Human Resource Management

10th Edition
Chapter 2
Business Ethics and Corporate
Social Responsibility

© 2008 by Prentice Hall 2-1

Developing an Ethical Culture At
Tyco International
• Changing Tyco’s 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 Tyco’s now-
jailed former CEO, had been cleaned up

© 2008 by Prentice Hall 2-2

 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
© 2008 by Prentice Hall 2-4
 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
• Enron’s stated values, respect, integrity,
communication, and excellence, were once
proudly etched on Enron’s 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 Street’s 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 Person’s
Ethical Stand
• Everyone is not as ethical as Leonard
Roberts
• Quit over promises made at Arby’s
• Another ethical problem at Shoney’s
• 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. It’s got to be one hundred percent.”
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 A MODEL OF ETHICS

Sources of Our beliefs

Lead to Determine Our actions
ethical about what is
guidance right or wrong

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

© 2008 by Prentice Hall 2-10

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

© 2008 by Prentice Hall 2-13

 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
© 2008 by Prentice Hall 2-14
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
© 2008 by Prentice Hall 2-15
HR and Sarbanes Oxley Act
• Nonretaliation provisions
• HR professional must understand
where Act’s corporate mandates
intersect with existing HR policies
and practices so they can fit them
together with corporate
compliance efforts

© 2008 by Prentice Hall 2-16

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
organization’s 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

© 2008 by Prentice Hall 2-21

 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

© 2008 by Prentice Hall 2-25

 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

© 2008 by Prentice Hall 2-26

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
© 2008 by Prentice Hall 2-27
Who Determines?

Organization’s top
executives usually
determine
corporation’s
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

© 2008 by Prentice Hall 2-30

 STAKEHOLDERS OF CROWN METAL PRODUCTS

Stanley
Charitable Crow (Sole Employees
Organizations stockholder) and
Unemployed
Managers
Workers
Neighbors
(Potential
employees)

Guaranty
Customers
Crown Bank
Metal (Lender)
Products

Competitors Suppliers

Other Banks in
Local Local Area
U.S. Government Businesses (Prospective
Government Agencies lenders)

© 2008 by Prentice Hall 2-31

 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

© 2008 by Prentice Hall 2-32

 The Social Contract
Individuals

Other Organizations
The Organization

Government

Society
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Obligations to Individuals

• Certain obligations
to employees
• Expect fair day’s
pay for fair day’s
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
© 2008 by Prentice Hall 2-35
 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 company’s
interests

© 2008 by Prentice Hall 2-36

 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

© 2008 by Prentice Hall 2-37

 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

© 2008 by Prentice Hall 2-38

 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.

© 2008 by Prentice Hall 2-39

 Social Audit

Systematic
assessment of a
company’s
activities in terms
of its social impact

© 2008 by Prentice Hall 2-40

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

© 2008 by Prentice Hall 2-41

 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
© 2008 by Prentice Hall 2-42
 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
© 2008 by Prentice Hall 2-43
 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

© 2008 by Prentice Hall 2-44

© 2008 by Prentice Hall 2-45