This paper studies the forces which determine how diversity at a firm evolves over time. We consider a dynamic model o a single firm with two levels of employees, the entry level and the upper level. In each period, the firm selects a subset of the entry-level workers for promotion to the upper level. The members of the entry-level worker pool vary in their initial ability as well as in their type,' where type could refer to gender or cultural background. Employees augment their initial ability by acquiring specific human capital in mentoring interactions with upper level employees. We assume that an entry-level worker receives more mentoring when a greater proportion of upper-level workers match the entry-level worker's type. In this model, it is optimal for the firm to consider type in addition to ability in making promotion decisions, so as to maximize the effectiveness of future mentoring. We derived conditions under which firms attain full diversity, as well as conditions under which there are multiple steady states, so that the level of diversity depends on the firm's initial conditions. With multiple steady states, temporary affirmative action policies can have a long-run impact on diversity levels.