Human Resource

Management
14th Edition

Chapter 2
Business Ethics and Corporate
Social Responsibility

Copyright © [2014] Pearson Education 2-1

 Learning Objectives
1. Define ethics, corporate social responsibility, and
corporate sustainability.
2. Explore the concept of business ethics.
3. Describe sources of ethical guidance.
4. Legislating Ethics
5. Explain the importance of creating an ethical
culture and code of ethics.
6. Define human resource ethics.

Copyright © [2014] Pearson Education 2-2

 7. Discuss the importance of linking pay to ethical
behavior.
8. Describe ethics training.
9. Describe the concept of corporate social
responsibility.
10. Explain corporate sustainability.
11. Describe a social audit.
12. Explain whether corporate social responsibility
can succeed in the global environment.

Copyright © [2014] Pearson Education, Inc. Publishing as Prentice Hall 2-3

 1. Define ethics, corporate social responsibility and
corporate sustainability.
• Ethics: ethics is the discipline dealing with what is good and bad, right
and wrong, or with moral duty and obligation. Ethics at times may
appear to be complicated because businesses are created to produce a
short-term profit, which could potentially conflict with ethical behavior.
• Business ethics is the study of appropriate business policies and
practices regarding potentially controversial subjects including
corporate governance, bribery, discrimination, corporate social
responsibility, and fiduciary responsibilities. 
• Examples of Unethical Behavior
 Lying to your spouse about how much money you spent.
 Lying to your parents about where you were for the evening.
 Stealing money from the petty cash drawer at work.
 Lying on your resume in order to get a job.
 Talking about a friend behind his back.
 Taking credit for work you did not do.

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• Corporate Social Responsibility (CSR): CSR is the
implied, enforced, or felt obligation of managers acting in
their official capacity, to serve or protect the interests of
groups other than themselves.

• Corporate Sustainability: It is an approach that creates

long-term stakeholder value by implementing a business
strategy that considers every dimension of how a
business operates in the ethical, social, environmental,
cultural, and economic spheres. It also formulates
strategies to build a company that fosters longevity
through transparency and proper employee
development.

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 • Ethics, CSR, and corporate sustainability are everyone’s
business. Human resource (HR) professionals
particularly concern themselves with establishing policies
to promote ethical behavior and unethical behavior.
 In addition, the human resource management (HRM)
function’s leadership works with other executive
leadership to identify:
 training opportunities for educating employees about
how they may make positive contributions to
objectives
 and developing performance based pay programs
that align employee performance with CSR and social
responsibility goals.

Copyright © [2014] Pearson Education, Inc. Publishing as Prentice Hall 2-6

 2. Explore the concept of business
ethics.
• Business ethics addresses matters of choices
about right and wrong made by business
leaders.
• Ethics can be defined as the discipline dealing
with the distinction of right and wrong.
• Unfortunately, we have many recent examples
of companies and individuals who behaved
unethically.
• CEOs and other senior leaders must take
responsibility and be clear that unethical
behavior is not acceptable.
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 Ethics Examples
• Nearly every industry has experienced a painful ethical
crisis in recent years
• Business ethics scandals continue make headlines
• Examples:
– Lying on résumés
– Obstruction of justice
– Destruction of records
– Stock price manipulation
– Fraud, waste, and abuse
are unfortunately occurring all too often when those in
business decide to make poor ethical choices.
• There must be leaders who are able and willing to impart
ethics throughout the culture of the organization.
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• Ethics is a philosophical discipline that describes and
directs moral conduct.
• Those in management make ethical (or unethical)
decisions every day. Do you hire the best-qualified person,
who is a minority?
• Do you forget to tell a candidate about the dangerous
aspect of a certain job?
• Some ethical decisions are major and some are minor. But
decisions in small matters often set a pattern for the more
important decisions a manager makes.
• Attitudes such as “It’s standard practice,” “It’s not a big
deal,” “It’s not my responsibility,” and “I want to be loyal”
are simply not acceptable.
• In the sixteenth century, Sir Thomas More said, “If virtue were
profitable, common sense would make us good and greed would
make us saintly.” More knew that virtue is not profitable, so people
must make hard choices from time to time. 2-9
 3. Sources of Ethical Guidance

• One might use a number of sources to

determine what is right or wrong, good or bad,
and moral or immoral such as holy books, or
one’s conscience.
• Another source of ethical guidance is the
behavior and advice of people, including our
parents, friends, and role models and members
of our Mosque, Temple, churches, clubs, and
associations.
• For most professionals, there are codes of ethics
that prescribe certain behavior. 2-10
• The sources of ethical guidance should lead to our
beliefs or a opinion about what is right or wrong,
good or bad, and moral or immoral.
• Two conditions must exist if an individual or
organization is to be considered ethical:
 First, ethics consists of the strength of the
relationship between what an individual or an
organization believes to be moral and correct and
what available sources of guidance suggest is
morally correct.
For example, suppose a manager believes it is
acceptable not to hire minorities, despite the fact
that almost everyone condemns this practice. This
person would not be considered ethical. 2-11
  Second, ethics consists of the strength of the
relationship between what one believes and how
one behaves.
For example, if a manager knows that it is wrong
to discriminate but does so anyway, the
manager is also unethical.

Copyright © [2014] Pearson Education, Inc. Publishing as Prentice Hall 2-12

 4. Legislating Ethics
• Many resist that ethics cannot be legislated.
• Although laws cannot mandate ethics, they may be able
to identify the baseline separating what is good and what
is bad.
• Much of the current legislation was passed because of
business ethics breakdowns.
• There have been at least four attempts to legislate
business ethics since the late 1980s:
– Procurement Integrity Act
– Federal Sentencing Guidelines for Organizations (FSGO)
– Corporate and Auditing Accountability, Responsibility, and
Transparence Act
– Dodd-Frank Wall Street Reform and Consumer Protection Act
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o Procurement Integrity Act:
 Government employees who serve as procurement officials as
defined in the Procurement Integrity Act are subject to certain
prohibitions when involved in the conduct of a procurement.
 the Procurement Integrity Act puts certain restrictions on and
invokes penalties for, the conduct of government procurement
officials and contractors during the procurement process.
 Further, this act applies this restriction to nongovernment
employees who provided consulting services on procurement
matters.
 The Procurement Integrity Act prohibits the release of source
selection and contractor bid or proposal information.
 Examples of information contained in bids include employee pay rates
and proprietary information about the contractor’s business processes.
 Also, a former employee who served in certain positions on a
procurement action or contract in excess of $10 million is barred for
one year from receiving compensation as an employee or consultant
from that contractor.
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o Federal Sentencing Guidelines for Organizations
(FSGO): The second attempt occurred with the passage of
the 1992 Federal Sentencing Guidelines for Organizations
(FSGO) Act, which outlined an effective ethics training program
and explained the seven minimum requirements for an
effective program to prevent and detect violations.
o In the law were recommendations regarding standards, ethics
training, and a system to anonymously report unacceptable
conduct.
o If executives were proactive in their efforts to prevent white-
collar crime, it would lessen a judgment against them and
reduce the liability. Organizations responded by creating ethics
officer position.
"White collar crime" can describe a wide variety of crimes, but they all
typically involve crime committed through dishonesty and motivated by
financial gain. The most common white collar crimes are various types of
fraud, embezzlement, tax evasion and money laundering 2-15
o Corporate and Auditing Accountability, Responsibility,
and Transparence Act:
The third attempt at legislating business ethics was the
Corporate and Auditing Accountability, Responsibility and
Transparency Act of 2002, which banned many corporate
acts that were previously relegated to various regulatory
structures.
The act contains broad employee whistleblower protections
that subject corporations and their managerial personnel
to significant civil and criminal penalties for retaliating,
harassing, or discriminating against employees who report
suspected corporate wrongdoing
• The act states that management may not discharge, demote,
suspend, threaten, harass, or in any other manner
discriminate against an employee protected by the act.
• The law prohibits loans to executives and directors. 2-16
o Dodd-Frank Wall Street Reform and Consumer
Protection Act:
• The fourth, The Dodd-Frank Wall Street Reform and
Consumer Protection Act is a law that regulates the
financial markets and protects consumers was signed into
law in 2010.
• The act was brought on by the worst financial crisis since
the Great Depression, which resulted in the loss of 8
million jobs, failed businesses, a drop in housing prices,
and wiped out personal savings of many workers.
• Whistleblower Protection: The Whistleblower Protection
Act of 1989 is a law that protects federal government
employees in the United States from retaliatory action for
voluntarily disclosing information about dishonest or illegal
activities occurring in a government organization.
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Bangladesh Public Procurement Act 24 2006
Scope of application.-
(l) This Act extends to the whole of Bangladesh..
(2) This Act shall apply to the following cases, namely:-
(a) procurement of goods, works or services by any procuring
entity using public funds;
(b) procurement of goods, works or services by any government,
semi- government or any statutory body established under any
law;
The purpose of these Regulations is to promote value for money in
the public procurement on behalf of the Government while
ensuring that public procurement methods are conducted in a
fair, transparent and non-discriminatory manner, thereby
promoting economic and social development.
A whistleblower is someone who utters public interest information
the concerned the authority. ... The Public Interest Information
Disclosure Act (Provide Protection), 2011 entitles a person to
divulge information of government and non-government offices
or organizations, though not encompassing the private sector.
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 5. Creating an Ethical Culture and Code
of Ethics
• Mark Twain once said, “Always do right. This will gratify
some people and astonish the rest.”
• Culture is concerned with the way people think, which
affects the way that they act.
• Organizations with strong ethical cultures take steps to
ensure that their standards are widely accessible,
promoted, and followed by their leaders and employees.
• A code of ethics establishes the rules that the organization
lives by. Only a few companies have made ethics and
compliance a process for determining how employees are
compensated.

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• One way for a firm to create and sustain an ethical culture
is to audit ethics, much like a company audits its finances
each year.
• An ethics audit is simply a systematic, independent, and
documented process for obtaining evidence regarding the
status of an organization’s ethical culture.
• Many believe that information provided by whistleblowers
is much more effective in uncovering wrongdoings than
are external auditors.
• An ethical culture is made up of factors such as ethical
leadership, accountability, and values.
• Ethical leadership begins with the board of directors and
CEO and continues to middle managers, supervisors, and
employees.
• Building an ethical culture that lasts requires a foundation
of practices that continue even when leaders change. 2-20
 6. Human resource ethics
• Human resource ethics is the application of ethical principles to
HR relationships and activities.
• It is vitally important that HR professionals know the practices that
are acceptable and unacceptable and work to ensure that
organizational members also have this awareness in dealing with
others.
• The HR professionals’ primary job is dealing with people, they
must help to impart ethical practices into the corporate culture.
• Those values must be clearly communicated to all employees,
early and often, beginning with the interview process, during
employee orientation, and regularly recognized during
performance reviews, public ceremonies, celebrations, and award.
• HR Professionals need to help establish an environment in which
employees throughout the organization work to reduce ethical
lapses towards establishing the credibility of the entire
organization.
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 • There are many topics through which HR
professionals can have a major impact on ethics
and therefore, on creating an ethical corporate
culture. Some ethical culture that might be
considered include:
 Strive to create a diverse workforce.
 Insist that job descriptions are developed to
accurately and describe jobs that are dangerous
or hazardous.
 strive to recruit and select the best-qualified
applicant for the job.

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 training initiatives geared so that everyone will have an
opportunity to receive the best training and development
possible.
 Compensation and benefit system developed so that
employees will view it as fair and impartial.
 Organization make a sincere attempt to provide a safe
and healthy work environment.
 attempt to develop a work environment in which
employees will not feel compelled to join a union.
• HR should review, develop, and enforce organizational
policies to ensure a high level of ethics throughout the
organization.
• All employees should know what is ethical and unethical
in their specific area of operations.
• It is insufficient to say that everyone should behave
ethically. 2-23
 7. Linking pay to ethical behavior
• Linking pay to ethical behavior is to relate the money that
is due for work done, goods received, or a debt incurred.
• The importance of linking pay to performance is an
appropriate topic when discussing ethics
• It is well known in the compensation world that “what you
reward is what you get.” If the statement is correct, then a
problem exists with regard to compensation because most
companies do not link pay to ethical behavior.
• For example, ethical expectation could be made part of the
performance review and the results tied to pay raises. As
one author recently stated, “When employees behave in
undesirable ways, it’s a good idea to look at what you’re
encouraging them to do.”
• If pay is linked to performance, should it be to past, present,
or expected performance? 2-24
How do you effectively link compensation with performance?
Incentives are intended to motivate future outcomes.
1.Differentiate bonuses from incentive pay. Bonuses are paid
based on past outcomes. Incentives are intended to motivate future
outcomes.
2.Match the incentive cycle to the work cycle. Consider linking
incentives to the speed of work. For example, if your employee has
just finished a six-week project, pay the incentive at the end of that
six weeks.
3.Align your incentives at the individual, team and
organizational level. Every objective is either met or missed
because of actions taken at the individual, team and organizational
level. Make sure your incentives reflect this reality.
4.Think about the mix of base pay to variable pay, depending on
your organization’s size, the types of jobs, your industry and so on.
5.Aim for self-funding, i.e., plan for incentives to come out of
increases in sales or productivity.
6.Keep it simple. If your comp plan is too complicated, your
employees won’t understand it and won’t be motivated by it 2-25
 8. Ethics training

• “Educate employees in the company’s standards and

procedures through publications and training.”
• Companies train employees on many topics, but ethics
training is often not considered, which is a major
oversight
• Ethics training is not merely for top-level managers; it
should be for everyone from the bottom to the top.
• Companies that consistently rank high on the lists of best
corporate citizens tend to make ethics training part of a
company-wide initiative to promote integrity.

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 • Ethics training should be part of a proactive, not
reactive, strategy. Regular training builds
awareness of common ethical issues which
provides a tool for effective problem solving.

• Ethics training should begin at the top and

continue through all levels in the organization.
However, training should take into consideration
the differences in these levels.

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 9. Corporate social responsibility
• Corporate social responsibility (CSR) is a self-
regulating business model that helps a company be socially
accountable—to itself, its stakeholders, and the public.
• Corporate social responsibility is the implied, enforced, or felt
obligation of managers, acting in their official capacity, to serve or
protect the interests of groups other than themselves.
• A recent survey revealed that 86 percent of consumers wanted
companies to tell them more about the results of CSR efforts.
• Business for Social Responsibility
http://www.bsr.org
This is a global organization that helps member companies achieve
success in ways that respect ethical values, people, communities,
and the environment.
• A focus on CSR in Bangladesh would be useful, not only for
improving corporate governance, labor rights, work place safety, fair
treatment of workers, community development and environment
management, but also for industrialization and ensuring global
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market access.
CSR is the model in which economic, social, and environmental
responsibilities are satisfied concurrently. This Figure “Carroll’s Pyramid of
Corporate Social Responsibility” illustrates the layers of responsibility
associated with CSR. When a corporation behaves as if it has a ethics &
integrity, it is said to be socially responsible. CSR considers the overall
influence of corporations on society at large and goes beyond the interests
of shareholders.
• Carroll’s Pyramid of Corporate Social Responsibility:

Carroll's CSR Pyramid

is a simple framework
that helps argue how
and why organizations
should meet their
social responsibilities.

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 Economic responsibilities: The first
responsibility of any organization is to deliver an
acceptable return for shareholders (while
contributing to local and global economies
through their core business).
 Legal responsibilities: The second aspect of
responsibility requires that organizations operate
within the law at all locations in which they do
business.
 Ethical responsibilities: The third layer of the
pyramid requires organizations to consider social
and environmental impacts of their operations
and, as far as possible, to do no harm while
pursuing business interests.
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 Discretionary responsibilities:
 The fourth layer of responsibility is to proactively seek
opportunities to make a positive contribution to society
beyond profitability, compliance and business ethics.
 At the discretionary, or voluntary level, organizations have
a responsibility to understand broad stakeholder needs
and to address societal concerns though their business
practices.
Example: During the Vietnam War, Dow Chemical gained a bad
reputation for not being socially responsible because it produced the
deadly chemical agent napalm. As a result Dow had difficulty recruiting
the best scientists and other professionals. To overcome this image, Dow
built a campaign that highlighted how Dow has benefitted agricultural
production. Once people saw the positive side of Dow, its ability to recruit
and retain the best chemists improved.
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Corporate social responsibility in Bangladesh:
The issue of Corporate Social Responsibility (CSR) in
Bangladesh is often seen in terms of financial spending in a
particular area of socio-economic or development activity.
In Bangladesh, it is the state-owned enterprises and commercial
banks that are believed to be responsible to dish out funds for
CSR activities.
CSR Practices in the RMG sector of Bangladesh: In respect
of evaluating CSR practices in the RMG sector the focus remains
on addressing three issues of CSR: (a) labor rights and workplace
conditions; (b) environmental management, and (c) involvement in
social and community development and charitable activities.
Common CSR practices in Bangladesh by MNCs are
centered around namely poverty improvement, healthcare,
education, charity activities, cultural enrichment, youth
development, women empowerment, patronizing sports and music
etc. these activities are planned to be the partners in development
as responsible citizen.
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These are the most common examples of corporate
social responsibility:

Reduce carbon footprints to mitigate climate change.

Improve labor policies and embrace fair trade.

Engage in charitable giving and volunteer efforts within your

community.

Change corporate policies to benefit the environment.

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 10. Corporate sustainability
• Corporate sustainability has evolved from the more traditional
corporate social responsibility.
• Corporate sustainability is an approach aiming to create long-
term stakeholder value through the implementation of a business
strategy that focuses on the ethical, social, environmental,
cultural, and economic dimensions of doing business.
• Why is Corporate Sustainability Important? Adopting
sustainable practices not only helps the environment but the
corporations have proven that sustainability initiatives lead to an
improved brand image, reduced costs, happier shareholders,
increased productivity, and countless more benefits.
• Sustainability focuses on meeting the needs of the present
without compromising the ability of future generations to meet
their needs. The concept of sustainability is composed of four
pillars: human, economic, environmental, and social—also known
informally as profits, planet, and people.
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• Corporate sustainability may be thought of a business and
investment approach that attempts to use the best business
practices to meet the needs of current and future shareholders.
• HR professionals play an important role in promoting corporate
sustainability objectives. Tools below illustrates how HR
professionals can use their expertise toward this end. i.e How to
Embed Sustainability Using HRM Tools:
 Employee attraction: using the organization’s commitment to
sustainability in recruitment helps attract more applicants and at
the same time ensures the right “fit” with the company’s
sustainability goals.
 Employee attitudes: although the research is unclear whether an
organization’s commitment to sustainability leads to higher
employee retention, it does have positive effects on employee
commitment and job satisfaction.

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  Employee skills and knowledge:
Many organizations provide initial and ongoing
training and development on the knowledge and
skills needed to achieve their sustainability goals,
although the research on the impact of achieving
sustainability goals is still limited.

 Employee sustainability goal attainment: including

sustainability targets in evaluation and
compensation systems can lead to greater
attention to and achievement of those goals.

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  Sustainability organizational climate: though the
research is lacking in this area, a sustainability
strategy will likely fail if the company’s
organizational climate does not appropriately
support it. (Organizational climate is defined as the recurring
patterns of behavior, attitudes and feelings that characterize life in
the organization, while an organization culture tends to be deep and
stable.)

• Employee sustainability behaviors: Supervisory

and organizational support can lead to more
sustainability behaviors in employees.

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 11. Conducting a social audit
• To overcome the negative publicity of corporate misdeeds and to restore
trust, businesses are now conducting audits of their social responsibility
activities and not just financial audits.
• A social audit is a systematic assessment of a company’s activities in
terms of its social impact.
• A social audit is a way of measuring, understanding, reporting and
ultimately improving an organization's social and ethical performance.
A social audit helps to narrow gaps between vision/goal and reality,
between efficiency and effectiveness. ... Social auditing creates an
impact upon governance.
• Three possible types of social audits are currently being used:
 Simple inventory of activities (minority employment and training, support of minority
enterprises, population control, involvement in selected community projects by executives
and a hard core unemployment program )

 Compilation of socially relevant expenditures

 Determination of social impact
• Ideal social audit: Involve determining true benefits to society of any
socially oriented business activity.
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 12. Corporate social responsibility succeed
in the Global environment

• The global environment often judges management

primarily on protecting the firm’s bottom line.

• If this is so, it may be easy to be socially responsible

in a prospering economy but more difficult when the
economy is bad.

Refers to a company's net earnings, net income or earnings per

share (EPS). Bottom line also refers to any actions that may
increase/decrease net earnings or a company's overall profit
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 Even before the recent recession began, corporations and their
contractor manufacturers (often Korean, Taiwanese, and Hong
Kong companies operating throughout the world) focused on
obtaining the lowest production costs regardless of the
accompanying social and environmental impacts.
 As labor costs have increased in China, companies quickly
moved their manufacturing to lower labor cost countries such as
Cambodia, Laos, India, and Vietnam. No consideration was made
for the workers and families of the workers who were left behind.
 Although some companies continue to say that they are fully
committed to CSR, their less-than-socially-responsible behavior
does not support their stated commitment.
 The garment factory Rana Plaza building collapse in
Bangladesh in 2013 stands among history’s worst industrial
disasters, officially claiming 1,127 lives. The tragedy raised
questions about the liability of western retailers for the working
conditions of those in their supply chains.
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