What Are the Risks of a Morally Murky Job Referral?

SMITH BRAIN TRUST – 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: Derfler-Rozin, R., Baker, B., & Gino, F. (2018). Compromised Ethics in Hiring Processes? How Referrers’ Power Affects Employees’ Reactions to Referral Practices. Academy of Management Journal, 61(2), 615-636.

Rellie Derfler-Rozin is assistant professor of management and organization at the University of Maryland’s Robert H. Smith School of Business.

Research interests: How the social context impacts employees’ decision-making; situations in which people in organizational settings behave in ways that end up counter to their own goal because of innate social needs, such as the need to belong or the need for social status; she applies psychological theories to critical organizational challenges (e.g., how organizations should design their selection practices or structure employees’ jobs) to seek solutions that improve employees’ lives in the workplace and organizations’ success; she uses a multimethod approach, combining field surveys, field experiments, laboratory experiments and archival data analysis. Most of her research revolves around two specific areas: Behavioral ethics and selection decisions and biases.

Selected accomplishments: Research has been published in journals such as Organization Science, Journal of Applied Psychology and Organizational Behavior and Human Decision Processes.

About this series: Maryland Smith celebrates Women Leading Research during Women’s History Month. The initiative is organized in partnership with ADVANCE, an initiative to transform the University of Maryland by investing in a culture of inclusive excellence. Other Women's History Month activities include the eighth annual Women Leading Women forum on March 5, 2019.

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