for Saraya

The impact of racial and gender diversity in management on financial performance: how participative strategy making features can unleash

a diversity advantage

Orlando C. Richard a *, Susan L. Kirby

b and Ken Chadwick

c

a Jindal School of Management, Department of Organizations, Strategy, and International

Management, University of Texas at Dallas, Richardson, TX, USA; b McCoy College of Business

Administration, Texas State University, San Marcos, TX, USA; c Department of Management,

Marketing, and Business Administration, Nichols State University, Thibodaux, LA, USA

How does racial and gender diversity in the management ranks affect the bottom line? Our findings indicate that participative strategy making (PSM) positively moderates the relationship between both racial and gender diversity in management and firm performance measured as return on assets. Specifically, PSM strengthens the positive relationship that exists between racial diversity in management and firm performance. Although no main effect is observed for gender diversity in management, our results reveal that gender diversity in management is positively related to performance when PSM is high. However, we find that gender diversity in management is negatively related to performance when PSM is low, while gender homogeneous management experience superior performance. We offer implications for diversity research to embrace and consider the role of PSM and ‘inclusiveness’.

Keywords: gender diversity in management; inclusiveness; knowledge-based view; participative management; racial diversity; racial diversity in management

Introduction

Theories predicting and research examining the impact of diversity in organizations

continues to be challenged by inconclusive results (e.g. Harrison and Klein 2007; van

Knippenberg and Schippers 2007; Joshi and Roh 2009). According to Harrison and Klein

(2007), although research on the effects of diversity in organizations has increased

dramatically in recent years, consistent findings remain elusive. Similarly, Joshi and Roh

(2009), in a meta-analysis examining the impact of contextual factors in research on team

diversity, state that a majority of studies report a nonsignificant, direct relationship between

diversity and performance with the effects of gender, race, age and tenure diversity on

performance varying. In response to these mixed results, researchers have sought to refine

theories by examining moderators of the relationship between diversity and performance

(Wegge, Roth, Kanfer, Neubach and Schmidt 2008; Joshi and Roh 2009).

In addition, race and sex, among the most visible and salient of cultural diversity

dimensions, have been underdeveloped in studies exploring strategic decision-making within

organizations(Nkomo1992;Richard2000;RobersonandKulik2007)althoughitisprojected

that women and racial minorities will increasingly enter the managerial ranks (U.S.

Department of Labor, Bureau of Labor Statistics 2009). This shift, in combination with the

q 2013 Taylor & Francis

*Corresponding author. Email: [email protected]

The International Journal of Human Resource Management, 2013

Vol. 24, No. 13, 2571–2582, http://dx.doi.org/10.1080/09585192.2012.744335

increasing use of management teams throughout organizations (Kirchmeyer and McLellan

1991) and the inconsistent results, suggests the need to further examine the economic impact

ofmanagementdiversity,aswellastheembeddedstrategymakingfeaturesthatmayprovidea

firm with capabilities to leverage their diversity for competitive advantage.

Previous research reveals that demographic compositions are associated with increased

creativity and a broader foundation on which to base decisions (Bantel and Jackson 1989);

thereby having tangible positive effects on firm outcomes (Knight et al. 1999). Hambrick

and Mason (1984) suggest that organizational strategic outcomes and processes are indeed a

function of characteristics of an organization’s managers. However, research has also found

that management heterogeneity affects performance when managers are given discretion or

latitude of action in making decisions as well as have low job demands placed upon them

(Finkelstein and Hambrick 1990; Hambrick, Finkelstein and Mooney 2005; Hambrick

2007). Therefore, we believe participative strategy making (PSM) is essential for the

facilitation of positive interactions among racially and gender diverse managers.

Theoretical background and hypotheses

Diversity can be broadly defined as a construct representing the distribution of differences

among members of a unit with respect to a specific attribute (Jackson, Joshi and Erhardt

2003; Harrison and Klein 2007; van Knippenberg and Schippers 2007). Readily

detectable, or relations-oriented, differences include attributes such as race, gender and

age (Joshi and Roh 2009). We focus on these rarely explored dimensions of diversity to

contribute to the existing body of diversity research and more importantly to go beyond

studies investigating team performance by exploring bottom-line performance effects.

Racial and gender diversity in management as knowledge-based resources

The main tenet of the knowledge-based view is that expansive expertise, based on a broad

range of individual experiences, is the key to organizational functioning. Therefore,

organizational financial performance depends on leveraging expertise to achieve competitive

advantage via know-how that competitors cannot easily imitate or obtain (Barney 1991).

Miller and Shamsie (1996) categorize such resources as the creative or collaborative skills

that enhance a firm’s ability to both develop and market competitive products.

Racial and gender heterogeneity results in wider ranging perspectives, diverse types of

information and ideas within an organization and results in superior problem solving and

decision-making (Bantel and Jackson 1989; Cox, Lobel and McLeod 1991; Pelled,

Eisenhardt and Xin 1999; Richard, McMillan, Chadwick and Dwyer 2003). Individuals

from diverse backgrounds bring the organization multiple perspectives for problem

solving and strategy formulation (Williams and O’Reilly 1998; Jehn, Northcraft and Neale

1999). For instance, we propose that women and racial minorities offer ‘requisite variety’

in organizations (Ashby 1956) and this variety leads to increased communication and

performance benefits that are the result of creativity and improved decision-making

(Zenger and Lawrence 1989; Watson, Kumar and Michaelsen 1993; Wiersema and Bantel

1993; Milliken and Martins 1996). For example, McLeod and Lobel (1992) found that

groups with heterogeneous ethnic backgrounds produced higher quality ideas and

generated a greater range of perspectives and alternatives in brainstorming tasks than did

more homogeneous groups. Also, Cox et al. (1991) found that ethnically diverse groups

made choices reflecting different cultural orientations in a two-party prisoner’s dilemma

O.C. Richard et al.2572

game (Earley 1989). These ethnic and cultural perspectives may provide organizations

with unique insights into distinct local niches as well as potential international markets.

In sum, diversity can promote creativity and improves decision-making, and hence,

lead to superior performance (Pelled et al. 1999; Richard and Shelor 2002; Richard,

Barnett, Dwyer and Chadwick 2004). In the appropriate context, managerial racial and

gender diversity can result not only in sociocultural benefits (Cohen and Garcia 2008), but

also financial returns (Dwyer, Richard and Chadwick 2003). We offer PSM processes as a

crucial process needed to forcefully unleash the positive benefits of managerial diversity.

The role of PSM

Scholars emphasize that for firms to benefit from diversity, they must emphasize

inclusiveness within the organization (Richard, Kochan and McMillan-Capehart 2002;

Dwyer et al. 2003; Pless and Maak 2004). For example, Pless and Maak (2004) emphasize

how an organizational culture of inclusion, which allows people with different

backgrounds, mindsets and ways of thinking to work together, is critical to unleashing

any potential ‘diversity advantage’. In addition, Swann, Polzer, Seyle and Ko (2004)

describe how a group atmosphere that encourages freedom of expression facilitates

openness among diverse members. Also, Shore et al. (2011) emphasize that practices,

which promote sharing information, participation in decision-making and voice, should be

reflected in measures of inclusiveness. We present PSM as a measure of inclusiveness that,

we argue, facilitates positive interaction among diverse management members. We focus

on these features as opposed to other more wide scale features (e.g. diversity climates and

organizational cultures) because PSM is a construct that was designed and validated

specifically for studying the vertical and horizontal strategy making processes within the

management corps (Dess, Lumpkin and Covin 1997).

Diversity can be a double-edged sword, increasing the opportunity for creativity as well

as the likelihood of communication difficulties and misunderstandings or faultlines (Jehn

1995). According to the social identity perspective, racial and gender heterogeneity hinders

group cohesiveness (Williams and O’Reilly 1998; Carson, Mosley and Boyar 2004).

However, the present research posits that differences within groups can be bridged. In order

for diverse groups to be effective and efficient, they must be able to avoid destructive

faultlines (Lau and Murnighan 1998) so they can reach consensus regarding group decisions.

Participative processes serve as one mechanism that may allow organizations to

leverage their creative variety emanating from diversity while preventing the negative

consequences of potential faultlines. Research by van Knippenberg, De Dreu and Homans

(2004) emphasizes that in order for diversity to be advantageous there must be a

participative process in place that allows for multiple viewpoints to be considered. PSM

processes not only foster collaboration and socialization across levels of management but

also between or among diverse members. PSM should therefore facilitate knowledge

sharing across diverse management groups, an important feature needed to truly benefit

from diversity and obtain a ‘diversity advantage’ (De Carolis 2003). Increased

communication and collaboration among organizational members is the key to success

of organizations by allowing firms to utilize divergent technical, creative or collaborative

skills and improve decision-making effectiveness through the pooling and integration of

group resources. Therefore, the pitfalls associated with diversity can be diminished and the

benefits can be amplified when PSM processes exist.

Given the potential benefits and costs of workplace diversity (Milliken and Martins

1996), and the potential for participative strategic making processes to improve

The International Journal of Human Resource Management 2573

organizational financial performance, we predict that group heterogeneity alone may not

be advantageous if a firm is unable to take advantage of the unique insight, judgment,

experience and know-how of women and minorities (Shrader, Blackburn and Iles 1997).

Participatory strategy formulation processes are one way firms can leverage workforce

diversity and cultivate creativity, insight and capabilities. Participatory strategy

formulation incorporates broad ranges of perspectives, knowledge, values and skills,

giving groups better tools for effective decision-making even in complex environments

(Carmelli, Sheaffer and Halevi 2009). Therefore, we predict:

Hypothesis 1a: PSM positively moderates the racial diversity in management to firm

performance relationship such that racial diversity is more positively

related to performance when PSM is high rather than low.

Hypothesis 1b: PSM positively moderates the gender diversity in management to firm

performance relationship such that gender diversity is more positively

related to performance when PSM is high rather than low.

Methodology

Sample

We utilized a stratified random sample frame consisting of 700 banking institutions with

$500 million or more in total assets, 700 with $100–$499 million in total assets and 700

with $100 million or less in total assets (Dwyer et al. 2003; Richard et al. 2004). We

mailed survey instruments to 2100 bank presidents and received response from 535. The

chief executive officer completed items related to the firms’ PSM process, the analysis

strategic orientation and their personal demographic background. We then obtained

contact information for the senior human resource (HR) executives of the 535 banks that

responded to the initial survey and queried these HR executives regarding the racial and

gender composition of each bank’s management, the firms’ PSM process and personal

demographic attributes. Of the 535 HR executives surveyed, 168 provided the required

data (31% response rate). A logistic regression revealed that respondents did not differ

from those who did not respond on asset size and return on assets (ROA). On average,

participating banks had 154 employees (31 managers), 7 branches and were 77 years old.

Measures

Independent variables

To assess the racial and gender diversity of each bank’s management composition, we

provided each HR executive a blank Equal Employment Opportunity-1 Standard Form

100, which allowed us to collect demographic data. Multiple layers of management are

involved in strategic making process (Birkinshaw 1997) so we used the management job

category that includes administrative and managerial personnel who set broad policies,

exercise overall responsibility for the execution of these policies and direct individual

departments or special phases of a firm’s operations (Equal Employment Opportunity

Commission [EEOC] 2010).

Blau’s (1977) index of heterogeneity was used to develop measures of racial (white,

black, Asian, Hispanic and Native American) and gender (men and women) diversity in

management consistent with previous research (Richard et al. 2004). Blau’s index

(calculated as 1 2 P

Pi 2 , where P is the proportion of individuals in a category and i

(1 2 n) is the number of categories) could thus theoretically range from 0 to 0.80. In our

sample, Blau’s index values for race ranged from 0 to 0.61. For managerial gender

O.C. Richard et al.2574

heterogeneity, we observed index values from 0 to 0.50, reflecting the entire theoretical

range.

To measure PSM process, we utilized the five-point Likert-type scale ranging from (1)

strongly disagree to (5) strongly agree (Dess et al. 1997). The CEO and VP of HRM

responses on the PSM scale converge ( p , 0.001) so we averaged the two responses for

each bank to create a more valid measure. The coefficient alpha for the 10-item scale was

0.75. Sample items are ‘Cooperation and collaboration across functional roles are actively

encouraged’, ‘People with unpopular views are given a fair hearing in this bank’,

‘Working in this bank is like being part of a team’ and ‘Decisions concerning business

strategy are made on a consensus basis, involving people from many departments’.

Control variables

Firm size was operationalized as the logarithmic transformation of total assets. We also

included a dummy to control for bank holding company affiliation (1 ¼ holding company;

0 ¼ other) consistent with Delery and Doty (1996). In addition, geographic scope could

covary with managerial diversity, so it was captured as number of branches divided by

total assets (Richard 2000). Bank age, measured as number of years in services, was also

included as a control variable. Consistent with previous demography research (Pelled et al.

1999), we also control for group size measured as number of officials and managers.

Racial heterogeneity and the proportion of whites in management are not synonymous. For

example, two groups, one with 10% Asian Americans and 90% African American and

another with 10% Asian American and 90% White, would have the same diversity score,

but would not be the same in terms of ‘whiteness’. Although our sample closely resembles

that in the banking industry in that the majority of management is likely to be White,

including a proportional control variable allows us to disentangle results of our racial

diversity index more appropriately (Richard et al. 2004). Therefore, we controlled for the

percentage of Whites in management. We also controlled for the percentage of men in

management.

Dependent variable

ROA represented our measure of performance. It was year-end while the demographic

data was year-beginning.

Results

Table 1 shows the means, standard deviations and correlations for all measures. To test our

moderating hypotheses, we follow an analytical procedure employed by Dess et al. (1997).

Hierarchical regression results for the test of the hypotheses are shown in Table 2.

Hypotheses 1a and 1b state that PSM positively moderates the managerial diversity to

financial performance relationship. Model 1 in Table 2 reports the results for the control

variables, while Model 2 includes controls along with race and gender diversity in

management measures. Model 3 inputs the hypothesized PSM moderator and Model 4

adds the two-way interaction term to test H1a and H1b. For H1a related to racial

heterogeneity in management, there was a positive interaction effect on ROA ( p , 0.1

Model 4; p , 0.01 Race Alone Model). For gender diversity in management (H1b),

support was also found on our ROA measure ( p , 0.01 Model 4; p , 0.001 Gender Alone

Model). Therefore, both H1a and H1b are supported. For clarity, we developed graphs of

the moderating effects.

The International Journal of Human Resource Management 2575

T a b le

1 .

D e sc ri p ti v e st a ti st ic s a n d c o rr e la ti o n m a tr ix .

M e a n

S D

1 2

3 4

5 6

7 8

9 1 0

1 . F ir m

si z e (a ss e ts )

1 1 .6 9

1 .2 5

2 . H o ld in g c o m p a n y

1 .2 2

0 .4 1 2

2 0 .1 3 6

3 . G e o g ra p h ic

sc o p e

0 .0 0 0 0 4

0 .0 0 0 0 0 6

2 0 .4 1

0 .1 5 8

4 . B a n k a g e (y e a rs )

7 7

4 0 .5 2

0 .1 8 4

0 .0 1 3

2 0 .0 2

5 . # o f m a n a g e rs

3 2

6 6

0 .6 2 9

2 0 .1 0 4

2 0 .0 8 6

0 .1 1 2

6 . P e rc e n t w h it e

0 .9 4

0 .1 6

0 .0 6 5

2 0 .2 3 8

2 0 .0 2 6

0 .0 4

0 .0 6

7 . P e rc e n t m e n

0 .5 2

0 .2 3

2 0 .1 9 9

2 0 .0 9

0 .0 8 2

2 0 .0 3

0 .0 1

0 .4 2 6

8 . R a c ia l d iv e rs it y in

m a n a g e m e n t

0 .0 7

0 .1 3 7

0 .2 3 6

2 0 .0 0 8

2 0 .1 3

2 0 .0 0 1

2 0 .4 2

2 0 .4 2

2 0 .2 7 2

9 . G e n d e r d iv e rs it y in

m a n a g e m e n t

0 .4 1

0 .1 5

0 .3 4 9

0 .0 0 8

2 0 .0 6 3

0 .0 6 2

2 0 .0 6

2 0 .0 5

2 0 .4 6 3

0 .0 4 9

1 0 . P a rt ic ip a ti v e st ra te g y m a k in g p ro c e ss

3 .4 3

0 .5 2

0 .1 3 8

2 0 .1 0 2

0 .1 7 7

0 .0 1 6

2 0 .1 5

2 0 .1 5

2 0 .1 2 3

0 .1 4 2

0 .3 0 2

1 1 . R e tu rn

o n a ss e ts

1 .1 6

0 .6

0 .2 0 4

2 0 .1 3 9

2 0 .2 1 6

0 .0 6

2 0 .1 3

0 .0 7

0 .0 0 2

0 .1 4 2

0 .0 1 5

0 .0 6 4

C o rr e la ti o n s o v e r 0 .1 5 8 a re

si g n ifi c a n t a t p ,

0 .0 5 le v e l (t w o -t a il e d ).

O.C. Richard et al.2576

T a b le

2 .

M o d e ra te d re g re ss io n a n a ly si s fo r re tu rn

o n a ss e ts .

Is o la te d re su lt s

C o n tr o ls

M a in

e ff e c ts

M o d e ra to r

In te ra c ti o n e ff e c ts

R a c e o n ly

G e n d e r o n ly

F ir m

si z e

2 8

£ 1 0 2 8 (0 .0 0 0 ) 2 1

£ 1 0 2 7 (0 .0 0 0 ) 2 1 £

1 0 2 7 (0 .0 0 0 ) 2 1 £

1 0 2 7 (0 .0 0 0 )

0 .0 3 5

(0 .0 4 9 )

0 .0 5 7

(0 .0 4 8 )

H o ld in g c o m p a n y

2 0 .1 2 2

(0 .1 0 4 )

2 0 .1 0 7

(0 .1 0 4 )

2 0 .1 0 1

(0 .1 0 5 )

2 0 .1 2 3

(0 .1 0 0 )

2 0 .1 1

(0 .1 0 2 )

2 0 .1 3 1

(0 .1 0 0 )

G e o g ra p h ic

sc o p e

2 1 9 0 0 *

(7 7 4 )

2 1 7 3 7 *

(8 6 2 )

2 1 8 0 3 *

(7 8 7 )

2 1 7 6 2 *

(7 5 2 )

2 1 8 2 2 *

(7 2 6 )

2 1 7 7 3 *

(7 5 0 )

B a n k a g e (y e a rs )

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

N u m b e r o f m a n a g e rs

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 ) 0 .0 0 0 0 4

(0 .0 0 1 )

0 .0 0 1

(0 .0 0 1 )

P e rc e n t w h it e

0 .1 1 8

(0 .3 0 4 )

0 .3 2 1

(0 .3 2 6 )

0 .3 3 4

(0 .3 2 8 )

0 .2 7 9

(0 .3 2 8 )

0 .3 1 3

(0 .3 2 2 )

0 .2 0 7

(0 .2 9 3 )

P e rc e n t m e n

0 .0 1 1

(0 .2 1 2 )

0 .0 3 4

(0 .2 4 1 )

0 .0 2 9

(0 .2 4 1 )

2 0 .0 9 6

(0 .2 3 5 )

2 0 .0 3

(0 .2 1 1 )

2 0 .0 2 2

(0 .2 3 0 )

R a c ia l d iv e rs it y in

m a n a g e m e n t

0 .6 2 5 †

(0 .3 4 8 )

0 .6 1 2 †

(0 .3 5 0 )

2 0 .2 8 4

(0 .4 5 8 ) 2 0 .4 7 5

(0 .4 6 4 )

G e n d e r d iv e rs it y in

m a n a g e m e n t

2 0 .0 2 7

(0 .3 3 3 )

2 0 .0 5 9

(0 .3 3 7 )

2 1 .7 2 3 *

(0 .6 8 4 )

2 2 .4 * * * (0 .6 0 9 )

P a rt ic ip a ti v e st ra te g y m a k in g p ro c e ss

(P S M )

2 0 .0 6 9

(0 .1 2 )

2 0 .2 4 5

(0 .1 5 1 ) 2 0 .0 2 1

(0 .1 1 7 ) 2 0 .3 2 2 * (0 .1 4 7 )

R a c ia l d iv e rs it y in

m a n a g e m e n t £ P S M

0 .3 0 8 †

(0 .1 8 5 ) 0 .5 2 5 * *

(0 .1 6 3 )

G e n d e r d iv e rs it y in

m a n a g e m e n t £ P S M

0 .5 6 7 * *

(0 .2 2 4 )

0 .7 9 * * *

(0 .1 8 7 )

R 2

0 .0 6 7

0 .0 8 6

0 .0 8 8

0 .1 8

0 .1 4 4

0 .1 6 3

M o d e l F

1 .6 6 1

1 .7 0 0 †

1 .5 2 3

2 .8 4 9 * *

2 .6 5 8 * *

3 .0 8 5 * *

N o te : T h e u n st a n d a rd iz e d c o e ffi c ie n ts a n d st a n d a rd

e rr o r a re

re p o rt e d . N ¼

1 6 8 .

† p ,

0 .1 0 ; * p ,

0 .0 5 ; * * p ,

0 .0 1 ; * * * p ,

0 .0 0 1 (t w o -t a il e d ).

The International Journal of Human Resource Management 2577

Figure 1 reflects the positive performance effects from the coupling of racial diversity

in management with PSM. Although low levels of PSM show a slight positive effect for

racial diversity, the strongest effect emanates at high levels of PSM. Figure 2 illustrates the

interaction effect of gender diversity in management and PSM on the ROA measure,

which reveals the highest level of ROA at high levels of gender diversity along with high

levels of PSM. Interestingly, gender homogeneous management perform superior to

diverse ones at low PSM levels.

Discussion

Social identity theorist would propose that diversity results in conflict but participative

settings, which can promote superordinate goals can help diminish this conflict.

Information and decision-making perspectives would suggest diversity has positive

benefits only when properly managed so we set out to explore the role of participative

management in unleashing a diversity advantage. Both together suggest that participative

management structures might simultaneously reduce conflict and increase knowledge

sharing. The present research provides empirical evidence that racial and gender diversity

in management effects on firm performance are leveraged by inclusiveness (Dwyer et al.

2003; Shore et al. 2011), specifically PSM processes. Racially homogeneous management

did not benefit from high levels of PSM and gender homogeneous groups actually

experienced weaker firm performance. We conclude that if a firm has diversity along with

full participation of all participants’ (regarding racial or gender majority or minority

status) knowledge, skills and abilities (i.e. inclusiveness), they will experience superior

performance. Interestingly, our study is one of the first to show that the isolated interaction

affects between gender diversity in management and PSM were stronger (7% increase in R 2 )

Figure 1. Two-way interaction between racial diversity in management and participative strategy making on return on assets.

O.C. Richard et al.2578

than race effects (5% increase in R 2 ). Thus, PSM must be even more critical to have in the

managementrankswhenthereisgenderdiversity.

As this study reveals, linear models do not hold much promise (e.g. marginal main

effects for racial diversity) and that the consideration of contextual moderators offer the

most empirical support (Joshi and Roh 2009). Future research should explore more

complex ideal types and actual bundles of types of diversity, strategy making processes,

HR management (HRM) practices and environmental factors (Doty, Glick and Huber

1993; Delery and Doty 1996). In other words, more extensive, high-order, configuration

designs warrant consideration in the organizational demography literature. In addition,

although our findings have implications for organization competitiveness, especially in the

U.S. financial services industry whose recent actions (i.e. irresponsible lending practices,

aggressive and risky monetary policies) contributed to a financial crisis and almost

collapse of the U.S. economy (Wheelock 2010), future research should explore the impact

of diversity in an international context and across industries. Finally, our results show that

PSM features can make a difference (e.g. Kreiser and Davis 2010; Short, Broberg,

Cogliser and Brigham 2010) and appears to be a key feature needed to reap positive

diversity effects.

We offer several limitations of the current research. First, we were not able to assess

diversity separately within each of the three levels of management (i.e. upper, middle and

lower). There could be additional variance explained across each of these levels that we

are unable to capture in our design. Future research should address this issue.

Notwithstanding, we believe the present way we operationalize management is

appropriate since the goal was to explore levels of PSM and knowledge sharing across

levels of management (i.e. vertical integration) and not just within a particular level (i.e.

horizontal integration), which ultimately allows us to more rigorously test our framework.

Indeed, both PSM was designed for the level of analysis in which we tested it. Second, the

Figure 2. Two-way interaction between gender diversity in management and participative strategy making on return on assets.

The International Journal of Human Resource Management 2579

cross-sectional nature of the data negates the ability to assess the long-term effects of

diversity and more confidently employ a causal model. Recent research suggests that racial

diversity may have different long-term effects on measures of performance rather than

more intermediate measures (Richard, Murthi and Ismail 2007). In addition, the sample

was limited in scope to U.S. banks. Consequently, any generalization of results to other

settings should be done so with caution.

Organizations seeking to understand how to effectively manage workforce diversity,

particularly racial and gender diversity are often faced with how to avoid experiencing

negative effects such as interpersonal conflict, reduced cohesion, distrust and decreased

task performance that evolve from social identity theory explanations (Williams and

O’Reilly 1998). Current logic suggests that if negative effects emanating from

demographic differences can be diminished, the beneficial processes that allow knowledge

sharing among diverse organizational members can be exploited for competitive advantage

(van Knippenberg et al. 2004; Harrison and Klein 2007). Our research acknowledges

one essential strategy making process that allows diverse management groups to fully

contribute, thereby improving firm performance, but other process should be explored

(Hart and Banbury 1994).

First, organizations need to recognize that managerial diversity represents a valuable,

knowledge-based HR that can contribute to competitive advantage. Second, organizations

should design a PSM process in which cooperation and collaboration across functional

roles are actively encouraged and unpopular views are given a fair hearing. Put differently,

firms must create an inclusive process that promotes belongingness (Shore et al. 2011). By

accounting for the participative processes that encourage inclusiveness in diverse groups,

we have shed light on how organizations can avoid potential diversity pitfalls and obtain a

superior diversity advantage.

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