10/30/2014 Why Firms Hire Their Employees' Friends

Freek Vermeulen (http://www.forbes.com/sites/freekvermeulen/) Contributor

I write about strategy, business schools and management science.
Opinions expressed by Forbes Contributors are their own.

LEADERSHIP (/LEADERSHIP) 6/18/2013 @ 9:40AM 1,555 views

Why Firms Hire Their

Employees' Friends
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It is well-documented in the literature on labour

markets that personal connections, friendships, and
other types of networks matter a lot for finding a job.
For example, applicants with friends in the
recruiting organisation are more likely to get a job
offer.

This may be perfectly rational for the recruiting

firm; the friends of the candidate in the organization
can be a great source of information about the
applicant. As a result, the firm can be more assured
of the job qualities of the person. Put differently, the
candidate will pose less of a risk in terms of
potentially turning out to be a hiring mistake if he or she has friends in the
firm who have provided inside information. Therefore, employers may be
more eager to hire new people who already have friends in the firm.

But Adina Sterling

(http://www.olin.wustl.edu/facultyandresearch/Faculty/Pages/FacultyDetail.aspx?
username=sterling)suspected there might be another reason why job
applicants with friends in the firm might be more attractive to an employer
than those without. For quite a few jobs especially if it concerns newly
recruited MBA students applicants will simultaneously apply for multiple
jobs and then pick the most attractive offer they receive. And this can be very
costly for a firm: the recruitment procedure can be very expensive, with
multiple rounds of interviews and tests, but the time the candidate sits on an
offer before eventually rejecting it may also precisely be the time that the
numbers 2 and 3 on the list also secure and accept offers elsewhere. Therefore,
understandably, firms are eager to limit the number of rejections they receive
from candidates to whom they offered the job, and if they get rejected they
want it to happen asap.

http://www.forbes.com/sites/freekvermeulen/2013/06/18/why-firms-hire-their-employees-friends/ 1/5
10/30/2014 Why Firms Hire Their Employees' Friends

And Adina, who did a lot of interviews among employers, theorized that
prospective employers would figure that candidates who already have friends
in the firm might be more likely to accept an offer or, if they do reject it, do so
soon. That is because the internal friendships might make them more
attractive as an employee but also because the candidate has a reputation to
protect with his or her friends, and feel an obligation towards them and the
firm.

But thats a nice theory and thought, but how on

earth can you examine that? Because how could you
statistically separate the two effects of 1) employers
gain information about a candidate from his or her
friends, and 2) the friends might make the candidate
more likely to accept an offer?

To solve this problem, Adina chose a clever research

setting. She looked at a 158 MBA and law students
who had just completed an internship with a
company, and then examined whether having
friends in that company made them more likely to
receive an offer from that firm. This was a clever
setting because reason number 1 (gaining information about the candidate
through his friends) no longer plays a role here; the employer already knows
the candidate very well due to his recently completed internship! Hence,
whatever effect is left could be attributed to reason number 2.

Adina indeed found that having friends in the company made it more likely
that the applicant received an offer. Overall, her findings indicate that reason
number 2 (friends make it more likely that the candidate will accept) is also an
important consideration for prospective employers.

Paper presented at the Sumantra Ghoshal Conference

(www.theghoshalconference.com) for Managerially Relevant Research at
the London Business (http://www.forbes.com/business/) School

Friendships and Strategic Behavior in Labor Markets

(http://www.forbes.com/markets/), Adina Sterling (Washington
(http://www.forbes.com/washington/) University)

Paper summary published with the authors permission.

Comment Now Follow Comments

Freek Vermeulen (http://www.forbes.com/sites/freekvermeulen/) Contributor

I write about strategy, business schools and management science.
Opinions expressed by Forbes Contributors are their own.

LEADERSHIP (/LEADERSHIP) 4/29/2014 @ 11:15AM 1,819 views

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