Diversity Paradox

The project explores the implications of having misaligned managers who do not support diversity-enhancing initiatives in organisations. Specifically, it examines how these managers, driven by career concerns, may paradoxically hinder the development of underrepresented groups despite organizational efforts to promote diversity. The project explores how this trade-off—between complying with diversity policies and subtly underinvesting in hiring from these groups—can lead to and reinforce unintended underrepresentation and hinder the growth of members of these groups. The findings have broader implications for other initiatives where managerial alignment with organizational goals, such as environmental plans or sustainability efforts, is crucial. 

This research seeks to understand how organizational culture and information asymmetries affect the success of progressive initiatives and to identify effective policy solutions to address this issue. It investigates the dynamics of reputational concerns within organizational hierarchies, particularly how career concerns and reputational dynamics shape managers' decisions related to hiring, promotion, and investment in diversity initiatives. This study's foundation is that managers are more informed about their employees, which gives them the power to make decisions that misalign with the organization's broader objectives.

The core idea behind this study is the concept of the "diversity paradox." This paradox arises when an organization enhancing diversity unintentionally creates conditions that allow managers to subvert these initiatives. The research models a scenario where a firm, driven by the productivity benefits of diversity, encourages the hiring of underrepresented groups. However, when a manager harbours biases against these groups, a conflict is shaped: the manager must choose between complying with diversity goals to safeguard his career or acting on personal biases, risking his position if discovered.

The model uses an infinitely repeated principal-manager framework, where managers privately hold biases towards underrepresented groups. Managers make hiring decisions that are informed by private knowledge of applicants' abilities, while the principal (firm) observes only the agent's performance and surface characteristics such as race or gender. This incentivizes managers to build and maintain a positive reputation with the principal by increasing minority hires and subtly sabotaging their success. Through this strategy, managers can project themselves as so pro-diversity that they even support candidates with lower observed abilities, framing any subsequent low performance as evidence of their commitment to giving everyone a chance.

The research posits three hypotheses based on these dynamics:

• Reputation Building with Underinvestment: the first hypothesis we explore is that managers adjust their hiring and promotion decisions with diversity initiatives while not investing in minority hires. Through this, they build a reputation of being an aligned type. Once this reputation is established, it will be exploited, leading to a cyclical pattern of reputation-building and consumption, especially when the interaction is repeated over time.
• The Diversity Paradox: the second hypothesis addresses the diversity paradox, positing that strong diversity preferences from the principal increase the managers' incentives to underinvest in minority hires. Conversely, weak or absent diversity goals reduce the chances of sabotage. This paradox outlines the unintended effect of diversity goals.
• Organizational authority: the third hypothesis considers how delegation of authority vs. information communication in organisations shapes these outcomes. When reputational concerns are present, delegating hiring or promotion decisions may imply sabotage. Nonetheless, information communication is also not verifiable; hence, finding the right balance or decision set is essential to mitigate the effects of the diversity paradox.

Empirical evidence supports these hypotheses, such as the "tick-box" approach to female representation on UK corporate boards. Despite increasing the percentage of women on boards, underlying biases remain unaddressed, resulting in lower promotion rates and shorter tenures for women—reflecting the sabotage dynamics discussed here.