The virtuous cycle of diversity

Abstract

Based on propositions from the resource dependency theory (RDT), we seek to understand how firms respond to social performance problems through diversity. We consider the impact of negative customer and employee incidents as social performance problems because these incidents represent two critical stakeholders, and because of the potential for such problems to cause a wider impact on the affected firms. Using firm-level longitudinal data across four-time points and a crosslagged panel model (CLPM) to test our hypotheses, as well as a variety of supplemental analyses, we find that social performance problems relate to increases in board diversity. We also find that social performance problems act as a trigger for a virtuous cycle such that increases in board diversity are related to the subsequent adoption of diversity management practices, which are related to subsequently higher levels of board diversity. We contribute to the theory on diversity management by demonstrating how firms seek diversity as a response to social performance problems. Further, we connect board diversity to the adoption of diversity management practices, which are often studied independently, and demonstrate the mutually positive influence they have on each other. We discuss implications for theory and human resource management. K E Y W O R D Sboard diversity, corporate social responsibility, diversity management, diversity management practices, resource dependency theory, social performance problems "Often what a woman or minority person can bring to the board is some perspective a company has not had before-adding some modern-day reality to the deliberation process. Those perspectives are of great value, and often missing from an all-white, male gathering. They can also be inspirational to the company's diverse workforce" (Robert Campbell, CEO of Sun Oil)We live and work in a more diverse environment today than ever before. The labor force of the United States and other industrialized countries is increasingly diverse in terms of race and ethnicity, gender, and age, among other dimensions (e.g., Roberson, 2012;Truxillo, Fraccaroli, Yaldiz, & Zaniboni, 2017). By 2039, the majority of the workforce in the U.S. will be comprised of racioethnic minorities (Treuhaft, Blackwell, & Pastor, 2011). A variety of macro-level trends from globalization to technological advancement and global labor force migration are related to the increasing multiculturalism of the modern workplace (Kossek & Pichler, 2007). As a reflection of this multiculturalism, women and racioethnic minorities continue to make strides in terms of representation in top management positions and on corporate boards (e.g., Torchia, Calabrò, & Huse, 2011). Human resource management scholars and business firms have touted the importance of board diversity for firm performance (Boulouta, 2013;Kossek & Pichler, 2007;Richard, 2000). Some firms in the United States have adopted diversity statements promoting demographic diversity for their boards (see Carter, Simkins, & Simpson, 2003), ...

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