Decision to Suffer? The Interactive Effect of Race Diversity and Flexibility-Enhancing Staffing Strategies on Firm Performance in Large US Law Firms

Racially diversifying workforce in firms is now largely discussed as a strategic decision to achieve competitive advantage beyond legal obligations for human rights. Many firms seek to maximize the benefits of race diversity, but the effects of race diversity vary among firms. Prior studies have considered various contextual variables that moderate the effects of race diversity, but more sophisticated contextual approach is needed to further clarify the relationship between race diversity and firm performance. From this point of view, this study tried to explain the relationship between race diversity and firm performance by simultaneously considering the industry setting to which firms belong (e.g., law-firm context as one of typical professional service industry) and the flexibility-enhancing staffing strategies that recently held by the law firms (e.g., lateral partner hiring, non-equity partnership, and non-standard employment). To test interaction effects of race diversity and each flexibilityenhancing strategy on firm performance, this study used the longitudinal datasets of 232 large U.S.-based corporate law firms for the period of 2000-2008. To be consistent with our hypotheses, when professional service firms rely more on lateral partner hiring and nonstandard employment, the relationship between race diversity and firm performance become negative. However, contrary to our expectation, no significant interaction effect of race diversity and non-equity partnership was found. It is expected that the results of this study will enhance understanding of when and how race diversity affects firm performance in the recently emerging professional service industry, and also provide implications for effective HRM strategies.