Using Employee Referrals to Build a Diverse Workforce

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. 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 while still maintaining 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 strong 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 carefully examine 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 examines the relevant findings, the theoretical framework to apply, and a case example illustrating why referral–referee relationships matter when it comes to ensuring equitability in the workplace, and why search strategies such as deliberately asking for diverse referrals—or even for leads instead of referrals—can help reduce the risk of non-diverse hires.

Theoretical Framework

The theory used to assess the findings for this research was agency theory, which is used to explain the relationship between agents and principals. The theory helps one understand the limitations of this relationship as well as the function of trust within it. For HR to be mindful of the way in which employee referrals, if followed blindly, can be detrimental to workplace diversity, it is helpful to understand agency theory thoroughly.

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 principal–agent relationship. The problem is that agency relationships cannot be counted on to be entirely free of bias, for the simple reason that people always carry some degree of self-interest, conflict of interest, or ulterior motive. Some examples of how agency theory plays out in the real world can be seen in the real estate industry, where the Realtor acts as agent for the principal—the home buyer or seller. The Realtor has a degree of self-interest in the transaction because he or she earns a commission on every sale, yet is supposed to act in the best interests of the principal. In a workplace setting, a referring source may try to refer someone close to them as a favor to a friend or family member, acting as the agent for that friend or family member as the de facto principal. HR must be mindful that ulterior motives or bias may influence the employee's decision to refer this person, and that such a referral may not actually serve the best interests of the workplace in terms of diversity. This is why understanding agency theory completely—including the limitations of the agent–principal relationship—is important for HR professionals.

There are ways to cultivate trust within this relationship, but trust can never be total. Eisenhardt (1989) recommends that some degree of oversight be put in place so that the agent knows that behavior is being monitored. In terms of application to HR, however, heavy-handed policing measures may be impractical and harmful to morale. If an employee feels that job security is at stake, he or she may become reluctant to make referrals at all. Thus, HR has to be strategic in moderating the effect of self-interest in employee referrals. One proposition noted 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). From an HR perspective, this means that HR can take the steps suggested by Frank (2018)—discussed more fully in the next section—to check up on and investigate what the referring employee says, thereby ensuring that workplace diversity is not put at risk. Without a culture that promotes accountability and fosters a sense of duty, however, agency theory alone cannot explain or repair a breakdown in trust. Culture therefore matters a great deal in this context.

Maslow's hierarchy of needs could also be applied to help ensure that employees have their needs met and are self-actualized individuals. The idea behind Maslow's theory is that human motivation improves as the hierarchy of basic human needs is satisfied: first, needs of shelter and sustenance; then love and esteem; and finally the individual can move on to self-actualization—the state of being intrinsically motivated, driven by the desire to do good work for its own sake. The more self-actualized an employee is, the more likely he or she will be to act as a good agent for the organization and to assist HR in identifying diverse candidates who genuinely meet the needs of the company.

Conclusion

The central research question of this paper was: How can HR use employee referrals to increase the workforce while still maintaining diversity within the organization?

The research findings and case study demonstrated that the way to use employee referrals to promote diversity in the workplace is to:

1. Analyze the relationship between the referring source and the referral more closely.
2. Blind the hiring process so as to reduce the risk of unconscious bias in the evaluation of referrals.
3. Ask employees directly for diverse referrals and reward them when those referrals are selected and fit the company's needs, by implementing a diverse referral program.
4. Establish a Chief Diversity Officer to oversee the various diversity policies and protocols implemented.
5. Implement unconscious bias training for all employees.
6. Understand agency theory and its limitations in the context of employee referrals.
7. Apply Maslow's hierarchy of needs model to help develop self-actualized employees who act in the best interests of the organization.

These steps would enable HR to use referrals to improve the hiring of diverse candidates by reducing the risk of bias in selection and identification, and by better aligning employees with the organization's needs and priorities. Directly asking employees for diverse referrals gives HR an added strategy for identifying the right candidates for the workplace culture and reduces the burden of having to chase unverified leads or independently assess every referral relationship. Ultimately, the organization's focus should be on deliberate, transparent action—communicating clearly the values that will be central to its mission as it relates to diversity promotion going forward.

For further reading on how employee referrals can be structured to support workplace diversity, Frank's (2018) Harvard Business Review article provides practical guidance grounded in real-world HR practice.

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