Human Resource Management 10th Edition Chapter 2 Business Ethics and Corporate Social Responsibility

2008 by Prentice Hall

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Developing an Ethical Culture At Tyco International

Changing Tycos corporate image has to rank as one of toughest jobs in recent history Framework for managing that accountability had to be established By 2006, scandal left by Tycos nowjailed former CEO, had been cleaned up
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Ethics
Discipline of dealing with what is good and bad, or right and wrong, or with moral duty and obligation

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Unethical Examples
Enron, Arthur Andersen, WorldCom, Global Crossing, Adelphia Communications, Tyco International, and others Ruthless self-interest that motivates the leaders of some large corporations has been revealed To have served on the Enron board literally has become a badge of shame
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Many Example of Unethical Corporate Behavior

Headlines have exposed the far-from-ethical exploits of Enron, Arthur Andersen, WorldCom, Global Crossing, Adelphia Communications, Tyco International, and others Enrons stated values, respect, integrity, communication, and excellence, were once proudly etched on Enrons paperweights Ruthless self-interest that motivated the leaders of some large corporations has been revealed
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Not Just Corporations

Virtually no occupation has not had its own painful ethical crises in recent years Even so, business ethics scandals continue to be headline news stories today. Lying on resumes, obstruction of justice, destruction of records, stock price manipulation, cutting corners to meet Wall Streets expectations, fraud, waste, and abuse, unfortunately, are occurring all too often when those in business go ethically wrong
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Trends & Innovation: One Persons Ethical Stand

Everyone is not as ethical as Leonard Roberts Quit over promises made at Arbys Another ethical problem at Shoneys Said You cannot fake it. You must stand up for what is right regardless. You cannot maintain your integrity 90 percent and be a leader. Its got to be one hundred percent.
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A MODEL OF ETHICS

Sources of ethical guidance

Lead to

Our beliefs about what is right or wrong

Determine

Our actions

Type I Ethics

Type II Ethics

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Sources of Ethical Guidance

Number of sources to determine what is right or wrong, good or bad, moral or immoral Bible and other holy books Conscience Significant others Codes of Ethics Sources of ethical guidance should lead to our beliefs or convictions about what is right or wrong
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Type I Ethics
Strength of relationship between what individual or organization believes to be moral and correct and what available sources of guidance suggest is morally correct Example: HR manager believes it is acceptable not to hire minorities, despite fact that almost everyone condemns this practice
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Type II Ethics
Strength of relationship between what one believes and how one behaves Example: Manager knows it is wrong to discriminate, but does so anyway
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Legislating Ethics
Procurement Integrity Act Federal Sentencing Guidelines for Organizations (FSGO) Corporate and Auditing Accountability, Responsibility and Transparency Act
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Procurement Integrity Act of 1988

Prohibits release of source selection and contractor bid or proposal information Restrictions on former employees Passed after reports of military contracts for $500 toilet seats Also $5,000 hammer
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Federal Sentencing Guidelines for Organizations (FSGO) of 1992

Outlined effective ethics training program Promised softer punishments for wayward corporations that had ethics programs in place Executives needed to be proactive Organizations responded by creating ethics officer positions, installing ethics hotlines, and developing codes of conduct
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Corporate and Auditing Accountability, Responsibility and Transparency Act of 2002

Known as Sarbanes Oxley Act, primary focus to redress accounting and financial reporting abuses in light of recent corporate scandals Criminalized many corporate acts Whistle-blower protections Prohibits loans to executives and directors
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HR and Sarbanes Oxley Act

Nonretaliation provisions HR professional must understand where Acts corporate mandates intersect with existing HR policies and practices so they can fit them together with corporate compliance efforts
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Human Resource Ethics

Application of ethical principles to HR relationships and activities Code of Ethics Many companies have a code of ethics
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Code of Ethics
Statement of values adopted by company, its employees and directors and sets official tone of top management regarding expected behavior Code of ethics establishes rules by which organization lives and becomes part of organizations corporate culture

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Ethics Officer
Larger firms appoint ethics officer Keeps code on front burner for employees Ethics committee often established
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Baldrige National Quality Award

Increased emphasis on ethics in leadership Criteria: Senior leaders should serve as role models to rest of organization
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Human Resource Ethics

Application of ethical principles to HR relationships and activities Some ethical lapses of recent years occurred in HR management Some believe HR should have questioned salaries, stock options, and related perks received by some corporate executives

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Ethics and HR Management

2 areas where HR can have a major impact on ethics * Corporate Governance * Executive Compensation

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Professionalization Of Human Resource Management

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Profession
A vocation characterized by existence of: Common body of knowledge Procedure for certifying members of profession
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HR Professional Groups
Society for Human Resource Management - Largest national professional organization for HR management individuals American Society for Training and Development - Largest specialized professional organization in human resources
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HR Professional Groups (Cont.)

WorldatWork - Managerial and HR professionals responsible for establishment, execution, administration or application of compensation practices and policies Human Resource Certification Institute Recognize HR professionals through certification program
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Corporate Social Responsibility

Implied, enforced, or felt obligation of managers, acting in their official capacity, to serve or protect interests of groups other than themselves. When corporation behaves as if it has a conscience How company as a whole behaves toward society
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Who Determines?
Organizations top executives usually determine corporations approach to social responsibility
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Stakeholder Analysis and Social Contract

Most organizations have large number of stakeholders

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Organizational Stakeholder
Individual or group whose interests are affected by organizational activities Society is increasingly holding corporate boards of directors and management accountable for putting the interest of stakeholders first Some of the stakeholders for Crown Metal Products, a fictitious manufacturer, are identified Only a few, identified by bold arrows, are viewed as constituencies
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STAKEHOLDERS OF CROWN METAL PRODUCTS

Stanley Crow (Sole stockholder) Employees and Managers

Charitable Organizations Neighbors

Unemployed Workers (Potential employees) Guaranty Bank (Lender)

Customers

Crown Metal Products

Competitors Other Banks in Area (Prospective lenders)

Suppliers

U.S. Government

Local Government Agencies

Local Businesses

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Social Contract
Set of written and unwritten rules and assumptions about acceptable interrelationships among various elements of society Embedded in customs of society Social contract often involves quid pro quo Concerns relationships with individuals, government, other organizations, and society
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The Social Contract

Individuals

Other Organizations

The Organization
Government

Society
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Obligations to Individuals
Certain obligations to employees Expect fair days pay for fair days work, and perhaps much more
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Obligations to Other Organizations

Must be concerned with relationships involving other organizations Commercial businesses are expected to compete with one another on honorable basis Charities such as United Way expect support from business
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Traditional View of Social Responsibility

Businesses best meets obligations through pursuit of their own interests Some companies view social contract mainly in terms of the companys interests

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Obligations to Government
Under auspices of government, companies have license to do business, along with patent rights, and trademarks Expected to recognize need for order rather than anarchy Expected to work with guidelines of governmental organizations such as Equal Employment Opportunity Commission and Office of Federal Contract Compliance Programs
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Obligations to Society in General

Traditional view of business responsibility has been businesses should produce and distribute goods and services in return for profit Businesses operate by public consent with basic purpose of satisfying needs of society

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Sir Thomas More

Said in the 16th century, If virtue were profitable, common sense would make us good and greed would make us saintly. Moore knew virtue is not profitable, so people must make hard choices from time to time. Corporate strategists are being held to a higher standard than just pursuing their own interests, or even those of stockholders; they must consider the interests of other groups too.
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Social Audit
Systematic assessment of a companys activities in terms of its social impact

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Possible Types of Social Audits

Simple inventory of activities Compilation of socially relevant expenditures Determination of social impact The ideal social audit would involve determining the true benefits to society of any socially-oriented business activity
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Steps for Establishing and Implementing Corporate Social Responsibility (CSR) Program
1. Person assigned responsibility for program; structure developed 2. Review of what company is present doing regarding CSR determined 3. Shareholders expectations and perspectives determined 4. Write policy statements covering CSR areas such as environmental, social and community issues
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CSR Steps (Continued)

5. Develop set of corporate objectives and action plan to implement policies 6. Create company quantitative and qualitative targets and performance indicators over a 2-5 year period, along with measurement, monitoring and auditing mechanisms 7. Communicate direction of CSR to stakeholders and fund managers 8. Determine progress of CSR program 9. Report progress of CSR program
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A Global Perspective: When In Rome, Do As the Romans Does Not Work Today
The old adage once accepted in many quarters, When in Rome, do as the Romans do, has become unacceptable. New CEO challenge is to act like an ethical leader for society as a whole

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