3 Ways Employee Referral Programs Can Derail Your Diversity Recruitment

1. Unconscious bias and lack of diversity in existing networks
2. Reinforcing exclusionary practices
3. Negative impact on company culture

Employee referral programs are a popular and trusted recruiting method. Companies like them because referred candidates tend to be a strong cultural fit and stay longer in their roles. Employees like them because they can earn bonuses or rewards for successful referrals.

But there’s a diversity dilemma with referral programs. The things that make them so effective — leveraging networks and ensuring cultural alignment — can also undermine diversity, equity, inclusion, and belonging (DEIB) efforts.

I’ll explain how it happens, why it matters, and, most importantly, what companies can do about it. Read on to learn how to balance effective recruiting with an inclusive hiring process.

First, Let’s Define “Underrepresented Groups”

In this article, when we talk about diversity in the workplace, the term “underrepresented groups” typically refers to communities that face demographic barriers to equal representation within companies relative to their numbers in the broader population.

These groups have historically experienced institutional and systemic discrimination that continues to impact their economic mobility and career advancement over time negatively. As a result, they are often overlooked during recruiting and hiring processes, whether consciously or unconsciously.

Underrepresented groups often include, but are not limited to:

• Women

• Racial and ethnic minorities

• LGBTQIA+ individuals 

• People with disabilities, including neurodivergence 

• Veterans

• Individuals from disadvantaged socioeconomic backgrounds

Creating equitable access to opportunities for talented individuals from these communities is an essential piece of the diversity equation for companies committed to positive social impact. An inclusive mindset recognizes that there are still obstacles to representation, and all people deserve to feel welcomed, valued, and able to reach their full potential.

Unconscious Bias and Lack of Diversity in Your Employees’ Existing Networks

Lack of diversity in referrals is rarely ill-intentioned. Employees naturally refer people similar to themselves without realizing it.

Similarity breeds feelings of understanding, comfort, and trust. So, referrers gravitate to candidates who look, act, and think like them and those they know well.

This limits exposure to people from different backgrounds who could bring fresh, innovative perspectives. And it narrows the talent pool to demographically homogenous networks.

Reinforcing Exclusionary Practices

Many companies still lack diversity in leadership and internal employee resource groups. This scarcity can indicate to underrepresented groups that they wouldn’t feel like they belong.

And because referrals are typically given priority, external candidates are less likely to be considered for open positions. This reliance on insider contacts indirectly excludes underrepresented groups from opportunities.

Negative Impact on Company Culture

When new hires continually fit a common mold, current employees take notice. Organizations risk disengaging these underrepresented workers by allowing exclusionary practices that result in a lack of diversity at all levels.

Companies are especially vulnerable to high turnover when underrepresented employees don’t see representation in leadership to indicate possibilities for advancement.

Why Workforce Diversity Matters

Moral arguments aside, the business case for diversity is clear. Diverse teams drive innovation, reflect increasingly diverse customer demographics, and lead to better financial performance.

• Innovation: Homogenous teams reinforce groupthink. People with similar lived experiences make analogous connections and form uniform perspectives. Diverse teams blend varied viewpoints and ideas. People from different backgrounds make fresh connections that inspire original thinking and problem-solving.

• Market Growth: Workforce diversity allows companies to mirror diverse consumer demographics. Represented groups respond positively to brands that reflect their multicultural values and realities.

• Financial Returns: Multiple studies link greater diversity — especially in leadership — to better financial returns. Diversity breeds innovation, and innovation drives revenue.

How to Balance Referrals With Diversity Efforts

• Don’t Prioritize or Incentivize Referrals: Instead of bumping referrals to the front of the line to be screened, have the recruiter treat them like any other applicant. Don’t have your talent acquisition team do courtesy calls for unqualified referrals for the role, and don’t pay employees for their referrals. Consider taking the money you save from employee referral payouts and investing in Intercultural Development Training by someone like Kai Stowers.

• Prioritize Diversity Targets: Define specific hiring goals around underrepresented groups. Track progress through the recruiting funnel using applicant tracking system (ATS) diversity reports that applicants can opt to participate in. This allows data-driven process refinement. Be transparent and show your starting, current, and target numbers. Even if your recent numbers aren’t impressive, transparency breeds trust and shows you take accountability seriously.

• Prioritize Retention: It’s not enough to recruit diversity. Ensure inclusive, equitable practices across the employee lifecycle — from onboarding and beyond. Underrepresented employees staying, growing, and becoming referrers themselves is the ultimate indicator of success.

• Cast A Wider Net: Employee networks limit candidate pipelines. Seek talent from niche job boards, professional groups, and university programs supporting those underrepresented at your company. If you’re in tech, groups like Black Professionals in Tech Network and Women Who Code are good places to start.

• Prioritize Campus Recruiting: Campus recruiting allows access to large, diverse talent pools before unconscious biases accumulate from early career experiences. Prioritize building connections with colleges serving minority populations. Historically Black Colleges (HBCs) and Women’s Colleges are an excellent place to start.

• Analyze Selection Practices: Review minimum qualifications, evaluation methods, and offer approval processes. Remove unproven requirements that disproportionately discourage minority applicants and assessments that may be unfair to underrepresented groups.

• Spotlight Underrepresented Employees: Storytelling builds emotional connections using common humanity — not “otherness.” Showcase the diversity you do have via employee profiles. Let people from all backgrounds share authentic stories about their career paths.

Final Thoughts

Rather than incentivizing referrals, companies should focus on casting a wider net for talent, building partnerships with diversity-focused organizations, ensuring equitable hiring processes, and prioritizing the retention of underrepresented groups.

Referrals may happen organically, but a multifaceted, diversity-focused recruitment strategy is vital for building innovative teams that reflect our multicultural world.