The Trouble with Referrals from on High

Hiring Managers Risk Harsh Moral Judgments

Hiring managers invite harsh moral judgments when they give jobs to friends and acquaintances referred by high-powered individuals within their organizations, new research from the University of Maryland’s Robert H. Smith School of Business shows.

The paper, featured in the Academy of Management Journal, bases its findings on two laboratory studies and two field studies. Authors include Smith School professor Rellie Derfler-Rozin, Smith School PhD candidate Bradford Baker, and Harvard Business School professor Francesca Gino.

“Referral practices can be seen as morally murky territory in which special interests and the exchange of favors dominate, above and beyond merit,” the authors write. This is especially true when hiring managers accommodate referrals from higher-ups in the organization. In such cases hiring managers appear self-serving and unethical, which creates discord on their teams and weakens support for the new recruits.

Despite the potential pitfalls, referral-based hiring practices have advantages. People who make referrals, for example, tend to have inside information about the applicants they push forward, which helps to ensure a good cultural fit.

Referrers also put their reputations on the line, so they have incentives to train, mentor and monitor the people they recommend. People who get hired through the referral process feel similar pressure. They want to perform well so they don’t embarrass the referrers who put trust in them.

Overall, about half of job openings go to friends and acquaintances, and many human resource departments encourage the strategy.

“Referral practices present a fundamental dilemma,” the authors write. Their paper builds understanding of the issues involved by focusing on third-party reactions to referrals coming from people who can influence future perks like raises, promotions and cushy assignments.

“When the referrer is powerful, observers will believe the hiring manager is attempting to increase the referrer’s dependence on him/her, ultimately resulting in future benefits for the hiring manager,” the authors write.

Perception often matters more than reality when it comes to corporate culture, and followers react negatively when they perceive their leaders to be unethical. Possible downstream consequences include reduced commitment to the leader, which has been shown to be strongly related to performance. Therefore, while many scholars have looked at how employees perceive high (versus low) power employees in the organization, in the current paper the authors advocate for looking also at how third-party individuals perceive the power dynamics between two other employees in the organization. 

Given the documented benefits of relying on referrals, the authors do not suggest that companies should abandon the practice. But hiring managers and the people who give referrals should be mindful of the power dynamics involved.

“One suggestion could be creating a system in which referrers are anonymous, at least for an initial period of time pre- and post-hire, while simultaneously providing enhanced transparency regarding the reasons for the referral,” the authors write.

Read more
Compromised Ethics in Hiring Processes? How Referrers’ Power Affects Employees’ Reactions to Referral Practices, R Derfler-Rozin, B Baker, F Gino - Academy of Management Journal, 2017