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Unraveling the effects of workforce diversity on firm performance: The role of HRM practices in large U.S. corporate law firms

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Title: Unraveling the effects of workforce diversity on firm performance: The role of HRM practices in large U.S. corporate law firms
Author(s): Roh, Hyuntak
Director of Research: Joshi, Aparna
Doctoral Committee Chair(s): Joshi, Aparna
Doctoral Committee Member(s): Martocchio, Joseph; Dencker, John; Ericksen, Gerald
Department / Program: School of Labor & Empl. Rel.
Discipline: Human Res & Industrial Rels
Degree Granting Institution: University of Illinois at Urbana-Champaign
Degree: Ph.D.
Genre: Dissertation
Subject(s): Workforce diversity firm performance human resource management practices law firms
Abstract: Past research on the effects of diversity in the workplace was contradictory and empirical evidence has been inconclusive. This phenomenon is particularly true for explaining the association between workforce diversity and organization-level performance outcomes. The purpose of this study is to help reconcile the conflicting theoretical perspectives as well as mixed findings of prior research regarding the performance effect of diversity by incorporating an important organization level moderating condition – the use of human resource management (HRM) practices. This study examines when (under which conditions) and how the salience of positive or negative diversity effects may be affected (be either enhanced or limited) and in turn manifest in overall performance outcomes when an organization chooses to implement certain HRM practices. I argue that depending on the characteristics and impacts of HRM practices, diverse employees may cooperate with or compete against each other and these social processes would be reflected in organization’s performance outcomes. In this study, the effects of two demographic differences in the workplace, race/ethnicity and gender diversity, on firm performance outcomes (workforce productivity and profitability) were examined in the context of U.S. law firms. Moderating influences of HRM practices in this relationship were also tested and these practices include: 1) a compensation structure (hierarchical versus compressed pay dispersion within an organization), 2) a promotion policy (reliance on internal promotions or lateral hiring), and 3) developmental programs such as mentoring and training. Based on the panel data analyses of 224 law firms (1984-2008), findings revealed that the effects of both race/ethnicity and gender diversity on firm performance were significantly influenced by the use of certain types of HRM practices. While the direct effect of race/ethnicity diversity was positive for both performance measures, I found that the relationship became non-significant or even negative when an organization adopted a more hierarchical pay structure (high level of vertical pay dispersion). This relationship was positive and stronger under a more egalitarian and compressed reward practice (low level of vertical pay dispersion). However, contrary to the prediction, the effect of gender diversity on performance was positive under a more hierarchical pay scheme while the link became non-significant under a compressed reward structure. Results also indicated that an internal promotion policy significantly moderated the diversity effects within an organization. Supporting the hypothesis proposed in this study, for both for race/ethnicity and gender diversity, the diversity-performance relationship became positive when a law firm relied more on internal promotions; however, this relationship was negative when organizations recruited more external hires rather than internally developed partners. Unlike the prediction, developmental opportunities (mentoring and training opportunities for associates) did not work as a moderator in the relationship between diversity and firm performance. Theoretical, empirical, and managerial implications of these findings were discussed in the later sections of this dissertation study.
Issue Date: 2010-08-31
URI: http://hdl.handle.net/2142/17037
Rights Information: Copyright 2010 Hyuntak Roh
Date Available in IDEALS: 2010-08-31
2012-09-07
Date Deposited: 2010-08
 

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