The relation between team cultural diversity and team performance is complex, with conflicting findings in the literature. Some studies highlight the negative impacts of diversity, such as communication challenges and conflict, while others emphasize its positive contributions, such as enhanced creativity and problem-solving. The present paper aims to reconcile these divergent perspectives by introducing moral relativism—a concept from ethics literature—as an important moderating factor. Moral relativism, the belief that moral values are shaped by cultural contexts, may influence how team members manage diversity, leading to a positive link between cultural diversity and performance for high levels of relativism and to a negative one for low levels. In addition, I suggest that this moderation effect works indirectly through relationship conflict and social cohesion, resulting in a mediated moderation model. To test the hypothesized relations, I conducted a study leveraging data from X-Culture, an international experiential learning competition that requires participants to work together in multicultural teams. Results suggest that the level of moral relativism in teams indeed moderates the relation between cultural diversity and team performance, yielding a negative effect for low levels of relativism and a positive effect for high levels. In addition, it is supported that this moderation effect works indirectly in a mediated moderation through relationship conflict and social cohesion. Consequently, this paper empirically demonstrates what management scholars and practitioners have argued theoretically, namely that successfully harnessing the benefits of cultural diversity critically depends on how team members perceive and navigate their differences.
