Employee Referrals and Diversity: Legal Issue or Opportunity?

Few things set us off more than uninformed people making assumptions without facts. And our “peeve of the century” is the misconception that using employee referrals has a negative impact on diversity. Time and time again, recruiting is promoted as a leading-edge profession, yet it all too often is one of the least scientific of all business roles we have encountered. Very few recruiting departments take the time to track which recruiting tools are the most effective. Most rely on tradition or assumptions rather than facts. Some that are used frequently (like some newspaper ads) often produce mediocre hires, while other less-used recruiting tools consistently find top performers. If you run the numbers, you know that employee referral programs (ERPs for short) are the most effective recruiting tool corporations can use. We have talked to dozens of companies and the results are almost universal. So, if you don’t have an ERP already, what’s stopping you? And, if you do have one, is it achieving all that it can? The Number-One Concern: A Misguided Fear of Adverse Impact Let’s get straight to the point. Properly designed ERPs have no adverse impact on diversity. Time and time again, the number-one excuse we hear for not having an ERP (or under emphasizing it) is the fear of an adverse impact from the program. When we ask heads of employment or VPs of HR why they believe this, the overwhelming response is that they are concerned that “people attract like people.” HR professionals are often quick to assume that the only people current employees know are people just like themselves. When you take a step back and really think about it, if you already have a fairly diverse population, then the fact that your employees recruit people just like themselves will only further your existing diversity rates. On the other hand, if your organization presents little or no diversity in the first place, you can easily design an ERP that encourages and rewards employees for seeking out and referring diverse individuals. If you approach your employee referral program like any other business problem?? through program design?? you can not only improve your recruiting effectiveness but also positively impact diversity at the same time.Why ERPs Are the Answer In our roles as academics, authors, and advisors to management, we have been given a great opportunity to work with hundreds of leading firms?? almost all of which will swear up and down that ERPs are fast, cheap and effective at recruiting the best! But if you don’t believe it, here are some simple facts that might make you reconsider referrals as a diversity tool:

• Eighty-six percent of the “50 Best Companies for Minorities,” as ranked by Fortune Magazine, use employee referral programs as a recruiting tool.

• Since 1994, the EEOC has officially recognized employee referral programs as one of the best recruitment practices in use by private sector employers.
• Out of more than 72,000 cases evaluated by the three largest EEOC regions, only eight cases related to ERPs. Of those, zero were pursued, because the claimant was unable to provide significance of corporate wrongdoing. This represents a case percentage of .01%!
• Out of 13 ERP-related issues discussed with 397 companies, including such topics as employee participation, program awareness, and measuring effectiveness, diversity concerns ranked 10th.
• Seventy-four percent of Fortune’s “100 Fastest Growing Companies” use employee referral programs as a recruiting tool.
• A 2001 survey by the Society for Human Resource Management (SHRM), in conjunction with the Referral Networks Corporation, yielded that 66% of 586 organizations polled have either a formal or informal referral program.
• Employee referral programs, on average, result in a cost-savings-per-hire range of $300 for administrative hires to nearly $36,000 for executive hires.
• ERPs, on average, result in a time-to-hire savings of 15 days on the low end and 35 days on the high end.

How Can You Improve Diversity Referral Rates? Start by educating employees as to:

• What the key issues are that prevent diverse individuals from applying for and accepting jobs, and how your firm can rectify those issues.
• Which events (professional, seminars and social) have high diversity attendance rates

Also consider incorporating these activities into your recruitment strategy:

• Make it a corporate goal to refer/recruit diversity.
• Make diversity part of all managers performance metrics, and report the results (in descending order of results) monthly to all managers.
• Make diversity recruiting a key part of the metrics and rewards for the recruitment function (and also for overall HR).
• Track the diversity referral numbers in different areas of the firm. Talk to the successful managers and employees to find out which tools and strategies work best. Educate everyone about which tools work (and which don’t produce results). Also identify low participation rates and work with them to improve.
• Ask your diverse employees to take the lead in increasing referrals.
• Offer added rewards for diversity referrals.
• Put a recruiter with diversity credentials as the lead for the referral program.
• Celebrate diversity in your referral brochures, communications, and events.
• Make the business case to managers and employees on how diversity hiring impacts product development, productivity, and profits. (See some of my previous ER Daily articles on how to do that, and how to build a world class ERP.)
• Talk to your current (and former) diverse employees in order to identify what your firm has to offer (as well as what frustrates them).
• Hire diversity-owned firms (or firms that specialize in diversity) to help you design your referral materials as well as the advertising and marketing programs.
• Have the executive team add diversity metrics to the annual report and to reports to the board and shareholders.

Conclusion The data tells the story, and wise business professionals rely on data, not hearsay. Employee referral programs, like any other business program, can be designed to achieve a multitude of results. If improving diversity is one result you seek, then start out with that as your goal. Communicate to your employees that building a diverse workforce is a major corporate goal. Then educate your employees as to what you are looking for and how they can help you achieve it. Next remember to measure your results and fine-tune your ERP based on your results and also as your corporate needs evolve. It’s time to stop making excuses, step up to the plate, damn the “naysayers” at your firm?? and have some courage!

Dr. Sullivan’s bio is at the bottom of this page. Susan Wong is an experienced management consultant, and an expert in ERPs and helping firms become employers of choice. She has worked in HR roles for numerous firms including Solectron, Hilton, and Cisco. Susan is co-author of the upcoming book, Turning Your Firm into the #1 People Place. Master Burnett is an expert in staffing program development for high-growth firms and an experienced management consultant focusing on HR program alignment and technology. Master is also co-author of the upcoming book, Turning Your Firm into the #1 People Place.