The Business Case for Workforce Racial Diversity: Options- and Project-Based Human Resource Management in Large U.S. Law Firms

Abstract

This study is an attempt to elucidate the effects of workforce racial diversity on organizational performance by incorporating an important organization-level moderating condition—an organization’s use of human resource management (HRM) practices. Specifically, this study examines how options- and project-based HRM have influence on the racial diversity–performance relationship. Using the longitudinal data sets of 192 U.S. law firms spanning multiple years (2001–2008), we examined the interactive effects of workforce racial diversity and a set of HRM practices (use of nonstandard employees, lateral hiring, pay dispersion, and training/communication) on organizational performance (profitability). Our findings revealed that while an organization’s reliance on nonstandard employment, lateral hiring, and large pay dispersion has significant negative influence on the racial diversity–performance relationship, training/communication has no clear moderating impact. In sum, the results indicated that when organizations adopt more project-based HRM practices (high levels of nonstandard employment, lateral hiring, and pay dispersion) rather than options-based ones, the effect of workforce racial diversity is likely to become negative on organizations’ bottom-line performance.