization in the past from creeping into the hiring process.
HR was also instructed to establish a training program that would address the issue of unconscious bias. Unconscious bias may have played a part in Uber’s lack of diversity in the past, and now by focusing training on it the company was able to develop employees who could become aware of bias and bracket it out from their decision making processes.
Finally, Uber selected a Chief Diversity Officer to oversee the changes within the company and to help guide it during its transition. The Chief Diversity Officer worked with HR to address workplace culture issues and to direct a more equitable hiring process. The Officer also worked on creating the diverse referral program that would assist HR in the process of hiring more diverse candidates.
By establishing these new policies and procedures Uber was able to establish a culture within the workplace that supported diversity and promoted the inclusive ends the organization was now trying to achieve. In terms of artifacts, espoused values and assumptions, the company established day to day behaviors that reinforced diversity through its unconscious bias training; it released statements on equitability in the workplace and communicated its values; and in terms of assumptions, the company’s core values were integrated into its new HR approach so that they could become solidified and taken for granted as the core of the company’s value structure from now on.
Conclusion
The central research question of this paper was: How can HR use employee referrals to increase the workforce but still be able to maintain diversity within the organization?
The research findings and case study showed that the way to use employee referrals to promote diversity in the workplace would be to:
1. Analyze the relationship between the referring source and the referral more closely.
2. Blind the process of hiring so as to reduce the risk of unconscious bias in the evaluation of referrals.
3. Ask employees directly for diverse referrals and reward them for referrals who are selected and fit the company’s needs by implementing a diverse referral program.
4. Establishing a Chief Diversity Officer to oversee the various diversity policies and protocols implemented.
5. Implement unconscious bias training for employees
6. Understand agency theory and its limitations
7. Apply Maslow’s hierarchy of needs model to the workplace to help develop self-actualized employees.
These steps would enable HR to use referrals to help improve the hiring of diverse candidates, as it would reduce the risk of bias from impacting selection and identification of candidates, and it would help employees to be more aligned with the needs and focus areas of the organization. Directly asking employees for diverse referrals could give HR an added strategy in identifying the right candidates for the workplace culture, and it would reduce the stress of having to chase leads or of having to identify the relationship between the referring source and referral. In the end, the focus of the organization should be on deliberate action that everyone is aware of, which means communicating a message containing the values that will be core to the organization’s mission going forward as it relates to diversity promotion in the workplace.
Bibliography
Bussin, M., & Christos, D. (2018). Blind hiring not as crazy as it sounds. HR Future,  2018(Sep 2018), 36-39.
CBS News (2017). Retrieved from http://www.cbsnews.com/videos/meet-bozoma-saint-john-the-woman-tasked-with-fixing-ubers-image/
Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of management review, 14(1), 57-74.
Frank, L. (2018). How to Use Employee Referrals Without Giving Up Workplace Diversity. Retrieved from https://hbr.org/2018/03/how-to-use-employee-referrals-without-giving-up-workplace-diversity
Jensen, M., & Meckling, W. (1976) Theory of the firm: Man- agerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3, 305-360.
Larcker, D. F., & Tayan, B. (2017). Governance Gone Wild: Epic Misbehavior at Uber Technologies. Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-70, 18-3.
Payscale. (2018). Retrieved from https://www.payscale.com/data/job-referrals
ProActive Solutions. (2020). Agency theory. Retrieved from http://knowledgegrab.com/learners-zone/study-support/performance-management-review/framework-introduction-to-hrm/agency-theory/
Ranade, V. (2020). How to increase workplace diversity with employee referrals. Retrieved from https://www.predictiveindex.com/blog/how-to-use-employee-referrals-to-increase-workplace-diversity/