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C o p y r i g h t 2 0 2 1 . I n f o r m a t i o n A g e P u b l i s h i n g . A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

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Human Resources Management

and Ethics Responsibilities, Actions, Issues, and Experiences

A Volume in Contemporary Human Resource Management: Issues, Challenges, and Opportunities

Series Editor

Ronald R. Sims William and Mary

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Contemporary Human Resource Management: Issues, Challenges, and Opportunities

Ronald R. Sims, Series Editor

Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences (2021)

edited by Ronald R. Sims and Sheri K. Bias

Human Resources Management Issues, Challenges and Trends: “Now and Around the Corner” (2019)

edited by Ronald R. Sims and Sheri K. Bias A Contemporary Look at Business Ethics (2017)

by Ronald R. Sims

When a New Leader Takes Over: Toward Ethical Turnarounds (2017) by Ronald R. Sims

Executive Ethics II: Ethical Dilemmas and Challenges for the C Suite, 2nd Edition (2016)

edited by Ronald R. Sims and Scott A. Quatro

Transforming Government Oganizations: Fresh Ideas and Examples From the Field (2016)

edited by Ronald R. Sims, William I. Sauser, Jr., and Sheri Bias

Legal and Regulatory Issues in Human Resources Management (2014) edited by Ronald R. Sims and William I. Sauser, Jr.

Managing Human Resources for the Millennial Generation (2013) edited by William I. Sauser, Jr. and Ronald R. Sims

Experiences in Teaching Business Ethics (2011) edited by Ronald R. Sims and William I. Sauser, Jr.

Reforming (Transforming?) a Public Human Resource Management Agency: The Case of the Personnel Board of Jefferson County, Alabama (2010)

by Ronald R. Sims

Executive Ethics: Ethical Dilemmas and Challenges for the C-Suite (2010) edited by Scott A. Quatro and Ronald R. Sims

Human Resource Management: Contemporary Issues, Challenges and Opportunities (2007)

edited by Ronald R. Sims

Human Resource Development Today and Tomorrow (2006) by Ronald R. Sims

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Human Resources Management

and Ethics Responsibilities, Actions, Issues, and Experiences

Edited by

Ronald R. Sims William and Mary

and

Sheri K. Bias Saint Leo University

INFORMATION AGE PUBLISHING, INC. Charlotte, NC • www.infoagepub.com

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Library of Congress Cataloging-in-Publication Data

CIP record for this book is available from the Library of Congress http://www.loc.gov

ISBNs: 978-1-64802-329-3 (Paperback)

978-1-64802-330-9 (Hardcover)

978-1-64802-331-6 (ebook)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the publisher.

Printed in the United States of America

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CONTENTS

Acknowledgments .................................................................................... vii

1. Human Resources Management and Ethics: An Introduction and Overview Ronald R. Sims and Sheri K. Bias ....................................................... 1

2. The Student, Human Resources, and the Internship: Law, Ethics, Education, and the Practical Repercussions of the Labor-for-Experience Trade J. Adam Shoemaker ............................................................................ 25

3. Developing Talent Through Leadership and Executive Coaching: Ethical Guidelines and Considerations James P. Sartain, Jr. .......................................................................... 41

4. Ethical Bias: The Impact on Equal Pay William J. Woska ............................................................................... 63

5. Social Media Policies: Legal and Ethical Challenges Karin Bogue ..................................................................................... 81

6. Human Resources Management Audit: Ensuring Compliance With HRM Laws and Regulations Ronald R. Sims ................................................................................111

7. HRM’s Role in Creating a Culture of Ethics/Integrity for Data Privacy and Breach Disclosure Chon Abraham and Ronald R. Sims ................................................. 139

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vi CONTENTS

8. Human Resources and Ethics: The Social Glue Within a Banking Establishment Sheri K. Bias and Wendy W. Brown ..................................................169

9. At the Crossroads of SHRM and SHCM: Lessons From the 7th Fleet “Fat Leonard” Ethics Scandal Marcia A. Beck ................................................................................ 189

10. Ethical Challenges Human Resource Managers Experience in Healthcare Organizations Rafael Rosado-Ortiz and Sheri K. Bias ............................................ 225

11. Human Resources Management: Ethical Audits and Culture Ronald R. Sims ................................................................................241

12. Human Resources Management and Ethics: A Look to the Future Ronald R. Sims and Sheri K. Bias ................................................... 269

About the Authors .................................................................................. 299

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. vii–viii Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. vii

ACKNOWLEDGMENTS

We are indebted to George F. Johnson at Information Age Publishing, Inc. who continues to provide the collective outlet for our ideas. A most deserved thank you and acknowledgment goes to our group of contribu- tors. Without their collective professional and personal efforts, based upon their own human resources management (HRM) experiences as practi- tioners, academics, and researchers to share their views on the HRM and ethics this book would not exist. We believe that when reading through the content of their chapters you will agree that they have made a significant contribution to our understanding of HRM and ethics. We are indebted to them all as colleagues and friends.

Sims Acknowledgment

A very, very special thanks goes to my colleague, friend, and coeditor, Sheri K. Bias and Herrington Bryce who continues to serve as my colleague, mentor, and valued friend. The administrative support of the Raymond A. Mason School of Business at William and Mary is also acknowledged.

Thanks and appreciation goes to my family who have supported me throughout my work over the years.

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viii ACKNOWLEDGMENTS

Bias Acknowledgement

A very special thank you to Information Age Publishing for allowing us the creative outlet for our efforts in this text as without them, none of this would have been possible. I am sincerely grateful for my coeditor, Ron Sims, as it has been amazing to work with him as a colleague and valued mentor in the realm of human resources. I am indebted to my many col- leagues at Saint Leo University whose support has been invaluable during my many years as a professor there; Go Lions! This book is dedicated to my husband, Jim, and son, Justin.

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CHAPTER 1

HUMAN RESOURCES MANAGEMENT AND ETHICS

An Introduction and Overview

Sheri K. Bias and Ronald R. Sims

INTRODUCTION

Human resources management (HRM) academics and professionals must continue to rethink what they can do to help individuals and their orga- nizations reinvent and institutionalize ethics and ethical strategies in and outside of HRM functions, their broader organizations and the world of work. This is increasingly evident as the role, responsibilities, actions, issues, and experiences of HRM researchers and practitioners continues to evolve beyond basic legal and compliance with business principles. That means the need to establish and reinforce the role ethics can and must play in any HRM efforts to achieve an organization’s strategic goals and performance.

There is little doubt that HRM is significant in improving employee and organizational performance. Additionally, it is quite evident that all

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2 S. K. BIAS and R. R. SIMS

HRM practices need to be fair in their approach and application and the call for strong appreciation of ethics in HRM should be the cornerstone of any organization’s mission or purpose, strategy or values. Further, research strongly suggests (1) a need for the application of ethical principles in HRM which are seen to be fair, acceptable across the board and can be considered as a basis for a minimum standard to evaluate ethics in HRM practices and to determine acceptable conduct in HRM functions; (2) that HRM practitioners take responsibility in promoting ethical behaviors that support organizational goals and societal ethical expectations of today’s organizations; and (3) the importance of HRM in developing and sustain- ing ethical culture in organizations.

In sum, organizational leaders and other members increasingly accept that HRM can effectively contribute to developing and sustaining ethical principles, moral culture, and ethical climate that support each employees and organization’s behaviors and performance. HRM practitioners have a duty to help entrench ethical orientation in every purposeful dimension of HRM and work with other organizational members to ensure that such an orientation is a keystone of the broader organizations actions, issues, and experiences.

This chapter first offers a brief discussion of human resource management and the skills of HRM professionals. Next, the chapter discusses ethical issues typically involved in HRM practices and policies within the organization. The discussion then focuses on the role of HRM professionals in creating an ethically-oriented organization culture. The chapter concludes with an overview of this book and more specifically the remaining chapters.

HUMAN RESOURCE MANAGEMENT

Human resource management (HRM) refers to the policies, practices, and systems that influence employees’ behavior, attitudes, and performance. There are several important HRM practices: analyzing work and design- ing jobs, attracting potential employees (recruiting), choosing employees (selection), teaching employees how to perform their jobs and preparing them for the future (training and development), evaluating their perfor- mance (performance management), rewarding employees (compensation), creating a positive work environment (employee relations) and supporting the organization’s strategy (HRM planning and change management).

HRM practices are valuable to an organization. Decisions such as whom to hire, what to pay, what training to offer, and how to evaluate employee performance directly affect employees’ motivation and ability to provide goods and services that customers or clients value. By influencing who works and how those people work, HRM contributes to basic measures of

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Human Resources Management and Ethics 3

success such as quality, profitability and customer or client satisfaction. So, HRM helps determine the effectiveness and competitiveness of business or other organization.

Human resources have these necessary qualities:

1. Human resources are valuable. High-quality employees provide a needed service as they perform many critical functions;

2. Human resources are rare in the sense that a person with high levels of the needed skills and knowledge is not common. An organization may spend months, for example, looking for a talented and experi- enced manager or technician;

3. Human resources cannot be imitated. To imitate human resources at a high-performing competitor, you would have to figure out which employees are providing the advantage and how. Then you have to recruit people who can do precisely the same thing and set up the systems that enable those people to imitate your competitor;

4. Human resources have no good substitutes. When people are well trained and highly motivated, they learn, develop their abilities, and care about customers. It is difficult to imagine another resource that can match committed and talented employees.

The responsibilities of HRM functions are:

1. Analyzing and designing jobs: based on job analysis and design, an organization can determine the kinds of employees it needs;

a. Job analysis: the process of getting detailed information about jobs.

b. Job design: the process of defining the way work will be per- formed and the tasks that a given job requires.

2. Recruiting and selection;

a. Recruitment: the process through which the organization seeks applicants for potential employment.

b. Selection: the process by which the organization attempts to identify applicants with the necessary knowledge, skills, abilities, and other characteristics that will help the organi- zation achieve its goals.

3. Training and development;

a. Training: a planned effort to enable employees to learn job- related knowledge, skills, and behavior.

b. Development: the acquisition of knowledge, skills, and be- haviors that improve an employee’s ability to meet changes in job requirements and in customer demands.

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4 S. K. BIAS and R. R. SIMS

4. Performance management; The process of ensuring that employee’s activities and outputs match the organization’s goals. The activities of performance management include specifying the tasks and outcomes of a job that contribute to the organization’s success. Then various measures are used to compare the employee’s performance over some time period with the desired performance.

5. Compensation and benefits; The pay and benefits that employees earn play an important role in motivating them. This is especially true when rewards such as bonuses are linked to the individual’s or group’s achievements. Employees need information about their health plan, retirement plan, and other benefits. Keeping track of this involves extensive record keeping and reporting to management, employees, the government, and others.

6. Employee relations; Employees turn to the HRM function for answers to questions about benefits and company policy. If employees feel they have been discriminated against, see safety hazards, or have other problems and are dissatisfied with their supervisor’s response, they may turn to the HRM function for help. The HRM function maintains communication with union representatives to ensure that problems are resolved as they arise.

7. Personnel policies; Organizations depend on their HRM function to help establish policies related to hiring, discipline, promotions, and benefits.

8. Compliance with laws; Laws govern such matters as equal employment opportunity, employee safety and health, employee pay and benefits, employee privacy, and job security.

9. Support for strategy. HRM planning: Implies identifying the numbers and types of employees the organization requires to meet its objectives. Using these estimates, the HRM function helps the organization forecast its needs for hiring, training and reassigning employees.

Skills of HRM Professionals

Todays and tomorrow’s HRM professionals will continue to be respon- sible for being involved in making hiring and firing decisions, keeping watch over employee welfare and handling an organization’s most sensi-

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Human Resources Management and Ethics 5

tive information. The Society for Human Resource Management (SHRM) competency model (n.d.) identifies what it takes to be a successful HRM professional—across the performance continuum; around the globe; and across all career levels, job roles and job functions. SHRM worked with HRM professionals around the globe to create the model, which:

• Defines the competencies and knowledge necessary for effective practice as an HRM professional.

• Supports HRM practitioners in their career and professional development.

• Helps organizations build approaches to identify and cultivate high-quality HRM leaders, individual contributors, and teams.

The SHRM competency model provides the foundation for talent management throughout the HRM lifecycle and helps organizations ensure that HRM professionals are proficient in the critical behaviors and knowledge necessary to solve today’s most pressing people issues and strategies. The nine competencies in the model are: communication, relationship management, consultation, leadership and navigation, global and cultural effectiveness, critical evaluation, business acumen, HR expertise (HR knowledge) and ethical practice. While there are other lists of skills or competencies they tend to overlap with those in the SHRM competency model.

Another way to think of the skills of HRM professionals is as follows (Worldsupporter, 2012–2013):

1. Credible activists—means being so well respected in the organization that you can influence the positions taken by managers or other leaders. HRM professionals who are competent in this area have the most influence over the organization’s success, but to build this competency, they have to gain credibility by mastering all the others.

2. Cultural steward—involves understanding the organization’s culture and helping to build and strengthen or change that culture by identifying and expressing its values through words and actions

3. Talent manager/organizational designer—knows the ways that people join the organization and move to different positions within it. To do this effectively requires knowledge of how the organization is structured and how that structure might be adjusted to help it meet its goals for developing and using employees’ talents.

4. Strategy architect—requires awareness of business trends and an understanding of how they might affect the business, as well as opportunities and threats they might present. A person with this

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6 S. K. BIAS and R. R. SIMS

capability spots ways effective management of human resources can help the organization seize opportunities and confront threats to the organization.

5. Organization allies—know how the organization makes money, who its customers are, and why customers buy what the company sells.

6. Operational executors—at the most basic level carry out particular HRM functions such as handling the recruitment, selection, train- ing, or compensation of employees. All the other HRM skills require some ability as operational executor because this is the level at which policies and transactions deliver results by legally, ethically, and efficiently acquiring, developing, motivating, and deploying human resources.

Over the years, HRM has moved from personnel managers as interme- diaries to HRM integration with strategy. And there is every indication that the role of HRM professionals will continue to evolve.

HUMAN RESOURCE MANAGEMENT AND ETHICS

In their efforts to address the national and global challenges of corporate fraud, ethical scandals or unethical behavior many contemporary organiza- tions are relying more and more on their HRM department or staff. As a result, HRM professionals are finding that they are increasingly involved in and must be especially sensitive to ethical issues because of their key roles in the development of human resources or “people” policies, practices, and programs. Policies, practices and programs that often make a major difference in the extent to which employees exhibit ethical or unethical behavior and the ethical culture or climate developed and maintained in their organizations are an increasingly important or value added part of an effective contemporary HRM department.

Given the sheer amount of scandal historically and lately, it would be irresponsible—and even dangerous—for HRM professionals, or any organizational leader, to ignore ethics. Of course, it is a slippery topic. It is difficult to define, and often cannot be categorized into neat boxes of right and wrong. The complexity and ambiguity could lead many HRM professionals to want to avoid the topic altogether. Yet, addressing ethics is an important part of any business plan. If an organization’s leadership only focuses on results, the methods used to attain those results could be suspect. Even Bernie Madoff started out with good intentions!

Yet with such a lofty and complex subject, how can other HRM lead- ers include ethics in organization policy and strategies? The first step is to invite ethics to the table. Ethics need to be part of every organization’s

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Human Resources Management and Ethics 7

culture, business plan, goals, and mission statement. It should be a focus of the onboarding process, leadership training, and board retreats. Ethics should help shape the organization’s values and culture.

It is not enough for an organization’s mission statement to include a vague line about being ethical. HRM personnel should help leadership and employees define what that means for the organization. Having real conversations about what could happen in a given organization or indus- try will help bring the topic closer to home. What is happening elsewhere in business? Have any competitors been cited for ethical lapses on best practice ethical conduct? What types of ethical issues could unfold at this organization? What safeguards can we put in place to make sure that does not happen?

As alluded to earlier, HRM philosophies are woven into the fabric of the organization, powerfully impacting the firm’s culture, policies, and prac- tices. HRM personnel work through and with people across all levels of the organization; hence, the logical importance of ethics in all that HRM does. The challenge lies within the inherent nature of ethics. Ethics is personal. One’s ethical lens develops through one’s family, education, relationships, and life experience. As a result, organizational leaders, supervisors, front- line employees, and HRM personnel each possess different standards of, and approaches to, ethics. The potential for ethical dilemmas abounds in HRM.

HRM’s main concern is people. Thus, HRM policies impact all func- tions within an organization. Given the complexity, pressures, and constant change facing organizations, the rise of ethical issues is no surprise—some of which lead to litigation in the courts. Commonly cited drivers of ethi- cal dilemmas facing organizations, their employees, and HRM personnel include:

• Constant or dramatic change • Longer working hours • Fewer benefits • Exorbitant executive/CEO pay • Job insecurity • Technology/information accessibility • Pressure to produce • Pressure to support family • Peer pressure • Mergers/acquisitions • Competition • Communications

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8 S. K. BIAS and R. R. SIMS

• Working conditions of U.S. companies and their employees in other countries

• Labor relations • Incentive compensation • New laws • Societal trends/changes

Clearly, the ethical landscape for HRM and their organizations is increas- ingly complex. Thus, the need to understand ethical issues in HRM and to ensure that systematic and systemic HRM-driven ethics is well established.

Ethical Issues in HRM

HRM professionals must handle a host a variety of ethical (and legal) issues like those in Figure 1.1. From the regulations of the Equal Employment Opportunity Commission to the standards and practices of organizations such as the SHRM and the Human Resource Management Institute, HRM professionals constantly must be monitored to make sure it complies with hiring, promotion and termination guidelines. Decisions about benefits, conflict resolution, paid time off and maternity leave also can present difficulties. As evident, from a broad perspective ethical issues can be represented in an organization’s major HRM areas and HRM professional’s responsibilities to include: recruitment/selection; compen- sation and reward management; training and development; performance appraisal/evaluation; health and safety; labor/management relations; and communication at work.

In reality, it might be safe to say that of all the organizational issues or problems, ethical issues are the most difficult ones for HRM professionals (and other organizational leaders) to handle or deal with. Similar to Figure 1.1, Figure 1.2 (see Johnson, 2018; Scott, n.d.; Worldsupporter, 2012– 2013) shows ethical issues in HRM arise in employment, remuneration and benefits, industrial/employee relations and health and safety.

Cash and compensation plans. There are ethical issues pertaining to the salaries, executive perquisites, and the annual incentive plans, and so forth. HRM professionals are often under pressure to raise the band of base salaries. There continues to be pressure upon the HRM function to pay out more incentives to the top management and the justification for this is the need to retain the latter. Further ethical issues appear in HRM when long term compensation and incentive plans are designed in consultation with the CEO or an external consultant. While deciding upon the payout there is pressure on favoring the interests of those in the C-suite in comparison to that of other employees and stakeholders.

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Human Resources Management and Ethics 9

Figure 1.1

HRM Ethical Issues

Figure 1.2

HRM Ethical Issues

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10 S. K. BIAS and R. R. SIMS

Honoring benefit provisions. Some organizations have reneged on promises they made regarding pension programs. HRM has an ethical responsibility to make sure that any benefits offered to employees actually pay as intended. This means monitoring organization-managed benefits as well as insurance companies to make sure there are no financial prob- lems that would shortchange employees.

Workplace diversity, discrimination, and harassment. Workplace diversity encompasses the various qualities, characteristics and experi- ences that distinguish one worker from another. These characteristics can be differences in race, gender, age, social status, or other traits that make an individual unique. Treating a person differently because of these differ- ences poses an ethical issue that faces HRM professionals. Until recently in many organizations the employees were differentiated on the basis of their race, gender, origin and their disability. No longer is this the case since the evolution of laws and a regulatory framework that has standardized employee behaviors towards each other. HRM professionals implement policies that promote diversity in the workplace and welcome the differ- ences of the entire workforce. This also means that they must ensure the organization remains compliant with anti-discrimination and harassment laws (see Scott, n.d.) Employee discrimination and harassment on the basis of race, gender, or religion is an ethical issue HRM professionals may face daily. Laws that prohibit discriminatory behavior such as the Civil Rights Act and Americans with Disabilities Act help HRM professionals develop training and awareness programs to prevent discrimination and harassment in the workplace. These laws also establish procedures human resources may use to report and discipline workers who display inappropri- ate discriminatory behavior.

Employment issues—fair hiring and justified termination. HRM professionals often may face bigger challenges or dilemmas in employee hiring. One dilemma stems from the pressure of hiring someone who has been recommended by a friend, someone from your family or a top execu- tive. Another dilemma arises when you have already hired someone, and he/she is later found to have presented fake documents. Two different ethical challenges may arise, and both are critical. In the first situation the person has been trained and the position is critical. In the second situation the person has been highly appreciated for her work during her short stint or she has a unique blend of skills, a high level of performance and with the right kind of attitude. Both the situations are sufficiently dilemmatic to leave even a seasoned HRM professional in a difficult position. Hiring and termination decisions must be made without regard to ethnicity, race, gender, sexual preference, or religious beliefs. HRM professionals must take precautions to eliminate any bias from the hiring and firing process by making sure such actions adhere to strict business criteria.

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Human Resources Management and Ethics 11

Labor costs. HRM professionals must deal with conflicting needs to keep labor costs as low as possible and to offer fair wages. Ethics come into play, for example, when HRM must choose between outsourcing labor to countries with lower wages and harsh living conditions and pay- ing competitive wages in the United States. While there is nothing illegal about outsourcing labor, HRM professionals can create a public relations problem if consumers object to using underpaid workers to save money.

Opportunity for new skills. If HRM professionals choose who gets training, it can run into ethical issues. Because training is an opportunity for advancement and expanded opportunities, employees who are left out of training may argue that they are not being given equal opportunities in the workplace. HRM professionals must make certain to clarify the busi- ness reason behind its training decisions so employees understand why specific individuals receive training when others do not.

Privacy Issues. Any person working with any organization is an indi- vidual and has a personal side to their existence which they demand should be respected and not intruded. The employee wants the organization to protect their personal life. This personal life may encompass things like their religious, political, social beliefs, and so forth. However certain situ- ations may arise that mandate inquisitive behaviors on the part of the employer. For example, mail scanning is one of the activities used to track the activities of an employee who is believed to be engaged in activities that are not in the larger benefit of the organization. Similarly, there are increasing interests by employers of employee’s social media presence or behaviors. Because HRM professionals are involved in most aspects of employee relations (e.g., hiring, firing, compensation, benefits, and leaves) they have access to extremely sensitive information. Keeping this informa- tion private is an ethical matter facing HRM professionals and they have an obligation to maintain the confidentiality of an employee’s personal data.

Safety. Employee safety is also an issue facing HRM professionals. HRM professionals must work to maintain safety standards and clean work- ing conditions for employees based on Occupational Safety and Health Administration requirements (Johnson, 2018). They must prevent and correct potentially dangerous situations and promptly act on hazardous conditions that present safety concerns in the workplace. They are also responsible for identifying potentially dangerous employees and ensuring they do not harm themselves or others within the organization. HRM pro- fessionals must make sure lighting and air quality are adequate. Employees also have the right to expect a workplace free of sexually suggestive signs or comments, and disabled employees must have access to the building.

Similarly, as depicted in Figure 1.2 there are ethical issues in HRM that pertain to employee health, restructuring and layoffs and employee responsibilities. In some instances, there is still a debate going on as to

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12 S. K. BIAS and R. R. SIMS

whether such activities are ethically permitted or not. Layoffs, for example, may not be considered as unethical as they might have been in the past. As should be evident in our discussion to this point ethical issues are inter- twined in all HRM policies and processes.

Infusion of HRM Processes

Like its policies, HRM processes are infused throughout any orga- nization. Ethics, therefore, should be a critical component of all HRM processes, including recruiting and selection, goal setting, coaching, per- formance reviews, compensation and rewards, career planning, training and development, and leadership/management training and development.

Recruiting and selection. The recruiting and selection process intro- duces employees to the culture and inner workings of the firm. Interviewers, hiring managers, supervisors, and HRM practices face their first ethical tests during this phase. Are potential employees presented with a truly accurate picture of the organization, or just the positives? Does the organi- zation seek and select employees with a history of honest, ethical behavior, or is that criterion ignored in selection? Are the most qualified individuals hired, or is the decision based on bias, favoritism, or nepotism?

Goal setting. Effective goals are specific, measurable, attainable, results- oriented, and time based (SMART). In reality, performance goals are often a source of contention for employees. Goals that are too high de-motivate employees or, worse, encourage sabotage, while low goals fail to motivate. Are goals established based on one’s talent and ability, or tied strictly to organizational productivity demands? Are they determined in collabora- tion with employees or decreed by management?

Coaching. Coaching entails guiding employees to success, modeling behavior, and providing developmental feedback. This means identify- ing and allowing them to coach and mentor others. Are supervisors and managers actively engaged in coaching and developing their employees to behave ethically? Do leaders and manager’s model ethics or winning at any cost? Is appropriate and timely feedback provided regarding ethical and unethical behavior?

Performance feedback and reviews. Ethical behavior should be demanded in all aspects of organizational life. Ethics should be incorpo- rated into the performance review process. If truly important, “ethics” should be a specifically evaluated component of behavior in formal and informal performance evaluations of employees at all levels (including executive).

Compensation and rewards. Exemplary ethical behavior deserves reward, while unethical behavior should be consistently disciplined. Organizations

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Human Resources Management and Ethics 13

that value ethics heavily weight ethical behavior in compensation, reward, and promotion decisions. Are employees encouraged to work together, or to enhance their success at any expense? Are salespeople paid for how much they sell, or how they sell? Are employees punished for being the bearers of bad news, or rewarded for identifying opportunities for improvement? Are employees fairly and equitably compensated for their work?

Career planning. Career planning helps employees identify their tal- ents and long-term goals while enabling the company to plan for future human resource needs. Are supervisors and managers equipped to suc- cessfully guide their employees in career planning? Do managers provide career planning guidance for their employees, or selfishly hold them back to suit their own needs?

Training, development, and interventions. Training and development engagements offer abundant opportunities to promote organizational and individual ethics. Ethics education should be continuous and orga- nization-wide. Has an ethical dimension been incorporated into all ethics education? Is ethics education mandatory for employees at all levels? Does unethical behavior trigger interventions? Does the firm define success by results and the way they are obtained?

Leadership/management training and education. Ethics training should be mandatory for all employees, including managers, leaders, and executives. Do leaders communicate an honest, ethical message? Do they mandate ethical behavior of themselves, their peers, and the organization? Are leaders held accountable for ethical behavior?

Clearly, there are things that HRM personnel and other leaders can do to build positive employee relations. They can cultivate trust and ensure that employees are treated fairly. They must always exhibit a deep and evident respect for their employees and to “putting employees first.” The organizations HRM philosophy should emphasize trust, respect, and car- ing about their employee’s personal and professional growth. By focusing on these kinds of things HRM personnel can help their organizations establish and maintain positive employee-employer relationships that con- tribute to satisfactory productivity, motivation, morale, and discipline, and to maintain a positive, productive, cohesive and ethical work environment today and tomorrow.

HUMAN RESOURCE MANAGEMENT AND ETHICS IN HUMAN RESOURCES MANAGEMENT

Today’s and tomorrow’s HRM professionals have and will continue to play a significant role in the moral, ethical, and legal responsibilities of their organizations. Consider, for example, the reality that beyond such things as

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14 S. K. BIAS and R. R. SIMS

compensation and benefits, HRM professionals continue to be tasked with challenges like addressing issues of inequality and setting standards around workplace conduct, by fostering diversity in the workforce, Very often, HRM ethics policies around these issues directly impact how an organiza- tion attracts and retains talent. In a recent article, Heinig (2019) noted, for example, that 79% of American workers said they would not accept a job with a higher salary from a company that has failed to take action in sexual harassment cases. Employees were surveyed to determine how employees act when faced with unethical company behavior. The surveyed employees were least tolerant of company behavior that negatively impacts them or coworkers directly, and employees were most likely to protest privately about any disagreeable behavior. Results from surveys like this show that a company’s ethics directly impacts its relationship with employees. Histori- cally, organizations used ethics and compliance programs to satisfy legal and regulatory expectation, but today’s employees’ demand more from employers. While the increase in HRM ethics conversations that challenge the status quo in the workplace are signs of progress, they require HRM professionals to make tough ethical decisions.

According to Ethics.org (2018), 30% of American employees have witnessed a rules violation at work. Work increasingly consumes more time in workers’ lives (Washington Center for Equitable Growth, 2016). Employees demand honesty and integrity from the companies that take up so much of their time. An organization’s ethics impact its ability to mitigate risk from within and hire, promote, and retain the best talent.

Taking on the responsibility of acting as the moral heart of an organization can seem like an overwhelming task. But in reality, no matter the issue, HRM professionals that uphold strong ethical standards and strive for a fair and/or equitable work environment will maintain employee confidence and help organization’s attract potential and new candidates. As will be discussed at different points in this book there are a number of HRM ethics guidelines that HRM professionals and their organizations can do to improve, for example, ethical decision making and become an increasingly value-added resource for their employees. For now, here are some things HRM professionals can do to improve ethical decision making in their organizations:

1. Understand the relevant laws. HRM professionals need to make tough decisions and help other organizational leaders hold em- ployees accountable for unethical or wrongful actions—and the reality is that that is not an easy task. To do so effectively requires understanding, confidence, and the requisite authority. Having an understanding of important labor laws and compliance practices will help HRM professionals and others in their organizations

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Human Resources Management and Ethics 15

manage these issues as they arise, as opposed to after the fact. For example, if an employee were to request short-term disability, the organization with guidance from their HRM professionals would need to understand their benefits provider’s short-term disability policy and eligibility. HRM professionals would also be expected to know insurance laws and explain them to employees. Taking the time to increasingly understanding the relevant laws early ensures the organization is equipped with the knowledge to navigate legal challenges in the future.

2. Make sure you continue your own professional development (e.g., an individual professional development plan). HRM professionals recognize that the field continues to evolve or change, especially as new technology and related conversations continues to change the way we work. Staying on top of these changes requires a new set of HRM skills and knowledge. Participating in continuous training and learning is one way for HRM professionals to stay ahead of the curve. HRM professionals continue to pursue certifications and advanced education opportunities specific to their field through organizations like the Society for Human Resource Management, the HR Certification Institute and a number of colleges and univer- sities. Many HRM professionals become specialists in a particular area, like compensation (payroll/benefits, or recruiting. Others, like HRM generalists who have a broader set of responsibilities, very often choose to continue their professional development through continuing education. Of course, there is no one-size-fits-all ap- proach to learning and development. HRM professionals in con- junction with their supervisors and peers should regularly assess their progress and enhance their knowledge, skills, abilities, and experiences that helps them achieve the objectives of their indi- vidual professional development plan.

3. Role-model ethical HRM leadership. Ethical issues and dilem- mas or challenges, for example, like an employee telling an HRM person that their immediate supervisor or manager has done something unethical or treated them unfairly, very often ends up needing the intervention of HRM professionals. Such a situation requires HRM professionals to engage in tough conversations with everyone involved. Being an ethical HRM leader means HRM professionals must be confident in their ethical decisions and effec- tively communicating them to employees. The Josephson Institute of Ethics (n.d.) suggests that making an ethical decision requires three things:

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16 S. K. BIAS and R. R. SIMS

a. Commitment: “The desire to do the right thing regardless of the cost.”

b. Consciousness: “The awareness to act consistently and apply moral convictions to daily behavior.”

c. Competency: “The ability to collect and evaluate informa- tion, develop alternatives and foresee potential consequenc- es and risks.”

It is important for HRM professionals to understand where they and their organization stand on important issues which is critical in this process. Like any individual, once HRM professionals and other organizational leaders define these ethical standards, they can decide how they will respond to any HRM ethics issue or dilemma or challenge—and sustain employees’ trust and respect.

4. Understand conflicts of interests. Understanding conflicts of inter- est is important because they are detrimental to how a business operates because they create internal politics that distract from an organization’s bottom line and cause the quality of work to deterio- rate.

5. Implement diversity and inclusion practices, because as Ebay’s Chief Diversity Officer Damien Hooper-Campbell (First Round, n.d.), notes “diversity is about making people feel like they belong” (p. 1). If everyone feels like they belong then there is less likelihood that morale will be low or they will end up doing the “wrong thing.” By working with other organizational members to develop a list of organization values that are important to the organization and hold employees accountable, HRM professionals’ help set the standard for diversity and inclusion at their organization.

6. Make sure to keep information confidential. HRM professionals have access to a great deal of personal and sensitive employee’s data and information. For example, everything from social security numbers to medical records, HRM professionals have access to a lot of confidential information about employees. In making sure paperwork and electronic systems are secure or free from cyberse- curity threats or breaches HRM professionals are in a good position to ensure that their organization’s information is protected.

HRM professionals also have a legal obligation to keep everything an employee tells them confidential, unless otherwise specified or discussed. For example, if an employee expresses a concern to an HRM professional about a colleague or tells them they have witnessed a racist or sexist behavior at their work unit, it

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Human Resources Management and Ethics 17

is the HRM professionals’ job to manage this information without revealing their sources.

During the creation of this text, the world experienced the unprecedented impacts from COVID-19. These impacts posed unique circumstances for HRM professionals in balancing the continuity of the business with the safety needs of employees as well as government mandates for essential operations. The Centers for Disease Control and Prevention (CDC) has issued guidance preventing person-to-person transmission which has been critical to employers (Green, 2020). Along with these unique circumstances came unique ethical challenges that, even while many businesses had con- tingency plans, could not fully have been anticipated based on the severity of the COVID-19 pandemic.

While the full impacts from the COVID-19 pandemic are still evolv- ing, what is expected is that there will be changes to the field of HRM in the “new normal” once business begin operating again. According to McElgunn (2020), there will be more of a permanency of telework within organizations. Syed (2020) describes that managing the flexible working arrangements of employees is a top concern. Many organizations have experienced the pains of inadequate infrastructure which has been strained resources and become a priority for upgrade because many employees were teleworking. Yet, organizational policy, the need to ensure that employees are actually performing, and maintaining the culture is where ethics and HRM infrastructure will align. These challenges must be at the forefront of HRM’s contributions, and the following questions should be considered:

• How should job descriptions change as a result of the new nor- mal?

• What changes need to be made to the recruiting pipeline to maintain connection with candidates as well as taking appropri- ate action if an employee leaves?

• How can HR translate existing work protocols for the coming new normal?

• How can attendance and performance be monitored? • What training is needed to set employees up for success in work-

ing remotely? • Will employees be reimbursed for expenses they encounter while

working from home? • What are the implications on negotiated bargaining agreements? • How will the organization ensure alignment with total rewards,

particularly time off for employees, in a teleworking environ- ment?

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18 S. K. BIAS and R. R. SIMS

• Are new disciplinary policies needed to cover situations of re- mote operation?

As the implications from the pandemic continue to unfold, HRM profes- sionals will need to be fully engaged in traditional HRM duties, but also newly emerging activities which will ensure business continuity. Ethics will need to be the guiding principle for actions and interactions. Without this as a core value, the organization could struggle to trust employees—who are the life’s blood of the operation.

While HRM professionals face and will continue to face a number of hurdles that can make their jobs even more challenging, it can also be equally rewarding. In reality, all HRM professionals give an organiza- tion meaning by improving and enhancing the employee experience. As HRM professionals continue to navigate the ethical challenges of their job, they are increasingly in a position to more effectively attract and retain a talented workforce and thus, create an ethically-oriented organization through HRM efforts.

HRM PROFESSIONALS ROLE IN CREATING AN ETHICALLY- ORIENTED ORGANIZATION CULTURE

Discrimination as it relates to age, sex and gender, race, sexual harassment, health and safety issues, and compliance with federal and state laws and regulations make up the main ethical issues faced by HRM profession- als. As suggested in our earlier discussion, todays, and tomorrow’s HRM professionals must be attuned to the ethical issues to ensure employees are protected in the workplace and creates an ethically-oriented organiza- tional culture. The issues continue to become more complex with changing societal values and now create a never-ending challenge that HRM pro- fessionals and other organizational leaders must recognize can lead to damage to the organization’s reputation and legal liability.

The most important ethical issue is to treat employees in the workplace the way HRM professionals and other organizational leaders would want to be treated. Mintz (2016) has suggested that the highest ethical standard with respect to HRM issues is fairness. Unfortunately, the mistake some HR professionals make is to equate ethics with the law. The reality is that it is not true that so long as an organization follows all the workplace laws it is operating ethically. This notion of ethical legalism misses the point that issues may arise in todays and tomorrow’s workplace that are not covered by a law or regulation. The question then for HRM professionals becomes how best to handle it and the answer is in accordance with the ethical con- cept of justice: Treat equals equally; treat unequal’s unequally.

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Human Resources Management and Ethics 19

Traditionally, it is not uncommon for the law to have to catch up with the needs and rights of employees for specific protection. For example, for many years’ employees with disabilities were discriminated against, at least until the Americans with Disabilities Act was passed in 1990. Organi- zations who were sensitive to ethics issues of fairness, respect, caring and compassion would have acted without the need for a law to require accom- modations.

Going beyond the requirements of the law, creating an ethically-oriented culture or organization environment is critical to managing or leading todays and tomorrow’s employees in a way that promotes their interests as well as those of the organization. HRM professionals and other organiza- tional leaders continue to have a powerful role to play in the embedding of ethical values (and behaviors or actions) into an organization and col- laboration operates in two directions. HRM professionals mutually support each other in a number of areas. HRM continues to have an important role to play in strategic recruiting and hiring to develop an ethical workforce including:

• Employee retention by treating them with dignity, respect, and making them accountable for their actions through performance management and appraisals that measure ethical behavior

• Developing training programs that incorporate an ethical di- mension

• Monitoring ethical behavior with other participants in the pro- cess, such as ethics officers; and

• Enhancing the reputation of the organization by treating stake- holders (i.e., employees, customers, suppliers) fairly and being responsive to their needs.

Employee perception of how HRM professionals and the organization “walk the talk” is an important aspect of embedding an ethical culture within an organization. It is important that employees know that an area of ethical concern will be handled appropriately by HRM professionals and other organizational leaders.

As noted earlier, HRM professionals play a key role in ethics by develop- ing policies that treat employees ethically. In doing so, the organization garners long-term employee trust and loyalty, which conveys a range of distinct benefits to employers. Loyal employees gain more experience working with their employers and can help to better understand the inner workings of the organization. This in turn can increase employees’ pro- ductivity and efficiency over time in addition to keeping recruiting and training costs under control.

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20 S. K. BIAS and R. R. SIMS

A solid reputation as an ethical employer occurs over time by gaining the commitment of employees to identify with the ethical values of the organization as embedded in a code of ethics and strengthened through ethics training. Ethical leadership by HRM professionals and other leaders is essential to promoting a culture of ethics and a tone at the top that fos- ters ethical behavior. Ethical HRM professionals and other leaders lead by example and create a culture of mutual respect and dignity, where ethical decision-making is valued and rewarded. In conclusion, for HRM profes- sionals and their practices to be considered ethical, they must satisfy the three basic standards:

1. First, HRM practices must result in the greatest good for the largest number of people;

2. Second, employment practices must respect basic human rights of privacy, due process, consent and free speech;

3. Third, organizational leaders must treat employees and customers/ clients equitably and fairly.

THIS BOOK AND THE CHAPTERS THAT FOLLOW

The objective of this book is to explore and provide an in-depth look at the responsibilities, actions, issues, and experiences related to HRM and ethics for individual employees, organizations, and the broader society. Like other departments in the broader organization HRM professionals will need to increasingly demonstrate how they contribute to an organiza- tion’s ethical orientation and overall performance or success. While the ethical challenges, trends, and issues impacting employees, organizations and HRM professionals will continue to change over the years (consider the recent ethical challenges related cybersecurity and data breaches) the bottom-line of organization success is the clear reality that doing the right thing or institutionalizing an ethical culture or character is just as impor- tant to various stakeholders.

The chapters in this book provide an updated, current, and future look at the relationship between HRM and ethics and across various sectors or organizations (i.e., public, private, not-for-profit, academic, etc.). That is, this book discusses the ever-evolving role of HRM professionals to include discussion of how the profession continues to take on more responsibility for developing and institutionalizing an ethical culture in their organiza- tions, industries, and the broader society. It is our intent that the book also contributes to the need for ongoing dialogue, discussion or insights offered by HRM experts on what HRM professionals and their organizations can do in the face of ethical expectations, challenges, and scandals.

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Human Resources Management and Ethics 21

All the contributors in this book are interested in understanding the ethical responsibilities, actions, issues, and experiences that arise both within HRM and in HRM’s interactions with individuals and organizations. Some of the questions the contributors will answer include:

1. Is it HRM’s responsibility to be the ethical gatekeepers of their organizations?

2. What are the ethics of HRM? 3. What are the areas in which HRM professionals can have a major

impact on ethics? 4. What is HRM’s ethical responsibility or duty? 5. What is the importance of ethics in HRM? 6. What is HRM’s role in establishing and institutionalizing an ethical

orientation or culture in an organization? 7. What are the legal versus ethical responsibilities of HRM practitio-

ners? 8. What are some HRM practitioners’ experiences with ethics in ex-

ecuting their responsibilities?

The Chapters That Follow

Here is the information you will encounter as you read the chapters that follow this introductory piece.

In Chapter 2, “Unpaid Internships: Ethics, the Law, and the Practical Repercussions of the Labor-for-Experience Trade,” J. Adam Shoemaker explores the legal, ethical, pedagogical, and practical repercussions of internships—particularly when unpaid. It offers recommendations on whether to pursue internships, how to compensate fairly on behalf of both employer and employee, and how HR professionals can support both the intern and the organization by ensuring that programs are compliant and enriching.

In Chapter 3, “Developing Talent through Leadership and Executive Coaching: Ethical Guidelines and Considerations,” James P. Sartain, Jr. discusses solutions to HRM professionals fulfilling their responsibility in coordinating talent development. The chapter discusses difficulties HRM professionals face in effectively fulfilling this role, the increase in available solutions and the challenges in discerning fads from solutions offering evidence-based outcomes. Guidelines for assessing developmental needs, identifying solutions, and tracking outcomes are offered before concluding the chapter with a brief exploration of special ethical considerations facing HRM professionals.

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22 S. K. BIAS and R. R. SIMS

In Chapter 4, “Ethical Bias: The Impact on Equal Pay” William Woska initially discusses the fact that the issue of equal pay for women goes back more than 100 years. Woska notes that even with the adoption of the Equal Pay Act by Congress in 1963, the pay for women has only increased from 59 cents for every dollar earned by a man to 80 cents. In addition, even though women are now dominating graduate and professional schools, they continue to earn less than men while doing the same work. Woska then focuses on the impact of ethical or unconscious bias by senior manage- ment when making decisions affecting an individual’s pay not realizing that they are discriminating with respect to the compensation of women. The chapter concludes with a discussion of the need for employers to create a company culture based on gender equality and inclusion.

In Chapter 5, “Social Media Policies: Legal and Ethical Challenges,” Karin Bogue first discusses the legal and ethical issues in recruitment and screening of employees and ends with suggestions for best practices. The next section reviews key employment-related cases involving NLRB Section 7 and 8 that shaped HR policies for employee use of social media through the years and examines the progression of lawsuits, administrative rulings and current guidelines related to employer policies on employee use of social media and ends with another set of best practices. The chapter goal is to educate employers, specifically human resources professionals, and employees on current best practices for social media policies to facilitate creation policies that comply with legal and ethical expectations for the industry. The chapter then discusses best practices for social media poli- cies and provides guidance to assist employers and employees in behaving ethically and legally in their professional and personal use of social media. The chapter concludes by sharing insights on the future of social media policies in employment.

In Chapter 6, “Human Resources Management Audit and Compliance,” Ronald R. Sims first offers an answer to the question: “Is there a difference between compliance and ethics?” The next section focuses on the question: “Why is compliance necessary?” The chapter then offers a detailed look at auditing HRM compliance. Before concluding the chapter, HRM checklists and practical actions available to HRM professionals for effectively com- pleting audits are described.

In Chapter 7, “HRM’s Role in Creating a Culture of Ethics / Integrity for Data Privacy and Breach Disclosure,” Chon Abraham and Ronald R. Sims has five sections. The first section offers answers to the question of what is a data breach and its potential impacts. The second section offers a brief look at data breach notification laws. The third section discusses the importance of the relationship between consumer trust, data privacy, breach notification and ethics and CSR. The fourth section describes four data privacy and breach notification cultures and pays particular attention

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Human Resources Management and Ethics 23

to what we refer to as a culture of integrity. Finally, the last section provides some thoughts on what HRM professionals can do moving forward to build and implement cultures of integrity in their organizations that result in proactive data privacy and breach notification actions.

In Chapter 8, “Human Resources and Ethics: The Social Glue within a Banking Establishment,” Sheri K. Bias and Wendy Brown will describe sev- eral potential areas that have been identified within the banking industry that lead to tests of employee ethics and integrity. The chapter will then discuss several ways to address ethical concerns within the banking indus- try in general before taking a closer look at how one financial institution (Bayport Credit Union) undertook this charge.

In Chapter 9, “Lessons Learned from the U.S. 7th Fleet’s ‘Fat Leon- ard’ Scandal: At the Intersection of Ethics, Culture, and Human Resource Management” Marcia A. Beck argues that strategic approaches to HRM (SHRM) and HCM (SHCM) can more effectively lay the foundations for sustained ethical organizational climates and cultures that offer robust defenses against unethical behavior. Using the “Fat Leonard” corruption scandal in the U.S. Navy’s 7th Fleet as the cautionary tale of the failure to strategically manage HR and HC policies, the analysis centers on the inter- section between SHRM and SHCM, on the one hand, and between ethical organizational climate and ethical organizational culture, on the other. Beck suggests that the lessons learned can help SHR and SHC embed ethical standards and promote ethical behavior in their own organizations.

In Chapter 10, “Ethical Challenges Human Resource Managers experience in Healthcare Organizations” Rafael Rosado-Ortiz and Skeri K. Bias discuss some of the key functions and duties of the Human Resource Manager (HR Manager) that will challenge and test key professional ethical principles. Further, this chapter will identify and discuss areas and functions that the HR Manager needs to take into consideration when trying to implement effective initiatives that will facilitate a seamless process across both the administrative and clinical settings. The chapter additionally identifies the common human resource challenges that are present in today’s healthcare setting and some of the strategies an HR Manager can put in place to recognize and address these challenges to help the HR Manager in being proactive and avoid the day-to-day ethical pitfalls.

In Chapter 11, “Human Resources Management: Ethical Audits and Culture,” Ronald R. Sims first takes a look at HRM’s role in organiza- tional ethics to include a discussion of how HRM professionals influence an organization’s ethics and ethical culture. Next, the chapter focuses on ethical audits. Then, the chapter discusses how HRM professionals and other organizational leaders can help create and institutionalize an ethical culture and organizational practices in their organizations before conclud- ing the chapter.

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24 S. K. BIAS and R. R. SIMS

In Chapter 12, “Human Resources Management and Ethics: A Look to the Future,” Ronald R. Sims and Sheri K. Bias first focus on the future of ethics in organizations. Next the chapter offers a discussion of several trends HRM professionals will need to continue to pay attention to before focusing on the increased importance of HRM professionals creating trust and cultivating an ethically-oriented organizational culture. The chapter then continues the theme of cultivating an ethically-oriented culture of HRM professional responsibilities by taking a look at HRM policies and practices in building strong ethical cultures. Ethical dilemmas that will continue to confront HRM professionals are described before concluding the chapter.

REFERENCES

Ethics.org. (2018). 2018 global business ethics survey. https://www.ethics.org/ knowledge-center/2018-gbes-2/

First Round. (n.d.). Ebay’s first chief diversity officer on humanizing diversity and inclusion. https://firstround.com/review/ebays-first-chief-diversity-officer-on- humanizing-diversity-and-inclusion/

Green, M. (2020). Don’t ask employees if they have COVID-19, and other HR tips for employers. https://www.latimes.com/business/story/2020-03-20/coronavirus-hr- tips

Heinig, I. (2019). How do employees act when faced with unethical company behavior? https://themanifest.com/business-services/how-employees-respond-unethical- company-behavior

Johnson, K. (2018, April 5). A list of ethical issues for human resource management. https://yourbusiness.azcentral.com/list-ethical-issues-human-resource- management-24052.html

Josephson Institute of Ethics. (n.d.). Making ethical decisions. https://www. josehpsoninstitute.org

McElgunn, T. (2020). 5 Ways the COVID-19 Virus will transform HR’s role. https://www. hrmorning.com/articles/covid-will-transform-hr/

Mintz, S. (2016, February 18). Navigating the minefield of ethical issues in HR. https:// www.workplaceethicsadvice.com/2016/02/navigating-the-minefield-of- ethical-issues-in-hr.html

Scott, S. (n.d.). Ethical issues facing HR. https://smallbusiness.chron.com/ethical- issues-facing-hr-10821.html

Syed, N. (2020). COVID-19: HR’s main challenges revealed. https://www.hcamag.com/ us/news/general/covid-19-hrs-main-challenges-revealed/218599

Washington Center for Equitable Growth. (2016, May 16). Overworked America. https://equitablegrowth.org/research-paper/overworked-america/

Worldsupporter. (2012–2013). Fundamentals of human resource management. https:// www.worldsupporter.org/en/chapter/39982-fundamentals-human-resource- management

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CHAPTER 2

THE STUDENT, HUMAN RESOURCES, AND THE INTERNSHIP

Law, Ethics, Education, and the Practical Repercussions of

the Labor-for-Experience Trade

J. Adam Shoemaker

“I need an internship,” a student told me a few years ago. She said it as though she expected I would reach behind me, grab some tangible item from the bookshelf, blow the dust off, and hand it to her with best wishes.

“It’s not that simple,” I replied. As a university professor in a human resource management (HRM) degree program with a required intern- ship, I supervise many student interns. Our school affiliates with numerous organizations who take on interns from time to time. We are proud of the positive feedback we regularly receive on how well-prepared our interns are. Still, the process is not a hand-off.

“When do you want to do this internship? Where do you want to go? What kind of organization appeals to you?” I ask. It can be difficult to con- nect even the most conscientious students with organizational partners.

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26 J. A. SHOEMAKER

Much depends on timing and their circumstances and career plans. Not every internship is a good fit for every student.

“You do realize that the internship is a required course? You’ll have to pay for it, even if you’re not on campus. Do you further realize the intern- ship itself might not be paid?”

She sighed the long-suffering sigh of a student who understands finan- cial aid is a necessary evil. Clearly frustrated, she said, “So, I’d be paying you so I can work somewhere else for free? That seems all kinds of wrong. Why are internships even a thing? Is it legal to make students work for free? Is it right? Why would the university ask me to work for free when I’m here to learn skills that will help me get a paying job? Shouldn’t HR profession- als be doing something about this? What am I supposed to do?”

She asked reasonable questions. Internships are a common experiential component of higher-education programs. Employers often consider the internship to be a learning opportunity for students or inexperienced workers and may designate internships to be unpaid experiences (Tepper & Holt, 2015). The belief that internships represent a trade-off of valu- able labor in exchange for difficult-to-obtain industry experience remains widely accepted by both employers and interns alike (Allabaugh, 2018). However, federal law suggests that an internship which adds value to an organization should be paid like any other job (Coker, 2009). Additionally, a paid experience may result in more robust organizational commitment and stronger effort (Burke & Carton, 2013). Other than volunteering for a cause or to gain significant exposure or experience, working for free seems like very bad career advice (Morin, 2017). If colleges and universities have taken on an obligation to their students to provide both theoretical and applied training, it does not make sense to send them elsewhere to gain what they are already paying top dollar to receive from their schools.

This chapter explores the legal, ethical, pedagogical and practical repercussions of internships—particularly when unpaid. It offers recom- mendations on whether to pursue internships, how to compensate fairly on behalf of both employer and employee, and how HR professionals can support both the intern and the organization by ensuring that programs are compliant and enriching.

WHY ARE INTERNSHIPS A THING?

The modern internship is a phenomenon rooted in deep history that has been affected only in the last century by extraordinary legal minutiae. Internships as a method of learning and experiencing work go back centuries if not millennia. Young people learning a trade from an experienced master of the craft has been dated to the Middle Ages. Apprentices spent months or years learning under careful tutelage, often

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The Student, Human Resources, and the Internship 27

for a period of 7 years until they too had mastered their craft (Waxman, 2018). Apprenticeships for skilled tradespeople still exist today; as a matter of fact, they flourish in parts of the world with a strong tradition such as Germany, Switzerland and Austria (Atkins, 2017). However, there is an important difference between interns and apprentices. Although apprentices in some cases are paid for the opportunity to be taught a trade, the master craftsmen generally paid for food, room, board, and even clothing for their apprentices while they were working and learning (Waxman, 2018).

One-on-one career training was not limited to skilled trades. The term “intern” originated during World War I and referred specifically and solely to physicians who had finished medical school but who were learning as they treated patients and did not yet have a medical license (Cain, 2016). The first law degree in the U.S. was awarded by the College of William & Mary in 1793, but well before the first sheepskin, there were apprentice lawyers who “read” law with an experienced mentor who had learned the same way from his own mentor (Smokeball, 2018). In the United States, the advent of vocational schools in the mid-20th century offered a different alternative to the European style of internship (Tripp, 2015).

The internships with which college and university students are familiar today did not become common until the latter decades of the 20th century. By 1947 the Supreme Court decision in Walling v. Portland Terminal Co. had already cemented internships’ status as unpaid training experiences. Portland Terminal Company was a railroad company that offered an 8-day job skills training program for brakemen trainees. The training period was unpaid. The trainees were not employees and not guaranteed to be hired, but instead considered “eligible” for hire if they passed the training (Kurtzleben, 2014). When the trainees sued for wages for the days worked, the case went all the way to the U.S. Supreme Court. The Supreme Court upheld the lower court’s opinion that these individuals were not employ- ees. The opinion included several important points: (1) the trainees did not replace any railroad employees and in fact had to be supervised by employees who were taken away from their own work, and (2) the trainees did not aid the railroad’s business but actually impeded it during their training period (Walling v. Portland, 1947). Thus, the trainees did not meet the definition of employee as set forth in the Fair Labor Standards Act of 1938 and did not need to be paid.

The 1970s and 1980s found a significantly higher number of students enrolling in college. Tuitions were rising and students were graduating into a tighter labor market than ever before. Internships and co-op (work and school programs) became standard tools for helping to pay the bills while obtaining job experience and getting a foot in the door to full-time employment (Cain, 2016). Between 500,000 and 1 million interns work for

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28 J. A. SHOEMAKER

free every year (Smith, 2019). One study shows that the number of formal collegiate internship programs increased 500% over the course of about a decade (Waxman, 2018).

Unpaid internships are most prevalent in the retail, arts, publishing, fashion, and entertainment industries (AVVO, 2014; BBC, 2018). This may be because these industries are highly competitive and even a small amount of exposure can drastically improve chances of a job offer. However, some interns have not taken the unpaid aspects of their internships lying down. Famously, in 2011, a group of interns filed a class-action suit against Fox Searchlight Pictures. Their claim was that they had been hired into intern- ships but were doing the work of actual employees (production assistants) by performing tasks that directly benefited the production studio (Quigley, 2016). After significant legal wrangling and reversals as the case advanced through court, the suit was settled by Fox; the original plaintiffs received back wages of between $6,000 and $7,500, while others in the class action were given approximately $500 each (Patton, 2016). Although the awards were relatively small, this class action opened the door to dozens of similar lawsuits citing similar claims in the years following. Most were ultimately dismissed or settled out of court (Suen & Brandeisky, 2014).

Despite recent challenges to unpaid internships, they remain popular. One source suggests that approximately 60% of internships are unpaid; two of the main criteria that predict whether interns will remain unpaid are: a high unemployment rate in the specific labor market, and internships which are part-time (Jaeger et al., 2017). Federal labor laws and guidelines continue to be revised based on court decisions and the uneven history of what constitutes internship versus employment.

IS IT LEGAL TO MAKE STUDENTS WORK FOR FREE?

The Fair Labor Standards Act of 1938 (FLSA) is relatively clear on the legal requirements for compensating interns. It is important to state that “for- profit” organizations are always expected to pay their employees. Thus, unpaid internships are permissible by law for non-profit charitable orga- nizations or public sector organizations (U.S. Department of Labor, 2018). This does not mean that an intern who does meaningful work for such an organization should not be compensated, only that it is not required under Federal law due to the large number of volunteers who work for such firms.

A more concerning issue is whether an intern in a for-profit firm should be considered an employee. Here, the FLSA offers very specific criteria, most recently updated in 2018 and now referred to as the “primary beneficiary test” (U.S. Department of Labor, 2018). These criteria have arisen from case law determined in numerous court cases (cf. Benjamin v. B & H Educ., Inc.; Glatt v. Fox Searchlight Pictures, Inc.; Schumann v. Collier

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The Student, Human Resources, and the Internship 29

Anesthesia, P.A.; Walling v. Portland Terminal Co.; Solis v. Laurelbrook Sanitarium & Sch., Inc.). The current criteria include seven testable factors. These factors replace the previous “six factor test” that was much more rigid in its requirements; unless all six factors were met, the intern should have been considered an employee (Judish & Lauria, 2018).

The seven factors in the “primary beneficiary test” are summarized as follows. Foremost, there must be a total understanding on the part of both the employer and the intern that there is no express or implied promise of compensation. Additionally, criteria include whether the internship pro- vides training similar to what could be received educationally and whether the internship experience is tied to a formal educational program (for example, through requirement and/or receipt of academic credit). Further factors include whether the position is both limited in length of appoint- ment and specifically accommodates the intern’s schedule. The court also considers whether the intern’s work complements instead of replaces the work of paid employees, and the level of experiential benefit derived by the intern. Finally, the position must not include any specific expectation of a paid position being granted at the end of the internship (U.S. Department of Labor, 2018). Courts have considered the relative merit of each internship case; there is no expectation that all or even certain of the factors above must be met to classify the internship as requiring compensation. In addition to not being entitled to minimum wage and overtime pay, lack of employee status means that interns are not guaranteed protection from harassment and discrimination based on protected characteristics (Bacon, 2011).

Unpaid interns are generally not eligible for unemployment insurance, social security payments, nor workers’ compensation coverage, all of which are mandated benefits for employees across the nation. Paid interns gener- ally are eligible for all three benefits, just as any temporary employee would be (Hartman, n.d.). Clearly it would be to every interns’ advantage to be considered an employee. There are clear advantages to the employer, too. Misclassified internships have resulted in several class action suits which certainly cost the employer more in legal fees, plaintiff awards and fines than simply paying the interns a temporary minimum (or even higher) wage (Lucas, 2014).

As in every human resource practice, some consideration must also be given to State and local laws. While most States follow Federal guidelines from the Department of Labor, a few continue to hold unpaid internships to stricter standards (Nagele-Piazza, 2017). For example, in New York, for- profit employers must adhere to additional standards, including that interns must be formally notified of their unpaid status in writing, that the intern will not be eligible for any employee benefits, and that the screening pro- cess for interns is completely separate and unrelated to the processes used for hiring paid employees (New York State Department of Labor, 2016).

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30 J. A. SHOEMAKER

IS IT RIGHT TO MAKE STUDENTS WORK FOR FREE?

The ethics of an unpaid internship are both organizationally and societally important in these times of ongoing discussion about a living wage for entry-level service jobs. Shouldn’t part-time fast-food workers get paid more than minimum wage? Shouldn’t someone with 2–3 years of college working a part-time semiprofessional job get paid more than zero?

One of the reasons that many internships continue to be unpaid is that interns generally do not complain about them. It would be counterproductive to do so, as the interns are likely looking for a job with the organization after graduation, or at the very least, a good reference (Bacon, 2011). Perhaps interns expect more intrinsic rewards and a different form of psychological contract—the implied agreement between the worker and the organization about what will be given and what will be received in return (Nelson & Quick, 2013). However, there is a strong and troubling dichotomy in job placement between paid and unpaid interns. Research from the National Association of College and Employers found that 63% of paid interns received at least one job offer, while only 37% of unpaid interns got an offer; compare these figures with the 35% of students who got an offer without performing an internship (Mihelich, 2014). Other data suggests that students perceive paid internships as important to professional development, while the same does not appear to be true of unpaid internships (National Association of Colleges and Employers, 2016). An intern who is qualified to perform an internship which has similar requirements to an entry level job should also be qualified to perform the job as a full (possibly temporary or part-time) employee. Unfortunately, several barriers stand in the way, including the school and the employer.

College and universities have little incentive to speak up about unpaid internships. The “primary beneficiary test” specifically calls for unpaid internships to be taken for college credit. This creates tuition revenue and work for faculty and staff who have various responsibilities during the internship, depending on the college or university. A brief review of the faculty supervisor’s role based on several collegiate policy statements suggests that once the internship is started, faculty are responsible for administrative tasks such as: monitoring job tasks and responsibilities, evaluating progress toward learning outcomes, communicating regularly, and grading assignments such as reflection papers or progress reports (e.g., California University of Pennsylvania, 2010; Illinois Wesleyan University, 2017; St. Norbert College, 2019; Montana State University at Billings, n.d.; Occidental College, n.d.). Conversely, however, the university which is receiving the tuition revenue is supplying very little in the way of physical resources; no classrooms, no equipment, and may or may not be scrutiniz- ing their faculty’s level of involvement (Burke & Carton, 2013).

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Often internships are performed during the summer for the conve- nience of the students, meaning that faculty must be paid additionally to supervise the internship. Tuition for the internship course credits can constitute 12–25% of internship expenses including room, board and transportation (Mondalek, 2016).

Employers also directly benefit from unpaid internships. Although the “primary beneficiary test” should discourage employers from using interns to replace employees, there is evidence that employers replace paid posi- tions with interns when the economy is sluggish (Bacon, 2011). Interns may be utilized for some of the same reasons as workers hired through a temp agency, or independent contractors. Employment law does not require that any of these three classes of employees receive benefits or employer contributions to payroll taxes, unemployment or workers’ comp insurance (independent contractors may or may not provide their own insurance). When their work is done and their contracts fulfilled, employment can be ended quickly and painlessly. However, while contractors are paid and can generally negotiate their own hours and functions, and temps are paid and are protected by employment laws such as the FLSA and Title VII of the Civil Rights Act, interns in most states benefit from none of these (Prakash, 2020). The only exceptions are Oregon, New York City and Washington, D.C., all three of which provide atypical employment law eligibility to interns (Smith, 2019), although only 8% of Republicans and 3% of Democrats on Capitol Hill pay their interns (Vera & Jenab, 2017), further widening the diversity gap (Desai, 2018).

Perhaps most troubling from a societal perspective is that unpaid and even low-paid internships perpetuate economic inequality. Interns will continue to have bills, need a place to live, need to eat, and even need to pay tuition. Yet, many internships—if they pay at all—do not pay a wage sufficient for an intern to perform them without taking on an additional paying job. In many cases, this makes internships unattainable for students of lower socioeconomic means, and may disproportionately affect minority students (Mihelich, 2014). If students cannot afford to perform the unpaid internship (possibly while working another job and/or paying for course credit) they are more likely to miss out on future opportunities which place value on having an internship (Bacon, 2011). Industries that are more racially and gender diverse (journalism, fashion) offer significantly more unpaid internships, compared to fields that in which White men are more prevalent, such as engineering and business (National Association of Col- leges and Employers, 2016). Whites and Asians are approximately 30% more likely to have a paid internship than Blacks and Latinx (Mihelech, 2014). There are also gender gaps in paid internships: women are 77% more likely to have an unpaid internship than men (Smith, 2019).

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32 J. A. SHOEMAKER

It may be that unpaid internships are truly warranted in some fields, due to over-saturation of degreed graduates and a lack of open positions; this appears to be particularly true in the publishing, journalism and entertain- ment industries, and in government. However, these unpaid internships still perpetuate a lack of diversity in fields that have historically lacked diversity (Waltz, 2019).

WHY DO COLLEGES AND UNIVERSITIES ASK STUDENTS TO WORK FOR FREE?

The traditional classroom experience has changed significantly since the foundation of the first colleges and universities. Virtual classrooms and online instruction have made the higher education environment more accessible and convenient than ever. However, one aspect of the classroom has not changed; textbooks and lectures are not the same as perform- ing applied work. Even high-fidelity simulations cannot provide the same experience as being in the actual workplace. The idea that students still need “real world” experience to complement their learning continues to be perpetuated in the form of required internships. Internships continue to be a huge trend in employment with over 65,000 internships offered in 2017, an increase of over 7% from the previous year (Taylor, 2017).

Emphasis is placed on experiential learning—“learning by doing” which allows students to apply their skills practically instead of only discussing them theoretically (Burke & Carton, 2013). Evidence from research sug- gests that internship work does not meet all the requirements set forth by experiential learning theory. Most interns reported their work did not allow them opportunities to consider alternatives to standard operations or to propose new ideas (Stirling et al., 2017). Ultimately higher education and employers should work more closely together to determine what the characteristics of a meaningful internship should be and whether these characteristics are being met by both the university program’s require- ments and the work provided by the employer.

RECOMMENDATIONS TO THE POTENTIAL INTERN ABOUT INTERNSHIPS: TO WORK, WHERE TO WORK,

OR NOT TO WORK AT ALL?

The higher education industry needs critically evaluate whether internships of any kind— particularly unpaid internships—truly offer students experiential value for their payments and efforts. Some of the benefits of internships depend on the industry matching the degree matching the career. Assuming students plan to pursue a full-time job in the field in which they majored an industry-specific internship might open up doors.

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The Student, Human Resources, and the Internship 33

However, if students reevaluate and decide to move in a different career direction, that coveted industry internship may not mean much beyond more bills. Internships that are not directly in the student’s field can still provide meaningful experiences. Taking an internship outside their major may allow the student to reevaluate whether there are other careers which they enjoy and for which they would be a good fit, or how what they have learned in school can have impact in a completely different field. At the end of the day, an internship is job experience, and any experience is better than no experience.

One consideration in lieu of internships is to make course content more applied in the first place. Connecting with industry partners and making junior consulting exercises a part of coursework can provide both expe- rience and networking opportunities for students. Similarly, encourage students to join and attend professional groups at home or at school (or both) outside of the classroom.

Colleges and universities can also encourage their students to consider nontraditional internships, such as micro-internships or virtual internships that afford students the opportunity to consult on short-term projects while working remotely (Wingard, 2019). This option offers the added advan- tage of not requiring the student to pay for relocation and more expensive room and board while working a low- or no-paying internship, and opens up the playing field to those students who may not be able to afford the traditional option.

If traditional internships are a must, encourage students to seek paid opportunities. Even if the unpaid alternative is with an industry-leading global organization, urge the student to truly consider the paid opportunity with a lesser-known firm that may be able to offer them more personal- ized attention anyway. Even if the paid alternative is a “job” instead of an internship, the opportunity is just as likely—if not more so—to lead to something better.

Finally, it is essential that the instructor is monitoring that the student is truly gaining valuable experience and understanding, not just fetching coffee and performing transactional, clerical tasks. Staying in touch with the best internship placements (which may be seeking more student interns in the future) and encouraging students to do the same is highly advisable. While an internship may not lead directly to full-time placement, a good impression in the past can go a long way once a position is available.

SHOULDN’T HR PROFESSIONALS BE DOING SOMETHING ABOUT THIS?

It is not enough for an employer to seek an intern as a gesture of good- will or corporate citizenship. Whether internships are going to be paid or

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34 J. A. SHOEMAKER

not, they will impact organizational resources and thus should be created purposefully. Human resource professionals have a responsibility to ensure that their organizations’ internship programs are purposeful, and thus legally compliant and meaningful for both the intern and the company. Just as is true for an employee, HR should be included in every phase of the employment cycle.

Before the internship program even begins, it is necessary that the com- pany have a clear understanding of tasks and projects for which the intern will be responsible. Ensuring that this list is manageable and engaging requires making an effort toward job analysis and job evaluation to cre- ate a job description (Pavlou, n.d.). HR professionals can provide useful advice on whether a proposed internship will even meet the primary ben- eficiary test. Specifically, the HR team may become aware of whether an intern’s duties replace or complement those of employees (Hedreen, 2019). Human resources professionals may be in the best position to recommend whether internships should be paid in order to comply with employment law (Pavlou, n.d.).

An internship agreement will also be needed and should include infor- mation about the nature of the work, performance expectations, and compensation (if any) just like an employee contract. The period of the internship should be specified as it would be for an independent con- tractor (Pologeorgis, 2019). However, unlike an employee or contractor agreement, the internship agreement should include language mentioning the prime beneficiary test criteria, such as a connection to an educational program, and that no specific promise of permanent employment is made (Maurer, 2017).

HR should be involved in effectively recruiting and staffing interns. Strategies may include directing job fairs, networking with collegiate career centers and alumni groups, or via recommendations from current employees (Pavlou, n.d.). Human resource professionals can offer insight about valid selection tools for finalizing the hiring decision. A meaningful selection process will benefit the employer in hiring the best candidate for the internship, and also the intern by providing valuable experience in applying for employment (Maurer, 2017).

HR may also have insight about total rewards; even when internships are not paid a traditional wage, they may receive indirect financial perks. For example, Facebook has offered interns paid housing and transportation (Kramer, 2017). Nonwage perks like this can provide a major advantage to promoting the internship.

The employer should expect to onboard interns just as they would any other employee. Training will undoubtedly be the responsibility of the

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The Student, Human Resources, and the Internship 35

direct supervisor but understanding the organization and its operations and culture will likely fall to the human resources team. Even though the internship will be temporary, both onboarding and acclimating new hires to the company’s culture are imperative in getting the best performance out of interns (Pologeorgis, 2019). Ensuring that interns feel like part of the com- pany also shows them that their role is important and valued (Pavlou, n.d.).

Evaluating the intern and the internship are final steps that should involve HR professionals. Performance evaluation is an important expe- rience for the intern and will likely be required as part of the academic program (Maurer, 2017). Additionally, receiving feedback from interns to understand what worked, what was meaningful, and how the internship program can be improved benefits the organization by helping to create better internship experiences in the future (Pavlou, n.d.).

These functions all require practical support from human resources for employees and should require the same support for interns (SHRM, 2020). HR professionals hold an additional ethical duty to ensure that internships are described accurately and that interns are treated fairly. College students are particularly unlikely to assert themselves and may be unsure of how to make a complaint or who to talk to in the case of workplace improprieties (Shea, 2017). The educational aspect of internships support, and indeed the primary beneficiary criteria explicitly state the internship experience should include opportunities to learn about employer operations and shadow senior employees; an internship should not entirely be related to job duties (Taylor, 2010). Vague job descriptions also contribute to the potential for unethical treatment of interns, who may be inadvertently or deliberately asked to take on too much, including work for which they are not qualified (Shea, 2017).

HR’s ethical obligations complement the practical duties described above. HR and the sponsoring organization owe it to the intern to provide a meaningful orientation experience not only for practicality but to sup- port ethical operations. It is critically important that interns understand what resources are available beyond their supervisor if they are confronted with an ethical issue. For example, the human resources department should be willing to support an intern who is asked to act unethically, or to perform tasks for which he or she is not qualified, and to counsel the supervisor who asked the intern to do so. HR should be the first party made aware of any issue that results in a whistleblower complaint. Paid and unpaid interns are included in protections afforded by U.S. whistleblower legisla- tion (Feinstein & Devine, 2019). HR professionals hold a responsibility not just to support their organization, but to comply with their organizational code of ethics as set forth by the Society for Human Resource Management (SHRM, 2014).

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36 J. A. SHOEMAKER

SO, WHAT AM I SUPPOSED TO DO?

Whatever happened to that student who “needed” an internship? While applying for internships during the summer of her junior year, she took an entry-level job near home and was quickly promoted to become a super- visor trainee. She stayed with the company part-time and was offered a full-time management position after she graduated less than a year later. She never did get a traditional internship, but she was able to waive the university’s requirement for the internship entirely by demonstrating that she had sufficient work experience based on her duties in her ongoing job. The most recent word was that she was eyeing an associate director position with the company in a different part of the United States. Seems she found what she needed … it just was not exactly what she thought it would be.

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CHAPTER 3

DEVELOPING TALENT THROUGH LEADERSHIP

TRAINING AND EXECUTIVE COACHING

Ethical Challenges and Considerations

James P. Sartain, Jr.

The complexity of the modern workplace has increased the demand for skilled and prepared employees. The pace of change, competition, tech- nology, globalization, crisis leadership, and myriad other factors have underscored the urgency for reliable talent development, particularly in the enhancement of leadership skills required to help navigate the workforce through these challenges. Accordingly, developing leaders is consistently cited as a top priority for today’s businesses (Fegley, 2006; McCauley et al., 2010). Although the need to enhance the skills and competencies of leaders is a priority, there is little agreement regarding how this is best accomplished (Bass & Bass, 2008; Day, 2014). The range of potential solutions varies widely in terms of modality, duration, focus, cost, and overall efficacy. Although the potential solutions vary, a growing consensus among researchers is that leadership development interventions produce

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42 J. P. SARTAIN, JR.

positive outcomes for individuals, teams, and organizations (Day, 2000; Day et al., 2008).

In a meta-analysis of a decade of training and development research, Aguinis and Kraiger (2009) shared consistently positive findings across a broad range of outcomes. These include improvements in individual and team job performance, the acquisition of technical skills, and the devel- opment of declarative knowledge, procedural knowledge, and strategic knowledge. The authors further noted specific positive outcomes related to leadership and managerial training. Findings supported the connection between leadership development and increased expertise and positive behavioral outcomes as measured by on-the-job observations and objec- tive behavioral measures. Other meta-analytic reviews of the impact of leadership development have found similar results, although there is a lack of agreement regarding the level of effect on leadership performance (Collins & Holton, 2004). Research has also supported the effectiveness of executive coaching as a frequently used method of leadership develop- ment. For example, De Meuse et al. (2009) conducted a meta-analysis of empirical research of coaching effectiveness and found moderate-to-large gains in demonstrated skills and performance. Although there is evidence of effectiveness regarding a range of leadership development offerings, not all programs are created equal. In many organizations, it has become the responsibility of the HRM professional to sort through the often-conflicting data and competing leadership development opportunities to make the best recommendations for their employees (Lussier & Herndon, 2017). Effectively executing this role can be challenging.

As a central premise, human resource management (HRM) professionals need to understand the specific developmental needs of employees in order to match those needs to the most appropriate solutions. This requires robust systems of assessment and mapping that are often not fully developed in many organizations. As a result, linking employees to the best development opportunities is, at best, an inexact science. At worst, it can become an informal and unfocused process that does not lead to the desired results— for the employee or the organization. Ethically discharging this role in ways that demonstrate effective stewardship of corporate resources while simultaneously addressing employee needs has become a primary challenge facing today’s HRM professionals. In this chapter, the responsibility of HRM professionals in coordinating talent development solutions will be explored. Difficulties they face in effectively fulfilling this role will be examined, including the exponential increase in available solutions and the challenge in discerning fads from solutions offering evidence-based outcomes. Guidelines for assessing developmental needs, identifying solutions, and tracking outcomes will be recommended. The chapter will conclude with a brief exploration of special ethical considerations facing

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Developing Talent through Leadership Training and Executive Coaching 43

HRM professionals. These include balancing the duality of roles that HRM professionals often face while serving both the corporation and employee and ethical challenges related to recent technological developments in the delivery of developmental programs such as e-coaching.

HRM COORDINATION OF LEADERSHIP DEVELOPMENT

Although the employee’s supervisor should be the best position to evaluate their employee’s developmental needs and goals, it is the HRM professional who may be the most knowledgeable about methodologies to assess and meet those needs. This information is useful for helping to make a case for investing in talent development, overseeing implementation, and monitoring outcomes of these interventions (Turner, 2018). As is the case with other organizational managers, there is an explicit understanding that board members and shareholders cannot oversee employees and issue instructions at the level required for operational effectiveness. Although board members and trustees are accountable for strategy, policy, investments, risk, and overall governance of the organization, managers are responsible for ensuring corporate resources are used to meet organizational outcomes (Bass & Bass, 2008). Given the scope of their roles in most organizations, HRM professionals often become the de facto stewards of talent.

Black et al. (2019) noted that, although HRM often owns and facili- tates talent development activities and processes, they are dependent upon the input of the employee, supervisors, and leadership, for critical input and support. The authors suggested that both talent development and succession planning are two of the most critical HRM processes in an orga- nization, given the role of talent in creating and sustaining competitive advantage. Although the responsibility for talent development may be clear, the methods for meeting this responsibility are increasingly complex. The complexity is created through differences in opinions that need to be navi- gated between employees, supervisors, and HRM professionals regarding the best solutions. Issues with what the organization can afford can often add to the difficulty of linking the employee with the best opportunity. Perhaps one of the most difficult issues for HRM Professionals to navigate relates to the prevalence of leadership development offerings; discerning fads from evidence-based practice and identifying the best solution for an employee’s needs.

PROLIFERATION OF LEADERSHIP DEVELOPMENT OFFERINGS

Making the right investment decisions for leadership development has been complicated by the exponential growth of leadership development programs. Leadership development training has become a $366 billion-dollar global

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44 J. P. SARTAIN, JR.

industry, with $166 billion spent annually on leadership development in the United States alone (Training Industry, Inc., 2019; Westfall, 2019). The types of leader development program solutions also vary widely. A 2017 survey of 1,500 professionals in the learning and development industry found that the majority of organizations (74%) used instructor-led training while executive coaching was second at 63%. E-learning (62%), external seminars (50%), and real project work (43%) rounded out the top five most prevalent modems for leadership development (Prokopeak, 2018). In a 2018 survey of U.S. based corporations and educational institutions with more than 100 employees, Training Magazine estimated that organizations spent an average of $1,075 on direct learning expenditures, including program and professional fees, tuition, and travel costs (Freifeld, 2018).

In organizations that are fortunate to have dedicated organizational and leadership development departments, HRM professionals can effectively manage talent management through a menu of internal programs and resources. These resources can range from instructor-led training events to job shadowing and on-the-job training, mentoring, coaching, simula- tions and games, stretch assignments, special team projects, web-based training, or a heuristic, blended learning approach. The blended learning approach appears to be increasing in frequency with a 2018 national study on training industry practices finding that 69.3 hours of training delivery involved a bundling of approaches, up from 37.7% from 2017 (Freifeld, 2018). Additional tools, such as 360-degree evaluations (Solansky, 2010) and after-event reviews (DeRue et al., 2012), can be used to help HRM professionals assess and mobilize internal resources to address employee developmental needs.

For organizations that do not have sufficient internal resources to design and develop in-house leadership development programs, or those wishing to supplement their internal offerings, contracting with external vendors has become a widespread practice. Industry estimates suggest that while internal resources comprise more than half of the professional development budget, external programs, products, and services represented approximately 40% ($38.5 billion) of annual expenditures. The percentage of budget expended for external solutions appears to be growing (Taylor & DuVernet, 2017). In a survey of the training industry in 2018, it was found that spending on outside products and services rose from $7.5 billion in 2017 to $11 billion (Freifeld, 2018). External classroom-based, instructor-led training, for example, ranges from university-based executive training programs to private training events led by for-profit companies. A Google search of active leadership development programs operated in the United States and offering open registration resulted in over 400,000 hits. The duration and tuition for these programs also vary widely, with some programs advertising

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Developing Talent through Leadership Training and Executive Coaching 45

one-day workshop fees of $200 while other programs offer intensive 2-week programs for over $15,000.

Similarly, the choice of vendor options for executive coaching has also increased dramatically in the last 20 years. In a Global Coaching Study commissioned by the International Coaching Federation and Price Waterhouse Coopers (ICF, 2016), the estimated number of professional coach practitioners worldwide in 2016 was 53,300. In the same study, the growth in total revenue from coaching grew by 19% from 2011 to 2015 to $2.356 billion. Further, revenue from professional coaching was estimated to reach $15 billion in 2019 (IBISWorld, 2019). The ubiquity of leadership development programs and approaches has made it difficult for those responsible for linking employees to solutions, particularly in being able to isolate the programs that can most effectively lead to desired employee and organizational outcomes.

ASSESSING LEADERSHIP DEVELOPMENT NEEDS

In order to align individual employee goals with organizational objectives, HRM professionals need a reliable system for identifying employee devel- opmental needs and a range of proven options to address them. There are a variety of methodologies for assessing opportunities for employees to develop further skills required for organizational success. Approaches can range from employee interviews to more robust 360-degree evaluations and performance appraisals. More involved processes for identifying employee developmental needs include formal competency mapping (Chouhan & Srivastava, 2014) and assessment centers that provide a comprehensive array of evaluations, simulations, and interactive exercises (Kleinmann & Ingold, 2019).

Employee needs assessments should also include the context of the orga- nization and what is driving the employee’s developmental requirements. Beer et al. (2016) suggested that leadership development is more effective when senior leaders champion the initiatives AND when the programs and services align with highly visible organizational change and strategic initiatives. Organizations are systems comprised of a variety of interacting elements such as roles, structures, responsibilities, processes, and policies. Accordingly, developmental interventions need to consider the system in which the employee operates and organization-wide impacts that can are to be targeted, not just individual outcomes (Craig & Hannum, 2007).

Not every HRM professional has access to the range of options and tools for talent assessment that are commonly available in larger organizations. These assessments can be prohibitively expensive and resource-intensive. All too often, the responsibilities of an HRM professional are not limited to comprehensive assessment and development. Other daily obligations

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46 J. P. SARTAIN, JR.

prohibit a singular focus on talent management. The challenge is to create the most accurate and reliable system for identifying employee growth needs within the constraints of time and money. At a minimum, HRM professionals should facilitate conversations with the employee about developmental goals with the input of the employee’s supervisor and with the consultation of senior leadership regarding global organizational objectives. Frequently referred to as the Talent Review, this conversation often blends the organization’s performance appraisal process, primarily focused on current performance, with future individual and organizational talent developmental needs (Black et al., 2019). These structured conversations will increase the probability that the proposed interventions will align with broader existing and future organizational requirements. HRM professionals need a method for documenting these conversations and routinely reviewing results with employees and supervisors. Whether the conversation is part of a required annual performance appraisal or a supplemental conversation held routinely throughout the year, the HRM professional should have a mechanism for ensuring these conversations occur as scheduled and are tracked for actions and results. Further, they should assist in helping the employee and supervisor implement the required developmental strategies in a timely manner (Mone & London, 2018).

Without a proper system to identify critical areas of employee growth, both individually and within the broader context of the organization’s operational demands and strategic direction, the HRM professional may not be fully equipped to adequately serve the developmental needs of the employee or the organization. In environments where comprehensive assessment and talent review are not formalized or routine, developmental opportunities can often be identified based on preference, convenience, pricing, or other factors. When taken alone, none of these factors offer a valid basis for making talent investment decisions. As with a formalized talent assessment system, HRM professionals must also create and maintain a comprehensive and reliable process for effectively linking employees to leadership development resources.

LINKING THE EMPLOYEE TO LEADERSHIP DEVELOPMENT RESOURCES

First and foremost, linkages to developmental opportunities should be predicated on the quality of the developmental assessment. A variety of inputs are required to make the best recommendations for employee growth. As with a robust talent assessment approach, choosing devel- opmental options requires an equally robust and reliable process. The elements of such a reliable process must include, at minimum, a method

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Developing Talent through Leadership Training and Executive Coaching 47

for selecting and qualifying resources that are most likely to produce the desired outcomes identified by the employee and supervisor. The process should lead to interventions and outcomes aligned with the organizational context and core operational and strategic requirements of the organiza- tion (Craig & Hannum, 2007). Finally, the approach should be flexible and open in design. It should consider multiple inputs in making the referral recommendations, particularly the employee’s desires and perspectives regarding his or her own developmental goals and plans.

Role of the employee in the developmental process. Throughout the process, the HRM professional must also honor the employee’s role in charting the course for his or her development. The employee’s role in identifying and pursuing his or her opportunities for further develop- ment cannot be understated. These personal development activities can include membership and networking with industry-specific professional organizations, engaging in reflective practices, completing volunteer work, and pursuing continuing education (i.e., formal degree attainment, cer- tifications, or specialized course completion). Lejeune et al. (2018), in a review of longitudinal data of 3,661 employees working in 16 countries, found that self-directed learning, when practiced as part of a broader per- sonal developmental plan practice, positively impacted job performance. The key takeaway for the HRM professional is to actively partner with the employee and supervisor in the design of the plan and the identification of resources. Their guidance and support should be consultative and should supplement, not supplant, the input and goals identified by the employee. However, there is a fine line that the HRM professional must navigate in balancing employee needs and goals with organizational resources and requirements. Frequently, consulting with the employee on the develop- ment of the best plan for building required skills can create a variety of ethical challenges that can lead to difficult negotiations.

Duality of responsibility to the employee and the organization. As established earlier, the HRM professional seeks to work in the best interests of the employee, but he or she must also strike a balance between advocating for employee needs and serving in the best interests of the business (which are not always compatible). There is a stewardship responsibility to develop talent AND to manage organizational resources effectively. These two roles can often conflict. For example, the employee may seek a developmental opportunity that may not be affordable for the company.

Consider an employee who requests to work with an executive coach who charges a per-session fee that is twice that of the session rate of other coaches used by the organization. The employee makes a strong case for why this executive coach is the best option for her goals and future career plans. Her argument is clear, compelling, and valid. However, the HRM

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48 J. P. SARTAIN, JR.

professional is working with a minimal talent development budget, and if he acquiesces to this request, this could mean that another leader in the organization would not be able to benefit from a similar service. Should the HRM professional honor the employee’s first choice and her strong rationale for this request? Should he deny it in order to give two leaders the opportunity, albeit an opportunity that has less potential to meet one of the employee’s needs?

Similarly, an employee may request a developmental opportunity that requires expensive travel and lodging to an appealing destination city when a reasonable local alternative is available. He may make a persuasive case for traveling to this exotic location and even get the support of his supervisor. The cost of the event would not greatly impact opportunities for other leaders in the organization, but the local option has produced similar learning outcomes, is half the price, and would not require travel and lodging. Should the HRM professional insist on the local option, knowing that the decision will likely alienate or disempower the employee and his supervisor? Or should the HRM professional allow it, honoring the employee’s role in his development and supporting the supervisor’s advocacy for this choice? If the HRM professional makes the latter choice, does this set up a precedence that the HRM professional may not be able to honor in the future given changing budgets and unknown employee developmental needs?

What if the organization’s leadership makes budget decisions that provides insufficient funding for effective development? How are these issues effectively addressed when some training budgets do not allow for more than basic compliance training? What pathways are available to the HRM professional in brokering the best opportunity for the employee in instances where the opportunities are severely limited?

These scenarios and questions underscore the fact that talent development should always be a partnership but can frequently turn into a negotiation, and one where the HRM professional is the primary arbiter. What is best for the employee may not always be what is best for the business. The HRM professional must manage this distinction in ways that seek to meet as many of the employee’s needs as possible but in consideration of fairness, precedence, and financial limitations. Often, the HRM professional’s key challenge is to help the employee understand that they may not be able to fully meet every “want.” Instead, they must educate the employee and the supervisor that decisions are made to best address employee needs. Ultimately, the HRM Professional must manage these exceptions in ways that do not create funding constraints, precedence, and policy issues, or undermine future developmental opportunities for other employees.

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Developing Talent through Leadership Training and Executive Coaching 49

DECIPHERING LEADERSHIP DEVELOPMENT FADS FROM PROVEN PRACTICES

The concept of “one size fits all” has been applied to a variety of contexts and situations. It is a phrase that could not apply any less to the practice of leadership development. Boilerplate programs with generic curricula may offer a great experience for the participant, but they may not impact target behaviors or lead to sustainable employee changes. Attendance in a training event, in and of itself, offers no assurances that there will be something different about the participant about the event is over. Many practitioners of organizational development and talent management refer to these types of generic training programs as “ship and dip.” They are designed to briefly immerse the participant in a global concept, technique, or approach. They offer engaging conversation and activities, often in an attractive setting. They often provide a time for the employee to rest, refocus, and recharge while learning something new. However, the lack of customization and individualization means that the intended results are largely unpredictable. They are not designed to reflect the specific developmental needs of employees and their organizations.

As noted by Brinkerhoff and Mooney (2010), “training alone does not produce results.” (p. 129). Accordingly, the role of the HRM professional in separating what works from the range of options is a critical challenge. Roland (2016) noted that “the mismatch between leadership development as it exists and what leaders actually need is enormous and widening” (para. 3).

As organizations continue to invest in developing their leadership pipe- line, a growing body of research has demonstrated that many interventions are not producing the promised results (Beer et al., 2016). Although there is general agreement that leadership development creates positive indi- vidual, team, and organizational outcomes, there is a lack of consensus on what constitutes an effective program and little progress in standardizing leadership development practices and approaches (Bass & Bass, 2008; Day, 2014).

A more coordinated standardization effort appears to have been devoted to executive coaching practices than leadership development programming, although there is significant work that needs to be done. Specifically, approximately 36 professional coaching associations have been established in the past thirty years; many founded to establish credentialing requirements and to help standardize practices in this largely undefined field (Ellinger et al., 2014). However, certification is not a requirement for professional coaching, and only a modest percentage of executive coaches

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50 J. P. SARTAIN, JR.

have pursued credentialing. There is not a clear body of agreement on the competencies that should be accredited for professional coaches nor a clear set of ethical guidelines to govern the practice. Similarly, although leadership development programs appear to positively impact leader performance, there is little consensus on the relative effectiveness of the different program types and modalities (Day & Dragoni, 2015).

In addition to the open question and limited data regarding the effec- tiveness of certain methods for leader development, there are new models and methods routinely introduced in the marketplace that have not been subject to sufficient prior evaluation. Many of these new offerings ride the wave of popular interest and have not been rigorously tested. For example, neurofeedback has recently gained traction as a modality for leadership development. In fact, some early proponents have suggested that neurofeedback is a better treatment technique than other leadership development approaches without sufficient measures to support this claim (see, for example, Waldman et al., 2016). Some researchers have called for a new line of ethics (“neuro-ethics”) to address concerns about the efficacy of neuroscientific interventions, such as neurofeedback using elec- troencephalography in the LD domain (Lindenbaum et al., 2018). These unproven approaches add to the complications in vetting and brokering opportunities for employees. Given these complex challenges, how do HRM professionals effectively identify the developmental needs of their employees, link them to the best resources, and evaluate results? One pos- sible solution is a formalized vendor bidding process.

A Formalized Vendor Bidding Process

The lack of standardization of various leadership development practices paired with the expanding number of offering in the marketplace adds to the difficulty of the HRM professional’s role in discerning evidence-based practice from current fads. However, conducting this research into the out- comes of particular programs and coaches need not be the exclusive work of the HRM professional. In fact, the burden of documenting the efficacy of a program or service has increasingly fallen on the vendor to prove. As with other contracted administrative solutions, outsourcing leadership develop- ment should involve formal methods of prequalification. One methodology is a bidder’s process where the organization releases (or “lets”) a Request for Qualification (RFQ), Request for Information (RFI), or Request for Proposal (RFP) to potential vendors. Table 3.1 provides a sample set of qualification categories and specific response items to accompany an RFP soliciting generic leadership development services.

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Developing Talent through Leadership Training and Executive Coaching 51

Table 3.1

Proposed Vendor Qualification Questions for Coaching or Leadership Development Vendors

Qualification Category Information Requested

Type of Service Describe the proposed service(s) to be offered. Include learning/ participation objectives, desired outcomes, frequency of contact, and forecasted duration.

Service Modality Describe the modality or modalities to be employed (e.g., individual face-to-face meetings, group work, classroom-based learning, case studies, presession work, postsession work, reflective practices, on-the-job training, special assignment, group project). Include all modalities to be employed by the proposed service or program. Please identify why these modalities are recommended for the proposed scope of the RFP.

Target Participant Describe populations where services are best suited. For example, for coaching providers, is the ideal participant a new manager, midlevel manager, or senior executive? Similarly, for providers of leadership development programs, who is the ideal candidate for participation?

Credentials Describe any formal education, training, certification, or experience that the vendor offers in providing the services outlined in the RFP. At a minimum, please briefly provide a description of the background of the program, its founders, and the vendor(s) who will provide the direct services. Include special awards or acknowledgments earned in providing the proposed service(s).

Experience How long has the program (or coach) provided services?

How many participants have been served through the program or by the coach? Which types of organizations have been served (i.e. nonprofit, corporate, faith-based)?

Evaluation Please describe the method for tracking participant outcomes. Please describe, in detail, how the program or coach will evaluate the effectiveness of the program. Please describe how outcomes are collected and shared with participants or stakeholders.

Outcomes & Evidence-Basis

Please provide specific outcomes achieved in the last three years of service delivery. Please include business impacts, qualitative and quantitative measures of participant behavioral change, participant feedback, any observations from participant’s peers or supervisors regarding behavior change attributable to services. Please describe whether or not the proposed services qualify qualifies as an evidence-based program or practice.

(Table continued on next page)

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52 J. P. SARTAIN, JR.

Table 3.1

Proposed Vendor Qualification Questions for Coaching or Leadership Development Vendors (Continued)

References Please identify the contact information of three recent participants (coaching participants or program graduates) and, if applicable, the contact information of three corporate entities that have previously contracted for work similar to that proposed in the RFP.

Proposed Fees Please identify all costs associated with the proposed program by category (direct delivery fees, design fees, travel costs, assessment fees, materials, and handouts).

Return on Investment Please describe how to calculate a return on investment for the proposed program or service. Include, if possible, estimated monetary values for business impacts and outcomes targeted by the program that are contrasted by the total cost of the program. Please indicate a per-program and per-participant cost (as appropriate).

The specific categories and requested information required of vendors in Table 3.1 guides the HRM professional in screening initial submissions and following up with more questions or information as required. Vendors meeting minimum requirements can be added to an approved vendor list and matched to employees based on emerging needs. This database of pre-qualified vendors can significantly increase the HRM profession- al’s timeliness and overall responsiveness to requests for developmental assistance. For specific developmental requirements, a special RFP can be released with a purpose and scope of engagement tailored to the specific needs of the organization or employee.

Asking the vendor to respond to questions like those provided in Table 3.1 can help shift the burden of establishing efficacy, at least at the beginning stages of vendor selection, to the provider of the services. The evaluation, outcomes & evidence basis, and Return on Investment calcula- tion response items offer a level of detail that HRM professionals cannot often get by a review of extant public information about a vendor and deserve special mention.

Evaluation

Many coaches and leadership development programs offer some level of evaluation to help establish the efficacy of their approach. The level of evaluation will vary as much as the types of vendors. Some vendors focus on

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Developing Talent through Leadership Training and Executive Coaching 53

participant’s views of change rather than the observations of the supervisor or other business stakeholders. Some evaluations gather global perceptions of improvement rather than dimensional impact ratings.

Additionally, some programs focus exclusively on individual-level improvements without consideration of organizational-level outcomes (De Meuse et al., 2009). In many cases, vendors will describe using one or more levels of Kirkpatrick’s (1979) widely promulgated four-level evaluation framework. The most common evaluation sources employed include Level 1 feedback (participant reactions to the training) and Level 2 feedback (measures of participant learning of the content acquired during the training). These first two levels are typically measured through participant postsession survey results, and, at a minimum, all vendors should employ this level of participant evaluation. Vendors who have more sophisticated systems to document the efficacy of their approach may include outcomes aligned with Kirkpatrick’s Level 3 feedback (measures that document changes in the participant behaviors and individual performance as a result of the training) or Level 4 feedback (measures that document organizational results and business impacts achieved as a result of the training).

Hoole and Martineau (2014) caution the use of pre- and posttest measures of change as the singular method of evaluating leadership development programs and services. They suggest that effective evaluation should both “map and track” the developmental opportunity (p. 167). This mapping means that vendors should ideally include a rich array of contextual and situational factors in their description of the effectiveness of their programs and services. In other words, vendors who assure a potential client that they can produce results without knowing the organizational context, are likely promising more than they can deliver. The vetting of leadership develop- ment programs and services should consider how the leadership training targets collective capacity and performance, not just individual outcomes (DeChurch et al., 2010).

Outcomes and Evidence Basis

The outcomes and evidence basis questions in Table 3.1 require vendors to think beyond the delivery of services and to document what outcomes have been achieved over a prescribed period. Vendors understand that today’s businesses have numerous alternatives to choose from, and the ability to speak cogently about outcomes is now a core requirement of get- ting new business. As such, vendors should be prepared to show evidence of outcomes. Further, the specific question in this category about whether the program is evidence-based is often a more useful inquiry than the HRM

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54 J. P. SARTAIN, JR.

professional making a broad assessment based on available information. How the vendor interprets and responds to this question can be much more informative and can often reveal more insights than what can be obtained through general information on websites and service brochures.

Return on Investment

The last response item in Table 3.1 asks the vendor to comment on methods to evaluate return on investment (ROI). The calculation of an ROI for leader development has become an increasingly requested metric, but it remains difficult to define (Phillips & Phillips, 2007). There are inconsistencies in how vendors measure and publish ROI and, ultimately, how HRM professionals compare ROI across developmental opportunities. To calculate ROI, the cost of the developmental program is contrasted with the business impact measures that are converted to monetary values (Phillips & Phillips, 2007). Converting business impact into a monetary value is a tricky part of this calculation, and most vendors will likely not be able to adequately respond to this item given limited information about the company. Further, how each company defines and evaluates its business impacts varies widely. What is essential about including this information in a bidder’s packet is that the vendor must define what ROI means to them and then explain how they balance cost with value. As with the other qualification categories outlined in Table 3.1, how the vendor responds to the questions can be as informative as the specific information they share. HRM professionals should monitor vendor responses that incorporate a variety of measures as part of their ROI calculations.

For example, Zhu and Sharma (2017) recommended that an alternative way to calculate ROI results would be to include a learning effectiveness measure, a job impact measure, and a business result measure. Further, ROI and other post-training results should be contrasted to a control set of organizations with similar characteristics. Finally, qualitative approaches, including stakeholder observations of participant changes in behavior attributable to the training, should be collected.

Vendors of leadership development and coaching understand the growing demand of HRD professionals to compare choices and to require vendors to differentiate their services from their competitors. They should also be prepared to answer questions about their services, outcomes, and credentials. By following a formalized vendor bidding system, HRM pro- fessionals are better positioned to fulfill their responsibility as a corporate representative and an advocate for the needs of their employees.

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Developing Talent through Leadership Training and Executive Coaching 55

OTHER ETHICAL CONSIDERATIONS INVOLVING BROKERING LEADERSHIP DEVELOPMENT

In addition to balancing the often-competing responsibility of representing the organization and advocating for the employee, deciphering fads from proven approaches, and vetting qualified vendors, there are two additional ethical challenges that HRM professionals face in managing the talent development process. These two additional challenges fit broadly into the category of employee confidentiality and are often among the most problematic for the HRM professional to manage. They include the con- cepts of triangulation and conflict of interest, and effectively guiding new solutions that involve relatively new technologies (e.g., video-based remote coaching). Each will be outlined below with recommendations for effective management.

Triangulation and Conflict of Interest

Given that HRM professionals are often responsible for initiating referrals for professional development, what are the implications for con- fidentiality and confidentiality once services are engaged? How do they ethically manage the conflicts of interest that can occur when balancing the needs of the service provider, the participant, and the organization? What information is the HRM Professional required to share with the organiza- tion about the progress of the developmental opportunity, especially if the organization is paying for the program or the coaching service? This ethi- cal challenge is referred to as triangulation (Fatien-Dichon, 2012). In some situations, there is an alignment of agendas regarding the developmental opportunity. There is transparency in the goals and stated outcomes for the program, and there is little concern about confidentiality or conflicts of interest. Information flows freely regarding the developmental experi- ence between the employee and the employer. This is typically the case when an employee attends a leadership development event and shares her experiences with the organization upon her return. Perhaps the challenge of triangulation is best examined when viewed in the context of executive coaching commissioned due to an employee’s performance issues.

It is an inaccurate picture to describe all leadership development services as proactive and employee-driven activities. Referrals are often in response to performance problems and as a tool in employee skill development and remediation. When a referral is made for coaching, for example, the HRM professional may receive requests for updates by the leadership of the organization (typically the supervisor of the coaching participant). The

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56 J. P. SARTAIN, JR.

organization may want to know whether or not its investment is producing the desired outcomes. However, the employee may have made an assump- tion of privacy and confidentiality as a condition for exploring issues that arise in the coaching relationship. He may not want to share the issues that have been discussed or plans developed in coordination with the coach. The scenario is further complicated when considering the fact that it is the organization and not the employee who pays the coach. Who, then, is the client? If the HRM professional shares confidential information provided by the coach to justify his or her service invoice, is this an ethical violation of the employee’s rights to privacy? If the HRM professional refuses to share information provided by the participant or coach with the organiza- tion, is this a violation of his or her responsibilities as corporate stewards? In an ideal world, the executive coach negotiates these conditions as part of his or her coaching engagement, clarifying how the information will be shared and by whom before the services begin. However, coaches may not raise these terms as part of their service agreements and be unclear regarding the most effective methods for managing the complexities of a multiparty contract (Critchley, 2010; Skinner, 2012). Accordingly, the HRM professional needs to help ensure that these considerations are fully considered in a service agreement/contract so that there are no surprises for the organization, the employee, or the coach.

How to best accomplish a well-designed service agreement involves the anticipation of the risks facing all parties in the triangulation. What is best for the employee regarding the sharing of information? What does the organization need to know about the employee’s progress? What is the coach ethically willing and able to share? Open conversations among the three parties should lead to an arrangement that works well for all and removes the HRM professional from ethical liability. For example, the HRM professional could negotiate the terms so that the employee is responsible for providing periodic written updates of progress made in the coaching plan. The employee would determine what would be shared in these updates as he or she would be the author of these communications. The employee could copy the HRM professional on the updates, which could then serve as supporting documentation for paying the coaching invoice. The employee could also copy the coach on the updates, adding another layer of accountability, and ensuring consistency of informa- tion among the various stakeholders. Service agreements could also be requested as supplemental vendor information as part of the vendor bid- ding process outlined earlier. Alternatively, the definition of success could be based on quantifiable, business-related measures (Singer, n.d.), which could reduce or greatly limit personal discussions regarding the coaching process or private employee disclosures to their coach. This would allow

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Developing Talent through Leadership Training and Executive Coaching 57

the HRM professional to anticipate any ethical issues and direct negotia- tions to resolving them before services begin.

Additional ethical challenges that are indirectly related to the con- flict of triangulation involves the use of external coaches to supplant the responsibilities of supervision. Hawkins and Turner (2020) referred to this practice as “outsourcing difficult conversations.” As with other prac- tices for assessing employee developmental needs as outlined earlier, the HRM professional should include conversations with supervisors regard- ing the reasons for specific recommendations for skill development. If the supervisor makes the recommendation for additional skill development, conversations should include whether or not the developmental issue could or should be handled through supervision. If not, discussions should be expanded to evaluate whether an internal or external source is the most appropriate solution.

Challenges With Emerging Technology as a Delivery Platform

Advances in technology have created new ways for employees to access leadership development opportunities. Employees can now access leadership development workshops and coaches online and from the convenience of their desks. Coaching sessions and leadership development programs can be provided via videoconferencing and online platforms. There are benefits to this new technology. For example, to web-based coaching and training can greatly reduce the cost of the service, and additional savings can be realized through decreased travel time having to be away from the office. Although there is a growing body of research regarding the effectiveness of telehealth and computer-mediated communication for counseling and other psychotherapeutic services, there is still a research gap regarding the effectiveness of online coaching (Barnhardt, 2017, Ribbers & Waringa, 2012).

Even without a clear picture of the effectiveness of online solutions like electronic coaching or “e-coaching” in comparison to other traditional methods of service delivery, the trend is growing (Waringa & Ribbers, 2015). With this growth comes the increase in potential issues with confi- dentiality and privacy. Specifically, HRM professionals should ensure that there are private spaces within the organization for employees to partici- pate in the sessions. Coaching conversations, in particular, can often be sensitive and are not appropriate for an open office environment. Similarly, HRM professionals should inquire about the provider’s privacy policy and methods for ensuring the confidentiality of employee data. HRM profes- sionals should inquire about methods of encryption, security protocols

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58 J. P. SARTAIN, JR.

for the streaming session, and the proper storage of employee das part of vendor bidding submissions and service/contract agreements.

CONCLUSION

The HRM professional serves an invaluable role in the assessment of employee development needs and the identification, screening, and selec- tion of the most appropriate developmental solutions. To responsibly execute their role in the talent development process, HRM professionals must navigate the ever-expanding number of programs and services; many that lack evidence of effectiveness. The must separate fad from evidence- based practice as they help employees and their supervisors identify the best options for growth. All the while, they must deftly manage the often- conflicting dual relationship inherent in their role as they advocate for employees and serve as stewards of organizational resources. They must negotiate the terms of service agreements and methods of delivery with vendors, employees, and supervisors that do not violate employee confi- dentiality and privacy. To meet these challenges, the recommendations all point to systems-based solutions, including robust employee needs assess- ments, vendor selection processes, and well-articulated service agreements and contracts. Although well-designed systems will not eliminate every ethical challenge facing the HRM professional in fulfilling their responsi- bilities for talent development, the due diligence and planning required to design and implement these processes will help identify potential areas of ethical risk and reinforce best practices.

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CHAPTER 4

ETHICAL BIAS

The Impact on Equal Pay

William J. Woska

It’s difficult for us to fix errors we can’t see.

—Daniel Kahneman, Harvard Business Review, 2013

INTRODUCTION

Why do women earn less than men? The issue with respect to the difference in pay between men and women goes back more than 100 years. Histori- cally, the pay gap has been fed by beliefs that women should stay at home or doubts that they could perform jobs as well as men (Suddath, 2018). More recently the argument persists that there are more women in lower paying occupations and industries that provide lower salaries overall. For example, the four jobs in America with the largest number of women include teacher, nurse, secretary, and cashier—all with at least 75% women, (Lowen, 2017).

Other factors that are more difficult to measure, including gender discrimination, may contribute to the ongoing wage discrepancy. One of the most common forms of discrimination focuses on pay disparity in

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64 W. J. WOSKA

situations where women earned less when doing the same jobs as men (Graf et al., 2019). In some instances where women earned less when doing the same job it was not recognized by the employer. Only after the situation was brought to the attention of top management was there recognition that ethical or unconscious bias had resulted in a pay gap between men and women doing the identical job.

This chapter initially discusses the fact that the issue of equal pay for women goes back more than 100 years. The chapter notes that even with the adoption of the Equal Pay Act by Congress in 1963, the pay for women has only increased from 59 cents for every dollar earned by a man to 80 cents. In addition, even though women are now dominating graduate and professional schools, they continue to earn less than men while doing the same work. Next, the chapter focuses on the impact of ethical or uncon- scious bias by senior management when making decisions affecting an individual’s pay not realizing that they are discriminating with respect to the compensation of women. The chapter concludes with a discussion of the need for employers to create a company culture based on gender equality and inclusion.

Background

In February 1869, a letter to the editor of the New York Times questioned why female government employees were not paid the same as their male counterparts (Alter, 2015). Almost a century later, The Equal Pay Act (EPA) of 1963 was passed by Congress and signed by President Kennedy. Women were earning 59 cents for every dollar earned by a man when the EPA was enacted. Today, more than a half century later, women earn on average 80 cents for every dollar earned by a man. Table 4.1 reports the gender pay gap (GPG) at the beginning of each decade since 1960 (National Commit- tee on Pay Equity, 2017).

There is a distinction between the GPG and pay equity, although the two terms are often interchanged. The GPG relates to the average differ- ence in pay between men and women. The GPG impacts women across all socioeconomic and racial groups in addition to most professions. It affects women of color at even greater rates, with Latina women earning just 56% of every dollar a White man makes, and Black women earning 64% (Vagianos, 2015).

Pay equity addresses the issue of equal pay for equal work. Pay equity means creating equal opportunities for high paying positions, evaluating areas of bias that may prohibit hiring and promotions, and factoring in work accommodations that could slow pay progress, such as flexible work arrangements and time off for family leave (Frankel, 2018).

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Ethical Bias 65

The GPG between men and women cannot be supported by any explanation when considering factors including age (see Appendix A), education (Appendix B), occupation (Appendix C), and geographic location (Appendix D), among others. The GPG is affecting women every day. “Every day is when the pay gap is sending the wrong message to women about who they are, and how they’re valued, and what they can or cannot become” (Curry, 2018). Over the course of a lifetime the pay gap will impact a woman through lost wages, reduced pensions, and lower Social Security benefits. Lower pay not only means less economic security for women but also for the families that depend on them during their years in the workplace and in retirement.

Since passage of the EPA, women’s labor force participation and education levels have increased significantly. In 1963, only 38% of adult women overall were in the work force, today that figure is 47% (DeWolf, 2017). In 1963 less than 75% of women 25 years and older were college graduates, but today nearly 60% of women have graduated from a 4-year college (Warner, 2014). Women earned 52% of all doctoral degrees and 57% of master’s degrees in 2016 (Perry, 2017).

Women are even dominating the professional schools of law and medi- cine. Women are receiving more law degrees (Olson, 2016). More women than men are enrolled in medical schools (Chandler, 2018). Women have also entered professions that were previously closed to them based on “fetal protection policies,” using Title VII of the Civil Rights Act of 1964 to fight back against exclusionary policies and practices (United Automobile Workers v. Johnson Controls, Inc., 1991).

Table 4.1

The Wage Gap Since 1960

Year Women’s Men’s Dollar Percent

Earnings Earnings Difference

2016 $41,554 $51,640 $10,086 80.5%

2010 36,931 47,715 10,784 77.4

2000 27,355 37,339 9,984 73.3

1990 25,451 35,538 10,087 71.6

1980 22,279 37,033 14,754 60.2

1970 20,567 34,642 14,075 59.4

EPA Passed 1963 16,908 28,684 11,776 58.9

1960 16,144 26,608 10,464 60.7

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66 W. J. WOSKA

Irrespective of education, experience, or type of job—blue collar, white collar, no collar—women have historically been paid less than men who are doing the exact same job. John Doe has always been paid more than Mary Doe. Considering job interviews, if John and Mary applied for the same job only listing their first initial, would that impact the individual hired? A study conducted by a Silicon Valley venture capital firm found that when identical award start-up pitches were presented to investors “blind,” with only the voices changed, 68% of judges chose to fund ventures narrated by a male voice and just 32% of judges opted for those narrated by a female voice. The results were the same, whether the judges were male or female (Nawas, 2017). This is implicit bias, commonly referred to as unconscious bias.

Another study found that ban-the box policies, which prohibit employers from asking on job applications about criminal history information, resulted in fewer Black and Hispanic men being interviewed or hired. One theory is that without the information, employers assumed they had criminal records because of their race (Miller, 2018). Was the assumption that the minority candidate had a criminal record discrimination or unconscious bias? It would be considered unconscious bias based on the assumption that Black and Hispanic men were more likely to have criminal records than white men.

WHAT IS ETHICAL BIAS?

People often view themselves as more ethical, fair, and objective than others, yet often act against their moral compass. Unethical behavior often stems from actions that individuals do not recognize as unethical. People do not always realize that their positive and negative views of others, and that these views can result in discriminatory behavior. For example, individuals may not deliberately discriminate against others, but when they offer preferential treatment to those they like or know personally, the outcome may be unconscious discrimination against those who do not have such ties (Sezer et al., 2015).

To have personal biases is human nature. Individuals hold their own subjective world views that are influenced and shaped by their experiences, beliefs, values, education, family, friends, peers, and others. Being aware of one’s biases is vital to both personal well-being and professional success.

In 1955 two psychologists, Joseph Luft and Harrington Ingham (1955), developed a technique that helps people to better understand their rela- tionship with themselves and others, and what they are aware of. The psychologists named the technique the “Johari Window,” combining the initial letters of their first names.

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Ethical Bias 67

The Johari Window consists of four panes dividing personal awareness into four types—open, hidden, blind and unknown. The lines dividing these four panes are like window shades—they can move as interaction progresses. “We build trust by opening our personal shades to others so that we become an open window” (Rosen, 2018).

An objective of the Johari Window is to improve our perceptual process. It encourages disclosure and feedback to increase our own open area and reduce the blind, hidden, and unknown areas. The blind spots clouding our perceptions tend to melt away when an individual is open to commu- nication and receptive to feedback. Self-awareness subsequently increases.

One of the most important competencies for human resources (HR) pro- fessionals is ethical practice. Individuals with a high degree of self-awareness are more likely to be most successful. One of the many responsibilities of HR professionals is hiring new employees. Self-awareness of biases— positive or negative, as well as negative or unfavorable—is critical. Hiring decisions should be based on objective position qualification standards, not the subjective biases of the hiring authority (Northon, 2016).

Most people do not go to work consciously thinking they want to pro- mote men over women or that they want to pay men more than their female counterparts, yet unconsciously they still have a bias in favor of men. This bias stems from gender stereotypes that are held about typical characteristics of men and women. In general, it is assumed that men make better leaders and managers whereas women are more nurturing and make better caretakers. The activation of these stereotypes happens so quickly that an individual is generally not aware of it—or otherwise, unconscious of it. These stereotypes are developed at a young age, and, as adults, both men and women are likely to apply them (Elsesser, 2018).

A case on point with respect to how quickly unrealized stereotypical reactions occur happened to Iris Bohnet. Ms. Bohnet is a Professor of Public Policy at the Harvard Kennedy School. She is a widely published behavioral economist combining insights from economics and psychology to improving decision making in organizations and society, often with a cross-cultural perspective. Her most recent research examines behavioral design to de-bias how we live, work, and learn. She is the author of the award-winning book What Works: Gender Equality by Design. She holds many other distinguished positions and serves on the board or advisory boards of several organizations.

During a 2016 interview with a senior editor of the Harvard Business Review, Professor Bohnet responded to a question about how bias affects everyone, even to those, including herself, committed to equality and pro- moting diversity. Bohnet reports the following incident on how quickly she reacted to a situation based on gender:

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68 W. J. WOSKA

When I took my baby boy to a Harvard day care center for the first time a few years back, one of the first teachers I saw was a man. I wanted to turn and run. This man didn’t conform to my expectations of what a preschool teacher looked like. Of course, he turned out to be a wonderful caregiver who later became a trusted babysitter at our house—but I couldn’t help my initial gut reaction. I was sexist for only a few seconds, but it still bothers me to this day. (Morse, 2016)

Unconscious bias is analogous to the way individuals acquire their ethi- cal values. During the early years of life, the core ethical values—honesty, integrity, fairness, loyalty, and trustworthiness, among others—are being developed in a number of ways including culture, family, friends, religion, schools, music, media, and geography. Subsequently, a high percentage of the core ethical values are unconsciously developed during the first 10 years of life (Alderson & Morrow, 2011).

Unconscious bias can affect one’s behavior toward a person’s gender, race, religion, or age group. Other examples could include wrongly asso- ciating people with negative attributes because of a person’s disability, or even a regional accent. People make decisions that discriminate against one group in favor of another without even realizing that they are doing it. Fur- thermore, these decisions are being made against their own belief that they are unbiased in their decision making. For example, why is it that less than 15% of men in the United States are over six feet tall and 60% of CEOs are over six feet tall? (Ross, 2008). An executive search firm does not intention- ally look for tall individuals and a board of directors does not consciously appoint persons who are at least six feet tall. Nearly everyone, irrespective of background, show unconscious preferences for certain groups on the basis of factors including gender, sex, and race.

Unconscious gender bias has a direct impact on the pay gap between men and women. The only way to completely eliminate unconscious bias is to be unaware of a person’s sex. When we learn the sex of a person, gender biases are automatically activated, leading to unintentional discrimination. For example, as late as the 1970s the top five orchestras in the United States, all with close to 100 musicians, had fewer than 5% women. Today, some are approaching 40%. The significant increase relates to the fact that orchestras began to use blind auditions where candidates auditioned behind a screen where judges could not see them (Rice, 2013). A woman’s chances of reaching the final round of auditions increased by 33%.

BRIDGING THE UNCONSCIOUS PAY GAP

Unconscious bias becomes an issue for employers following the recruit- ment process when the hiring authority determines which candidate to hire

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Ethical Bias 69

and how much the individual should be compensated. Factors often consid- ered in salary offers, including individual experiences and expertise, may be discounted based on characteristics like race and gender. If candidates of both sexes are being considered, it is not unusual that unconscious bias results in a higher salary being offered to the male candidate.

In order to overcome unconscious bias an employer has to recognize that there is a problem. Although there is little disagreement that there is a pay gap between men and women, a common argument regarding the reason for the difference is that it relates to the life choices of men and women. A 2015 article in The Washington Post addresses the issue:

Few experts dispute that there is a wage gap, but differences in the life choices of men and women—such as women tending to leave the workplace when they have children—make it difficult to make simple comparisons. That’s what so facile about repeatedly citing “78 cents” or “77 cents.” (Kessler, 2015)

The argument that “life choices” made by women is the reason for the wage gap is difficult to support considering that many women leave the workforce because they cannot afford child care, or that they are unable to find a job that provides the flexibility necessary to attend to young children (Pearson, 2016). Leaving the work force becomes a double-edged sword for a woman when again available to return to work but finding greater difficulty in doing so by being a parent of a young child.

Salesforce is a cloud computing company in San Francisco with a work- force totaling 30,000 employees. Salesforce was ranked first in Fortune’s “100 Best Companies to Work For” in 2018 (Nusca, 2018). In 2015, the HR manager for Salesforce met with the chief executive officer (CEO) to discuss equal pay. The HR manager was of the opinion that there was a wage gap between men and women. The CEO did not believe it was possible. In fact, he said that “it’s impossible because we have a great culture here. We’re a ‘best place to work.’ And we don’t do that kinda (sic) thing. We don’t play shenanigans paying people—paying people unequally. It’s unheard of. It’s crazy” (Stahl, 2018).

The CEO agreed not only to an audit of the Salesforce compensation program, but also agreed to pay adjustments in the event that it was found that equal pay was not provided. Following the audit, more than 10% of the women received salary adjustments costing the company approximately 3 million dollars during the first year.

It is not difficult to determine if there is a pay gap between men and women. Since a company has access and control of employment data, and with computers, technology, and software, continuous monitoring of pay- roll and related information is readily available to identify discrepancies

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70 W. J. WOSKA

in compensation. If an organization is demonstrating unconscious bias in their pay, promotion, or other programs, this information would be identi- fied through the reporting process.

Salesforce is an example of the simplicity in correcting the wage gap between men and women if top management understands and is willing to accept the impact that unconscious bias has had on workplace culture.

LEGAL RAMIFICATIONS OF UNCONSCIOUS BIAS

Title VII of the Civil Rights Act of 1964 (Title VII) makes it “an unlawful employment practice for an employer … to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin (Civil Rights Act, 1964). Furthermore, the absence of discriminatory intent by an employer does not redeem an otherwise unlawful employment practice and the thrust of Title VII’s proscriptions is aimed at the consequences or effects of an employment practice and not at the employer’s motivation (Griggs v. Duke Power Co., 1971). Hence, an employer’s failure to intentionally pay women less than men (i.e., unconscious bias), is not material to the finding of an unlawful employment practice.

In addition to Title VII, the Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) prohibit compensa- tion discrimination on the basis of race, color, religion, sex, national origin, age, or disability. Unlike the EPA, there is no requirement that an indi- vidual’s job be substantially equal to that of a higher paid person outside the individual’s protected class.

With respect to sex, compensation discrimination can occur in a variety of forms. For example:

• An employer pays a woman less than a man and the employer’s explanation does not satisfactorily account for the differential.

• An employer sets the compensation for jobs predominantly held by women below that suggested by the employer’s job evaluation study, while the pay for jobs predominantly held by men is con- sistent with the level suggested by the job evaluation study.

• An employer maintains a neutral compensation policy or practice that has an adverse impact on women and cannot be justified as job-related and consistent with business necessity. For example, if an employer provides extra compensation to employees who are “head of household,” that is, married with dependents and the primary financial contributor to the house-

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hold, the practice may have an unlawful disparate impact on women (U.S. Equal Employment Opportunity Commission, n.d.).

The term “disparate impact” refers to policies, practices, and rules that can be considered discriminatory if they “adversely impact” individuals of a protected characteristic (i.e., women) more than another (i.e., men), even though the rules applied by employers are formally neutral. For example, the significance of the term “head of household” having an adverse impact on women, relates to the fact that society in general still believe that men should be able to support a family but do not say the same thing about women (Parker & Stepler, 2017).

Most employers are knowledgeable of the protections provided by Title VII, the ADA, and the ADEA, to affected employees. Employers, to a lesser extent, understand the significance of what appear to be seemingly neutral rules, policies, and practices that discriminate against protected categories of employees. The Equal Employment Opportunity Commission (EEOC) enforces federal laws prohibiting workplace discrimination. EEOC defines intentional discrimination to include “conscious or unconscious stereo- types about the abilities, traits, or performance of individuals of certain racial groups” (U.S. Equal Employment Opportunity Commission, 2016). The fact that some employers may not fully comprehend the relationship between unconscious bias and intentional discrimination has resulted in litigation by employees claiming that unconscious bias has led to disparate impact which has limited their employment opportunities.

ADDRESSING THE PROBLEM OF UNCONSCIOUS BIAS

The Black Lives Matter (BLM) movement was a major factor in organiz- ing protests around the deaths of Black people in police officer involved shootings and broader issues of racial profiling and racial inequality in the criminal justice system. The BLM movement is also an example of those automatic quick judgments that are made about others based on gender, race, or other stereotypes rather than direct experience. Unconscious bias impacts our perceptions of others. Nearly everyone, of all backgrounds show unconscious bias preferences for certain groups on the basis of factors such as gender, sex, and race (Zalis, 2017). Unconscious bias permeates throughout society, analogous to a disease that remains unknown until diagnosed by a physician. Recognizing that unconscious bias is a known factor that leads to discrimination, and that many of us have unduly and unknowingly experienced or perpetrated the negative forces impacting others, is there a solution with respect to addressing the issue other than being sensitive to and acknowledging that the problem exists?

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72 W. J. WOSKA

We all have unconscious bias to some degree and consistent with Har- vard’s Professor Bohnet’s experience at the day care center, sometimes we react without knowing it. Employers are increasingly feeling the pressure to address the problem. The immediate reaction would generally be to require that employees attend a training program. Sometimes the training program becomes a knee-jerk reaction by the employer to cover legal issues that may otherwise arise or to project the right image for the company. In order to overcome a reactionary perception of the reason for the training, employers must commit to a continuing effort to address the purpose and expected outcomes of the program.

In May 2018 two Black men were not allowed to use a restroom at a Starbucks Café in Philadelphia because they did not make a purchase. The incident became a national issue concerning racial discrimination. Starbucks subsequently closed 8,000 stores to conduct a 4-hour training program addressing unconscious bias. Since Starbucks has an annual turn- over rate of approximately 65%, and nearly 25% for managers, unless the training is ongoing, within a year a majority of employees will not have been exposed to the training program. The CEO of Starbucks, recogniz- ing the issue of turnover, has indicated that the training program would be the beginning of weeks, months and years of discussion among its work- force about gender identify, class, language, citizenship, political views, and other personal identifiers (Siegel, 2018).

Unconscious bias training can be a valuable instrument in addressing diversity and inclusion efforts, but only if it is thoughtfully designed and its limitations are understood. Employee development programs are most effective when designed to engage and motivate participants in the process and to provide specific strategies to assist in meeting the goals and objec- tives of the training. Prior to the beginning of the training program there may be considerable value in meeting with affected employees to discuss the reason for the training, goals and objectives of the program, and desir- able outcomes. If employees are provided the opportunity for input with respect to the design and content of the training, the opportunity to do so may add to the value and success of the program.

Training has proven to be most effective when participants are able to relate to the subject matter which may be accomplished by illustrating and addressing situations that occur regularly in the workplace. Upon comple- tion, follow-up sessions are valuable to both evaluate progress and serve to refresh participants of the goals and objectives of the program.

Achieving Pay Equity

In 2016, more than 100 companies signed on to the White House Equal Pay Pledge, launched at the United State of Women Summit. These com-

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Ethical Bias 73

panies represented a variety of industries including finance, automotive, pharmaceutical, retail, high technology, and telecommunications. These employers agreed to share best practices to develop better hiring, promo- tion and pay policies. They promised to conduct annual companywide pay analyses to determine gender pay gaps, review hiring and promotion poli- cies for unconscious bias and structural barriers and implement equal-pay efforts across their organizations. Although the Equal Pay Pledge has since been removed from the White House website, most of these companies have continued to aggressively pursue equal pay policies and best practices (Frankel, 2018).

Effective January 1, 2018, the State of California banned all employers from inquiries into an individual’s salary history (California Labor Code Sec.432.3, 2018). California joins a growing list of jurisdictions from across the country that have prohibited salary history inquiries. There are also a number of states and private employers considering salary history bans.

Table 4.2 lists states that have enacted statewide salary history bans in addition to private sector employers banning salary history information on applications (“Salary History Bans,” 2020).

Table 4.2

Banning Salary History on Applications

States

Delaware Oregon California

Massachusetts Hawaii Vermont

Alabama Connecticut New York

Colorado New Jersey Illinois

Maine Washington

Private Sector Employers

Amazon Facebook American Express

Google Bank of America Wells Fargo

Cisco Systems Progressive Corp. Starbucks

The primary purpose of eliminating an individual’s past salary on job applications is to prevent gender discrimination from being passed from one workplace to another by basing an employee’s pay on the individual’s past salary. The starting salary is a critical factor when considering an indi- vidual’s compensation while working for a company. If a woman averaging 80 cents for every dollar a man makes is hired based on prior salary, she will most likely continue with the new employer by being penalized for gender discrimination based on past history.

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74 W. J. WOSKA

The U.S. Court of Appeals for the Ninth Circuit, sitting en banc, recently ruled that employers defending claims under the EPA cannot rely on work- ers’ past salaries in any respect in trying to justify pay disparities between women and men.

Women are told that they are not worth as much as men. Allowing prior salary to justify a wage differential perpetuates this message, entrenching in salary systems an obvious means of discrimination—the very discrimina- tion that the Act (EPA) was designed to prohibit and rectify. (Rizo v. Yovino, 2018, pp. 29, 30)

The Ninth Circuit joins the Fifth, Tenth, and Eleventh Circuits in hold- ing that the EPA precludes employers from relying solely on an employee’s prior pay when setting a starting salary. The Seventh and Eighth Circuits have allowed the use of prior pay as a defense to claims under the EPA.

Salary history bans may have a long-term impact by bringing the issue of the GPG to the forefront on the way employers make salary offers. Deter- mining an individual’s compensation based on their salary history can perpetuate existing wage inequalities that are the result of gender bias or discrimination (Durinski, 2018). Because past pay is often determinative of future pay, women underpaid in the past continue to be paid less for the rest of their careers. Interrupt this pattern and there is a better chance of achieving pay equity. (The Times Editorial Board, 2018).

CONCLUSION

The frequency of mergers and acquisitions in today’s business climate directly impacts compensation programs. When one company is purchased by another, it is not only the product, technology, or culture that is acquired, but also its pay practices. When filling new positions and replacing posi- tions vacated through turnover, the compensation program is affected. It is therefore necessary to ensure pay equity that pay practices be subject to a continuing review and evaluation to prevent an established pay equity program from again being tainted.

Achieving pay equity is an important first step toward creating a more diverse and inclusive workplace. The commitment to equal pay begins with the CEO and the dedication of time and resources by the senior man- agement team to create a company culture based on gender equality and inclusion. A big part of the problem with gender equality is that the dam- age done to it in the workplace is largely unconscious (Mills, 2016). Since culture is set from the top of an organization, if women are to advance, gender equality must be a strategic priority of top management.

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Ethical Bias 75

Company cultures that do not take the necessary steps to address gen- der inequality add to the number of factors affecting the advancement of women in the workplace. Company leadership must see that workplace policies promote cultural diversity and gender equality and foster empow- ering workplace environments (Tomacruz, 2018). Everyone has a role in contributing to an inclusive workplace culture simply by acting in a way which makes others feel comfortable in their daily activities. Employees must feel confident in bringing fresh perspectives on workplace issues and feel empowered to present new solutions to problems.

In order for there to be true equality, organizations need to create an environment where it’s clear that people will be treated equally and it’s up to the company’s leaders to set the standard (Valet, 2018). Employees, custom- ers, and the communities served will all benefit from a company providing pay equity and an inclusive and diverse culture. It is the role of senior man- agement and HR professionals to ensure that any type of biased behavior within the organization is challenged to ensure a culture which encourages inclusion and in which employees feel included and empowered.

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APPENDIX A

APPENDIX B

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APPENDIX C

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80 W. J. WOSKA

APPENDIX C

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CHAPTER 5

SOCIAL MEDIA POLICIES

Legal and Ethical Challenges

Karin Bogue

INTRODUCTION

The use of social media continues to be a contentious legal and ethical topic for human resource (HR) departments. Is it legal or ethical for HR professionals to use information found on social media in hiring decisions? When individuals become employees, can the employer prohibit certain communications related to the use of social media? What information can an employee post on Facebook, Glassdoor and other networks without fear of termination? Can an employer require an employee to create a profile on LinkedIn or request the employee remove certain information on their personal page? These are just a few of the legal and ethical ques- tions that employers and employees face related to social media policies in the workplace.

Social media policies and employer monitoring of employees’ and job applicants’ social networking sites (SNSs) continues to create controversy in both legal and ethical realms, in part because of the competing interests of protecting the organization’s rights without violating the privacy rights of

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82 K. BOGUE

employees. For example, the increased availability and use of social media platforms provide more opportunities for organizations to expand their brand by marketing products and services globally. However, employers have strong interest in protecting the reputation and intellectual property related to that brand. Social media provides opportunities for employees to make professional connections, gather information to solve work-related problems and build relationships with coworkers. The same platforms also allow employees to interact with large audiences on almost any topic they choose such connecting with friends on Facebook, networking on LinkedIn, or rating employers on Glassdoor. Yet employers have a strong interest in protecting confidential information and avoiding potential liability that could result from inappropriate use of social media. Since HR departments are primarily responsible for creating and enforcing social media policies for employees, this chapter is of particular importance for understanding the history and current laws and best practices related to employer use of social media in hiring and employer regulation of employee use of social media (Society for Human Resource Management, 2012).

One of the major challenges faced by HR professionals is balancing law and ethics with the realities of business. Determining whether an action is legal is not always simple, because there are numerous laws that regulate businesses, and when making decisions, managers may violate one of them without even realizing it. In addition, there are gray areas in some laws, making it difficult to predict with certainty how a court may apply a law to a particular action. When the law does not provide clear-cut answers, HR professionals may rely on ethical standards and organizational culture to guide decision-making processes. Although it may be convenient for HR professionals to satisfy themselves by merely complying with the law, such an approach may not always produce ethical results.

In the last 10 to 15 years, numerous court and administrative decisions provided direction for HR departments; however, creation of social media policies that are both legal and ethical continues to provide new challenges. The decision in The Boeing Company (Boeing) v. NLRB (2017), resulted in the revision of the National Labor Relation Board’s (NLRB) previous advice for inclusion of social media policies in employer handbooks. The NLRB continues to revise guidelines in the wake of post-Boeing lawsuits. For example, CVS Health’s social media required employees to use their real name when discussing the company or work on social media (Nagele- Piazza, 2019). However, the NLRB ruled that the CVS social media policy violated Section 7 of the National Labor Relations Act that gives employ- ees the right to concerted activities, which means freely discuss workplace issues without interference (CVS Health, 2018). This example is one of several recent decisions that will be explored in this chapter to provide

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Social Media Policies 83

guidance for employers and employees. However, it is important to revisit the older decisions to understand the progression of the law in this area.

Evolving law and changing practices in social media related to employment results in far-reaching requirements for HR departments and potential negative consequences for those who fail to keep up with the changes. The chapter begins with a discussion of legal and ethical issues in recruitment and screening of employees and ends with suggestions for best practices. The next section changes direction to review key employment- related cases involving NLRB Section 7 and 8 that shaped HR policies for employee use of social media through the years. This part examines the progression of lawsuits, administrative rulings and current guidelines related to employer policies on employee use of social media and ends with another set of best practices. The goal of the chapter is to educate employers, specifically human resources professionals, and employees on current best practices for social media policies to facilitate creation policies that comply with legal and ethical expectations for the industry. The chapter also provides guidance to assist employers and employees in behaving ethically and legally in their professional and personal use of social media. The chapter concludes by sharing insights on the future of social media policies in employment.

LAW AND ETHICS IN EMPLOYEE RECRUITMENT

After years of controversy related employer policies regulating employees’ expectation of privacy when using company-owned equipment, the various lawsuits involving public and private employers clarified those employee expectations. However, policies related to both employer and employee use of social media remain unsettled. This part examines the legality, ethicality and risks of using social media in hiring decisions.

The use of social media for recruiting and selection continues increase. A survey conducted by the Society for Human Resource Management (SHRM) in 2015 showed that 84% of organizations use social media for recruitment, which is an increase of 56% from the 2011 survey (SHRM, 2016). The results also showed that 43% of the organizations used social media or search engines to screen job candidates and 35% of the organiza- tions disqualified applicants because of information found online (SHRM, 2016). Seventy-six percent of the survey participants that did not use social media for screening identified risks of finding information about protected characteristics such as age, race and gender, as a reason for not using social media (SHRM, 2016). LinkedIn and Facebook were the top two sites used for recruitment and screening activities (SHRM, 2016). A national survey conducted in 2017 by the Harris Poll on behalf of CareerBuilder showed

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that 70% of employers used social media to screen candidates, over 50% will not hire an applicant without some online presence and 54% declined to hire a candidate based on the information their social media accounts provide (CareerBuilder, 2017).

“Ethics is about doing the right thing, but in today’s digital world, doing what’s right is not always clear” (Barnes, 2016, p. 13). Using social net- working sites to obtain information used in hiring decisions is both legally and ethically controversial. Laws and administrative memorandums do not cover all of the ethical issues and ethics can be highly subjective. In business, ethical decisions involve the application of moral and ethical principles to the marketplace and workplace, but the views of right and wrong may differ based on profession, industry and culture. Although HR professionals may be following the law in their searches, the recruitment and screening practices may still create ethical dilemmas. Some informa- tion obtained online may related to the job such as education, professional licenses and experience; however, other unrelated information such as pictures, friends and hobbies may unintentionally influence an employer’s perception of the candidate. How can HR professionals reduce the chances that information unrelated to the job will influence their decisions? Con- sider requiring that the person screening the candidate is not related to the person hiring the candidate. For example, one employee or an external consultant could conduct the initial search an only report the information that pertains to the job. This practice will help the employer comply with the law and demonstrate ethical behaviors.

Although over 20 states have enacted laws that prohibit employers from asking job applicants and employees for users names and passwords for their social media accounts, there are no state or federal laws the prohibit employers from using social media sites to recruit and screen candidates; however, incorrect use, such as using information to discriminate against candidates could result in legal liability (National Conference of State Legislatures, 2019). Job applicants and employees are protected by a variety of anti-discrimination laws including the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA) and Tittle VII of the Civil Rights Act of 1964 (Title VII). Even though the federal laws do not specifically reference social media, the U.S. Equal Employment Opportunity Commission (2014) advises employers that disparate impact or disparate treatment might result depending on the methods used to obtain information from social media and other online sources. The results of lawsuits filed in the few years by the American Civil Liberties Union, Communication Workers of America and others provide guidance for HR professionals for recruiting using social media.

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Recruitment Using Social Media

Employers use social media to attract job seekers as well as passive candidates. The act of placing advertisements online seems innocent enough on its face. Facebook and LinkedIn allow employers to advertise jobs on their sites. A potential legal and ethical concern in using social media for hiring is the use of advertising that targets potential applicants based on age, race, gender or other protected characteristic. Facebook requires individuals to identify their gender and provide a date of birth when creating an account (American Civil Liberties Union [ACLU], 2018). Providing the required and optional information allows the site to provide users with certain experiences, which also includes advertisements targeted to their demographics. For example, a user located in Florida with interests in water sports might receive advertisements for kayaks based on their location, interests and browsing history. When employers create job advertisements on Facebook, they are required to select the population to receive the ad (ACLU, 2018). The population includes location, age and gender. The default settings were United States, 18 to 65+, and all genders; however, employers could alter the settings (ACLU, 2018). Thus, employers could exclude women by selecting male or exclude people over 40 by altering the age ranges. When some users tried to determine why they were seeing certain ads, they learned that some of the settings had been altered to show ads to men or to people in certain age ranges. Altering the settings to exclude populations resulted in several class action lawsuits and highlighted the legal and ethical land mines HR professionals face in when using social media for recruitment.

Review of Recruitment Cases

A class action lawsuit filed on behalf Communications Workers of America (CWA) and several individuals in 2017 demonstrates the legal and ethical risks of employer use of social media to recruit employees. The lawsuit filed by CWA and several individuals alleged that T-Mobile, Amazon.com, Cox Communications and over 100 other companies violated the Age Discrimination in Employment Act and various state laws by using Facebook’s targeting advertising to attract younger users. The individuals in the lawsuit were over 40 years old and claimed the companies discriminated against them because they could not see the ads targeted to younger people and were unable able to apply for the jobs. One of the examples provided in the complaint in CWA v. T-Mobile US Inc., et al. (2017) provides a comment from one of the ads, “T-Mobile Careers wants to reach people 18 to 38 who live or were recently in the United States” (para. 2). In addition, the

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U.S. Equal Employment Opportunity Commission issued determination letters in the cases where employers targeted users based on age or gender that stated the agency found “reasonable cause” to believe the federal anti- discrimination laws were violated (Eidelson, Smith, & Diaz, 2019). The letters were designed to encourage settlements. Facebook settled the claims against the company, which included an agreement to revise its policies. The cases against the individual companies are ongoing. If settlements are entered into by the parties, they will likely be subject to nondisclosure agreements, which means the terms of the agreements will not be made public.

In 2018 another lawsuit was filed on behalf of CWA and three women alleging age discrimination involving Facebook and various employers (American Civil Liberties Union [ACLU], 2018). The lawsuit claimed that Facebook violated federal, state and local laws that prohibit sex discrimi- nation in employment by using the targeted advertising to send certain employment opportunities to male users of Facebook and excluding poten- tial female applicants (ACLU, 2018). Bobbi Spees, a 35-year old woman and party in the lawsuit, had experience working in a container factory. Ms. Spees used Facebook in hopes of finding a similar job. She noticed that she was not finding jobs, but her husband found ads for similar work when he searched. An example of an advertisement from a company named in the lawsuit was placed by Nebraska Furniture Mart of Texas looking for hire full-time delivery prep specialists (Scheiber, 2018). When checking why the ad was being received, the parameters showed “men 18 to 50 who lived in or were recently near Fort Worth” (Scheiber, 2018, para. 8). Is there a problem with this advertisement? Yes, women using Facebook to search for a job would not receive the notice of the position. Consider an employer targeting men in a specific age range in a job advertisement on Facebook. Does using social media to place the ad make the practice any more legal or ethical that the hiring manager telling an applicant in person that only men under 50 are being considered for the job?

The class action lawsuit and actions by the EEOC demonstrate the legal and ethical breaches in recruiting using social media can have repercussions for companies. Facebook settled the some of the claims in March 2019 for almost $5 million and agreed to create a separate area for housing, employment and credit ads that would offer fewer targeting options (Garcia, 2019). Unfortunately, Facebook may not have learned their lesson, as the company is once again involved in a class action suit alleging that ads for loans, insurance and investments were targeted to men under 40 years old (Garcia, 2019). Although not an employment claim for HR professionals to worry about, it shows that social media may still be used to discriminate against protected classes in violation of federal laws. Whether

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the advertisements focus on employment, housing or the finance industry, discrimination against protected classes is both illegal and immoral.

Screening Using Social Media

The top reasons for using social media include low cost, ease, and speed of use and the ability to obtain additional information not provided on a resume and verify accuracy of information provided by applicants (SHRM, 2016). These motives appear logical and reasonable; after all, the informa- tion not selected as private by the user is in the public domain. As long as employers do not use age, race, sex, disability, or other discriminatory method to make decisions, then the practice is currently legal. Using social media to screen applicants is akin to a double-edged sword for both the employee and employer. Posts on Facebook might reveal a candidate vol- unteers for various charities and maintains a positive presence on social media. On the other hand, a review might show that the applicant posted discriminatory remarks on Facebook and tweets showed negative comments about employers. There is also the issue of information being posted out of context or incorrectly, which could result in a candidate being unfairly judged and eliminated from consideration without any opportunity for explanation (Abril et al., 2012). Since LinkedIn and Facebook were iden- tified as the top two sites used for recruitment and screening activities, limiting the SNSs searched to two or three can reduce the risk of running afoul of legal and ethical issues while still having an ability to obtain infor- mation to assist in the screening process (SHRM, 2016). Also, the practice of designating someone other than the hiring manager to conduct the search and filter out any discriminatory information when supplying the information will help reduce the chances unlawful use of social media.

The employer’s interest in the private activities of employees is not a new phenomenon. Employers tried to maintain discipline in early factories by trying to eliminate sexual, drinking and spending habits. In 1914, Ford’s code of conduct tried to regulate how employees spent their evenings in order to qualify for its profit-sharing plan. Ford sent investigators to the employees’ homes to assess finances, family, and living conditions, includ- ing drinking habits (Sprague, 2011). Compare the home visits conducted by Ford to the 21st century issue of employers investigating the online lives of job applicants. Instead of going into homes, HR professionals visit the social media sites of applicants and employees and they do not need knock or receive permission to enter. How does the individuals’ right to privacy balance with the employer’s need to gather specific information? In the realm of social media, this question has not yet been fully explored and will likely be the subject of future rulemaking. Employers may use social

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media as part of their due diligence to mitigate claims of negligent hiring. “Case law on negligent hiring suggests that if employers fail to conduct online searches prior to hiring job applicants, and those searches would have exposed the candidates’ dangerous tendencies, then employers can be held liable if the employees later injure someone” (Peterson, 2014, p. 97). Assume that the HR manager for a hotel seeking to hire shuttle drivers finds a picture on Facebook of a prospective employee drinking while driving. A check of the online arrest records for the county where the applicant lives shows two DUIs. If the hotel hires the applicant after discovering the picture and arrest records online and the new employee injures someone while driving intoxicated on the job, the employer could be liable to the injured party for negligent hiring. Courts have held that employers have a duty to conduct reasonable background investigations using appropriate methods and the Internet provides an easy inexpen- sive way to meet the investigation requirement (Munroe v. Universal Health Servs., Inc., 2004; Saine v. Comcast Cablevision of Ark., Inc., 2003). Ironi- cally, the use of pre-employment online searches to avoid negligent hiring claims could result in claims of illegal discrimination if decisions involved protected-class information (Sprague, 2011).

Title VII of the Civil Rights Act of 1964 prohibits employers from mak- ing hiring decisions based on race, color, religion, sex, or national origin, while the Americans with Disabilities Act prohibits employers from dis- criminating against qualified applicants based on disability. Finally, the Age Discrimination in Employment Act prohibits discrimination against appli- cants if they are 40 years old or older. Other than these three laws, there are few legal restrictions on investigating job applicants. The potential for discrimination is a primary concern when HR uses social media to screen candidates. For example, an employer may not be able to determine the age or race of an applicant from a resume, but a picture on Facebook or LinkedIn may clearly reveal the applicant is a member of a protected class. Discrimination occurs when employers use social media sites to advertise jobs but select criteria that discriminates against a protected class such as age and gender. Discrimination also occurs when information found in online screening results in discrimination of a protected class. A decision based on information found on SNSs may put the applicant at a disadvan- tage if too much or too little information is found. How are employers using information found online that is not related to the job, such as hobbies and political affiliation? Employers should check state laws to ensure they are compliant in screening for these activities. Several states, including Califor- nia, Colorado, Connecticut, Massachusetts, New York, and North Dakota provide protection for certain off-duty activities of employees (Pagnattaro, 2004). While the state protections vary, some of the activities include politi- cal affiliation, legal use of consumable products such as tobacco while not

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working or on the employer’s property, legal recreational activities and membership in a union (Pagnattaro, 2004).

Joyce LeMay an associate professor at Bethel University and member of SHRM, takes a different view on using social media for screening. LeMay views online screening as an invasion of privacy and provides this analogy similar to the situation with Ford’s inspections of employee homes, “if you wouldn’t peek into the applicant’s window at home, why look into his or her postings on social media? It’s tempting but not the best ethical choice” (Segal & LeMay, 2014, para. 28). For example, it would be illegal to ask a candidate if he or she has a disability during an interview and then decide not to hire that candidate based on the disability. Similarly, if an HR pro- fessional discovered an applicant had a disability by viewing LinkedIn, Facebook or other SNS and failed to hire them based on that information, those actions would be illegal. Simply put, if you would not ask the question of the applicant sitting in your office, do not search for it online or use the information if you inadvertently discover it.

Review of Screening Cases

Often candidates are not aware that they have been discriminated against based on information found on social media. Even when evidence comes to light, cases are often settled, and the settlement terms remain confidential because of nondisclosure agreements. However, the two cases summarized here show how screening can lead to claims of discrimination and the differing outcomes based on the evidence.

In 2007, Martin was one of the top candidates for a position at the University of Kentucky. A staff member in the physics and astronomy department conducted a search online and discovered links to Gaskell’s lectures that discussed how the Bible might relate to astronomy. The staff member sent the information in an e-mail to the chairman of the department who asked the Gaskell about his religious beliefs at the end of the interview. The chairman indicated he researched Gaskell’s religious beliefs. The university hired Timothy Knauer, a former student and employee of the university. Gaskell obtained a Notice of Right-to-Sue letter and filed a complaint in a Kentucky district court alleging religious discrimination in violation of Title VII. Representatives from university agreed that Gaskell had more education and experience, but the other candidate was hired because he possessed more of the qualities they wanted for the director’s position. The parties entered into a settlement in 2011 where Gaskell received $125,000; however, the University did not admit to any wrongdoing (Basken, 2011; Gaskell v. University of Kentucky, 2010). Although the case settled without a trial, the University incurred the cost

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of the settlement and legal fees, along with the negative publicity related to the legal and ethical issues involved in the lawsuit.

In Neiman v. Grange Mutual Casualty Co. (2013), Jason Nieman applied for a job at Integrity Mutual Insurance Company, an affiliate of Grange Mutual Casualty Company. When the company hired another employee Nieman claimed he was not hired because he was over 40 years old, which violated the ADEA. He claimed the company was aware of his age because he listed his graduation date from college. Although the initial court allowed the case to proceed, it came to an end when another court held that the candidate hired by Integrity was not significantly younger than Nieman. While the employer emerged as the winner in this case, it was not without negative publicity and expense.

Until clear laws regulating the use of social media in recruitment and screening are enacted, HR professional should use caution when search- ing the Internet. Even without specific laws, Title VII, the ADEA and ADA provide the vehicle rejected applicants can use to drive discrimination lawsuits. As seen in the various cases reviewed in this section, ruling and settlements can favor plaintiffs and defendants based on the evidence. While many cases are settled, the costs and publicity involved in defending a lawsuit should provide employers with incentive to follow best practices and implement procedures to reduce the potential for expensive litigation.

Best Practices

With the increasing use of social media for both recruitment and screen- ing, along with recent lawsuits against SNSs and companies, it is important for HR professionals to be vigilant in reviewing new regulations, lawsuits involving social media and best practices provided by lawyers and pro- fessional associations. To minimize risk, HR professionals should consult with legal counsel to ensure all practices comply with the law and promote ethical behaviors. Table 5.1 provides suggestions for best practices that HR professionals can implement to demonstrate legal and ethical behaviors to avoid the reputational and financial risks from being named in a high profile lawsuit for using social media to discriminate against applicants. Additional best practices concerning employee use of social media will be provided later in this chapter.

EMPLOYER POLICIES FOR SOCIAL MEDIA USE

After the employee makes it through the recruitment/screening process and begins working, the employer is subject to additional restrictions related

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to social media. The laws are a little more developed in this area; however, they have changed over the years, making it extremely important for HR professionals to keep updated on the most recent laws and guidelines.

Although the law involving social media continues to evolve, it is important to examine the foundations that guided HR departments and understand how changes through the years influenced the creation of social media policies and standards of conduct. The National Labor Relations Act

Table 5.1

Social Media Recruiting and Screening Best Practices

Practice Explanation

Create Procedures HR and Legal should prepare written procedures for using social media and search engines for recruitment and screening.

Provide Training Training should be provided and documented for any person using social media and search engines for recruitment or screening.

Designate HR as Gatekeeper

HR employees should be more informed on what practices are allowed when using social media and search engines for recruitment and screening. If possible, the gatekeeper should not be involved in the hiring process and can pass on the job- related information to the actual decision maker.

Use Third-Party Providers

Similar to designating HR as the gatekeeper, the employer can request the that third-party provider furnish only the information relevant to the job and to not include any information related to age, religion, disability, sex or other protected class.

Be Transparent Disclose that social media and search engines may be viewed as part of the application process.

Consider requesting written consent to conduct online searches or acknowledge the applicant has been informed that searches of online information will be performed.

Never Request Passwords

Many states already have laws that prohibit employers from asking for passwords. If using social media, only look at information that is public.

Create a Checklist/ Document the Process

The checklist should contain a names of social media sites used, reasons the candidates were not selected such as posting discriminatory information, lying about qualifications, or illegal drug use. The checklist should also contain other information obtained such as communication skills, professional image, and support for credentials.

Review the Process The process implemented should be reviewed to ensure all procedures and practices are still relevant, legal and ethical. Set up a schedule, such as yearly to review the process.

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(NLRA) is a federal law that protects the rights of private-sector employees to engage in group efforts to improve pay and working conditions, as well as whether to be represented by unions. Group efforts and communica- tions between employees are known as concerted activities (National Labor Relations Act [NLRA], 2019a). Using social media to discuss work-related issues can be considered a concerted activity if the comments have a rela- tionship to a group action or to bring a group complaint to the attention of management. The decision in Alstate Maintenance, LLC, 367 NLRB No. 68 (2019) significantly alters the definition of concerted activities and will be discussed in a future section. The NLRB is an agency of the federal government charged with enforcing the NLRA. The NLRB website (www. nlrb.gov) provides an excellent resource for HR professionals to find new regulations and guidance for social media policies.

History of Social Media Laws and Cases

In 1984, one of the first and most influential decisions to provide guid- ance for future social media cases was decided in Meyers Industries, Inc. v. Kenneth P. Prill (Meyers). The interpretation of concerted activities was the key factor in the Meyer’s case where an employee, Prill, was terminated for contacting an external organization. Prill claimed his termination violated NLRA Section 7 that provides protection for concerted activities and his complaint involved the safety of his colleagues. NLRA Section 7 states that

Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all such activities. (NLRA, 2019a)

Under previous cases such as Alleluia Cushion Co., 221 NLRB No. 999 (1975), the employer’s actions would have been deemed as a violation of the NLRA because Prill was acting on behalf of other employees. However, the National Labor Relations Board (NLRB) took the opportunity in Meyers to define concerted activities to create a new standard. The NLRB defined concerted or collective activity occurs when an employee becomes “engaged in with or on the authority of other employees, and not solely by and on behalf of the employee himself ” and upheld the employer’s termination (Meyers v. Prill, 1984, p. 497). In summary, concerted activity means two or more employees work together to bring forward work- related complaints. Concerted activities include things like discussions about wages, working conditions, discrimination, and safety issues in

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employment; however, protection does not extend to false statements, activities unrelated to employment or personal complaints (NLRB, n.d.). This definition of concerted activity continues to provide guidance as employee communications moved to the Internet.

Lafayette Park Hotel (1998) provided guidance for HR departments in drafting employee handbooks until Boeing was decided in 2017. In Lafayette Park, several rules in the employee handbook were identified as potential unfair labor practices in violation of Section 8(a)(1) of the NLRA. The Board used the standard of whether the rules chilled employees’ rights under Section 7 to engage in protected concerted activities. As part of the review, the Board considered whether the rule was ambiguous, specifically prohibited certain activities, or otherwise discouraged employees from exercising their rights (Lafayette Park Hotel, 1998). Table 5.2 shows four of the employer’s rules and the Board’s comments on each. These examples show the importance of keeping up-to-date with the Board’s recommenda- tions related to employer policy manuals and standards of conduct.

Table 5.2

Lafayette Park Hotel

Employer Rule Court Decision

Making false, vicious, profane or malicious statements toward or concerning the [hotel] or any of its employees is considered unacceptable behavior.

The Board ruled that this rule was unlawful because it was too broad because the company punished false statements instead of maliciously false statements.

Employees are required to leave the premises immediately after the completion of their shift and not return until their next scheduled shift.

The rule was too broad, as employees could interpret the rule to prohibit access to the parking lot and other nonworking areas. Ambiguous rules are construed against the promulgator.

Being uncooperative with supervisors, employees, guests and/or regulatory agencies or otherwise engaging in conduct that does not support the [hotel’s] goals and objectives is prohibited.

The majority ruled the standard was lawful because it did not specifically prohibit a protected activity. The minority commented that the standard was too broad and did not define goals and objectives and would discourage protected activity.

Unlawful or improper conduct off the hotel’s premises or during nonworking hours which affects the employee’s relationship with the job, fellow employees, supervisors, or the hotel’s reputation or good will in the community.

The majority upheld the rule; however, the minority reasoned that the rule failed to clearly define acceptable conduct and employees may fear that the employer will use the rule to punish them for participating in protected activities.

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As the discussions moved to social media platforms, HR departments were faced with creating guidelines and policies for employees. HR pro- fessionals were challenged to create policies that did not restrict the protections offered under NLRA Section 7. Section 8(a)(1) of the Act makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 157” (NLRA, 2019b). From 2004 to 2017, the Lutheran Heritage case provided guidelines known as the Reasonable Construe Standard (Magaldi & Sales, 2018). The NLRB ruled that neutral work rules “violated Section 8(a)(1) of the NLRA if employees would reasonably construe the rule to prohibit union and other protected concerted activity under Section 7” (Ross & Dodge, 2017, para. 1). A neutral work rule was considered to be one that does not explicitly reference or restrict Section 7 conduct. In Lutheran Heritage, the standard was clarified with a two-prong test. First, rules that specifically prohibited activities protected under Section 7 of the NLRA were unlawful. Second, if a rule did not specifically restrict an activity, it could still be deemed unlawful by showing one of the following “(1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights” (Lutheran Heritage, 2004, p. 647). Table 5.3 shows the employer guide- lines in question and the rulings. During the years the reasonable construe standard was in effect, the courts invalidated numerous ambiguous work rules, which resulted in putting almost any employer with employment agreements, handbooks and other policies at risk of violating the NLRA (Ross & Dodge, 2017).

In 2010 the first case involving a termination over an employee’s post on Facebook was settled. An employee of American Medical Response was terminated for posting negative comments about her supervisor on her Facebook page. The NLRB filed a complaint against the company claiming that the termination violated the NLRA because the employee was engaged in protected activity when she posted the comments and responded to comments from her colleagues. The complaint also stated that the company’s handbook contained rules related to Internet posting and communications between employees were too broad. Finally, the complaint noted that the employee was illegally denied union representation during an interview just before the employee posted the comments on Facebook (NLRB, 2011). The settlement called for the employer to review the rules in question so they would not prohibit employees from discussing wages, hours and working conditions with other employees when not working and employees would not be disciplined or terminated for participating in those discussions. The company also agreed that union representation would not be denied when employees requested it. In a separate agreement,

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the employee received a monetary settlement, but was not reinstated. Numerous cases involving social media decided between 2010 and 2017 were decided; however, the decision in Boeing in 2017 resulted in the need for significant changes in employment policies.

The Boeing Decision

As of this writing, the Boeing and Alstate Maintenance decisions provide the current guidance for employer policies on employee use of social media. Since the law continues to develop in this area, HR professionals should monitor developments in cases and work with the legal counsel to ensure policies follow the latest requirements. Decided on December 17, 2017, the Boeing case overruled the long standing Lutheran Heritage “reasonably construe” standard. Boeing is an aircraft manufacturer for commercial and military operations. The work is sensitive and often classified. As a realistic target for espionage from competitors and foreign governments, security

Table 5.3

Lutheran Heritage Village-Livonia

Employer Rule Outcome

Use of abusive or profane language is prohibited.

The administrative law judge (ALJ) found that the rule was intended to maintain order in the workplace and was upheld.

Harassment, along with, verbal, mental and physical abuse are prohibited.

The rules were intended to maintain order in the workplace and comply with requirements to maintain a workplace free of racial, sexual, and other harassment.

No solicitation on company property unless you have been given written permission.

The ALJ found the rule unlawful. A reasonable employee could interpret the rule as prohibiting Section 7 activity.

Loitering on company property (premises) without permission is prohibited.

An employee could reasonably interpret this rule to prohibit off duty employees from engaging in protected communications with other employees. The terms loitering and premises were undefined and deemed ambiguous. The rule was deemed unlawful.

No unlawful strikes, work stoppages, slowdowns or other interference with production at any Martin Luther Memorial Home facility or official business meeting.

The rule was too broad or ambiguous and a reasonable employee could interpret the rule as prohibiting Section 7 activity.

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of the facilities and information is critical to the company’s success and ability to serve as defense contracts for the government. Boeing maintains a policy of prohibiting the use of devices containing cameras, such as cell phones and laptops on its property. Although the policy was not adopted to restrict Section 7 activities, using the first prong of Lutheran Heritage, the court found that the policy violated Section 8(a)(1) of the Act. On review, the Board determined that the Lutheran Heritage reasonably con- strue standard was defective and resulted in finding that a large number of common-sense policies were unlawful. The Board adopted a balancing test that evaluates “(i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule” (Boeing, 2017, p. 3). In applying the Boeing two-part balancing test, the initial burden is to prove a facially neutral rule would be interpreted by a reasonable employee to interfere with his or her Section 7 NLRA rights. A reasonable employee does not interpret the rules as lawyers or NLRB members. Additionally, a rule may not be found unlawful just because all of the ambiguities in a rule have not been eliminated, which is an onerous and almost impossible task. Prior to Boeing, rules were often evaluated from the viewpoints of lawyers and other professionals. Second, a rule that is facially neutral is reasonably interpreted as potentially interfering with NLRA rights is subject to the balancing test to evaluate the potential impact on NLRA rights and legitimate justifications associated with the rule. If the justifications are outweighed by the adverse impact of protected rights under Section 7, then the rule will be deemed unlawful. The Boeing decision applied to all related cases pending at the time of the decision and future cases. In addition to the balancing test, the Board created three categories of employment policies.

Category 1

Policies classified under Category 1 are considered lawful (i) the policy does not prohibit or interfere with the employee’s exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is outweighed by justi- fications associated with the rule.

Category 2

Policies classified in Category 2 may or may not be lawful depending on the circumstances and must be evaluated in each case do determine whether the rule would prohibit or interfere with NLRA rights. If the rule is deemed to prohibit or interfere with the rights, it would be evaluated to de- termine whether the justifications for prohibiting the conduct outweighed the potential adverse impacts on the protected conduct.

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Category 3

Policies classified in Category 3 are deemed unlawful because they would prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule. (Boeing, 2017, pp. 3–4)

While Boeing decision was not applied retroactively to previous decisions, HR departments should review policies written prior to December 2017 to ensure they comply with the balancing test and fit within the lawful categories.

Until January 2019, employees complaining in a group setting could be considered concerted activity. In Alstate Maintenance, LLC, 367 NLRB No. 68 (2019), the employer terminated an airport skycap for complaining about tips to a supervisor in front of some other coworkers. The admin- istrative law judge in the Alstate case restored the Meyer’s decision by overruling conflicting decisions that incorrectly protected individual action as concerted activity. At the time this chapter was written, the standard requires two elements that must be met. First, the activity must be concerted and second, “the concerted activity must be engaged in for the purpose of … mutual aid or protection” (Alstate, 2019. p. 2). To be considered con- certed activity, the employee must be seeking to initiate or preparing for group action, not just complaining or voicing personal concerns to others. The communication will be considered for the purpose of mutual aid or protection when the efforts seek to improve working conditions through the employer-employee relationship or through administrative or judicial forums.

Post Boeing Decisions and Examples

Since the decision in Boeing, the NLRB reviewed numerous procedures and policies from a variety of companies such as Walmart, Lyft, Kumho Tires, CVS Health and LA Specialty Produce Company. As part of the recommendations, employers have been encouraged to provide examples of acceptable and unacceptable actions for employees. Providing specific examples helps reduce ambiguity and promotes better understanding. A summary of some of the employer policies reviewed and the rulings by the NLRB is provided in Appendix A. HR professionals are encouraged to review current guidance on the NLRB website. Reviewing Advice Memo- randa Dealing with Handbook Rules post-Boeing on the NLRB website is a good way to keep updated on recent rulings related to social media policies

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(NLRB, 2020). The remainder of this section provides a brief overview of the three categories and types of rules that are classified in each.

Category 1: Rules that are Generally Lawful to Maintain

The rules classified in Category 1 are generally considered lawful because they do not prohibit or interfere with the employees’ rights under the NLRA or the potential adverse impact on those rights is outweighed by the employer’s reasonable business justifications for the rule. Employers are cautioned that rules considered lawful must still be applied lawfully. Generally, the following topics are considered lawful when not ambiguous and applied in a lawful manner.

• Civility Rules • No-Photography and No-Recording Rules • Rules Against Insubordination • Disruptive Behavior Rules • Rules Protecting Confidential, Proprietary, and customer Infor-

mation or Documents • Rules against Defamation or Misrepresentation • Rules against Using Employer Logos or Intellectual Property • Rules Requiring Authorization to Speak for the Company • Rules Banning Disloyalty, Nepotism or Self-Enrichment (NLRB,

2018).

Category 2: Rules Warranting Individualized Scrutiny

The rules in Category 2 are assessed on a case-by-case basis because they are not obviously lawful or unlawful. The evaluation determines whether the rule interferes with the employee’s NLRA rights and if so, whether potential adverse impacts are outweighed by the employer’s legitimate business justifications. Legality is often based on the context of the rule. The evaluation of this rule is based on how a reasonable employee would interpret work rules in relationship to their daily work. The key concern is whether the employer’s business interests outweigh the potential impact of the employee’s Section 7 rights. Some examples of rules that fit in this category are rules that:

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• involve confidentiality and broadly include employer business or employee information.

• relate to the disparagement or criticism of the employer • regulate the use of the employer’s name, but not rules related to

the employer’s log or • trademark. • restrict speaking to the media, other than rules that restrict em-

ployees speaking to the • media on the employer’s behalf. • prohibit off-duty conduct • regulate making false or inaccurate statements, other than rules

against defamatory statements

Employers with rules that may fit into this category are encouraged to submit them to the NLRB for advice (NLRB, 2018).

Category 3: Rules that are Unlawful to Maintain

Rules in this category considered unlawful because they infringe on the employee’s NLRA rights and the adverse impact on those rights outweighs the employer’s justifications. Rules in this category encompass the follow- ing topics.

• Confidentiality rules specifically regarding wages, benefits, or working conditions

• Rules against joining outside organizations or voting on matters concerning the employer

Employers and legal counsel should review social media policies with each of the categories. Some policies may be revised to satisfy the requirements for inclusion in Category 1. Any rules that are questionable and/or fall into Category 2 should be submitted to the NLRB for advice. Rules in Category 3 should be eliminated or revised to fit them into one of the other categories (NLRB, 2018).

BEST PRACTICES

A social media policy conveys the employer’s ethical values and provides the expectations for acceptable use. “Because social media is so much a part of other ethics and compliance topics, it should be well integrated in

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and part of a company’s overall ethics and compliance program” (Lunday, 2010, para. 29). There are many considerations for creating, maintain- ing and enforcing policies. As noted at the beginning of the chapter, HR departments are primarily responsible for creating and enforcing social media policies for employees; therefore, it is important for HR to be involved in creating the best practices and policies related to employer regulation of employee use of social media (Society for Human Resource Management, 2012).

After reviewing the rulings issued by the NLRB, it is clear written social media policies are needed, but they must be specifically tailored to avoid violating employee rights under the NLRA. A cut-and-paste overly broad social media policy may contain provisions that violate the NLRA such as provisions that prohibit employees from discussing wages or working con- ditions Moore & Rigney, 2018). While standardized policies may provide an outline for employers, the policies as written tend to be more general and include broad prohibitions related to offensive or disparaging com- ments, which could run afoul of the NLRA. A comprehensive social media policy should address specific activities that are prohibited, identify speech that is permitted and provide examples.

Similar to the guidance on best practices for using social media for recruitment and screening purposes, HR professionals should consult with legal counsel to ensure all practices comply with the law and promote ethi- cal behaviors. Table 5.4 provides suggestions for best practices that HR professionals can implement to demonstrate legal and ethical behaviors and avoid the reputational and financial risks related to unlawful social media policies that violated employee rights under the NLRA.

CONCLUSION

Social media provides numerous benefits for HR professionals and the employer, but it also creates risks. The use of social media by HR for recruitment and screening is loosely regulated for now, so it is important for HR professionals to self-regulate and use ethical practices. Even if the law does not regulate a practice does not give HR professionals free rein to trample the rights of applicants. Establishing best practices can help the organization avoid negative attention for unlawful and/or unethi- cal behaviors. When it comes to social media policies for employees, the NLRA and recent decisions by the NLRB provide guidance on acceptable social media policies. It is important to note that all of the areas related to social media are subject to change. As evidenced by the various court cases through the years, the rules and guidance continue to change. The standards from 2004 changed with the Boeing decision in 2017. Another

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Table 5.4

Best Practices for Social Media Policies

Practice Explanation

Designate the HR Department to Create and Manage Social Media Policies.

HR employees should be more informed on lawful social media; however, the Legal Department and outside counsel should work with HR in the creation and/or review of the policies.

Review Current Procedures Current social media policies should be reviewed to ensure they comply with the post-Boeing balancing test and categories. If unsure, consult with counsel and consider submitting the questionable policies to the NLRB for a ruling.

Provide Clear Policies in Writing • Avoid ambiguity. • Provide specific examples of acceptable

and unacceptable conduct. • Do not prohibit or restrict protected

discussions related to wages, union activity or other work conditions.

• Add a disclaimer such as, “It is not Company Name’s intent to interfere with protections under the National Labor Relations Board.”

• Require acknowledgement of receipt of social media policies in writing or digital signature.

• Provide information about discipline/ termination if the social media policy is violated

Monitor Changes in Laws • Review the NLRB website for the most recent rulings.

• Know state laws that may provide more protection for employees than the NLRB.

• Coordinate monitoring and exchange of information with the Legal Department.

Provide Training • Many companies require annual training on violence, discrimination and other topics. Add social media as an annual training event.

• Include samples of relevant statements that show the allowable and prohibited behaviors.

• Consider including short quizzes to gauge understanding.

(Table continued on next page)

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decision could easily make the Boeing guidelines obsolete. The Boeing decision related to employer policies for employee use of social media appears to favor employers, but time will tell, as each new decision changes the landscape of what actions are permissible. As shown in the Boeing decision, the NLRB provided more detailed information and examples to guide employers in creation of acceptable social media use. The recent cases involving discrimination in recruitment activities using SNSs, such as Facebook, indicate that more definitive rules are needed to balance the legitimate business interests of employers with the rights of the employees. Privacy issues for applicants related to employer use of social media for screening have been mentioned in some of the cases. How does the indi- viduals’ right to privacy balance with the employer’s need to gather specific information? This question has not yet been fully explored and will likely be the subject of future rulemaking. For now, establish best practices for recruiting and screening applicants, scrutinize social media policies and be careful when disciplining and terminating employees for comments made on social media.

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Table 5.4

Best Practices for Social Media Policies (Continued)

Practice Explanation

Conduct Social Media Risk Assessments Each business has unique risk exposures depending on the size, industry and other factors. Review risks related to disclosure of information about intellectual property, finances, customer lists, protected health information and other factors related to the business.

Review the Best Practices The processes implemented should be reviewed to ensure all procedures and practices are still relevant, legal and ethical. Set up a schedule, such as yearly to review the process.

Review company policies to ensure compliance with current laws.

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Lutheran Heritage Village-Livonia, 343 N.L.R.B. 646 (2004). Magaldi, J. A., & Sale, J. S. (2018). Exploring the NLRB’s jurisprudence concerning

work rules: Guidance on the limits of employer policy to regulate employee activity on social media. University of San Francisco Law Review, 52(2), 229–274.

Meyers Industries, Inc. Kenneth P. Prill, 268 N.L.R.B. 493 (1984). Moore, D. F.. & Rigney, E. L. (2018). Do no cut and paste—Why your company needs

tailored social media policies and procedures. The National Law Review. https:// www.natlawreview.com/article/do-not-cut-and-paste-why-your-company- needs-tailored-social-media-policies-and

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Nagele-Piazza, L. (2019). NLRB memo clarifies rules for workplace social media policies. https://www.shrm.org/resourcesandtools/legal-and-compliance/employment- law/pages/nlrb-memo-clarifies-rules-for-workplace-social-media-policies. aspx

National Conference of State Legislatures. (2019, March 15). Access to social media usernames and passwords. https://www.ncsl.org/research/ telecommunications-and-information-technology/employer-access-to-social- media-passwords-2013.aspx

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rights-we-protect/whats-law/employees/i-am-not-represented-union/ concerted-activity

National Labor Relations Board. (2011, February 7). Settlement reached in case involving discharge for Facebook comments. https://www.nlrb.gov/news-outreach/ news-story/settlement-reached-case-involving-discharge-facebook-comments

National Labor Relations Board. (2018, June 6). Guidance on handbook rules post-Boeing [pdf]. http://www.documentcloud.org/documents/4497699-GC- 18-04-Guidance-on-Handbook-Rules-Post-Boeing.html

National Labor Relations Board. (2020). Reviewing advice memoranda dealing with handbook rules post-Boeing. https://www.nlrb.gov/news-publications/ nlrb-memoranda/advice-memos/advice-memoranda-dealing-handbook- rules-post-boeing

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Pagnattaro, M. A. (2004). What do you do when you are not at work?: Limiting the use of off-duty conduct as the basis for adverse employment decisions. University of Pennsylvania Journal of Business Law, 6(3), 625–684.

Peterson, E. A. (2014). Business strategies for managing the legal risks of social media. Journal of Management and Sustainability, 4(3), 96–101.

Ross, M. S., & Dodge, G. E. (2017). Striking a new balance—the NLRB abandons the Lutheran Heritage test and devises a new standard for assessing the facial validity of neutral work rules. The National Law Review. https://www.natlawreview. com/article/striking-new-balance-nlrb-abandons-lutheran-heritage-test-and- devises-new-standard

Saine v. Comcast Cablevision of Arkansas, Inc., 126 S.W.3d 339 (Ark. 2003). Segal, J. A., & LeMay, J. (2014, November 1). Point/counterpoint: Should employers use

social media to screen job applicants? Society for Human Resource Management https://www.shrm.org/hr-today/news/hr-magazine/pages/1114-social-media- screening.aspx

Society for Human Resource Management. (2012). SHRM research spotlight: Social media in business strategy and operations. https://www.shrm.org/hr-today/ trends-and-forecasting/research-and-surveys/Documents/Part_4_Social_ Media_Flier_Final.pdf

Society for Human Resource Management. (2016). SHRM survey findings: Using social media for talent acquisition [PDF]. https://www.shrm.org/hr-today/

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trends-and-forecasting/research-and-surveys/Pages/Social-Media-Recruiting- Screening-2015.aspx

Scheiber, N. (2018). Facebook accused of allowing bias against women in job ads. The New York Times. https://www.nytimes.com/2018/09/18/business/economy/ facebook-job-ads.html

Sprague, R. (2011). Invasion of the social networks: Blurring the line between personal life and the employment relationship. University of Louisville Law Review, 50(1), 1–34.

The Boeing Company, 365 NLRB No. 154 (Dec. 14, 2017).

APPENDIX A: REVIEW OF POST-BOEING CASES

Case Employer Rule NLRB Ruling

LA Specialty Produce Case 32-CA-207919 October 10, 2019

Confidentiality and Non-Disclosure

Every employee is responsible for protecting any and all information that is used, acquired or added to regarding matters that are confidential and proprietary of [LA Specialty Produce] including, but not limited to client/vendor lists…

Category 1: Lawful

The employer has a legitimate business interest in keeping is proprietary information related to pricing confidential; however, the reasonable employee would not interpret the rule from prohibiting them from disclosing names of customers and vendors, only prohibiting the confidential and proprietary lists maintained by the employer.

Note: This rule was originally ruled unlawful.

LA Specialty Produce Case 32-CA-207919 October 10, 2019

Media Contact

Employees approached for interview and/or comments by the news media, cannot provide them with any information. Our President … is the only person authorized and designated to comment on Company policies or any event that may affect our organization.

Category 1: Lawful

The rule only restricts employees from speaking on the employer’s behalf when approached by the media. The rule does not prohibit the employees from speaking to the media on any topic, only on behalf of the employer.

Note: This rule was originally ruled unlawful.

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APPENDIX A: REVIEW OF POST-BOEING CASES (CONTINUED)

Case Employer Rule NLRB Ruling

ADC LTD NM

Cases 12-CA- 225371 and 12-CA-230301 May 7, 2019

Rule 14: Disclosure of Confidential Information

Employer’s Policy and Procedures Manual contained a provision that prohibited disclosure of confidential information. Examples included items such as customer lists, financial information, business and marketing strategies, employee information, employee investigations, policy and procedure manuals and any other information considered confidential by management.

Note: Although it was determined the employee was not participating in protected activities, the rules were found to violate NLRA Section 8(1)

Category 3: Unlawful

The rule was overbroad related to (1) employee information and (2) any other information management considers confidential.

(1) Employee information was not defined and could have been written to restrict specific sensitive information such as Social Security or medical information. The employer has a legitimate business interest protecting customer lists, financial information but not in personnel information that prevents employees from sharing contact information, discussing wages and employment disputes.

(2) Allowing management to designate any information as confidential at any time is overbroad and could be construed to restrict protected concerted or union activity related to wages and terms and conditions of employment. The employer should create a rule that defines specific types of business-related disclosures.

(Appendix continued on next page)

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Social Media Policies 107

APPENDIX A: REVIEW OF POST-BOEING CASES (CONTINUED)

Case Employer Rule NLRB Ruling

CVS Health Case 31- CA-210099 September 5, 2018

CVS -Branded Social Media

CVS-branded social media accounts (using “CVS,” “CVS Health” or any CVS business unit, department, or product name as part of the account name or URL and/or using the CVS logo or portion of the logo in any way) must be approved in advance.

Category 1 – Lawful

Protection of intellectual property is a legitimate business need to protect the value of property and avoid significant financial loss. The rule would not significantly impact Section 7 rights.

Employers have a substantial interest in ensuring that employees do not, intentionally or unintentionally, make statements that can be interpreted as coming from the company. If an employee who is perceived as speaking for the company makes unprofessional, rude, or bigoted comments, it can cause serious damage to a company’s reputation.

CVS Health Case 31- CA-210099 September 5, 2018

Distinguish personal social media and work social media.

Personal opinions should be stated as such. CVS Health colleagues who choose to mention or discuss their work, CVS Health, colleagues, or CVS Health products or services in personal social media interactions must identify themselves by their real name and, where relevant, title or role. You must also identify that you work for CVS Health and make clear in your postings that you are not speaking for or on behalf of CVS Health.

Category 2 – Unlawful

Requires employees to identify themselves when discussing terms and conditions of employment with each other or third parties which places a burden on the employees’ Section 7 rights.

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APPENDIX A: REVIEW OF POST-BOEING CASES (CONTINUED)

Case Employer Rule NLRB Ruling

CVS Health Case 31- CA-210099 September 5, 2018

Protect personal and confidential information.

Our Code of Conduct makes clear the importance of protecting the privacy and security of PHI [protected health information], PII [personally identifiable information], and employee information. It is not permissible to disclose this information through social media or other online communications.

Category 2 – Unlawful

The first part about protected health information would be lawful but prohibiting discussion of employee information restricts Section 7 activities. The rule contains no limiting language such as employee medical information or makes clear that “employee information” does not include employee contact information or terms and conditions of employment. The employer has a legitimate business interest in keeping customers’ and employees’ personal and medical information confidential, it has no legitimate interest in preventing employees from sharing contact information or discussing wages, working conditions, or employment disputes.

CVS Health Case 31- CA-210099 September 5, 2018

Do not be disrespectful or break the law.

You should not post anything discriminatory, harassing, bullying, threatening, defamatory, or unlawful. Don’t post content, images or photos that you don’t have the right to use.

Category 1: Lawful

Employers can enforce work rules requiring harmonious relationships in the workplace and require employees to adhere to basic standards of civility. Any adverse impact on Section 7 rights would be slight since a broad range of NLRA-protected activities are consistent with harmony and civility.

(Appendix continued on next page)

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APPENDIX A: REVIEW OF POST-BOEING CASES (CONTINUED)

Case Employer Rule NLRB Ruling

CVS Health Case 31- CA-210099 September 5, 2018

Do not take or share photos from non-public areas or internal meetings.

Photos taken in break rooms, stock rooms, conference rooms, and any other area that is not open to the public should not be shared on social media for any reason. Company confidential information, like staffing, inventory, company goals/strategies and patient information could be compromised. Any photos of company presentations/slides, documents, notices or computer screens of any kind are also not allowed on any social media platforms or channels.

Ruling: Category 1 Lawful

Rules prohibiting photography at the workplace are lawful. The last sentence of the paragraph has broad language prohibiting “any photos of company … documents, notices,” which likely also includes photographs taken away from the workplace. And, read in isolation, this sentence arguably prohibits posting of Section 7-related photographs of company documents—such as the Employer’s handbook— that employees have the right to possess. But viewed in context with the prior sentence listing confidential company information (staffing, inventory, company goals/strategies, patient information), and the Social Media Policy’s savings clause, employees would understand that this paragraph’s last sentence is focused on legitimately confidential information, not Section 7 communications.

Lyft, Inc Case 20-CA-171751 June 14, 2018

Intellectual Property Rule

The intellectual property rule barred employees from making use of Lyft’s logo without written permission.

Category 1: Lawful

Employer’s protection of intellectual property outweighs impact of Section 7 rights.

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APPENDIX A: REVIEW OF POST-BOEING CASES (CONTINUED)

Case Employer Rule NLRB Ruling

Lyft, Inc Case 20-CA-171751 June 14, 2018

Confidentiality Rule

The confidentiality rule barred employees from using or disclosing “User Information” and other confidential and proprietary information relating to Lyft’s business. “User information” was defined as the personal information of both riders and drivers who use the Lyft platform.

Category 1: Lawful

Employees would not reasonably interpret the policy to restrict sharing information about working conditions names and contact information for employees. Additionally, the employer created an online forum for drivers to discuss wages and other working conditions.

Kumho Tires 10-CA-208153 10-CA-208414 June 11,2018

Confidentiality

Employees must maintain the confidentiality of the company’s trade secrets and private or confidential information. Trade secrets include information regarding the development of systems, processes, products, know-how, and technology. Do not post internal reports, policies, procedures, or other internal business-related confidential communications.

Employee took a form from a team leader’s desk that requested bonus t for $350 for non-union support, made a copy, returned it, gave a copy to another employee who posted it to a closed Facebook group.

Category 1: Lawful

The rule is valid because it does not reference information related to employees or conditions of employment. The rule provided specific examples of what was considered confidential.

Even when a rule is lawful, the discipline could be unlawful. While the employee was discharged while engaging in protected activity involving wages, charges were dismissed because the employee knew the form had been misappropriated.

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. 111–137 Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. 111

CHAPTER 6

HUMAN RESOURCES MANAGEMENT AUDIT

Ensuring Compliance With HRM Laws and Regulations

Ronald R. Sims

INTRODUCTION

Human resources management (HRM) professionals are responsible for many actions and programs in their organizations that are associated with managing individuals throughout the employee lifecycle to maximize employee and organizational effectiveness in achieving goals. More impor- tantly, HRM is at the center of most employers’ efforts to identify, hire, and retain the people the organization needs to execute its strategy and achieve its goals. This includes actions by HRM professionals that range from analyzing and designing jobs; recruiting individuals to apply for jobs; selecting individuals to join organizations; training and developing people while they are employed; helping to manage their performance; rewarding and compensating employee performance while maintaining healthy labor relations and helping keep them safe; managing diversity and complying

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112 R. R. SIMS

with local, national, and global employee laws; and managing their exit or departure, from the organization (see Bauer et al., 2021; Dessler, 2017).

Ultimately, HRM is about making decisions about an organizations most important resource—its people. The decisions involve HRM professionals and other leaders needing to ask and answer many questions. Over time, the answers may change as the organization experiences growth or decline, external factors change (e.g., new laws or regulations), or the organiza- tional culture evolves. For example, HRM professionals and others in the organization need to address questions such as these:

• Where will we find the best employees? • How can we help them be safe at work? • How should we motivate and reward employees to be effective,

innovative, and loyal? • What training do our employees need, and how can we further

develop them? • How can we ensure the employment relations between employ-

ees and managers remain healthy? • What do we need to do to remain competitive locally and glob-

ally? • Why are employees leaving, and what can we learn from their

exits? • Additionally, HRM professionals are a key player within the orga-

nization’s ethics and compliance structure as well as they need to address questions such as:

• How do we ensure employees comply with all HRM laws and regulations?

• What can we do to ensure that employees engage in ethical deci- sion making and behaviors?

The questions above are of particular interest in this chapter and especially in understanding HRM professional’s responsibilities when it comes to programs and activities related to compliance and ethics (e.g., ethics hot- lines, codes of conduct, etc.) and ethics and compliance-related training and reporting, in part. And, more specifically with their role in monitoring or auditing the overall compliance (and ethics) and its component parts to assure the organization is functioning as intended, to identify emerging threats or opportunities for improvement, and to reinforce the organi- zation’s desired ethical culture. Toward this end, HRM professionals (in collaboration with other organizational members) have the primary goals of conducting compliance audits that:

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Human Resources Management Audit 113

• Determine whether compliance initiatives or programs provide reasonable assurance of compliance with organizational (e.g., HRM) policies and applicable laws and regulations.

• Determine if compliance efforts are documented, in place, and appropriately resourced to achieve meet the organization’s goals.

• Determine that compliance actions are being implemented effectively and that its performance reporting system has been defined and accurately represents the results of the various ini- tiatives or programs.

Some critical issues HRM professionals might explore during compliance audits include:

• the consistency and integration of compliance efforts among the different parts of an organization,

• coordination between the compliance individuals (or officers) and the various parts of the organization,

• a clear effective division of roles and responsibilities among the many parties involved, and,

• more importantly, that an effective tone at the top is being suc- cessfully communicated and implemented across all levels of the organization.

Ultimately, compliance audits provide the opportunities for HRM profes- sionals to help their organizations not just settle for being compliant in all their actions or decisions about people.

The chapter first offers an answer to the question: “Is there a difference between compliance and ethics?” The next section focuses on the question: “Why is compliance necessary?” The chapter then offers a detailed look at auditing HRM compliance. HRM checklists and practical actions for effectively completing audits are offered before concluding the chapter.

ETHICS VERSUS COMPLIANCE: IS THERE REALLY A DIFFERENCE?

In today’s world of work, it continues to be common to hear the word ethics accompanied by the word compliance and vice versa. Very often people incorrectly use the terms interchangeably and there is confusion about the roles ethics and compliance play in organizations. This confusion arises in part from the way these two fields are: (1) identified by HRM professionals and others; and (2) that organizations have different ways of addressing

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ethics and compliance issues. For example, some organizations have only a compliance department. Others have a compliance and ethics (or ethics and compliance) department. Some organizations have a Chief Ethics Officer separate from compliance.

Compliance has a surprisingly simple definition. It merely means fol- lowing laws, rules, or policies to the letter of the law (Barlow, 2017). The government requires corporate compliance, and it is up to boards and corporate directors to get all employees to comply. Compliance is a reactive word that forces people to make a conscious choice. For some compliance is often thought of as referring to the relationship of a compliance and eth- ics program and the rules and regulations that apply to the organization (Ruelas, 2016). These rules and regulations typically take the form of local, state, and federal laws (Hopkins, 2013). Gerry Zack, CEO of both the Soci- ety for Corporate Compliance and Ethics and the Health Care Compliance Association defines compliance as a framework for ensuring an organiza- tion and tis people comply with laws and regulations that are applicable to it and minimizing the risk of noncompliance. One of the many facets of a compliance program is ethics (Weinstein, 2019).

Ethics means doing what is right regardless of what the law says. It is also a conscious choice that is a personal one (Price, 2018). It is entirely possible to be ethical without being compliant. Ethics is proactive, rather than reactive as compliance is. Our personal values system, including our character, values, and core principles, guide us when we make decisions. Most people feel a sense of deep personal satisfaction when they make ethical actions and decisions.

Ethics and compliance have different meanings; yet they often go hand in hand. One can be compliant without being ethical. HRM professionals and others in their organizations strive for both. They want to do the right thing because it is the right thing to do. By doing the right thing and hit- ting all the rules for compliance, then not only are they doing right by their customers and the consumers, but they are also not going to get hit with some kind of enforcement action that is going to prevent them from doing what the organization wants them to do in the organization. If organiza- tions are noncompliant with the various laws and regulations, then they can face penalties. Some of those penalties could be costly fines and other penalties, including the potential harm to the organization’s reputation. Additionally, if an organization wants to open another office, for example, they may not be able to, and if they want to acquire another entity, they may not be able to until they have addressed their compliance issues. No organization wants to find themselves in that situation, so the easiest way to not end up in that situation, is to be compliant.

In the end, it is important for HRM professionals (and other members of the organization) to understand that legal compliance is one thing, code

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of conduct compliance is another and ethical compliance is even another level above. While this chapter will focus on compliance and compliance audits, a basic premise of this chapter is that the consideration of ethics as a fundamental value to an organization elevates everyone’s performance. An ethical focus is more than just legal compliance—can we engage in the conduct without creating significant risks? Instead, an ethical focus turns to an important consideration: while the conduct may be legal, is it ethical? Is the conduct consistent with our organizational values and something we want to promote via an ethical culture and ethical audits within the orga- nization? (See Chapter 11 for an in-depth discussion of ethical culture and ethical audits.)

WHY IS HRM COMPLIANCE NECESSARY?

Every organization needs to make sure they are compliant with the laws and standards set by the government, as well as various industries. And every part of an organization is responsible for adhering to said laws. In other words, they need to stay compliant. Similarly, HRM compliance plays a major part in making sure that an organization is being fair in its HRM practices.

Proper compliance activities have an influence on employee devel- opment, retention, and hiring. HRM compliance is the development of procedures and policies that ensures the organization carries out fair practices according to law and regulations. It is important for HRM profes- sionals to understand the organizations objectives and strategy, since it will help them understand how compliance laws (and the corresponding HRM practices) impacts decisions, or vice versa.

Compliance with HRM laws is essential for any organization to be suc- cessful in today’s and tomorrow’s legal environment, and in creating and maintaining an ethical culture (Davis & Carnovali, 2019; DeLoatch, 2018; Noe et al., 2018). But achieving and maintaining compliance can be elusive goals for organizations that do not recognize the challenges and develop an effective strategy to meet them.

HRM professionals should treat compliance as a process of defining both individual and group behaviors to ensure the organization’s applicable laws and policies are being followed by employees. The HRM department has an obligation to hire and retain individuals that are knowledgeable about HRM-specific laws and are able to create policies and procedures in relation to these laws. This is especially important given that just writing policies and procedures and placing them in a repository is not enough. Once they are established, HRM professionals and other organizational leaders must effectively communicate the various policies and procedures throughout the organization while also making sure there is a clear understanding of

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existing (and future) laws and regulations. The latter can be challenging, as what is considered compliant today, may not be considered so tomorrow.

Table 6.1 offers a look at numerous laws and regulations governing the employment relationship (see Cascio, 2019; Dessler, 2017; XcelHR, 2019; Noe et al., 2018) that are potential areas of concern HRM professionals (and other members of the organization) must understand and navigate in order to avoid, for example, financial penalties. An idea of what an organi- zation might see for run-of-the-mill employment law or HRM violations:

• Fine of $1,100 for any violation of the appropriate amount of overtime for non-exempt employees in accordance with the Fair Labor Standards Act

• Penalties as high as $10,000 each occurrence for failing to post required safety notices or keeping accurate records

• Fines up to $1,000 per employee for non-compliance with the Federal Immigration Reform Act.

• If an organization does not have I-9 forms available, fines can be anywhere between $110 and $1,100 per form you cannot produce.

The numbers show the harsh reality of noncompliance. HRM compli- ance audits are a solution to make sure internal policies and practices are aligned with external regulations and laws, thereby protecting HRM professionals and their organization from potentially harmful litigation.

A closer look at several of the laws regulating the employer-employee relationship shows, for example that (see Davis & Carnovali, 2019; DeLoatch, 2018; Mathis et al., 2017):

• the Fair Labor Standards Act, establishes the minimum wage and rights to overtime pay for certain workers;

• federal civil rights laws, prohibit employers from considering race, gender, age, or other “protected” status when making hiring and firing decisions or otherwise setting the terms and conditions of employment;

• the Family and Medical Leave Act (FMLA), grants certain em- ployees the right to take up to 12 weeks of unpaid leave each year in specific circumstances, as well as the right to be restored to the same or equivalent position upon returning from such leave; and

• the Uniform Services Employment and Reemployment Rights Act (USERRA) establishes certain rights and protections for em- ployees who are called to active military duty.

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Table 6.1

Laws and Regulations Governing the Employment Relationship

ADA Accommodation Affirmative Action

Affordable Care Act Age Discrimination

Age Discrimination in Employment Act (ADEA)

Age Harassment

Civil Rights Act of 1866 COBRA Notice Requirements

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Disability Discrimination

Documentation Drug Testing

Drug-Free Workplace Act E-Verify

Electronic Communications Privacy Act (ECPA)

Employee Leave

Employee Retirement Income Security Act (ERISA)

Employment Applications

Equal Employment Opportunity Commission (EEOC)

Equal Pay Act (EPA)

Exempt and Non-Exempt Employees Fair Credit Reporting Act (FCRA)

Fair Labor Standards Act (FLSA) Family and Medical Leave Act (FMLA)

Firings and Terminations Gender Discrimination and Sex Discrimination

Gender Harassment and Sexual Harassment

Genetic Information Nondiscrimination Act

Handbooks Health Insurance Portability and Accountability Act (HIPAA)

Hiring Immigration Reform and Control Act (IRCA)

Independent Contractors Interviewing

Mental Health Parity and Addiction Equity Act (MHPAEA)

National Labor Relations Act (NLRA)

National Origin Discrimination National Origin Harassment

Occupational Safety and Health Administration (OSHA)

Older Workers Benefit Protection Act (OWBPA)

Overtime Pregnancy Discrimination Act (PDA)

Problem Employees Racial Harassment

Religious Accommodation Religious Discrimination

Religious Harassment Retaliation

Sarbanes-Oxley Act (SOX) Severance Agreements

Sexual Orientation Discrimination Sexual Orientation Harassment

(Table continued on next page)

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118 R. R. SIMS

Table 6.1

Laws and Regulations Governing the Employment Relationship (Continued)

Sick Leave Temporary Employees

Title VII of the Civil Rights Act of 1964 (Title VII)

Transgender Employees

Uniformed Services Employment and Reemployment Rights Act (USERRA)

Unions

Wage and Hour Division Wage and Hour Law

In many organizations, HRM professionals also manage the various compensation and benefit programs, which are heavily regulated as well. For private-sector organizations, this means complying with the Employee Retirement Income Security Act’s (ERISA) reporting, disclosure, and fidu- ciary requirements, among other things. This is a task made more difficult by frequent, significant changes to ERISA and other relevant laws. The Patient Protection and Affordable Care Act (PPACA) identifies rules relat- ing to employer-sponsored health benefits.

HRM professionals and other organizational leaders must proactively take steps to ensure all employees understand the importance of HRM compliance. And this communication is most likely to happen in cases where compliance with relevant HRM laws has been integrated with the organizations overall organization strategy and culture. The following basic principles increase the likelihood of achieving these goals:

1. Hire the right talent—Hiring the right talent within the organiza- tions HRM department’s area of responsibilities (compensation, employee benefits, legal requirements, talent management) contin- ues to be one of the most important issues in today’s organizations. HRM professionals must have the important knowledge, skills, and experience, or at minimum be able to access it through third-party relationships.

2. Educate, train, and develop—Individuals in the HRM department must be well versed in employment law and the legal/regulatory requirements that affect an organization. These laws and require- ments are changing all the time and its imperative for the HRM professionals to stay apprised of the latest information available.

3. Create an employee handbook and update it regularly—An orga- nization’s Employee Handbook is one of its most important docu- ments. The Employee Handbook is a communications tool that

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should clearly articulate the organization’s policies and procedures and how business should be conducted. All HRM professionals and legal counsel should regularly review the handbook and any new policies and procedures before distribution to (and education of) all employees.

4. Conduct scheduled HRM compliance audits—Noncompliance can be the basis for financial and reputational risks for organizations. Conducting scheduled HRM compliance audits should be a part of an organization’s overall strategy to avoid any legal liabilities.

5. Communicate, communicate, and communicate some more—HRM professionals and their department are a critical component of any organization. Whether there are compliance issues or not, it is criti- cal for HRM professionals to keep organizational leaders aware of potential HRM compliance risks and recommended remediation.

All these actions will help HRM professionals take a large step toward achieving the important goal of maintaining HRM compliance for the overall organization. For purposes of this chapter, the most important actions in this regard are (a) proactively auditing the organization’s compli- ance with HRM laws and (b) working with other organizational leaders to create a culture of compliance with these laws.

TOWARD AUDITING HRM COMPLIANCE

How well is an organization complying with current federal, state, and local laws and regulations? An HRM compliance audit can answer that question for HRM professionals and their organization.

Human Resources Management Audit

One means for assessing HRM performance is through an HRM audit, which is similar to a financial audit. An HRM audit is a formal research effort to assess the current state of an organization’s HRM areas (staffing, compensation, health and safety, etc.) have been performing so that an organization’s leadership can identify areas for improvement (Mathis et al., 2017). An HRM audit has also been described as a comprehensive method (or means) to review current human resources policies, procedures, documentation, and systems (Strategic HRinc., n.d.). This thorough review helps to identify needs for improvement and enhancement of the HRM function. In addition, it helps to assess compliance with ever-changing rules and regulations. An audit involves systematically reviewing all aspects

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of human resources, usually in a checklist fashion as discussed later in this chapter. An HRM audit often helps smaller organizations without a formal HRM professional identify issues associated with legal compliance, administrative processes and record keeping, employee retention, and other areas.

There are many levels of HRM audit, including these common ones:

• Compliance audit: Checks record keeping on state and federal documentation requirements

• Benefit program audit: Reviews regulatory compliance, benefits administration, and reporting

• I-9 audit: Reviews compliance with immigration regulations and I-9 form requirement

• Specific program audit: Reviews specific HRM subareas such as compensation, EEO, or training

• Full HRM audit: Reviews all the above plus any and all other HRM functions

Audits frequently involve a questionnaire and interviews to collect infor- mation about programs, and they may be performed by outside entities for more objective evaluation. They can provide useful assessments about how well HRM practices meet established standards and requirements.

Missteps are bound to happen and are usually unintentional. Conduct- ing regular and routine HRM compliance audits can help organizations avoid HRM headaches and costly penalties. No matter the size of an orga- nization, it is becoming increasingly difficult for HRM professionals and other organizational leaders to stay on top of constantly changing regula- tions, and for them to adjust practices quickly enough to remain compliant.

As noted earlier, HRM audits are used to assess the compliance of an organization’s HRM policies and procedures. They can diagnose issues before they become real problems and help find the right solutions. But HRM compliance audits can be used for more than just defining risk. They can be used to identify what an organization is doing right, help improve inefficiencies, and reduce costs. An HRM compliance audit can help HRM professionals and other leaders see how HRM can better support the orga- nization’s overall goals to build a better organization.

Perhaps one of the most basic things HRM professionals should do as it relates to various HRM laws and legislation is to proactively audit all their organization’s compliance efforts. This includes adopting appropri- ate checks and balances systems to ensure that an audit in the end can help keep track of the overall level of compliance. In reality, as suggested earlier, audits examine the effectiveness of not only HRM professionals but

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more specifically the HRM department’s current policies, procedures and systems as they relate to the latest changes and developments given the various laws or legislation and regulations governing the contemporary workplace. Beyond the HRM department, the audit also determines the extent to which these policies and procedures are being followed through- out the organization, thus it is a measure of the effectiveness of leadership at all levels of the organization.

HRM auditing is an extensive process that HRM professionals should periodically conduct (e.g., at a minimum annually) to determine whether the organization’s HRM practices are current and whether they meet legal guidelines. HRM audits shed light on legal issues that an organization must address to comply with federal and state laws and to align with HRM best practices. An HRM audit’s purpose is to assess whether an organiza- tion’s policies and procedures are consistent with federal, state, and local labor and employment laws. As an unbiased examination and evaluation of systems and processes of an organization to demonstrate whether an organization is in compliance with a standard, for example, HRM audits determine whether an organization’s practices, workplace policies and recordkeeping measures follow all applicable laws governing the employ- ment relationship, employers’ obligations and HRM best practices.

Whether conducted internally (by HRM professionals of the organiza- tion) or externally (by consultants), an audit of an organization’s HRM systems simply put should focus on the following:

• Demonstrate that organizational leaders and managers are in compliance with organization policies on treatment of employees.

• Ensure that the organization’s HRM practices are in compliance with international, federal, state, and local laws.

• Find improvements the organization can make in organizational efficiency.

• Prepare for expansion and growth by taking HRM systems to the next level.

The reality is that smart or proactive organizations should regularly monitor employee treatment and have objective data which communicates whether or not employees are treated fairly and well. An audit report can answer such questions, for example, as:

• Are the HRM policies clear enough that employees can abide by them and organizational leaders and managers can carry them out?

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• Are there people being paid outside the pay range for their job on the pay scale? Are there outliers within pay ranges that cannot be explained clearly by reference to hire date or past evalua- tions?

• Is the grievance procedure robust enough to handle all types of employee complaints so that they will not end up resulting in grievances or lawsuits?

• Are documentation, security, and retention of HRM/personnel records adequate to comply with employment laws, prevent iden- tity theft, and provide information for HRM decisions?

Some other questions to consider are:

• Are you aware of any missing or outdated policies or practices? • Is your employee handbook comprehensive and up to date? • Have all HRM policy issues and procedures been communicated

to management and employees? • How is recruitment of internal and external candidates

conducted? • Are hiring procedures built and hiring managers trained to be

objective? • Is your compensation system monitored by management? • Are jobs classified correctly as exempt versus nonexempt? • Are employee benefits compliant with government regulations? • Are expected employee behaviors stated in company policies? • Are employees treated fairly and consistently in terms of com-

pensation, discipline, advancement, and so on? • Are policies regarding discrimination and harassment explicitly

stated?

In monitoring employee treatment, for example, HRM audits comple- ment employee surveys. Surveys can tell the HRM professional and other organizational leaders how satisfied employees are with (a) their pay and benefits, (b) how HRM policies are applied, and (c) how corrective action is handled. In contrast, HRM audits tell the HRM professional and other organizational leaders whether the organization’s pay and benefits, HRM policies, and corrective actions are being administered fairly and consis- tently (without favoritism or arbitrariness).

Employees are not necessarily in a position to know whether certain HRM practices are being followed consistently for everyone. Surveys reflect their point of view, which is vitally important for the HRM professional and

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other organizational leaders to know and to address because perceptions drive behavior. But those perceptions are not the same as an unbiased evaluation of actual HRM practices.

The simplest approach to an audit is for HRM professionals to develop a checklist of the best available practices within the most heavily regulated compliance areas in labor and employment law and then compare and contrast these best practices with the actual practices in use within their host organization. These practices include such things as the organiza- tion’s relationship with its employees: HRM policies, hiring, orientation and training, performance evaluation, wages and hours, benefits, workers’ compensation, corrective actions including termination, employee rights, safety, recordkeeping, employee relations overall, and organizational and employee relations, to name a few.

When developing the checklist HRM professionals should determine whether each key legal or compliance area conforms to the laws that govern them, be they local, state, or federal. Of course, HRM professionals must update the checklist periodically but also be sure to do it any time sub- stantive changes to existing laws or newly enacted laws become available. Further, because so many of the key laws or compliance areas are regulated by employee threshold (i.e., 15 or more employees, 20 or more employees, and so on), it makes sense for HRM professionals to also make updates in accordance with the organizations’ ongoing growth and development. Additionally, the extent to which HRM professionals can examine their organization’s practices and policies depends on their organization’s size and the resources that are available to conduct an HRM audit.

Whether HRM professionals make use of a simple audit checklist or more comprehensive audit some important elements in HRM audits include determining who is responsible for conducting the audit and the types of HRM processes the audit should examine, as briefly discussed below.

• Policies and procedures: As a starting point, HRM professionals must make sure the organization has clearly defined policies and procedures in writing and they have been made available or presented to all employees. In order to prevent lawsuits regard- ing such actions as wrongful termination or discrimination, HRM professionals should regularly conduct a new employee orientation. Explaining organizational policies and the disci- pline process to all employees and having them sign a waiver of acknowledgment can be documented as part of the HRM audit. The HRM audit checklists should contain information about when the orientation is conducted and what is included.

• Employment applications: An HRM audit might reveal to HRM professionals that there are legal issues concerning the organiza-

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124 R. R. SIMS

tion’s recruitment and selection process—for example, problems with the type of employment application the organization is using. HRM professionals must make sure employment applica- tions do not contain questions that ask the applicant’s age, sex, national origin, or other non-job-related characteristics. Addi- tionally, many applications also contain an employment at-will disclaimer that protects the organization’s interests in case of terminated employees’ filing legal action for wrongful discharge. If such a disclaimer is missing, it may be wise to include one in a new revision of the employee application.

• Employment eligibility: U.S. Immigration and Customs Enforce- ment (USICE) routinely conducts audits of employers’ records, looking for violations related to employment eligibility. HRM professionals must make sure organizational employees under- stand that federal law requires employers to obtain documenta- tion from workers, such as proof of citizenship or a work visa that proves the employee is eligible to work for a U.S. employer. HRM professionals need to recognize that this part of an HRM audit is a proactive measure. By incorporating this step into an HRM audit HRM professionals can significantly reduce liability if issues related to employment eligibility come to light. Employ- ment eligibility is like the foundation of a house—if an organi- zation’s employees are not eligible to work for an organization, ineligibility can snowball into other serious concerns about employment practices, such as paying and reporting legal wages and deductions.

• Affirmative action compliance: Organizations that provide goods or services to the federal government may have affirmative action obligations under Executive Order 11246. This law mandates the compilation of data pertaining to the organization’s affirmative action plan. An HRM audit looks at compliance with affirmative action requirements such as gathering information for the com- pany’s applicant flow log. The audit may also examine whether the organization has fair compensation practices, such as paying equal wages to employees, regardless of race, sex, religion, and other non-job-related factors.

• Required postings: Auditing whether the organization posts required notices is a relatively simple aspect of an HRM audit. Despite this fact, legal issues can arise when the organization does not post notices such as the minimum wage poster required by the Fair Labor Standards Act. An HRM audit will also increase the likelihood that an organization posts legal notices concerning employees’ civil rights, equal employment practices and work-

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place safety notices, as mandated by agencies such as the U.S. Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Labor (DOL).

• Workplace issues/environment: Organizations have an obligation to provide their employees with a safe working environment, free from discrimination and harassment. An HRM audit of employee relations practices does not always reveal outstand- ing legal matters. Instead, the audit determines whether the organization is taking the necessary precautions and proactive measures to protect its interests should legal matters arise from HRM departmental practices. For example, an audit can exam- ine how the organization receives employees’ complaints, the process for investigating complaints and at what point employee complaints are referred to in-house counsel or the organization’s outside attorney. In addition, an audit can ensure organizations are following occupational safety guidelines (as referenced briefly related posting of legal notices) to reduce the incidence of work- place injuries and fatalities. This component of an HRM audit requires that organizations look at their recruitment and selec- tion processes, workplace safety and risk management practices and the manner in which they sustain the employer-employee relationship. EEOC enforces employment laws concerning fair employment practices, of which all HRM professionals should be aware. The U.S. Occupational Safety and Health Administra- tion (OSHA) oversees organizational compliance with regulations pertaining to handling of complex machinery, dangerous equip- ment, and hazardous substances. HRM professionals should include components in the audit that address compliance with federal guidelines.

• Privacy: Employee confidentiality continues to be a principal ele- ment of HRM practices. Organizations maintain confidential in- formation concerning employees’ personal data, compensation, and performance. More importantly, organizations must retain information about employees’ medical information separately from standard employment actions. For example, HRM profes- sionals must make sure information about an employee’s health benefits, medical leaves of absence and workers compensation matters are segregated from information in the employment file. HRM departments or functions typically designate a privacy officer who has sole access to employees’ medical-related infor- mation. Confidentiality measures are required under the Health Insurance Portability and Accountability Act and the Americans with Disabilities Act.

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126 R. R. SIMS

• Employee records/File inspection: Audit checklists should include questions about the use and storage of employee records. As noted previously, there are legal requirements associated with the hiring of employees and maintenance of records. One check- list question may be where and with whom these files are being held. HRM professionals who work for larger organizations usually pull a sample of files to determine if they have sound recordkeeping practices concerning employment. However, smaller organizations, on the other hand, tend to examine all their employment files and conduct a full inspection of proper documentation methods. Employment-related materials, such as employment applications, resumes, attendance and performance records, disciplinary actions, and salary and wage information should be filed by HRM professionals in employee personnel files. However, all medical information as noted previously must be stored and maintained separately, pursuant to employee privacy regulations in the Health Insurance Portability and Account- ability Act.

• Company benefits/Compensation: Employee benefits are a major part of HRM responsibilities, and it is important to keep re- cords of the medical and dental plans their organization offers. Audit checklists with questions about programs offered with the requirements and limits for coverage can provide the HRM pro- fessional and other organizational leaders with a comprehensive view of what is working for the organization and its employees. This information is helpful when making decisions about what programs offer the best return on benefit investment. Addition- ally, how an organization pays employees is critical to its perfor- mance and success. HRM is responsible for recruiting and hiring the most skilled employees the organization can afford. Thus, they must maintain information about salaries, bonuses, and other types of payment. For an HRM audit, HRM professionals should use checklists containing questions about determining factors for salaries, when employees are eligible for increases and who is responsible for managing the process to help evaluate areas for improvement.

Striving for improvement in organizations and their HRM processes is one of the goals of an audit. Producing a summary of HRM audit findings is helpful to organizational leaders concerned about legal compliance, as well as the strength of the organization-employee relationship. An audit summary identifies workplace deficiencies, and ultimately should also

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include an action plan for improving HRM processes in support of the organization’s broader strategy.

In those instances where HRM professionals and their departments lack the staff to implement and execute such audits, there are various consultants they can hire that specialize in compliance and ethics (C&E) programs. In some instances, it would make most sense for HRM profes- sionals to hire C&E professionals to develop an audit checklist and other initiatives designed to prevent and detect illegal conduct, for example, or simply noncompliance with relevant HRM laws or legislation. Such pro- active planning on the part of HRM professionals can prove to be more than worth the investment in the long run. The use of C&E professionals, for example, increases the likelihood that organizational members under- stand, follow, or comply with the various HRM laws.

COMPLETING EFFECTIVE COMPLIANCE AUDITS: AN HRM CHECKLIST AND PRACTICAL ACTIONS

Aside from avoiding liability exposures, HRM professionals must ensure that their organizations comply with laws because they make good busi- ness sense. And one way of doing this is for HRM professionals to review the following checklist and identify and correct any deficiencies as soon as possible:

Does your organization:

Yes No

1. Establish the validity and job relatedness of all employment require- ments such as minimum hiring prerequisites and screening mea- sures? Are requirements necessary to perform the job?

2. Treat all candidates for employment equally and without regard to race, color, religion, sex, or national origin?

3. Comply with the ADA (Americans With Disabilities Act) by consid- ering all requests for accommodations, providing reasonable ac- commodations, establishing essential job functions, and eliminating pre-employment medical inquiries?

4. Provide family and medical leave time as well as health care benefits for employees who qualify under the FMLA? Follow a written policy consistently?

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128 R. R. SIMS

5. Review issues relating to the Fair Labor Standards Act such as overtime, number of hours worked and exempt versus nonexempt status? Employers not covered by the FLSA should comply with the corresponding state Minimum Wage Law.

6. Place only that information in personnel files that federal or cor- responding state laws permit?

7. Adequately document all disciplinary actions taken, including the work rules or policies violated, compliance with the organization’s “progressive discipline” policy (e.g., oral warning, written warning, suspension, dismissal), and compliance with the organization’s ap- peals process?

8. When hiring minors, meet the federal or corresponding state child law requirements and require working papers when applicable?

9. Review all Affirmative Action Programs with the organization’s legal counsel, the EEOC, and the corresponding state Department of Civil Rights?

10. Assure that female employees who perform jobs that are equal in required skills, effort, responsibility, and under similar working con- ditions to those of male employees receive the same pay?

11. Comply with the Immigration Reform and Control Act by requiring all new employees to complete the I-9 form and produce a required document for verification of eligibility status?

12. Communicate retirement benefits to employees in compliance with the Employment Retirement Security Act?

13. Establish and communicate a written safety and health policy in compliance with the Occupational Safety and Health Act (and any corresponding state safety and health compliance policy)?

14. Retain all employee and candidate information that federal and state and laws require for the minimum retention period and make it available upon request of a federal or state official?

15. Keep information about employees confidential and accessible only to internal individuals who have a legitimate business reason to review it?

16. Retain competent legal counsel when dealing with labor organiza- tions?

17. Have policies and procedures in place to handle requests for infor- mation about employees?

• Does a specific written policy govern the release of information to external individuals?

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• Does the policy comply with the Freedom of Information Act and the Health Insurance Portability & Accountability Act?

• Is the release documented with a signed employee release? • Is all information accurate and factual? • Do supervisory employees follow the release of information

policy?

18. Post all required state and federal notices?

Note: Because the laws frequently change and organizations may have different posting requirements depending on their size, HRM professionals should always verify accuracy with the federal or state agency responsible for compliance.

Yes No

Federal Posting Requirements

• Fair Labor Standard Act—Minimum Wage • Employee Polygraph Protection Act • Family and Medical Leave Act • Combined Equal Opportunity • OSHA

If HRM professionals and others are able to answer “yes” to all 18 ques- tions and their organization follows most or all the suggested practices, then the organization has reduced its exposure to future employment claims.

If HRM professionals are unable to answer “yes” to one or more of the 18 questions, their organization may have an exposure to claims resulting from its employment practices. Missing components of one or more of the recommended practices may also indicate a deficiency in the current program. HRM professionals” should take one or more of the following actions:

• Correct any deficiency that may exist. • Contact the organization’s legal counsel for advice.

An audit can clearly show whether or not the organization is complying with HRM laws and legislation to include, for example, if an organization’s

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documentation of HRM actions is robust enough to stand up to outside inquiry, such as an administrative hearing for unemployment benefits claims, an EEOC complaint, or a wrongful termination lawsuit. By reviewing randomly selected HRM/personnel files of current and recent employees, an external auditor looks for answers to questions like these:

• Are the HRM policies themselves legally compliant? • Does documentation for corrective action dovetail with the orga-

nization’s own policies? • Are performance problems documented with a similar degree of

detailed evidence from one employee to another? • Do evaluations reference corrective actions that occurred during

the period covered by the evaluation? • If the basis for termination was violation of an organization poli-

cy, is there evidence that the employee knew about the policy? • Are employees eligible for benefits receiving them? If not, are

there signed waivers showing that they declined the offered benefit?

• Are accidents and injuries properly recorded?

Some small organizations without experienced full-time HRM profes- sionals benefit from HRM audits and checklists because they need help putting in place basic structures—filing systems that ensure appropriate content, HRM policies that cover all the bases, hiring procedures that attract and select the best workers, and performance evaluation procedures that provide clear goals and help employees achieve them. An audit can help ensure that the organization is not inadvertently breaking laws.

Some larger organizations are often out of compliance, too. A multi- store retailer subjected to a Wages & Hours division audit did might get fined for not paying overtime on bonuses based on hours worked. Some- times legally required posters are missing from the break room. It is not unusual either when audits are done to find some incomplete I-9 forms.

Over time, especially after a period of rapid growth, HRM systems that once worked well no longer serve the organization. Layers of policies and forms can build up that contain internal contradictions or inconsistencies. If HRM professionals labor under a mountain of paperwork, trying to keep track of dozens of different forms for each employee, that is a sign that there may be too many policies or contradictory policies.

A proliferation of HRM policies and procedures can also make it difficult for HRM professionals and others in the organization to be on the same page when it comes to hiring, pay raises, and corrective action. Policies can fall behind the times and fail to reflect changes in HRM laws, regulations,

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and technology. Pay scales too can become obsolete if new employees get hired at pay rates well above the base of their pay range and longtime employees get raises that take them beyond the top. In response to out- of-date or unworkable HRM policies and systems, different leaders or managers may go different ways, creating workarounds or “underground or guerilla HRM systems” in the process. As a result, the HRM depart- ment’s workload is increased in the effort to administer multiple systems.

Inefficiencies in HRM systems can also occur when organizational leaders and managers attempt to manage by policy instead of addressing individual abuses. For example, in some instances in one organization employees took advantage of benefits by failing to maintain the required number of worked hours. In response, restrictions were written into the policies limiting how paid time off could be used, details that at the time of this writing require HRM oversight.

An HRM audit can ask these questions to find areas for efficiency improvements:

• Are the personnel policies all in one easily accessible place, with individual policies found through a table of contents or index or search engine?

• Is there written guidance for supervisors and other organization- al leaders on how to implement the policies? Is that guidance succinct and easy to follow?

• Do forms for HRM/personnel recordkeeping cover several bases instead of requiring a multitude of separate forms?

• Is a uniform template used for all types of job descriptions? Is the template overloaded with “boilerplate” or does it allow the unique job duties to be easily grasped?

• Are performance evaluations timely? If not, is the process unduly cumbersome?

• Is benefits enrollment high? If not, is enough information on benefits provided to all employees? Is it easy for employees to access straightforward information about their benefits, written in easily comprehensible language (as opposed to “insurance- speak”)?

Furthermore, if an organization is planning to expand the workforce by moving to a larger location or opening a plant or office or going global, HRM systems must be considered in planning along with all the other operational systems. Planning for expansion requires building capacity in HRM. With more employees comes more risk of interpersonal conflicts; policy abuses and legal violations, even if inadvertent; and accidents and

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injuries. If there is a lack of accountability in organizational leadership now, the problems will be compounded with a larger number of employees. An audit can show organizational leaders where the HRM departments’ or functions’ efforts need to be focused in order to ensure sound systems are in place prior to expansion.

Completing an HRM audit should be done on a regular or planned schedule. However, this is not enough: There must be specific actions undertaken to address the findings and pave the way for the necessary organizational responses, changes, transition, or transformation. That is, an HRM audit should help HRM professionals and their organizations identify opportunities for transformation. Many transformation initiatives start with determining the data needed, collecting, and analyzing the data, and looking for patterns. Here are some ways HRM professionals can practice transformational HRM:

Staff turnover: Analyze where in the organization and when in the employee life cycle turnover tends to occur. Conduct face-to-face exit inter- views with open-ended questions, if the employee size and turnover rate permit. HRM professionals should consider interviewing perhaps one in every three departing employees and ask the others to fill out a question- naire online. HRM professionals should also ask about on-the-job training, pay and benefits, evaluations, employee-employer relations and at every opportunity—mine employee survey data.

HRM professionals should also identify opportunities for increasing retention, such as more supervisor, manager, or senior leadership develop- ment and when possible create more paths to promotion. If high turnover in certain departments and labor markets is unavoidable, HRM profes- sionals should create super-efficient training and development programs and other practices.

Safety: HRM professionals should analyze the circumstances in which accidents occur: departments, types of injuries, time of day, and so on. And at every opportunity interview injured employees and witnesses with the goal of identify underlying causes—lack of thorough training, faulty equip- ment, understaffing—and work with organizational leaders and managers to develop solutions that address these causes.

Benefits: Instead of just accepting what an insurance broker hands them, HRM professionals should research creative benefits solutions, such as Healthcare Reimbursement Accounts and Healthcare Savings Accounts, self-funded dental, short-term disability insurance, and of course what is available under the Patient Protection and Affordable Care Act as it con- tinues to evolve.

Hiring: HRM professionals should identify recruiting sources that bring to their organizations the best candidates and focus their attention there. Instead of just posting job announcements on the organization’s website,

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HRM professionals and others in the organization should constantly sell the organization as a great workplace or an “employer of choice” and do everything possible to communicate the organization’s expectations with a dynamic jobs page.

Orientations: HRM professionals should think strategically about the organization’s goals and objectives and how employees contribute to them. And, then design programs that involve others in the organization to teach new employees about the organization’s strategy/direction, organizational culture, and behavioral requirements related to HRM laws and regulations.

Communication opportunities: HRM professionals should be very familiar with the flow of information—top-down, bottom-up, and interdepartmentally throughout the organization—to locate bottlenecks and breakdowns which might impact the dissemination and understanding of HRM laws and regulations. Employee survey data can be useful here to the HRM professional too. Additionally, HRM professionals should partner with others in the organization, for example, with information technology (IT) staff and other managers to develop more effective systems.

Employee discipline: HRM professionals should study records, notes, and transcripts of all disciplinary hearings held to make certain these hearings were carried out according to policy and that the rights of all were protected. While conducting these reviews the HRM professionals should identify themes: What rules or policies are most frequently violated? Where might more training be necessary? How can supervisors ensure that policies and rules are not broken such that formal discipline becomes unnecessary? Are the organization’s “progressive discipline” and appeals policies effective, or do they need to be revised?

These are only some examples of ideas that can come out of an HRM audit. Obviously, in order to devote time to transformational work, HRM professionals must find ways to streamline its transactional workload. An audit can suggest ways to move some transactional tasks off the HRM pro- fessional’s plate as well as point to opportunities to invest saved time in projects that will transform the organization.

In sum, the careful, objective evaluation provided by an HRM audit can yield information critical to the successful development of the organiza- tion’s human resources and compliance with HRM laws and regulations. With more effective people management, organizations can create the momentum necessary for success and sustainability in today’s and tomor- row’s world of work. An HRM audit can help HRM professionals and their organizations become the employer of choice.

In the end, HRM professionals should view HRM audits as a way to take things to the next level. More specifically, it is accepted that HRM work can be transactional or transformational. Transactional HRM works within existing systems and concentrates on recordkeeping, documenta-

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134 R. R. SIMS

tion, and legal compliance. A transformational approach to HRM focuses on identifying and analyzing problems and creating solutions or partner- ing with others in the organization to create solutions. Major changes or challenges confronting today’s and tomorrow’s organizations include but are not limited to globalization, increased competition, workforce diversity, technological advances, and changes in the political and legal environ- ment. All these challenges increase the pressure on HRM professionals and their organizations to attract, retain and nurture talented employees. HRM professionals cannot ignore these challenges, which really call for trans- formational HRM and for HRM professionals to go beyond just creating a culture of compliance, conduct an ethical audit and to create an ethical culture in their host organizations as discussed in Chapter 11.

Performing an HRM compliance audit is an important part of an organization’s internal audit. HRM compliance is becoming more challenging each year, and HRM professionals and other organizational leaders must continue to ensure all areas are covered thoroughly and objectively. By creating an effective, long-term compliance action plan HRM professionals and other organizational leaders are more likely to create a culture of compliance. And such a culture ensures that future leaders and employees will continue to follow the plan and remain committed to the vision of proactively interacting with HRM laws (e.g., thus, minimizing the potential for possible noncompliant and even unethical actions) in an increasingly evolving and dynamic world of work.

CONCLUSION

An HRM compliance audit is a systematic, objective tool for how well the organization is complying with legal, regulatory and policy requirements. A well-run HRM audit has various long reaching benefits. It can help an organization avoid exposure to legal liability by ensuring its HRM practices and policies comply with the dizzying array of local, state, federal, and international HRM laws and regulations. An effective or well-run HRM audit can also serve as an educational tool by increasing the awareness of an organization’s leaders and employees of the HRM’s department’s or function’s commitment to compliance. It can also identify ways to improve the efficiency and cost effectiveness of the HRM department.

HRM audits can be performed in-house or through the use of an exter- nal third-party auditor. External audits may provide a fresh perspective that a self-audit may not necessarily be able to capture. However, regardless of who performs it (internal HRM or outside third-party), the HRM pro- fessional or other auditors must be aware that HRM laws and regulations are governed by international, federal, state, and often city law and that

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the laws can vary greatly from state to state and city to city and country to country—what is legal in one might expose the employer to liability in another. In addition, an HRM audit must examine the organization’s own policies to determine if the organization’s practices are in accordance with those policies.

Because each organization’s needs may be different, there really is no one exact “how-to” formula for performing an HRM audit that meets every organization’s needs. What is better is to identify the various areas that typically fall under the purview of an HRM audit, regardless of whether it is international or not, and to highlight some of the key issues that HRM professionals and others should look at, and for, when performing a com- prehensive HRM audit.

The purpose of an HRM audit is to recognize strengths and identify any needs for improvement in the human resources function. A properly executed audit will reveal problem areas and provide recommendations and suggestions for the remedy of these problems. Some of the reasons to conduct such a review include:

• Ensuring the effective utilization of the organization’s human resources

• Reviewing compliance in relation to administration of the orga- nization

• Instilling a sense of confidence in management and the human resources function

• Maintaining or enhancing the organization and the depart- ment’s reputation in the community

• Performing “due diligence” review for shareholders or potential investors/owners

• Establishing a baseline for future improvement for the function

With the above purposes as a backdrop, as noted at different points in this chapter, HRM professionals should keep in mind that often the main goals of an HRM audit are to: (1) determine whether an organization’s employment-related materials and practices are complying with the law and the organization’s own policies; and (2) identify and bring into com- pliance, any area that may not be in compliance. An HRM audit should identify what the organization is doing right or wrong, as well as gray areas that could use improvement. Practically, this means that HRM profession- als when doing an audit should typically review the organizations:

• Printed materials, such as employment applications and any organization handbooks or manuals;

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136 R. R. SIMS

• Practices, such as those involved in recruitment, hiring, compen- sation, promotion, and termination;

• Policies, such as sick and vacation leave policies; and • Procedures, such as those governing performance reviews and

discipline. • The organization’s unwritten practices to determine whether or

not they should be finalized and/or changed.

In addition, they should carefully read the materials, conduct interviews with other HRM professionals and other relevant personnel and observe first-hand the workings of the HRM department.

Before beginning an HRM audit, it is important for HRM professionals and others to define its scope as the organization may only want to exam- ine a few particular areas and not others. Once the scope of the audit is defined, the next step is to identify all the international, federal, state, and local laws that apply to the areas being audited. Identifying all the laws that apply can be a very long and complicated process. Therefore, the assistance of legal counsel can be very helpful to HRM professionals at this step.

It would be remiss if we did not conclude this chapter by noting that gen- erally there are very few if any drawbacks when an HRM audit is properly conducted. There are, however, some considerations HRM professionals should keep in mind when deciding to conduct an audit. First, any material produced during the audit could potentially be used in litigation against the organization. This risk can possibly be reduced by using a lawyer to conduct the review. But caveat emptor—simply using a lawyer does not guar- antee the confidentiality of the audit documents.

Invoking the protection of doctrines, such as attorney-client privilege or attorney work-product, requires fulfilling many conditions. An organiza- tion and HRM professionals interested in maintaining the confidentiality of the HRM audit should consult with legal counsel. Additionally, if non- compliance is discovered during an audit, it is very important that HRM professionals and the organization’s senior leaders implement appropriate corrective action in a timely fashion. Failure to correct problems identi- fied during an audit can lead to many more problems because if problems are identified through the audit and nothing is done to correct them, the organization’s nonaction can lead to lawsuits and also be used against the organization in future enforcement proceedings.

REFERENCES

Barlow, J. (2017, February 27). Compliance management and board of directors’ role in compliance and ethics. https://www.boardeffect.com/blog/compliance- management-board-directors-role/

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Bauer, T., Erdogan, B., Coughlin, D., & Truxillo, D. (2021). Fundamentals of human resource management. SAGE.

Cascio, W. F. (2019). Managing human resources: Productivity, quality of life, profits (11th ed). McGraw Hill.

Davis, R., & Carnovali, M. (2019, March 13). The HR function’s compliance role. https://www.corporatecomplianceinsights.com/hr-function-compliance-role/

DeLoatch, P. (2018, January 29). 7 compliance issues every HR leader should know. https://www.hrdive.com/news/7-compliance-issues-every-hr-leader-should- know/515271/

Dessler, G. (2017). Human resource management. Pearson. Hopkins, S. L. (2013, March). How effective are ethics codes and programs? Many

companies craft codes of ethics and establish the related ethics and compliance programs to enforce the codes. But do they actually work in practice to accomplish what they set out to do? https://go.gale.com/ps/anonymous?id=GALE%7CA322028777&s id=googleScholar&v=2.1&it=r&linkaccess=abs&issn=08954186&p=AO NE&sw=w

Mathis, R. L., Jackson, J. H., Valentine, S. R., & Meglich, P. A. (2017). Human resource management (13th ed.). Cengage.

Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2018). Human resource management (11th ed.). McGraw Hill.

Price, N. (2018, June 15). Ethics vs. compliance: Is there a notable difference? https:// www.boardeffect.com/blog/ethics-vs-compliance/

Ruelas, F. (2016, May 24). The role of compliance and ethics in company culture. https:// complianceandethics.org/role-compliance-ethics-company-culture/

Strategic HRinc. (n.d.). HR Audit. https://strategichrinc.com/hr-audit/ Weinstein, B. (2019, May 9). What’s the difference between compliance and ethics? https://

www.forbes.com/sites/bruceweinstein/2019/05/09/whats-the-difference- between-compliance-and-ethics/#71471b227524

XcelHR. (2019, August 22). Is an HR compliance audit necessary? https://www.xcelhr. com/resources/best-hr-articles/hr-audit

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. 139–167 Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. 139

CHAPTER 7

HRM’S ROLE IN CREATING A CULTURE OF ETHICS/

INTEGRITY FOR DATA PRIVACY AND BREACH DISCLOSURE

Chon Abraham and Ronald R. Sims

INTRODUCTION

Cybersecurity has traditionally been handled in the information technol- ogy (IT) space. However, today cybersecurity continues to move out of the tech silo and is increasingly becoming a whole-of-business issue while mov- ing further into the business frontlines. The recent National Institute of Standards and Technology (NIST) guidebook, Cybersecurity is Everyone’s Job emphasizes the point that cybersecurity must be enterprise-wide, involv- ing everyone in fulfilling security responsibilities (NIST, 2018). These days HRM has an important seat at the table in terms of the holistic business- wide approach to addressing cybersecurity (HRD, 2018; HRM Asia, 2019). The role HRM played in cybersecurity has traditionally focused more around policy enforcement and compliance. And while this is obviously important it is not going to really change, for example, an organization’s cybersecurity culture, data privacy or breach notification behavior.

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140 C. ABRAHAM and R. R. SIMS

Achieving a strong cybersecurity culture within the organization requires action on many fronts: people, process, technology, and outside partners. Many groups, including HRM in our view, where all the organization’s most sensitive data are stored, processed and transmitted must be engaged as an active partner in protecting not only this but consumer’s and other infor- mation/data. This expanded role of HRM is also suggested in the NIST guidebook, Cybersecurity is Everyone’s Job, which notes that the role of HR in cybersecurity is all about (NIST, 2018):

1. Implementing best practices in organizational change manage- ment, employee training, and performance management to enable a cybersecure culture

2. Ensuring that critical cybersecurity roles are filled, consistent with the National Initiative for Cybersecurity Education (NICE) Cyberse- curity Workforce Framework, and that employees remain current on necessary knowledge, skills, and abilities

3. Safeguarding sensitive employee information 4. Spearheading efforts to mitigate the risks of insider threat

We would add a fifth role that ties directly to number 1 above “implement- ing a cybersecurity culture throughout the organization which has ethics, integrity, and corporate social responsibility (CSR) at its core.”

Culture is people and process. Technology and outside partners like vendors or suppliers are supporting players. And of course, it is impor- tant that C-level executive actively support a cybersecurity culture which incorporates data privacy and breach disclosure notification that puts the consumer first. This means organizations must go beyond simply stan- dardizing, for example, breach notification standards or laws that are all necessary, but are of little value unless HRM professionals and other orga- nizational members proactively take the stance that the ethical thing to do is put consumers first when it comes to protecting and notifying them before, during, and after cybersecurity breaches.

In this chapter, we argue that the ethical thing to do for HRM professionals and others is for organizations to build and maintain trust with consumers that is reflective of their culture, ethics, and CSR. For purposes of this chapter, this means consumers (and other stakeholders) should expect more from businesses as it relates to data privacy and breach notification. And that means organizations should strive to establish organization cultures where data privacy and proactive breach notification is the norm. A norm where companies, HRM professionals (and other organizational members) establish a culture of integrity by putting their stakeholders (and especially customers) first when it comes to data privacy and breach notification (e.g., in the event of a cybersecurity attack or breach).

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The chapter has five sections. The first section offers answers to the question of what is a data breach and its potential impacts. The second section offers a brief look at data breach notification laws. The third sec- tion discusses the importance of the relationship between consumer trust, data privacy, breach notification and ethics and CSR. The fourth section describes four data privacy and breach notification cultures and pays par- ticular attention to what we refer to as a culture of integrity. Finally, the last section provides some thoughts on what HRM professionals can do moving forward to build and implement cultures of integrity in their organizations that result in proactive data privacy and breach notification actions.

What Is a Data Breach and Its Potential Impacts?

Data breaches happen on an almost daily basis, exposing our email addresses, passwords, credit card numbers, social security numbers and other highly sensitive data. The word “breach” is often used to describe computer events or incidents but the meaning of “breach” itself is more of a legal definition than anything else (Tuma, 2016). The U.S. Depart- ment of Justice (DOJ) provides a definition: “The term “breach” is used to include the loss of control, compromise, unauthorized disclosure, unau- thorized acquisition, unauthorized access, or any similar term referring to situations where persons other than authorized users and for an other than authorized purpose have access or potential access to information, whether physical or electronic. It includes both intrusions (from outside the organization) and misuse (from within the organization (DOJ, 2013).

According to Tuma (2016), the words “data breach” are often used generically to describe all cybersecurity events without regard to whether any data was actually breached. Cybersecurity “incidents” is a better way to generically describe these events because it is broader and can encompass both incidents where data has been compromised and those where data was not compromised. That is, an incident is a broader term to describe an event that actually or potentially jeopardizes the confidentiality, integrity, or avail- ability of a computer network or the information stored on or transmitted by the computer network. The NIST Cybersecurity Framework defines an incident as “a violation or imminent threat of violation of computer secu- rity policies, acceptable use policies, or standard security practices” (Arias, 2016 ). The DOJ (2013) provides a more detailed definition of incident as

An occurrence that actually or potentially jeopardizes the confidentiality, integrity, or availability of an information system or the information the system processes, stores, or transmits or that constitutes a violation or im-

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142 C. ABRAHAM and R. R. SIMS

minent threat of violation of security policies, security procedures, accept- able use policies or standard computer security practices.

Breach is a narrower term than incident that describes the actual loss of control, compromise, unauthorized disclosure, unauthorized acquisition, or unauthorized access of information—data. For example, an incident that results in unauthorized acquisition of personally identifiable infor- mation in unencrypted form would be a breach. If the information were encrypted and the means for decrypting were not available, it would not be a breach though it would still be an incident (Tuma, 2016). According to Buttrick, Davidson, and McGowan (2016) a “breach” occurs when there is an “unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information” (p. 4). The U.S. DOJ (2018) defines a breach as “the loss of control, compromise, unauthorized disclosure, unauthorized acquisition, access for an unauthor- ized purpose, or other unauthorized access, to data, whether physical or electronic.”

The Identity Theft Resource Center (ITRC) defines a data breach as “an incident in which an individual name plus a social security number, driver’s license number, medical record or financial record (credit/debit cards included) is potentially put at risk because of exposure)” (ITRC, 2014, p. 2). Veltsos (2012) described a data breach as a case when personally identifiable information (PII) is disclosed by a third party; and PII refers to it as “information that can be used to distinguish or trace an individual’s identity, such as a full name, address, SSN, date of birth, place of birth, parents’ full names, and biometric records” (p. 197). When PII is used by criminals to create an accurate profile with other Internet data, identity theft would occur, which is a terminology of another cybercrime (Veltsos, 2012).

Potential Impacts of Breaches

One of the major impacts of data breaches is the disruptive nature of a data breach as an organization attempts to continue their operations and recover from a breach. It was recently noted that the time it takes organi- zations to identify and contain a breach (e.g., the data breach life cycle) is 279 days. The 2019 life cycle was 4.9% longer than the 266-day average in 2018. In addition, it was found that the longer a breach’s life cycle is, the greater the total cost (Ponemon, 2019).

Cybersecurity or data breaches have tangible consequences, includ- ing the increased possibility of identity theft for consumers who see their personally identifiable information compromised. Consider one recent

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HRM’s Role in Creating a Culture of Ethics/Integrity 143

estimate where it was suggested that at least 7.9 billion records, including credit card numbers, home addresses, phone numbers, and other highly sensitive information were exposed through data breaches in 2019 (Selfkey, 2020). Additionally, the Internet Society’s Online Trust Alliance estimates an overall financial impact of at least $45 billion worldwide, 6,515 breaches and 5 billion exposed records in 2018 (Olmstead, 2019). Organizations also face particular issues from such breaches, including damage to organiza- tional reputation (Jenkins et al., 2014).

Clearly, a cybersecurity data breach can be a public relations and financial disaster for a company. Most often companies spot the intrusion too late, and respond inadequately, resulting in falling (temporary) sales and journalist outrage (Drinkwater, 2016; Osborne, 2015). The increase in cybersecurity attacks and breaches result in tremendous financial costs to companies as briefly noted earlier, damage to their reputations and a decrease in con- sumer trust. For example, Target Corp. spent $236 million after its systems were hacked, and likely lost out on an unknown amount of holiday sales in 2013 (Stambor, 2015). One 2014 study estimated that the cost of each lost or stolen record containing personal and payment information at $201 to the breached organization, whether it is a retailer, a bank, or a health insur- ance company. Multiply that by millions, and it makes for an alarming line item on the company’s books (Hackett, 2016).

IBM’s 2019 cost of data breach study conducted by the Ponemon Insti- tute reported that: (1) the average cost of a data breach was $3.92 million, a 1.5% increase from the 2018 study and (2) the average total cost of a data breach climbed from $3.5 million in 2014, showing a growth of 12% between 2014 and 2019 (IBM, 2019). Just as it was last year, the most expensive country in terms of average total cost of a data breach is the U.S. at $8.19 million, more than twice the global average. Healthcare was again the most expensive industry for data breach costs, with the total cost of a data breach in 2019 averaging $6.45 million (Ponemon, 2019). Consider also the financial implications for Yahoo which recently became the first public company to be fined ($35 million) by the Securities and Exchange Commission for filing statements that failed to disclose known data breaches. This was on top of the $80 million federal securities class action settlement that Yahoo reached in March 2018—the first of its kind based on a cyberattack. Further, shareholder derivative actions remained pending in state courts, and consumer data breach class actions survived initial motions to dismiss and remained consolidate in California for pre- trial proceedings (see McAndrew, 2018; Kelly, 2018).

Although the costs associated with regulatory fines and lawsuits follow- ing a data breach can be severe, perhaps no effect is quite as long-lasting or harmful as the loss of consumer confidence that accompanies these breaches (Greenlow, 2019). Findings from the Ponemon Institute’s 2014

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study The Aftermath of a Mega Data Breach: Consumer Sentiment (Experian Data Breach Resolution, 2014), revealed that data breaches was up there with poor customer service and environmental disasters for impacting brand reputation. Additionally, a Forbes Insights (2014) report, “Fallout: The Reputational Impact of IT Risk,” indicated that 46% of organizations had suffered damage to their reputations and brand value as a result of a breach. Another 19% of organizations suffered reputational and brand damage as a result of a third-party security breach or IT system failure. The reputational damage suffered by companies who fail to protect personal data can translate directly into a loss of business (National Cybersecurity Institute, 2016). Research has also shown that it can take 10 months to more than 2 years to restore a company’s reputation (Roering, 2014; Smith, 2017) which obviously impacts consumer’s and other stakeholder’s trust.

In the recent UN data breach, Parker (2020) noted that no matter what exactly was exposed, the decision not to notify all the people or organiza- tions whose data may have been compromised—including UN staff—risks damaging trust in the UN as an institution, and so its effectiveness, accord- ing to human rights and privacy analysts. Failing to notify others has clearly had an impact on the global governance body, as they were not being accountable for holding themselves to a professional standard. David Kaye, the UN’s special rapporteur on freedom of expression articulated in a 2015 study on digital security that they had a special responsibility to secure its sensitive data and inform those affected (Kaye, 2015).

Consumer trust is not built, nor can be earned back, overnight. When consumer trust and loyalty are fragile or wanting customers will often vote with their feet. A 2015 study found that the overwhelming majority of people would not do business with a company that had been breached, especially if it had failed to protect its customers’ card data (Drinkwater, 2015). In the survey, 86.6% of 2,000 U.K. respondents stated that they were “not at all likely” or “not very likely” to do business with an organization that had suffered a data breach involving credit or debit card details (Mur- phy, 2015). The numbers were slightly lower if home and e-mail addresses and telephone numbers had been lost. According to Drinkwater (2016) customer loyalty damage is done in the event of a breach, and that sales do take a “nose-dive.” For example, Target’s sales fell by 46% year-on-year in the fourth quarter of 2013 to $520 million (or 81 cents a share), while eBay (breached mid-2014) admitted declining user activity impacted its quarterly net revenue. Further, a recent study titled “The Impact of Data Breaches on Reputation and Share Value” found that the business and financial impact of a data breach included: (a) 5% drop in average stock price the day a breach is announced1; (b) 7% loss of customers; and (c) 31% of consumers discontinue the relationship (BAI Security, 2017; Centrify, 2017).

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HRM’s Role in Creating a Culture of Ethics/Integrity 145

There are other financial costs to bear, including additional security (pen testers, consultants, security vendors, public relations, and attorneys), litigation and fines by data protection authorities and increases in the cost of insur- ance. The examples above of some of the costs associated with cybersecurity breaches highlight the importance of brand and corporate reputation and the significant damage a cybersecurity breach can do as consumers do not forget about how such breaches impact them. Cybersecurity breaches have an immediate impact on an organization’s ability to properly conduct business and best serve its customers. The reality is that if an organization is breached once, it will forever be in the back of their mind that it happened and can happen again. And despite the first or next breach a host of competitors will be waiting in the wings, eager to scoop up customers who have lost faith in their previously trusted organization, brand, or partner. In addition— and perhaps counterintuitively—the nature of an organization’s damage control following a data breach often prohibits the type of marketing and communications required to reestablish trust with consumers.

Clearly, for organizations, data or cybersecurity breaches present huge challenges and HRM professionals and other organizational members must do everything they can to comply with legal requirements dictated, for example, by the Federal Trade Commission, to include notifying all affected and potentially affected consumers regarding compromised consumer data, if any (see Kim et al., 2017). If a cybersecurity breach is not dealt with properly by an organization, consumers will not have the confidence or trust that the matter is taken seriously. There is a greater likelihood that consumers will come to this conclusion if the organization simply approaches the breach from a legal or compliance perspective only which is often the case given the array of federal and state laws requiring consumer notifications. The next section takes a brief look at such laws or requirements before turning to a discussion of the need for organizations to take a more ethical or moral approach to data or cybersecurity breaches when interacting with consumers.

Data Breach Notification Laws

With the publicity of high-profile cybersecurity attacks (for example, Equifax, Target, LabCorp, Microsoft) (see Armerding, 2017; Ikeda, 2020; Turner, 2017; Whittaker, 2020) there are increased calls for even more legislation and for organizations to provide better protection for consum- ers. These calls, for example, are: (1) for government agencies like the U.S. Federal Trade Commission and the Consumer Finance Protection Bureau (among others) charged with protecting consumers to raise the bar by pushing companies to become better stewards of private data or

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face heftier fines and enforcement action (Sustar, 2016); (2) to put more pressure on businesses and other organizations to go above and beyond the law in both the protection of data and disclosure of threats and com- promises (Room, 2014); (3) requiring all companies, regardless of their size or industry sector to develop robust cybersecurity incident response plans (Lord, 2017; United States Computer Emergency Readiness Team, 2014); and (4) to improve the consistency of existing consumer notification laws (Turner, 2017) and even more importantly to develop a national data breach notification standard or laws like the Personal Data Notification and Protection Act (PDNPA) as suggested by former President Barack Obama (Gaul, 2017) and Canada’s new breach notification requirements under its federal privacy law, the Personal Information Protection and Electronic Documents Act (PIPEDA) (Yannella & Ricci, 2018). Some of the changes that are anticipated to come into force, for example, as a result of such legislation include mandatory record keeping for all breaches, mandatory data breach notification, and significant penalties for noncompliance. As of January 1, 2020, California became the first state to permit residents whose personal information is exposed in a data breach to seek statutory damages between $100–$750 per incident, even in the absence of any actual harm, with the passage of the California Consumer Privacy Act (“CCPA”) (Hsu et al., 2020).

Globally, the European Union General Data Protection Regulation (GDPR) has gained a foothold since becoming effective in May 2018, with regulators issuing hefty fines. The amendment to Canada’s PIPEDA requiring mandatory breach reporting has been in force for more than a year. Notifications have skyrocketed in Australia since the Notifiable Data Breaches scheme passed a few years ago. However, even though many countries have laws that mandate data breach notification (e.g., Philip- pines, Data Privacy Act of 2012; Qatar, Law No. (13) of 2016 Concerning Personal Data Protection; and Indonesia, Regulation No. 82 of 2012 regarding Provisions of Electronic Systems and Transactions and its imple- menting regulation, Regulation No. 20 of 2016 regarding the Protection of Personal Data in an Electronic System), data breach notifications are not mandatory in most countries (e.g., Argentina, Belarus, Costa Rica, Egypt, Japan, Macau, Malaysia, Madagascar, Mauritius, Panama, Russia, and Saudi Arabia) and/or are mandatory for the private sector and not the public sector in other countries, or only for certain sectors in society (e.g., Angola and Serbia). In Argentina, while data breach notification is not required, agencies are required to keep records of data breaches in the event they occur in case they are requested during an investigation or audit (UNODC, 2020).

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HRM professionals and other organizational members (e.g., informa- tion technology, legal, etc.) face significant challenges in complying with the multiplicity of personal data breach notification and recordkeeping requirements under U.S. state and federal laws, international data pro- tection laws, and industry regulations—not to mention formal and social contractual obligations with business partners, vendors, processors, control- lers, employees and consumers. Adding to this patchwork of overlapping regulations is the reality that laws are constantly changing, and tracking them all to maintain compliance is perhaps the largest challenge of all. Thus, navigating the complexities of breach notification regulations is like solving a puzzle: you align information, look for patterns, and plan several steps ahead so that when all the pieces click into place you have a simple, clear picture of what the law requires. 2019 data breach legislative action included (RadarFirst, 2020):

1. Fifteen new laws or amendments that impacted breach notification obligations went into effect.

2. More than 35 bills have the potential to impact breach notification obligations and gained momentum.

3. Eight data breach notification laws are signed and ready to go into effect in 2020, and one in 2021.

All 50 states now have their own unique breach notification regulation with differing requirements and as in the past there is always talk of a U.S. federal law.

According to Turner (2017) in a recent article titled “The Equifax Hacks Are a Case Study in Why We Need Better Data Breach Laws,”

Companies aren’t incentivized to prioritize our privacy or data and to put their customers first. Whether it’s minimizing how much of our infor- mation they collect, fortifying security, or simply telling us they’ve been breached, we can’t depend on these companies in good faith. It’s up to government regulators to keep them in check. They need to be pressured. (p. 1)

And in citing Jessy Irwin, a cybersecurity consultant, Turner (2017) notes “The only good way for these things to be stopped is for the giant organiza- tions holding this information to be better regulated” (p. 1). Again, a view that is necessary but insufficient. Therefore, HRM professionals and others must be aware of both the possible changes and what they must do beyond simply following breach notification regulations or laws.

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CONSUMER TRUST AND ATTENTION TO DATA PRIVACY, BREACH NOTIFICATION, ETHICS

AND CORPORATE SOCIAL RESPONSIBILITY

While the advent of increased reliance on digital technology has made our lives easier, it has also opened the door to (1) a number of threats in terms of hacking and data theft which requires organizations to safeguard data and maintain privacy (Levitin & Redman, 1998) and (2) costly cybersecurity breaches (Net@Work, 2019). How organizations go about that in terms of (1) technical processes and policies regarding its infrastructure (Ridley, 2011), as well as organizational structure that promotes or impedes those processes and policies, the (2) trust engendered with its stakeholders in cyber transactions (Etzioni, 2017), and (3) how it perceives its responsibility to society are indicative of an organizational culture for data privacy and breach disclosure (Pollach, 2011). For example, in every interaction where data is shared between a private individual and an organization, there is an implicit zone of trust created between the parties (Etzioni, 2017). Thus, the digital contract of trust should be a proactive consideration as well as CSR in how organizational cultures develop regarding ethical data privacy and breach disclosure behavior but these concepts are mainly operationalized in organizations to meet compliance standards (Pollach, 2011).

It is important for HRM professionals to recognize that in the midst of the plethora of costly cybersecurity attacks and data privacy it seems organizations are still not proactively (“doing the right thing”) ensuring safeguards are in place to honor their contracts of trust with internal and external stakeholders that shapes their culture towards data privacy and breach disclosure. Unfortunately, it appears that with each data privacy or breach disclosure, companies continue to chip at the relationship with and trust of its consumers regardless of the continued evolution of state, federal and international breach notification laws. For example, companies delay disclosing breaches and informing customers due to a number of reasons such as advice from lawyers, not having definitive forensics to substantiate what is known about the breach, or due to a risk assumed as a cost to the brand. Many examples of each are prevalent today (e.g., delayed disclo- sures at Facebook and Equifax) (Kennedy, 2017). Such delayed responses in notifying the public about a breach brazenly puts their customers at risk while these companies avoid consequences. These situations are clear examples of exactly how certain companies can easily prioritize their bot- tom line over customers’ financial security and privacy, especially when industry-wide standards for safety are largely unmet or simply nonexistent given the patchwork of existing compliance (see Gaul, 2017; Kesan et al., 2016) or breach notification laws as more personal data becomes digitally accessible.

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It is also important recognize that failure to notify key stakeholders of data breaches is not just something done by businesses as evidenced in the recent inaction at the United Nations (UN) where the body kept it a secret (even from its own employees), that hackers compromised dozens of UN servers in the summer of 2019. While the size of the breach was unclear, staff records, health insurance, and commercial data were compromised. As the UN is under diplomatic immunity, they are not required to divulge what data was taken or notify those affected. The UN was allegedly notified about several security issues years ago (Keaton & Bajzk, 2020). In a recent, article titled “The Cyber Attack the UN Tried to Keep Under Wraps,” Parker (2020) argues that “If there are no consequences for the [UN] agen- cies for failures like these … there will be more breaches.”

Data Privacy and Breach Notification: Ethical and Corporate Social Responsibility

Data privacy and breach disclosure behavior have been categorized as part of an organizational ethical responsibility (Culnan & Williams, 2009; Pollach, 2011) and CSR. CSR regarding data privacy and data breach addresses the organizational obligation to protect stakeholder (internal and external) unapproved data reuse for economic or benefit to the orga- nization such as aggregation and data mining, new uses of the data, sharing with parties unknown to the stakeholder as well as illicit browsing and actual exfiltration of private data (Culnan & Williams, 2009). The harm from information reuse in data privacy can be incorrect inferences being made about those the organization engages with, transactions and deci- sions being made in error, exclusion of certain people deemed valid for transacting with the organization and intrusions into personal information not ever intended for exchange other than between the individual and the organization (Etzioni, 2017; Culnan & Williams, 2009). Harm resulting from unauthorized access as in a data breach is loss of confidentiality result- ing in credibility damage and financial despair (Culnan & Williams, 2009). Companies who strive to be good corporate citizens devise strategies to reduce harm that could result from a lack of attention to safeguarding the organizational stakeholders from data privacy challenges and breaches in a deliberate and proactive manner (Lee et al., 2016; Pollach, 2011) which includes timely breach notification.

Ethical actions and CSR regarding data privacy and breach should address “(1) moral reasons determined by morality-driven values of the organization and (2) relational reasons driven by company’s concern about stakeholder relationships that seek to build and sustain mutual trust” (Aguilera et al., 2007). However, much of the behaviors by organizations

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regarding what resources to put forth and how to inherently make deci- sions to safeguard stakeholder interests is not driven by this organizational morality and instead by calculated consequences to reduce risks. Thus, actions taken such as ensuring first and second line of technical defenses are in place is about preserving the sanctity of the organization’s assets and less about building trust with its stakeholders. Even acquiring data breach insurance is less of a moral determination about how to afford the stakeholder impacted but about shielding the organization from legal claims and protecting the organizational economic viability for the sake of the stakeholders and shareholders. Peters (2014) and others (e.g., McCoy, 2017; Schwartz, 2015) have noted that data breach lawsuits are difficult to pursue. Accordingly, the threat of consumer litigation has not played an extensive role in influencing businesses to adopt more stringent security measures as it appears business has no real legal obligations or owe its customers much of anything regarding data security and notifications of a breach. Additionally, there is little clarity in terms of the legal remedies consumers have if their private information is compromised as a result of data privacy or data breach. And unfortunately it appears that the loss of customer goodwill has done little to advantage customers when confronted with a data breach. Thus, most evidence in our view shows that customers are at the mercy of organizations they have willingly (or unwillingly) trusted with their personal information “to do the right thing in the throes of or even before a privacy or data breach (excerpt from interview data).”

Peter Drucker (1954), the former esteemed management guru, empha- sized the importance of consumers with his assertion that there is only one valid business purpose—“to create a customer.” Business cannot exist, much less survive and prosper, without customers. Customer satisfaction, then, is a central objective of all businesses and the customer expects ethi- cal behavior on part of the business in their transactions with or on their behalf of the customer (Carroll, 1999, 2009). What does business really owe consumers when one considers protection of their personal informa- tion and disclosure of a breach? Perhaps one place to start is to consider the “Consumer Magna Carta” articulated by President John F. Kennedy in a special March 1962 address “Special Message on Protecting the Con- sumer Interest.” President Kennedy stated what he thought were four basic consumer rights—the right to safety, to be informed, to choose, and to be heard (see Lussier & Sherman, 2014; Carroll et al., 2012). However, ethical dilemmas often arise regarding customers digital transactions in that “organizations make tradeoffs between collecting data for the sake of profits and not collecting the data for the sake of privacy” (Pollach, 2011, p. 89). In today’s supposed consumer-oriented economy, it important for HRM professionals to recognize that the mishandling of data privacy or

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HRM’s Role in Creating a Culture of Ethics/Integrity 151

data breaches and notifications or disclosures are resulting in most of these rights not being met by organizations.

According to Carroll (1999), to expand on Drucker’s (1954) earlier point, a business not only needs to create customers but it also needs to retain them and attract new ones. Consumers should have certain legal rights when it comes to their personal information. But, there is a lack of clarity on what customers should expect of organizations in an ethical sense when it comes to their personal information in general and pre- and post-data privacy and breach disclosure specifically (Lee et al., 2016). Also, as noted earlier, state and federal breach laws do not provide consistent guidelines for organizations regarding how to treat customers ethically when it comes to their personal information and pre- and post-data privacy and breach and disclosures—the laws address compliance with disclosure mandates (Lee et al., 2016).

In a recent article titled “A New Ethics? Moral Compass” Sustar (2016) in discussing mega data breaches asked the question “Could an ethical approach help businesses find a way out of this global legal thicket?” In attempting to answer that question, Sustar noted that a series of mega- breaches “have pushed the ethics issue into the foreground with those affected forced to consider whether they should continue to trust their personal data and credit information to hacker-hit retailers like Target or health insurance providers such as Anthem” (p. 1). Sustar further posited that consumer-facing companies might benefit from establishing an ethics of post-breach actions. Room (2014) recently argued that ethical consider- ations were a better guide to post-breach action than simply checking the boxes on legal obligations. Ethics, he wrote, “remind you of the bigger pic- ture, helping you to do the right thing in a way that can withstand durable scrutiny” and concluded that: “Ethics and breach handling go hand in hand” (Room 2014, p. 1).

Ethical issues in data privacy and breach disclosures in particular, and more specifically in the data security area, in our view should be concerned with “doing the right thing” and include a focus on being proactive when it comes to immediately notifying customers when their personal informa- tion has been compromised. This means that the ethical considerations are much more subjective with the questions being “what would custom- ers or other stakeholders expect us to do? And “how will our decisions be judged in a month or six months’ time, in a year or in five years?” Such a subjective perspective is quite different from what one often finds when organizations focus on doing the right thing for the immediate purposes of data privacy or breach containment, recovery, and mitigation which is typically in reference to relatively clear benchmarks and is fundamentally objective in nature.

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152 C. ABRAHAM and R. R. SIMS

According to Room (2014), the emergence of ethical considerations within the aftermath of a serious security breach or data mishandling situ- ation would seem to be an obvious development. Of course, it is obvious, once it is pointed out! But this is a new phenomenon. Two or three years ago questions of ethics were invisible in these cases. Indeed, when ethics did appear as issues, they were more like “anti-ethics.” The “anti-ethics” generally consisted of a focus on how to withhold news about incidents from the public and from the authorities. The desire for containment and a fear of unknown legal consequences often pushed organizations into situ- ations where self-preservation overrode the wider ethical considerations. Even today, one can find attorneys in the U.S. being heard at industry conferences talking about how they have found very technical and highly nuanced legal arguments to help get clients around the immediate breach disclosure rules or compliance that apply in the various states (see Marconi & Langs, 2017). Such behavior does nothing but reinforce a “cover-up culture” where despite how many stakeholders might be impacted by a breach the behavior is one where there is no responsibility to proceed and report and notify.

Of course, while there may be some lawyers and organizations that look for ways to not follow, for example, existing laws that relate to data privacy or breach disclosure there are many more that try to abide by such laws and do the right thing. In reality, even the best ethical practices, for example, around data privacy and breach disclosure aren’t enough to meet all the legal requirements in the patchwork of U.S. laws. According to Smeding- hoff (as cited in Sustar, 2016), “Being ethical does not necessarily mean you are compliant,” he says. “You may be ethically appropriate— but that may not be sufficient to satisfy the law.” So compliance to data standards and regulations may be necessary to meet legal responsibility especially regard- ing CSR but not sufficient for being ethical regarding data privacy and breach disclosure behavior. In our view, HRM can and does play a critical role in how organizations categorize themselves (as a self-check necessary for any remediation or goal setting) regarding their culture towards data privacy and breach disclosure or notification behavior.

TOWARD A DATA PRIVACY AND BREACH NOTIFICATION CULTURE OF INTEGRITY

It is our contention that while culture is generally regarded as an essential enabler in achieving business results, it is less visible in achieving ethical data privacy and breach notification goals. How can HRM professionals help close the gaps and enable their organizations to be more ethical, proactive and benefit from improved data privacy and breach disclosure

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HRM’s Role in Creating a Culture of Ethics/Integrity 153

culture? Cybersecurity, information technology and data privacy and breach disclosure today has to leave the traditional tech silo and must move into the business front lines, where HRM plays an increasing role. Tradi- tionally, while the chief information security officer (CISO) is responsible for data privacy and breach disclosure culture with the increased emphasis on the partnership role of HRM and CISOs there is an increased likelihood of introducing successful processes to change existing cultures and build ethical and socially responsible data privacy and breach disclosure cultures. Of course, while our focus in on HRM professionals, the reality is that to sustain such cultures a team effort involving HRM, the CISO and other stakeholders is paramount. The absence of a team effort means that any efforts to change or build an ethical or proactive data privacy and breach disclosure culture will most often maintain the status quo and will miss positively impact what we refer to as digital contracts of trust and cultures of integrity. Thus, if culture is a critical part of an ethical data privacy and breach notification or what we refer to as a culture of integrity, what must HRM professionals understand to help their organizations develop such cultures?

Culture and Cybersecurity Breach Notification Cultures

Trevino and Nelson (2004, p. 225) have suggested that, “ ‘Culture’ has become a common way of thinking about and describing an organization’s internal world—a way of differentiating one organization’s ‘personality’ from another.” According to Schein (1985), culture is a pattern of shared basic assumptions learned by a group as it solved its problems of external adaptation and internal integration. Schermerhorn (2005) defines orga- nizational culture as “the system of shared beliefs and values that develops within an organization and guides the behavior of its members” (p. G-12). Schermerhorn further notes that “Whenever someone, for example, speaks of ‘the way we do things around here,’ they are talking about the culture” (p. 96). Using such important components of culture as core values, stories, heroes, symbols, rites, and rituals, leaders committed to a customer-first culture influence the organization and its members to incorporate and exhibit desirable virtues and behaviors.

Consumer or customer-first organizations have an organizational culture based on a deep understanding and proactive strategy around customer experience, and use every opportunity to strive for positive cus- tomer-organization experiences built on ethics or doing the right thing. For our purposes, this means, for example, countering the crisis and nega- tivity of cybersecurity or data breaches by creating organizational cultures grounded in moral or ethical culture—cultures of integrity.

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154 C. ABRAHAM and R. R. SIMS

The challenge with adapting organizational culture for the digital age is that it has to be done fast. In their 2012 study on the Ethics of Big Data, Davis and Patterson point out that

Before the rapid growth of big-data technology … changes in organiza- tional processes or policies had a delayed effect on customer’s lives, if any. Whether a customer’s personal data was accessible or not was typically a matter of how many individuals or organizations had access to customer records.

Today’s internet economy depends on a symbiotic relationship between the data provider and the service provider: “customers” and breach notifi- cation are now an embedded feature of the organization.

Mitnick (2018) argues that it should not come as a surprise that breach notification has become the token data protection regulation in the United States. That is, the burden on companies is minimal, requiring only that a company has knowledge of breaches and can contact customers, so it encourages better security without putting limits on how companies col- lect or use data. However, it is also one of the most important from a data disaster recovery perspective. Breach notification is what lets consumers take steps to stem the damage of a breach—like when individuals cancel their credit cards—and to make informed decisions about which companies they can trust with their information. In other words, it is far from a com- prehensive fix for all data protection problems—it would not, for example, have prevented the Facebook/Cambridge Analytica scandal, which was not the result of a data breach or hack—but as an element of sound digital security policy, it is a no-brainer best practice (i.e., breach notification) (Accessnow, 2018).

Breach Notification Cultures

Perhaps nothing can be more gut-wrenching for an organization’s HRM professionals and other leaders than the moment their network has been breached? Then having to publicly announce the breach. The murkiness of disclosure or breach notification laws means that some organizational leaders may believe they face a conundrum. They can be upfront and potentially risk long-term losses (reputation/customer trust, market impact, security-related and litigation costs). Or they can simply divulge a breach on a need-to-know basis and risk backlash from those demanding that organizations become more transparent. Which also may be a gamble? Still yet, they can do nothing or simply comply with existing laws or be proactive and immediately notify regulators, consumers and other relevant

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HRM’s Role in Creating a Culture of Ethics/Integrity 155

stakeholders of a breach. Like any decision the organization’s leaders can determine how and when or if to disclose and notify others following successful breaches.

Unfortunately, in the wake of a breach, it is quite common for a company’s legal team to be elevated in its role with regard to external communica- tions and future decisions (Greenlow, 2019). While this is understandable, it often means that companies go relatively silent in the wake of a breach. Communications that are issued tend to be steeped in legalese, which is not exactly the type of language that eases people’s concerns.

Longer term, the infusion of greater legal checks and balances into an organization, though prudent on the surface, can stall innovation and stifle marketing and consumer communications within an organization. The result is that, even after the initial damage done to consumer trust, those vital relationships continue to erode. It is up to HRM professionals and other organizational members to counter such reactions to a breach that will do nothing more than further erode consumer trust. In our view, the surest way to foster consumer trust is to protect consumer’s data properly and in the case of a breach to as quickly as possible disclose or notify all affected parties. And this means building and sustaining a data privacy and breach notification culture of integrity as discussed below.

We adapted the organizational culture types by Schermerhorn (2005) and Sauser (2008) to address data privacy and breach disclosure that identify four types of cybersecurity breach notification cultures: ignorance/ neglect, defiance/complacency, compliance and integrity. The cultures produce the conditions for how organizations respond (i.e. notify or not) following a cybersecurity breach. Ignorance (somewhat associated with neglect in that not ensuring you have learned can be a form of neglect) from not being diligent to understand data privacy and breach disclosure organizational responsibilities. A summary of the key points that HRM professionals can use to both assess their current data breach notification culture and to adapt or change it appears in Table 7.1 and the subsequent text.

In reality, HRM professionals should understand that the decision on how and when to respond to a successful data breach often may be harder because of the laws surrounding disclosure and notification. While one would hope that such decisions would be guided by ethical or CSR prac- tices to at a minimum comply with the relevant laws or regulatory standards clearly this is (or will) not always be the case. For instance, Yahoo’s e-mail breach which compromised at least 500,000 accounts occurred in 2014 but customers only learned of it in October 2016 (Interset, 2017). A time lag of more than two years clearly, in our view, is unethical and is evident of an organization who failed to put customers first. In addition, it has been suggested that Yahoo may have concealed its knowledge of the breach in order to artificially bolster its valuation in its pending acquisition by

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156 C. ABRAHAM and R. R. SIMS

Table 7.1

Organizational Culture Descriptions Relative to Data Privacy and Breach Disclosure

Organizational Culture Adapted Description

Potential Attitudes and Responses

Data Privacy and Breach Disclosure Description

Ignorance/neglect Little or no knowledge of information security best practice and cybersecurity laws.

“it won’t happen to us”

(data privacy isn’t an issue so we don’t even have to consider disclosing)

No or weak standards. No data privacy and breach disclosure policy.

Defiance / complacency

Actively ignores breach disclosure laws, delays reporting a breach at any cost. Takes the minimum legally required actions.

“it can’t happen to us”

(we are protected and don’t need to disclose)

Inadequate IS standards. Minimal data privacy and breach disclosure policy, no leadership on IS.

Compliance May not agree with laws and standards but actively implements them. IS and cyber security not perceived as core business priority.

“legally, we’re fine”

(we will only disclose what we have to)

Meets the legal requirements. IS may be bundled with other compliance issues like HRM.

Integrity Demonstrates leadership on IS and cybersecurity which is driven by the C-suite. Takes preventive actions to avoid the cost and brand damage of data breach disclosures. Recognized as a benchmarked organization in best- practice. Seeks to improve proactively mitigate and protect the stakeholder as well as educate the stakeholder how to be a partner in addressing data privacy. Proactive about data breach disclosure to minimize harmful impact of breach or privacy issues associated with information reuse and unauthorized access.

“data guardianship is deemed essential to the core business”

(we will disclose what we have to, take additional protective measures for assurance to protect data privacy, and give constituents the right to determine their own risk or impact from the breach)

Strong and visible IS, HRM and other leadership. Source of best-practice guidance. Visible advocate for data privacy and breach disclosure.

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Verizon (Roberts, 2016; Taylor, 2016). And while it might not be clear if companies, for example, are breaking the law by delaying disclosure or notification of a breach, it is our view that consumers should be notified immediately when a breach occurs (i.e., organizations should simply “do the right thing”) which ultimately will often require changing the culture.

WHAT HRM PROFESSIONALS MUST DO MOVING FORWARD

For changing the culture towards integrity oriented data privacy and breach disclosure, an implicit digital contract of trust is necessary to iden- tify what data is to be entrusted by the user into the care of the organization and how it is to be handled. HRM professionals and other organizational members must examine their data relationships with customers, clients and across their supply chain to understand the context and value (for both the individual and the service provider) for every data interaction, determine access rights and security requirements, and define the expectations of engagement, accepted behaviors, purpose and outcomes (Etzioni, 2017). This suggests that the culture can change through achieving both technical and social solutions (Lee et al., 2016).

Before seeking a remedy to the problem of data privacy and breach disclosure in a world of pervasive internet, HRM professionals need first to understand the cause. This means they must ask and look to answer questions like the following:

1. What is the underlying organizational culture that is permitting this apparent negligence—or lapse in duty of care—toward data privacy and breach disclosure beyond the “zone of trust?”

2. What factors inhibit continuous improvement of data privacy and breach notification efforts?

3. How can better ethical organizational behaviors related data privacy and breach notification be incentivized in a rapid timeframe and institutionalized throughout the organization?

4. What can we learn about trust from incumbents that were created before the internet age?

We suggest that these contextual questions and organizational challenges should be explored by HRM professionals and other organizational members—at any scale: companies of every size and activity should urgently embark on a deep interrogation of their data privacy and breach practices. HRM, IT and other organization members have a responsibility to create the conditions for successfully building trust with organizational

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stakeholders given that it is a critical component to developing a culture of integrity for data privacy and data breach disclosure.

HRM should be the enabler and leader in developing and implement- ing a culture of integrity throughout the organization. The HRM function is where all of the organization’s most sensitive data are stored, processed and transmitted. HRM should be an active business partner with the CISO and others in protecting not only this but consumer and other information.

HRM cannot be all things to all people all of the time. However, like each organization’s board of directors, HRM does have an affirmative ethical and legal duty to act in the best interests of all its constituents—its employees, shareholders, suppliers, communities, and the environment when it comes to data privacy and breach disclosure or notification. HRM goals and objectives can only be successfully achieved by the assurance that their actions are aligned equitably with each stakeholder’s trust, data privacy and breach notification expectations. Hence, the best that can be expected is for HRM to partner with the rest of the organization to put forth balanced policies—made with competent rationale—that minimize or diffuse equitably the collateral damage associated with tough choices like the when and how of data privacy and breach notification.

Good organizational and thus information technology or cybersecurity or HRM policy analysis related data privacy and breach notification is not about choosing between the employee and other stakeholders, for exam- ple. Sound data privacy and breach notification policy analysis is about understanding the context of the organization or corporate promissory agreement and all of its derivative contracts. It is essential that an organi- zation’s data privacy and breach notification polices be ethically flexible in their construction and agile in their doctrine to respond to—and efficiently meet—changing internal and external forces that will affect the organiza- tional environment. Expectations of consumers, coworkers, and society for organizational performance are constantly bursting through new dimen- sions. People in organizations have not suddenly become immoral. What has changed are the contexts in which organizational decisions are made, the demands that are being made on business and the nature of what is considered proper corporate conduct in relation to data privacy and breach notification. In the context of a rapidly changing social and global environ- ment, such things as an organizations data privacy and breach disclosure policy must be viewed as a long-term set of central conceptions marked by a perpetual series of amendments, each with its own unique policy life cycle. Admittedly these concepts, however noble, fly in the face of precedent, consistency, and equitable application— each a cornerstone of today’s and tomorrow’s stakeholder’s data privacy and breach notification expectations.

Likewise, to be effective, data privacy and breach notification policy must be ethically balanced in its construction. If the data privacy and breach

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disclosure policy sets standards too low, it is likely to face stiff substantive due process challenges such as failing to meet stakeholders’ interests in, for example, customer rights or shareholder protection. Conversely, if the data privacy and breach disclosure policy sets ethical standards too high, the burden imposed on the organization and its employees may have a dangerous chilling effect that chokes off risk-taking and innovation. To thwart this risk, employees may retreat to an anticipatory defense whose strategy is to do nothing or put their head in the sand, for example, when it comes to cybersecurity threats, attacks or expected actions on their part related data privacy and breach notification.

Trust in organizational or cybersecurity policy alone is misplaced. HRM professionals, CISOs and other organizational members must increasingly be effective in ensuring socially desirable behavior (e.g., protection of one’s data, security, breach notification and the like) in an organizational environment. It is difficult to legislate a consensus of values through the policymaking process where property rights are polarized, for example, consumer or privacy rights (protection of their personal data and proac- tive breach notification) versus organizational rights to grow and possibly reap the benefits of having access to consumers’ data or the like. In many instances, the only significant measurement that organizations receive positive feedback from is for good earnings. The capital markets are very efficient in providing feedback on corporations’ economic contracts. How- ever, feedback on an organization’s data privacy and breach disclosure social contracts, such as ethical performance, for example, in how trans- parent they are in relation to data privacy and how quickly or timely they are in notifying consumers following a data breach, is too often ignored except in a negative context, for example, like with the recent data breach scandals and failures to notify consumers following a breach we have all seen in the news.

CONCLUSION

In a world where more and more records are lost or stolen every minute and more organizations experience crippling security breaches, the wave of data breaches continues to rise. It is also apparent that far too many com- panies are still not prepared enough for data breaches (and fulfilling their breach notification responsibilities) even though they are becoming more commonplace. With this reality, regulators, legislators and consumers must increasingly hold organizations more accountable for compliance failures and lapses in data protection and breach notification.

With cyberattacks or breaches becoming demonstrably commonplace, it is of the utmost importance for today’s HRM professionals and other

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organizational leaders to acknowledge the risks of data storage and pre- pare appropriately by institutionalizing ethical approaches to cybersecurity based on a culture of integrity that puts customers-first in the form of data privacy and breach notification. Security software that constantly evolves and updates, more frequent checks to try to catch data breaches earlier (Richardson, 2016), and developing a clear and thorough cybersecurity strategy, cybersecurity resilience and proactive cybersecurity incident plans of action for handling a breach long before one occurs are all crucial, as is communication with customers and clients as quickly as is feasible before, during and after a breach. The public is becoming increasingly aware of the cybersecurity risks that today’s organizations (and they) are facing, but history has shown time and time again that these incidents are far more likely to be forgiven by the public when a company is honest, transparent and put ethical treatment of customers first and foremost. As was the case in the GDPRs examples of good breach notification actions and emails by British Airways, American Express, and Superdrug (Data and Marketing Association, 2018). On the other hand, when the company tries to cover the mistake up (e.g., a culture of cover-up), as was the case in how Yahoo and Equifax handled their cybersecurity breaches and especially in their failure to notify its consumers of the breach.

HRM professionals and other organizational members need to be aware that not only do they face regulatory or potentially legal problems if they have a data breach and are found to be negligent and fail to notify consum- ers of the breach. They also could suffer significant public relations issues as the public learns that they had a major breach of data and failed to notify those impacted by the breach. Data privacy and breach notification needs to be embedded at a cultural level and in our view HRM is really at the forefront of getting that across because HRM touches every layer of the organization.

While there is little today’s HRM professionals and their organizations can do to change the patchwork of cybersecurity laws to include no set federal regulation or standard, there are things that they can do can do to build and institutionalize a culture that minimizes the harm, for example, that results from cybersecurity incidents. Organizations must raise the bar in terms of what enlightened customers now expect of their businesses. Simply put this means that today’s successful organizations need to place satisfied customers at the top of the list of their core values. Organizations today are expected to have not only cybersecurity incident plans in place to deal with cybersecurity breaches but more specifically a customer-first or culture of integrity as it relates to disclosure and breach notification.

A culture of integrity thus is the type of organizational culture in which positive moral values are ingrained throughout the organization’s cyber- security vision, strategy, and actions which translate into sustaining a

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relationship of trust with consumers and others or a customer-first way of doing business. Culture of integrity organizations are obsessed with doing the right thing when it comes to their customers. The policies and procedures in these organizations make the good of stakeholders’ part of the organization’s good. HRM professionals and others live by the motto from a major UN report “Enterprises should notify customers once they become aware of personal data breaches” (United Nations, 2014). In these types of organizations HRM professionals and others are obsessed with fairness and live by ground rules which emphasize that the organization’s partners and consumers’ interests count as much as their own. They see cybersecurity activities like data privacy and breach notification in terms of purpose. This purpose is a way of operating that members of the orga- nization highly value and live in their day-to-day data privacy and breach notification actions.

It is important for HRM professionals to understand the key role they can and should play in building and sustaining a culture of integrity related data privacy and breach disclosure. As earlier in this chapter, achieving such a culture across the organization requires action on many fronts: people, process, technology and outside partners. Many groups, including HRM, need to be engaged. Culture is people and process. Technology and outside partners (e.g., vendors, suppliers, etc.) are supporting players. Details matter. It is great that, according to the research data, 75% of organizations are getting management more involved when it comes to cybersecurity in general (Scholl, 2019). However, it is important that HRM professionals and C-level executives regularly communicate the importance of data privacy and breach notification. An annual communication to all employees will not work. HRM knows how to implement effective internal communications.

Continuous, incremental improvement of data privacy and breach notification is vital. There are no cybersecurity or data privacy or breach notification magic bullets, or 30-day sprints. In fact, HRM profession- als must remember that the essence of the word “culture” is “to grow.” Incremental improvement applies to both overall culture and to specific elements, like risk management. An effective risk management program is another building block for a good cybersecurity culture or culture of integrity.

The rate of change that people will accept and the messaging around suggested changes will inhibit continuous improvement of data privacy and breach notification efforts (and associated culture of integrity. Humans can grow, but usually don’t heed dire reports of impending disaster like a cybersecurity attack or breach. An organization’s employees may, how- ever, accept incremental adjustments in, for example, risk awareness or mitigations or data privacy or breach notification. HRM in our view is best

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equipped to understand the people issues inhibiting effective organiza- tional change for those organizations who are committed to moving to a culture of integrity.

Process is an equally important piece of the cultural puzzle. We are not referring to cybersecurity processes like “patch management” or “privi- leged identity management.” Instead we are referring to the processes to build a culture of integrity. These are the set of behaviors that help ensure that the organization will protect consumer’s information or ensure data privacy, whether it is employee records, customer data or intellectual prop- erty. It is our contention that any cultural change has the greatest likelihood of success when there is a partnership involving HRM and the CISO. A culture of integrity should be the gold standard that HRM professionals work to establish when it comes to their involvement in cybersecurity. A standard that has at its foundation “doing the right thing” when it comes to data privacy and breach notification. Organizations have been changing or reviving cultures for years, and HRM professionals have been proactively engaged in these efforts—so there’s no need to reinvent the wheel.

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Yannella, P. N., & Ricci, K. P. (2018, September 13). Mandatory data breach notification in Canada: Understanding your new obligations. https://www.cyberadviserblog. com/2018/09/mandatory-data-breach-notification-in-canada-understanding- your-new-obligations/

NOTE

1. Target’s stock price fell almost 14% in a couple of months after announcing the data breach crisis on December 19, 2013. It should be noted that while stock prices may drop research shows that they tend to rebound after short dives (see BAI Security, 2017; Hershberger, 2016).

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. 169–187 Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. 169

CHAPTER 8

HUMAN RESOURCES AND ETHICS

The Social Glue Within a Banking Establishment

Sheri K. Bias and Wendy W. Brown

Ethics and integrity play a large role in establishing the connection between the customers and employees to serve as the guidelines and expectations for interaction. This is especially true within the banking industry where employees are handling the money of the customers. Monetary matters are typically a concern for most individuals and ensuring that financial institutions handle these affairs in the most ethical matter is an important element of trust in the organization and customer relationship.

Employees of each financial institution have access to customer account information. In this regard, handling customer transactions in an ethical manner is paramount. When employees are tempted to access information that is not relevant or needed to know for their positions, there could be risk for the organization. Is it human nature to compare what others have to what you do or don’t have? It only takes a phone call or e-mail from a former spouse or friend to say they think banking employees are looking at

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their account in an unauthorized fashion. Each time an employee accesses a customer’s account, it can be tracked. There must be a legitimate business reason for looking into a customer’s account. Since banks store personal information of their clients and handle a highly liquid commodity—cash— it is paramount that employees within this industry have a high level of integrity and trustworthiness which makes the role of human resources extremely important (Ingram, 2019).

Financial institutions are some of the most widely regulated entities across the globe. Regulations set a common goal for operations, but these institutions should also have an underlying code of ethical conduct which outlines the expectations for service to customers. These may vary from organization to organization, but in total should facilitate ethical decision making in challenging situations. According to Adeyanju (2014),

As financial intermediaries, banks mobilize funds from the surplus spend- ing units at a cost for on-lending to the deficit spending units at a price. Banks also provide an efficient payment mechanism in the economy; to settle the business, personal transactions, and international obligation of their customers. However, banks must operate within certain guidelines, either as defined by law, public policy, practice, or convention. In today’s banking industry, the code of ethics and professionalism serves as the foun- dation upon which banks must make decisions based on honesty, integrity, confidence and trust. A formalized code of ethics provides banks with an understanding and knowledge of what is expected from them in terms of responsibilities and behavior. (p. 75)

ETHICAL RISKS IN BANKING

Employees who are connected and engaged within the organization should be less tempted to behave in ways that are unethical. According to Nestor- Harper (2019), honesty, trust, and integrity are critical for protection of the banking organization particularly in light of access to other people’s money. Research on human resources practices and ethics has described the link between a strong corporate ethical culture and the attitude toward work by employees (Valentine & Godkin, 2017). Intuitively it would seem that banking establishments, just by the sheer nature of the business of dealing with money, would want to uphold the highest standards of ethics. Starr (2017) references that the reason banking jobs carry strict standards is because of trust. Yet, there are many examples from within this indus- try that show where there has been a misalignment with organizational expectations and employee actions. In this chapter, we will describe several potential areas that have been identified within the banking industry that

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lead to tests of employee ethics and integrity. The chapter will then discuss several ways to address ethical concerns within the banking industry in general before taking a closer look at how one financial institution (Bayport Credit Union) undertook this charge.

Borrowing From Cash Drawers

Compensation and benefits for tellers may not always allow them to ensure they are able to take care of their life expenses. Therefore, an unfor- tunate practice within the banking industry is that of tellers borrowing money from their cash drawers in order to cover life expenses from pay- check to paycheck. According to Munson (2020), the most common form of cash larceny is stealing money from the till as the employee has direct access to the cash within the drawer, and typically this theft would lead to an imbalance between transaction totals and the actual cash in the drawer.

Unfortunately, tellers have been known to take cash from their teller drawer. New tellers, or those that have a lack of ethics, may see their teller drawer or cash vault full of cash as an opportunity to help themselves. In one situation, there was a large cash outage in the balancing of the branch vault. The organization took immediate measures to investigate the situation. Cameras were reviewed for footage of employee conduct and interaction with customers. Other branch employees were interviewed to determine knowledge and observation of the situation. Drawer and vault audits were completed as part of this process. This investigation took place over a period of several hours. Additionally, jackets and purses were searched prior to allowing employees to exit the building after the close of business. Employees were suspended pending an investigation. After an extensive investigation, several employees lost their jobs.

There were many questions to be considered in a situation such as described above where there is a large sum of cash missing. Could one of the employees have taken a strap of cash out of the vault and passed it to an accomplice waiting in the drive thru lane? How many times has an employee slipped an extra bill or two into their personal belongings at their teller station and walked right out the door with the cash? Showing a small outage to a teller drawer in one or two incidents may not cause as much alarm as one large outage. However, patterns and employee perfor- mance and behaviors do factor into the big picture when making decisions about continued employment. The HR infrastructure of an organization in the banking industry should address these components of the position and ensure measures are in place in the recruiting and performance assessment protocols to mitigate the risk to organizations (Ingram, 2019).

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Check Kiting

All financial institutions work hard for the accounts they open, loans they make and customers they maintain. Customers are constantly exposed to advertisements that tout the best rates or services. Further, customers frequently switch from one financial institution to another either just chas- ing better rates or new products and services. Additionally, having multiple accounts allows customers to float money between multiple financial insti- tutions. Check kiting is knowingly writing a check for a greater amount than the actual account balance from one bank to cover funds at another bank (Merriam-Webster, 2020).

Walsh (2020) provides an example of how this shell game works:

On Monday, a prospective check kiter deposits a $500 check from account A into account B and then shortly thereafter deposits a $500 check from account B into account A. On Tuesday, another round of deposits is made as well as some partial withdrawals. On Wednesday, one bank collects its money from account A, while another collects its money from account B. But there is no actual money in either account; instead, there is just a series of alleged funds back and forth between the two accounts.

Banking employees often try to beat the system by check kiting. The ugly truth is that it ends up causing the employee more than the amount that they started trying to float or cover with the first check kiting incident. Typically, before it is discovered the amounts increase quickly to cover withdrawals between the various institutions along the way. Employees have easily put themselves in debt over $5,000 from several days to a few short weeks. In past experiences, the unethical behavior was reported by another employee that was asked to make increasing amounts of deposits drawn off the same individual’s account from another bank on a daily basis or by the other financial institution’s fraud department.

According to LaMance (2018), check kiting is a serious crime. It is one of the most strictly enforced white-collar crimes. Intentionally writing a check for under $100 can be criminally charged as a misdemeanor. If there are multiple checks can increase the charges to a felony. Even first-time offenders can face significant penalties. LaMance referenced fines upwards of $500,000 and imprisonment of 20 plus years for check kiting crimes.

One actual example of recent check kiting fraud was expressed as an honest mistake by the employee, but the courts upheld the denial of this individual’s claim for unemployment (Miller, 2015). Miller (2015) described the situation as the PNC bank worker being fired for check kit- ing, applying for unemployment and being denied, then taking the case to the Pennsylvania state court system. The employee claimed that it was an honest mistake where bad checks were deposited into the bank’s automated

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teller machine (ATM) then immediate withdrawals were completed. The employee claimed he did not know the checks were bad as they had been written by a third party. However, there were multiple incidences of ATM deposits coupled with immediate withdrawals which led the Pennsylvania state court to uphold the decision to disqualify the individual from receiv- ing unemployment payments due to the deliberate and dishonest conduct of check kiting (Miller, 2015).

Kickbacks

Fraud, in any form, poses a risk to the individual, the organization, and the financial system overall. The Financial Anti-Fraud Enforcement Act of 1990 (2019) sets forth guidelines for anti-kickback efforts within financial institutions. Within the banking industry, kickbacks could come from loan officers giving preferential treatment to friends by approving loans that would otherwise not be approved or benefiting from loan proceed such as lower interest rates. Approval for a loan may have been granted without proper reporting of a relationship such as a family member’s account as related. In such a case, the loan officer which have the authority to approve a loan for the family member. Any kickbacks for such an approved loan would be unethical and not in compliance with the Financial Anti-Fraud Enforcement Act of 1990.

The Federal Bureau of Investigation (FBI) considers mortgage fraud as a white-collar crime (2019). According to the FBI, if there is an instance of false information that is used to influence the banking institution’s decision about loan approval, reducing payoff amounts, or preferential repayment terms, this is considered fraud. Loan officers have specialized knowledge regarding lending along with the authority to facilitate loans which can provide incentives for kickbacks. This would be considered a fraud for profit situation, and if the fraud is egregious enough, it could lead to the collapse of the federally-insured financial institution (FBI, 2019).

Falsifying Time Sheets

Employees who are paid on an hourly basis are typically expected to report their time worked to the organization. Organizations can use a vari- ety of different mechanisms to track this time worked. Paper copy time sheets, wherein employees would manually keep track of hours worked, may be kept by employees and submitted on a basis in accordance with business operations. Automated systems could also be used by organi- zations wherein the employees would essentially record the arrival time

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beginning work and then the depart time upon completing the workday. As an organization grows, an automated method for managing the employee time keeping process makes the most administrative sense.

Banking employees who clock in and out for each workday can access time clocks via payroll services/vendors through any variety of technology depending on the selection of such infrastructure by the institution. There have been instances of employees clocking in for other employees which records as the late employee actually being on time for work. One particu- lar example was an employee actually clocking in for work from a remote location that was approximately 15 minutes away from the job site. This was identified by the supervisor who was looking for the individual, but the individual could not be found on premise. Part of the investigation to determine the extent of this situation entailed running reports and view- ing the video captured on location to determine the true arrival time of the employee. Disciplinary action was taken toward the employee in this situation, as well as the organization turned off employee access to clock- ing in remotely through the electronic payroll system so that this practice would not continue.

Another way an employee may falsify timesheets involves the rounding of time clock punches. If the pay policy indicates employees will be paid in 15 minute increments, employees can clock in up to 7 minutes after the hour and be paid for the entire 15 minute period, however if they clock in at 8 minutes after the hour, they will not be paid until 15 minutes past the hour. A clock watcher trying to beat or cheat the system may wait to clock out for lunch at 8 minutes after the hour (indicating that they left for lunch at 12:15 verses 12:00) and clock back in at 7 minutes after the hour; which rounds to 1:00. This allows the employee to unethically steal 15 minutes of time each day until caught. Time clock audits can be performed in con- junction with leadership observations, coaching, and corrective actions to avoid this type of abuse.

Account Take Overs/Identity Theft

A significant concern to customers and financial institutions is that of financial identity theft or fraud. Siciliano (2020) describes this phenom- enon as using another person’s account information to obtain products or services by using that individual’s existing accounts. It can mean using unauthorized access to account information, using someone else’s credit card, or withdrawing funds from another’s account. According to the 2018 Experian Global Fraud and Identity Report (2018), individuals put themselves at significant risk for account take over fraud from the use of cell phones. There is much personal identifying information (PII) that is

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transmitted via various channels that can be unknowingly captured for unauthorized use. Additionally, at significant risk are those in the elderly population as scammers are constantly developing new ways of exploitation of victims (Marchini & Pascual, 2019).

According to the Centers for Disease Control and Prevention (CDC, 2020), elder abuse is intentional behaviors committed by a caregiver or other individual in relation to the elderly individual where there is an expectation of trust that creates harm. Elder abuse can create a situation where a known person may force an elderly person to transfer funds or withdraw large sums of money. Additionally, an elderly person may also be convinced, for no reason, to make a known person that helps to care for them to be joint or beneficiary on their long-standing account. The CDC (2020) provided examples of this type of abuse as forgery, misuse or theft of money or possessions, coercion or deception to surrender money or property and improper use of guardianship or power of attorney, but the CDC also expressed that it does not limit fraudulent situations to just these examples. Typically, large withdrawals are a key, and it is ethical and expected of bank employees to report suspicious activity.

One critical question for financial institutions is: How many account takeovers actually stem from employee involvement? An employee may have noticed a large balance account and made note of PII and provided it to a fraudster in exchange for compensation. In one situation, an elderly victim’s account was identified by the fraudster. Enough PII was known to change an e-mail address over the phone. During a call on the next day, the fraudster was able to call back establish online banking access utilizing the recently changed e-mail address. After reviewing the elderly victim’s account utilizing online banking, the fraudster was able to dial back into the call center and request a wire transfer out of the account to another financial institution. An employee reviewing this account and the amount of the wire transfer should have caught this suspicious activity and reported the suspicious activity immediately. An internal investigation found that the elderly member never had an e-mail address and never asked to have online banking. An employee that fails to report suspected elder abuse could be neglecting their responsibility to do the right thing. Allowing anyone to be taken advantage of is morally and ethically wrong.

According to the Consumer Financial Protection Bureau (2017), Suspi- cious Activity Reports (SARs) are one way that financial services providers report a suspected financial crime to the government and, ultimately, to law enforcement. SARs help law enforcement entities identify individuals involved in a broad spectrum of financial crimes, including elder financial exploitation. Law enforcement entities can use SARs to fight crime, as they may use the information in SARs to trigger investigations, support ongoing investigations, and identify subjects. Access to SARs and their use

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is restricted under federal law. Knowledge concerning the existence of a SAR is strictly confidential and is generally limited to law enforcement and financial regulatory authorities (Consumer Financial Protection Bureau, 2017).

Additionally, According to the Code of Federal Regulations (CFR) 31 (2011), financial institutions must file SARs if certain dollar amounts are reached such as mandatory filing when a suspicious transaction involves or aggregates to at least $5,000 in funds or assets ($2,000 for money services businesses). Financial institutions may also file SARs voluntarily if the trans- action is below the regulatory dollar threshold. In addition, a bank must file a SAR for insider abuse involving any amount, violations aggregating to $5,000 or more where a suspect can be identified, and violations aggre- gating to $25,000 or more regardless of whether the bank can identify a suspect (Code of Federal Regulations (CFR) 12, 2017).

An example that BayPort Credit Union experienced was prior to the time of significant use of technology. It was discovered that an employee was making fake loans on current member accounts. For instance, the employee would take a $10,000 loan on a member’s account and would then make the monthly payments on the account. The member was not alerted to any issues since payments were being made on time, and unless the member was scrutinizing the monthly banking statements, they were typically not aware of this happening. The employee then would take out other loans on other members accounts to continue to make payments on the loans previously taken. Unfortunately, if the member was not paying attention, the employee got away with these behaviors. Eventually, the creation of these false loans was discovered through an audit conducted on the paper records of the members. During this time, the employee was suspended from the enterprise while an investigation was conducted, and subsequently disciplinary action was taken against the employee.

Creation of Fake Accounts and Commission Schemes

There are steps taken to create new member accounts which would typi- cally begin with verification of eligibility to have the account. A member may physically come into the establishment in order to set up the new account. There is also a virtual option of creating an account online which may be a more attractive option to prospective customers. Creating new accounts has been riddled with unethical activities and actions taken by employees as noted in the examples below.

At Wells Fargo, there have been reports of unethical behaviors where tellers created fake accounts in order to meet performance measure- ments—essentially saving their jobs by the sheer numbers of accounts created. The sales targets coupled with the compensation incentives lead

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employees to boost sales figures by creating fake accounts and often fund- ing them via the transfer of funds from customer’s actual accounts which was unauthorized and often resulted in fees (Silverman, 2020). According to Egan (2017), Wells Fargo uncovered 3.5 million fake accounts which substantially tarnished the company’s reputation in the eyes of the public. Additionally, over 500,000 customers were enrolled in unauthorized online bill pay (Egan, 2017).

According to Ferrer (2018), the whistleblower, Jessie Guitron, described the intense pressure that Wells Fargo employees were under to open new accounts which equated to at least 8 per day. The practice within Wells Fargo was that customer service representatives would promise fee-free accounts to customers, and then actually open premium accounts which came with hefty fees. Customers would then be further misled about their accounts as they questioned the institution who had their signatures on the forms for opening the accounts. Unfortunately, when employees would express concerns about these practices through the organization’s ethics hotline, they faced retaliation, up to and including being terminated from the organization (Egan, 2017).

Based on this concerning situation, Wells Fargo’s recent employee hand- book references expectations and codes of conduct for all employees which can be seen as a partial attempt to mitigate these circumstances in the future (Wells Fargo Code of Ethics and Business Conduct, 2019). Throughout this Code, words such as honesty, ethics, integrity, and fairness all permeate the expectations for customer interactions. It should be every consumer’s expectation to be treated with integrity during a business transaction, and this is particularly true when the organization is handling money.

COVID-19 Ethical Implications

Business continuity planning is a normal part business practices around the world. However, in 2020, the coronavirus (COVID-19) took the world by storm and the playbooks for disaster recovery had not been written to handle what was about to happen. Ethical issues within the banking industry were presented when employees had to make decisions regarding coming to work or taking advantage of the new laws.

The Families First Coronavirus Response Act (FFCRA), (Department of Labor, 2020) specifies that employers with less than 500 employees provide benefits to employees that had never been required previously. According to the Department of Labor (2020), under the FFCRA, employees were afforded up to 2 weeks (80 hours, or a part-time employee’s 2-week equiva- lent) of paid sick leave based on the higher of their regular rate of pay, or the applicable state or Federal minimum wage.

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Employers were told to be more lenient and not ask for medical notes and documentation due to the overwhelming demand on doctors. Tele- health became the preferred method of doctor’s appointments to avoid contact and additional spread of the coronavirus. Unfortunately, COVID- 19 tests were not always available due to the high demand and those with symptoms were not always tested. This left coworkers to worry about the possibility of contracting the virus from individuals sent home or those asked not to report to work if they had been exposed to or in direct con- tact with an individual that tested positive for COVID-19. In addition, the mounting fear also involved waiting on customers in a face-to-face capacity.

Adding to the potential incentive to take advantage of the relaxed medi- cal documentation and use of sick leave, schools and childcare facilities were closed and employees needed to be home to care for and educate their children. This created a dilemma and personal struggle for all par- ents. Do they stay home to care for their children and lose income that provides for their family or do they go to work and have a family member or neighbor take care of their children? Should they use the afforded medi- cal leave to ensure they were able to meet personal financial demands? Answers to these questions could lead to the use of sick leave when typi- cally it would not be considered a legitimate reason to do so. The FFCRA did provide for employees to be paid two-thirds of their salary for up to 10 weeks of paid leave to take care of their children. However, that could potentially be an implication for meeting personal financial needs. How can an employer attempt to uphold standards of ethics and integrity when facing such unprecedented societal impacts?

ADDRESSING ETHICAL CONCERNS WITHIN THE INDUSTRY

There are multiple safeguards that organizations can implement to help them determine ethical conduct of employees. Some of these safeguards are more generalized and would potentially be applicable to organizations outside of the banking industry. In other cases, there are specific steps that banks and other financial institutions should consider in order to minimize risk for their organization. Starr (2017) references that the banking indus- try is typically known for having stringent hiring protocols.

According to the Credit Union Magazine (2014), using preemployment background checks as well as checking references of candidates can serve an organization well. While these are processes that may be done uni- versally at many organizations, background checks and references are also important determining ethics of a candidate. Banking organizations whose employees will be handling case or financial data should have a background check conducted, as well as reference checks could uncover

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prior fraudulent activity that an employee may have committed (Credit Union Magazine, 2014). Ingram (2019) supports the notion of background checks for banking employees and says that these organizations need to be diligent in enforcing these protocols to uncover the criminal and financial history of the individual. The temptation, based on handling of cash and other personal information, is too great for banks to risk hiring individuals with questionable ethics.

Another consideration to establish standards of ethics is to enforce a code of conduct. A written ethics policy can set the tone for business opera- tions. According to Credit Union Magazine (2014), this code of conduct should include all policies, details on conflicts of interest, and well as perti- nent laws or regulations. Best practice is to review the code of conduct with new employees during the orientation phase of training, as well as have them sign documentation that they have read and understood expecta- tions. Additionally, Todd (2013) describes that organizations should also have a fraud policy that outlines specifically what constitutes fraud and what the ramifications will be for such actions.

Banking organizations typically have detailed audit trails for transac- tions. Conducting regular audits can help with the detection of fraud as well as serve as a deterrent to fraud (Credit Union Magazine, 2014). Ingram (2019) references that work processes must be designed and monitored in such a way to reduce opportunities for theft and collusion. However, the organization does have to be careful as this could also give the employees a feeling of mistrust within the organization if they constantly feel like they are being watched. According to Todd (2013), including surprise or unan- nounced audits may also help to uncover and deter fraud. In a surprise audit, employees would not have time to alter, destroy or misplace evidence of the fraud leading to uncovering of such activities. Credit Union Maga- zine (2014) notes to reconcile statements regularly to identify fraudulent activities as well as treat unusual transactions with suspicion. By constantly monitoring and identifying potentially fraudulent activities, banking orga- nizations should be able to minimize unauthorized activities.

There are critical KSA’s that an employee within the banking industry should possess in order to be successful. These include the ability to: provide customer service, count cash accurately and maintain a properly balanced cash drawer, upselling, and being professional (Belcher, 2017). Banking employees, as previously discussed, are typically responsible for handling transactions that entail large amounts of cash. Oftentimes, there may be customers who are disagreeable that the employees encounter, as well as these employees are often held to higher levels of ethics and responsibility than employees in other businesses (Belcher, 2017). These KSA’s should be a concrete part of the job description and used during the recruiting processes, as well as part of the performance assessment

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infrastructure to ensure that employees are performing to the expectations of the organization.

Leadership at the top levels of the organization can make a difference by setting the example for ethical behaviors. By setting the right tone within the organizations, it is hoped to avoid fraudulent behaviors. Credit Union Magazine (2014) recommends conducting regular one-on-one meetings with employees throughout the organization and encourage employees to share their concerns about potential violations. Leadership exhibiting these behaviors should help to create an environment where employees recognize that fraud is taken seriously and potentially minimize engage- ment in such behaviors.

Particularly critical within the banking industry is being able to recog- nize signs of fraud. Employees within these banking organizations may feel that they are underappreciated or not compensated enough for what they do. Thus, they may justify their actions through behaviors that are unethical. It is imperative that the organization be able to identify the signs of fraudulent behaviors. According to Credit Union Magazine (2014), some signs of potential fraudulent behaviors could be that employees are overly protective about their workspace or prefer to work in an unsuper- vised capacity. Todd (2013) references that employers should require time away from all employees as an employee who never takes vacations has the opportunity to continue to conceal fraudulent behaviors. Many violations or fraudulent transactions are discovered while the perpetrators are on vacation. Additionally, in the banking industry, having unexplained debt is of concern to the organization as this could lead to temptation for fraudu- lent behaviors (Credit Union Magazine, 2014). Organizations need to assess and uphold underlying values of honesty, integrity, trust, and truthfulness as part of the operational standard (Nestor-Harper, 2019).

ADDRESSING ETHICAL CONCERNS: AN EXAMPLE FROM BAYPORT CREDIT UNION

BayPort Credit Union prides itself on being ethical in all aspects of its operations. The Employee Handbook for BayPort designed with assistance from Kaufman & Canoles, P.C., outlines the basic premises of ethical behav- iors. The Internal Audit Department is responsible for educating the staff on ethical behaviors each year. Annual training includes examples of what to look for and key behaviors that contradict ethical behaviors.

BayPort’s CEO, Jim Mears, shared his thoughts on one of our core values: integrity. On any given day, we all face difficult situations that require us to decide what is the right thing to do. The Ethics Program at BayPort is designed to help employees with the decisions to do the right thing in the performance of their jobs. BayPort is proud of their long-standing legacy,

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which has been built on providing excellent member service, sound ethics, and operating with integrity. The organization continues to be committed to these principles that have served the credit union and members over the years.

With regard to recruiting new talent into the organization, BayPort is committed to ensuring that those hired embrace the values of ethics and integrity. To facilitate the background checks on prospective employees during the selection process, BayPort uses Sterling Talent Solutions for federal, state, and jurisdictional background checks. This is comprised of a 7-year look back period for this background check. Additionally, employment credit checks are performed as part of the process as well as social security number verification and to determine any previous financial sanctions.

BayPort employees are responsible for understanding and complying with the information found in the Ethics Program (BayPort Credit Union, 2020). The organization’s expectation is that employees will speak up if there are concerns about any inappropriate behaviors observed or expe- rienced. It is important for leadership to know about issues as soon as possible so there can be a focus on immediate resolution. The credit union is committed to protecting those who report a violation or suspected viola- tion in good faith.

BayPort encourages employees to use the organizational resources provided, such as the Open-Door Policy or Lighthouse (www.lighthouse- services.com) an independent third-party anonymous reporting hotline service the credit union has partnered with to offer employees 24/7 sup- port. The organization has earned and maintained a solid reputation by employees consistently operating with integrity with each other, as well as ensuring honesty in the interactions with the members. Members trust BayPort and the services that are delivered because the organization consis- tently upholds strong values. BayPort understands that maintaining these high standards of excellence and ethical behavior is important to long-term growth and success.

BayPort’s intranet is designed to help educate staff about workplace ethics, identifying and resolving ethical dilemmas, and ways to report ethical concerns. Through open channels of communication, the organization promotes a safe and ethical working environment. Employees can access the intranet on the worksite or remotely to ensure that they get answers to their questions.

Additionally, employee engagement is key. Providing education and training opportunities that allow employees to succeed and be involved is critical to establishing a foundation of ethics. If an employee is hesitant or completely refuses to be involved, this raises the question of potential underlying reasons. Does the individual have performance issues or

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disagree with the business decisions being made? These are topics that would need to be explored further on an individual basis.

The Human Resources Department at BayPort is fully integrated within the business operations and has ensured the design of work is such that is minimizes opportunities for theft or collusion. Job design is critical in the separation of duties and ensuring that employees are qualified for their positions. For example, BayPort’s job descriptions contain the following elements:

Teller:

• Receives, inspects, and verifies cash and negotiable instruments for deposit, accepts loan payments and performs a variety of other functions as directed in accordance with established poli- cies and procedures.

• Responsible for balancing transaction input at the end of each workday.

• Maintains a secure and organized workspace. Logs on and off of the teller station as necessary and each time the station is left, secure cash, etc.

Head/Lead Teller:

• Reviews out of balance conditions at daily closing and reconciles teller cash drawers and vault as required.

• Ensures monthly cash drawer audits are completed and recorded as required.

• Responsible for ordering, sending, and verification of cash ship- ments to and from the Federal Reserve. Maintains a cash inven- tory within regulatory limitations.

• Maintains control of the vault. Responsible for currency received/ disbursed and handling of all teller requests. Responsible for all negotiable and non-negotiable instruments.

Loan Officers:

• Assists current and potential members’ with the loan applica- tion process. (This is accomplished by reviewing all available information on the loan application, using credit bureau reports; assisting members, branches and indirect dealers with the loan application process, to answer applicable inquiries and ensure completeness of information; and approving or denying loan applications.)

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Front line employees, such as bank tellers, are responsible for maintain- ing a cash drawer, gift cards, properly posting deposits, withdrawals, and loan payments, and offering products and services to meet the member’s needs. This would also be a time to potentially identify and address any concerns regarding check kiting that may be suspected where employees would notify management about concerns. Processes and procedures are in place to ensure day to day operations run smoothly and to avoid the potential for unethical practices. Teller cash drawer and vaults audits are performed on a random basis. Branch audits occur on a random basis where every negotiable instrument is counted piece by piece. Cash out- ages are researched and reported to Human Resources within a specified period of ten days. Records are kept to ensure that any pattern of behavior is thoroughly investigated in a timely manner. The organization also has an anonymous tip available for reporting if someone observed an employee taking the cash or having someone deposit funds (cash) to an account that the employee is primary or joint. These are essential duties for which employees must be able to adhere to ethical standards at all times.

Regarding performance assessment of the execution of duties for those employees with direct access to cash and providing service to members, accuracy of the transactions is key. Cash outages are tracked and evaluated for patterns of behavior/performance issues. Transaction accuracy is included in teller transactions, new account opening, and loan processing. During employee’ evaluations the following is taken into account: accuracy, quality of work/quantity of work, job knowledge, communication, dependability, interpersonal relations, and problem solving. Realistic goals are set and measured with regard to referral and sales goals to mitigate situations such as previously described being experienced at other banking institutions.

BayPort also ensures that employees are compensated in a meaningful manner to avoid the potential for temptation of unethical behavior. For example, salary adjustments are periodically taken into consideration as the market warrants. In January 2020, BayPort made lump salary adjust- ments to base pay for a majority of hourly employees to coincide with the Federal and State minimum wage potential increases. The pay practices of the organization also consistently show that BayPort employees reach the midpoints of a pay scale within 3–5 years. Additionally, merit increases are given based on individual employee performance.

There are commission incentives in place, as well within BayPort. Loan officers with approval authority are not eligible for commission in order to minimize incentive to act in an unethical manner. Mortgage loan origina- tors are eligible for a commission on the loans, as well as business bankers are eligible to receive a commission on dollar of new accounts and dollar of loans processed. BayPort does closely monitor these reward mechanisms to ensure that expected ethical behaviors are being upheld.

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184 S. K. BIAS and W. W. BROWN

Based on access to technology and the World Wide Web, creating an online account has become standard place in BayPort’s operation. Mem- bers provide basic information in order to create an account. Since there is the potential to easily create a fake account line by crafting the nec- essary materials for verification of identity, BayPort also employs other means to ensure that accounts are legitimate. BayPort uses the Office of Foreign Assets Control (OFCAC) system to verify the information of the individual applying for an account. This report will return information on the individual if there is an issue that has been previously identified with the person’s identity.

As previously mentioned, BayPort has an extensive and rigorous recruit- ing process to meet the needs of the organization, as this also applies to executive talent. In March of 2018, BayPort’s Chief Human Resources Officer worked closely with the Board Executive Committee and executive recruiters on a nationwide search to fill their vacant CEO position. This position of leadership is recognized for its criticality to providing guidance for the organization and upholding the ethical standards that will allow the organization to thrive. After an extensive evaluation and selection process, the top candidate selected was an internal candidate and former COO of the BayPort organization who will carry on the ethical culture within the operation.

As previously mentioned, with regard to employee accuracy of time recording and allowing employees to clock in for work remotely, BayPort deactivated that feature in their previous payroll system. However, cur- rently BayPort is working with their new payroll provider, UltiPro, which allows geofencing. Geofencing is a mobile time sheet/area application that captures information when an employee enters or leaves the area desig- nated within the geofence. Geofences can be set up in any geographic configuration that BayPort desires which allows for maximum flexibility in the use of the product. Employees use their own personal devices with the payroll app loaded that communicates with UltiPro. A prompt is sent to the employee upon leaving asking for confirmation that they are in fact leaving the geofence area (Timesheet Mobile, 2019). Geofencing also rem- edies when employees fail to manually clock out from the jobsite as it can track the employee’s geographic location from connection with the app on the cellular device. Luckily, geofencing of headquarters and each branch location at BayPort has ensured stoppage of the practice remote clocking in outside of the geographic area and falsification of timesheets.

The impacts from the COVID-19 pandemic are far-reaching and still to be seen as society as a whole has come to a screeching halt with the exception of essential business operations. The banking industry is seen as essential to the function of the communities, and therefore, BayPort has had to adapt and implement preventative measures never before imagined.

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Human Resources and Ethics 185

Unprecedented times call for unprecedented responses. Anxiety levels have been extremely high, and employees wanted to stop working and dealing with customers. The coronavirus was spread by direct and indirect contact. Social distancing became a normal practice within BayPort. Six feet was the recommended safe distance for interaction in order to avoid the spread of COVID-19.

In response to COVID-19 regulations, BayPort branch lobbies subse- quently were closed with the exception of strict “by appointment” only access for customers. Exceptions to this practice were made in some situa- tions as a “curbside” interaction took place. Employee concerns grew and employees started refusing to help customers. Those employees were tran- sitioned to a support department for a temporary period of time. Banking transactions are facilitated through the use of the drive-thrus where cus- tomers do not come into face-to-face contact with BayPort employees. Further, additional sanitizing protocols are completed after each transac- tion to minimize contact and potential for contamination.

The BayPort workforce was evaluated and reassigned to different jobs as applicable in order to meet the needs of the operation during the COVID- 19 pandemic. There was high demand in the contact (call) center, and the new drive-thru technology of Interactive Teller Machines. Low Mortgage rates created huge boom in lending. BayPort reassigned employees to these areas and allowed employees to telework where applicable in order to minimize face-to-face contact with customers. It quickly came to light that the technological infrastructure of BayPort would not fully support the demand placed upon it by the employees teleworking, so that orga- nization strategically decided to upgrade their infrastructure to ensure business continuity during these times. BayPort needed to ensure critical operations would continue. Since employees were able to clock in via their remote desktop, clocking in was not an issue. Employee access could be tracked and leaders were asked to ensure all employee were paid for their normal working hours.

Overall, BayPort’s concerted efforts toward ensuring common under- standing of expectations and ethical behaviors have served the organization well. BayPort has transitioned into the era of using technology to assist in managing people processes and setting standards to protect the cus- tomer base they serve. While no one can be sure of the future. BayPort has positioned themselves to be a leader within the community and ensuring ethical standards are the focus of the enterprise.

CONCLUSIONS

All organizations face ethical challenges during the conduct of business between the employees and customers they serve. The organization does

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need to provide a clear code of conduct to define the expectations for employees, particularly when faced with challenging decision-making situ- ations. Based on the regulatory environment within the banking industry, these codes of conduct become even more important in setting the expecta- tions for handling financial transactions. Banking organizations needs to ensure that employee morals align with the ethical expectations of conduct in order to avoid situations as described within this chapter. Successful banking institutions will embrace a climate where employees feel valued and are not tempted to violate their code of conduct or other regulatory code.

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. 189–223 Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. 189

CHAPTER 9

AT THE CROSSROADS OF SHRM AND SHCM

Lessons From the 7th Fleet “Fat Leonard” Ethics Scandal

Marcia A. Beck

“Our warfighting capability is diminished by the reality—and the perception—of illegal, unethical, and immoral behavior.

—Rear Admiral Walter E. Carter, Jr., USN (Carter, 2018, p. 118)

“The conduct at the core of today’s settlements—and the past culture that gave rise to it—are reprehensible and wholly inconsistent with the values on which Wells Fargo was built.”

—(Charles Scharf, CEO of Wells Fargo, quoted in Eisen, 2020, p. A1).

“I was raised with a strong moral compass, but I let myself get taken in by the ‘Varsity Blues’ scheme.”

—(Doug Hodge, 2020, p. A19)

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Organizations face distinct problems, as illustrated in the above quotations, in attempting to create the conditions for ethical organizational behavior: the lack of connections between operational goals and ethical standards, the misalignment between organizational values and organizational behavior, and the inability of employees to gain “insight into their own motives and weaknesses” in specific organizational environments that may compel them to put aside their moral convictions and engage in unethical acts (Vogt, 2018, p. 32).

Human resource management (HRM) and human capital manage- ment (HCM) policies, though recognized as playing an important role in organizational ethics management (Bowman & West, 2014; Winstanley & Woodall, 2004) often fail to create the conditions for sustained ethical orga- nizational behavior when applied in isolation from each other. This chapter argues that strategic approaches to HRM (SHRM) and HCM (SHCM) can more effectively lay the foundations for sustained ethical organizational climates and cultures that offer robust defenses against unethical behavior. Using the “Fat Leonard” corruption scandal in the U.S. Navy’s 7th Fleet as the cautionary tale of the failure to strategically manage HR and HC poli- cies, the analysis centers on the intersection between SHRM and SHCM, on the one hand, and between ethical organizational climate and ethical organizational culture, on the other. The lessons learned can help SHR and SHC embed ethical standards and promote ethical behavior in their own organizations. New behavioral ethics research and innovative, though controversial, developments in artificial intelligence and virtual technolo- gies offer methods of measuring and influencing individual values and connecting them to organizational values, with the goal of systematically encouraging ethical behavior. By weaving ethical standards into a syner- gistic combination of SHRM and SHCM systems, in which operational goals are linked to ethics practices, organizations can create robust ethical climates and organizational cultures to defend against unethical behavior.

HRM employs “best practices” to develop the most effective methods of embedding ethical standards into HR policies of recruitment, hiring, onboarding, training, performance evaluations, promotion, and reward/ punishment systems to promote ethical behavior (Boon et al., 2019; March- ington & Grugulis, 2000). Emphasis is usually placed on compliance with professional norms, laws, and organizational rules to boost performance and reduce organizational costs that follow from ethics violations. Whereas HRM views employees as resources to be leveraged to enhance performance (Lengnick-Hall et al., 2009), HCM approaches employees as productive co-actors in organizational operations whose particular combination of qualities adds value to the organization—a value not always measured in short-term performance outcomes. Although there is disagreement as to what constitutes “human capital,” the basis for discussion is usually some

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At the Crossroads of SHRM and SHCM 191

variation of “knowledge, skills, abilities, and other characteristics” (KSAOs) (Wright et al., 2014, p. 357) broadly understood to include education, social as well as operational skills, and a wide-ranging set of abilities related to creativity and innovation, depending on the organization’s mission.

HCM practices of socialization, employee engagement, interactive communication and feedback, teamwork, and experiential learning are designed to enhance employees’ personal and professional development as well-rounded individuals who “cannot be separated from [their] knowledge and skills” (Becker, 1964, p. 16). HCM has long been suggested as a strat- egy for compelling employees’ commitment to their organization through active participation and input into organizational processes (Marchington, 2007) and has also served traditional HRM goals of reduced absenteeism, accidents, and turnover (Gallup, 2017; Reilly, 2014). In the field of ethics, one of the most important “O’s” in KSAOs to HCM managers is awareness of the roots of (un)ethical behavior in employee attitudes and values. HCM “best practices” ethics policies focus on training and engaging employees in ways that promote this awareness. “Integrity management,” for example, is designed to compel employees to regulate their own behavior within the organization and teach them to make ethical decisions in relation to a value-based set of standards (Hoekstra & Kaptein, 2014; Treviño & Weaver, 2003), without them necessarily internalizing those values as their own and integrating them into their own moral identity (Tremblay et al., 2017). Both HRM and HCM tend to emphasize a functional approach to imple- menting ethics policies, designed to promote ethical values and ethical behavior within certain categories of HR and HC policies but not viewed as integrated systems that incorporate moral values and ethical behavior expectations into the fabric of all organizational processes.

STRATEGIC HUMAN RESOURCE MANAGEMENT AND ETHICAL ORGANIZATIONAL CLIMATE

Since the mid-1980s, a more systematic approach to HRM has focused on bundling an organization’s human resource policies and practices as a comprehensive strategy to attain strategic organizational goals (Boxall, 1996; Lepak et al., 2006; Manroop et al., 2014). The “best practices” of traditional HRM turned into the “best fit” of SHRM, with “fit” indicating an alignment or “synergy” of all human resource policies and practices, including employee competency management, with strategic goals (Boon et al., 2018; Boxall & Purcell, 2000; Marchington, 2007). SHRM strate- gies tend to emphasize operational performance (Wright et al., 2014), in which comprehensive performance analytics and employee-management feedback loops are employed to improve performance outcomes (Shin &

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Konrad, 2017). The “best fit” conception of SHRM recognizes the potential for conflict between or among different organizational goals within the bundle of HR practices (Boxall & Purcell, 2000; Wright & Snell, 1998), pav- ing the way toward an understanding of the potential disjunction between expectations about ethical behavior and operational performance goals. Ethical organizations reconcile these tensions by integrating performance metrics with expectations of ethical behavior embedded in all HR poli- cies. If employees perceive that a combination of HR practices, leadership actions, and decision-making mechanisms value ethical behavior as coequal with operational performance, an ethical climate that promotes ethical behavior is more likely to ensue (Kuenzi et al., 2020).

Research on organizational ethical climates emerged in the wake of SHRM studies in the late 1980s as it became apparent that a synergy of HR practices and procedures made an impact on employees’ perception of the (un)importance of ethical behavior and organizational standards for behaving (un)ethically. Based on earlier theoretical approaches on how employee perceptions of HR management impact ethical behavior, Victor and Cullen (1988) developed an Ethical Climate Questionnaire (ECQ) to assess “respondents’ perceptions of how [organizational members] make decisions” related to HR practices and organizational events that involve ethical decision-making (p. 109). They then consolidated ethical climate types that emerged from ECQ results into five main categories—caring, law and code, rules, instrumental, and independent (p. 113). Both the ECQ and the climate typology are widely employed in organizational ethics research (Kish-Gephart et al., 2010; Manroop et al., 2014).

Kuenzi et al. (2020) developed methods that go beyond the individual psychology focus of the ECQ toward an assessment of collective per- ceptions HR policies, practices, and procedures with respect to ethical standards at the organizational level. Basing their ethical climate measure- ment on employee perceptions of HR systems—recruitment and selection, orientation and training, policy and codes, rewards and punishments, accountability and responsibility—(Treviño & Nelson, 2017) in combina- tion with organizational leadership and decision-making processes across the organization, Kuenzi et al. place an organization’s ethical climate firmly within the realm of SHRM. Ethics practices that are part of separate HR procedures but not linked to others, such as ethical training in the absence of ethics criteria in performance or promotion evaluations, are less likely to create a positive ethical climate, which correlates positively with ethical behavior. The integration of ethical standards into SHRM systems increases perceptions of the importance of ethics across organizational processes; the resulting ethical organizational climate reduces instances of unethical behavior (Kuenzi et al., 2020).

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At the Crossroads of SHRM and SHCM 193

STRATEGIC HUMAN CAPITAL MANAGEMENT AND ETHICAL ORGANIZATIONAL CULTURE

Perceptions and ethical behavior based on compliance measures tell only part of the story. Since the foundation of ethics rests on conceptions of moral identity and moral identity refers to a system of values, organizations that are most impervious to unethical behavior concern themselves with employees’ individual moral identities and the collective moral identity of organizational members as a whole (Crossan et al., 2013; Treviño et al., 2006; Wright & Goodstein, 2007). Going beyond perceptions of formal HR policies that lie at the foundation of ethical climates, Treviño and Nelson (2017) dig more deeply into informal, as well as formal, organizational systems to highlight drivers of (un)ethical behavior in organizations. These informal systems—shared meanings that develop in a specific organiza- tional context through accepted norms, language, stories, role models, and rituals—correspond to Edgar Schein’s conception of the “artifacts” of an organization—both the tangible and intangible factors that make people feel connected in an organizational environment and determine how they interact with each other (Schein, 2016); in other words, part of an organiza- tion’s culture that develops as the “co-evolution of the individual and the environment over time” (Denison, 1996, p. 635).

The value-based approach to ethical behavior and the attempt to align individual, collective, and organizational values puts SHCM on the front lines of shaping ethical organizational cultures. SHCM, often folded into the SHRM framework, has only recently been explored as a distinct field of study (Afiouni, 2013; Boon et al., 2018; Wright et al., 2014; Nyberg et al., 2014; Ployhart et al., 2014). In SHCM, employee KSAOs are viewed in terms of their intellectual, social, and relational value (Afiouni, 2013), with the goal of integrating strategies to realize unique combinations of these forms of human capital to increase value for both employees and the organization (Wright et al., 2014; Ployharet al., 2014). In the field of ethics, SHCM’s integrated bundle of practices goes beyond integrity management and toward the goal of inculcating values that undergird personal integrity through strategies that help employees internalize and integrate the values into their own moral identity (Olson, 2013; Trem- blay et al., 2017). A synergy of HCM strategies—including socialization, communication loops, teamwork, conflict resolution training, and peer role-modeling—is designed to tap into or shape employee values, foster a collective organizational value-based identity, and align individual and collective moral identities with core organizational values (Lengnick-Hall et al., 2009). In moving from “best practices” to “best fit,” SHCM strate- gies seek employees whose values align with those of the organization and then create the organizational conditions in which those values flourish.

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194 M. A. BECK

Employee “fit theory” posits that alignment between an employee’s values and organizational values predicts employee organizational identification, commitment, and retainment. Behavior ethics and collective moral identity theories would suggest that value alignment is also positively correlated with ethical behavior (Kuenzi et al., 2020).

Ethics SHCM instills and reinforces the moral values that support ethical behavior and the organizational cues that allow those values to be acted upon (Boon et al., 2018, for example, include employee “behavior” under SHRM and “psychology” under SHCM: 38, 40). A strong individual moral identity is positively connected to ethical behavior (Aquino & Reed, 2002). The stronger individuals’ moral identity, the less likely they are to be influ- enced by pressures to engage in unethical behavior. At the same time, individuals seek to align their values to group values, so that a collective moral identity— “the extent to which employees … internalize moral traits as central to their shared unit conception”—can impact an individual’s moral identity either positively or negatively (Kuenzi et al., p. 50). Orga- nizations that fail to nurture an organizational collective moral identity can create conditions in which organizational cues, transmitted through informal systems of organizational interaction, compel individuals’ moral identity to “fade” (Tenbrunsel & Messick, 2004) as their behavior aligns with dominant group tendencies, leading “good people to do bad things” (Bazerman & Tenbrunsel, 2011; Bersoff, 1999). SHCM plays a central role in fostering ethical organizational cultures with its emphasis on individual character development (Lengnick-Hall et al., 2009) in an organizational environment that supports that development through formal and informal interactions based on a collective moral identity.

New quantitative research in the field of behavioral ethics teases out the underlying attitudes and values that drive employees’ engagement with respect to an organization’s ethical environment (Mitchell et al.,2020). It explores the relationship among employee values, perceptions, and behavior by, among other strategies, using social cognition and social infor- mation processing theories to understand why employees engage in or tolerate unethical organizational behavior. In this way, the new findings, as well as behavioral psychology innovations that track employee traits during the course of a workday, can contribute to SHCM’s organizational ethics strategy by aligning employee values with espoused organizational values and fostering a collective moral identity that establishes the foundation for a robust value-based ethical organizational culture. These are examined in this chapter’s final section.

Organizational climate overlaps with organizational culture but the two are distinct (Denison, 1996; Kuenzi et al., 2020; Schein, 2016). Perceptions of HR practices are more easily measured than the mix of individual values and underlying attitudes that produce norms, meaning, and collective

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At the Crossroads of SHRM and SHCM 195

identities in a particular organizational environment (Denison, 1996; Schein, 2016). Perception-driven ethical climates are more tenuous, given the changeable nature of both HR practices and related employee orientations toward their efficacy. Ethical cultures, rooted in individual and collective moral identities with their long-term development of shared meanings and interpretations, are more deeply entrenched and can mitigate the impact of changes in an organization’s ethical climate. Robust ethical organizations will be characterized by strong ethical climates supported by ethical cultures resilient to unethical behavior (Caza et al., 2004), that is: at the intersection of SHRM and SHCM.

The “Fat Leonard” corruption scandal illustrates how the failure to embed ethical standards and expectations into a concerted combination of SHRM and SHCM allowed one man—Glenn “Fat Leonard” Francis—to co-opt traditional HR practices and dominate informal socialization and communication systems in the absence of HC strategies. By successfully instilling a set of attitudes about “how things worked” in the daily opera- tions of 7th Fleet ships and operational offices and creating a disconnect between individual moral identities and the collective identity of a large swath of 7th Fleet sailors, Francis oriented the organizational climate and manipulated the organizational culture toward his own unethical ends, dragging his willing collaborators and the 7th Fleet’s reputation down with him.

THE FAT LEONARD CASE STUDY

The depth and scope of the corruption scandal in the U.S. Navy’s 7th Fleet are almost difficult to fathom. The corruption, which began in the 1990s and blossomed into full flower in the early 2000s, first became public in 2013 with the arrest of its perpetrator and a spate of U.S. Department of Justice (DOJ) indictments, and continues to have reverberations through- out the Navy (Whitlock, 2017, 2018b). The instigator of the scandal was a Malaysian national, Glenn Leonard Francis, who recruited and culti- vated 7th Fleet personnel, up and down the chain of command, as well as civilians in contracting and logistics offices, with the goal of establishing a network of coconspirators to ensure that his company, Glenn Defense Marine Asia (GDMA), would be awarded lucrative Navy contracts to ser- vice ships at ports throughout the 7th Fleet’s Asian area of operations and beyond. GDMA, as a “husbanding agent” (LaGrone, 2019), had extensive contracts with the U.S. Navy to provide a range of services to 7th Fleet ships including tugboat operations, provision of fuel and fresh water, waste removal, and port-of-call functions such as ground transportation and security (Whitlock, 2018b).

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The moniker “Fat Leonard” referred to Francis’ 350-pound girth; he himself had a more apt use of the descriptive adjective—“fat revenue ports”—to describe those operations in which he massively overcharged the Navy for services rendered (Jampoler, 2018; Whitlock, 2015), to the tune of about 35 million dollars. Fleecing the Navy, however, was the least of the scandal. Francis used classified information, leaked to him from Navy personnel, to learn which ports 7th Fleet ships would visit; he also convinced operational staff to divert ships to ports he controlled (U.S. DOJ, 2017). In return for steering ships in his direction, overlooking unjustified bills, and compelling staff at all levels to violate Navy contracting, opera- tional, and ethics rules, Francis lavishly rewarded his facilitators with cash loans, prostitutes flown in from around the world, sex parties, culinary feasts, family vacations in exotic resorts and luxury hotels, expensive gifts for spouses, and—perhaps most insidious of all—personal friendship and mentorship—the comfort of a friendly face in a potentially hostile, dan- gerous, and sometimes lonely environment (Whitlock, 2016b). The GDMA corruption scandal involved junior as well as senior “flag officers”—ranks in the Navy Admiralty. Francis developed and maintained his elaborate network of 7th Fleet personnel, from flag officers on down, first by ingra- tiating himself with senior officers as the head of a contracting firm that provided operationally excellent services. He then used those connections to encourage junior officers and staff to ply his corrupt trade, incorporat- ing them into his network of bribes and kickbacks, as senior officers turned a blind eye.

Warning signs appeared to Navy personnel about a decade into the scandal but Francis’ 7th Fleet insiders proved to be more loyal to Francis than to their Navy oath. In 2004, a junior officer, who noted later that “everyone knew what was going on” with respect to GDMA misconduct, was chastised by his superiors after he called Francis into the Navy’s Ship Support office in Hong Kong to explain a blatant overcharge for an amount of waste removal that could not have taken place (Whitlock, 2016b). When the Judge Advocate General’s (JAG) office sent an “ethics alert” in February 2006 to senior officers on the USS Blue Ridge—the 7th Fleet’s flagship vessel based in Japan - warning about potential contractor bribery attempts, the 7th Fleet Commander’s Chief of Staff, instead of warning sailors about the ethical problems associated with Francis, had a Blue Ridge Lieutenant Commander forward the alert to Francis to warn him to lie low (U.S. DOJ, 2017). In 2010, the Navy sent another “ethics alert,” this time to all 7th Fleet naval and civilian personnel, reminding them of federal ethics laws limiting gifts from defense contractors; strict procedures were introduced for submitting receipts, along with written justifications of any contractor financial enticements. The effort went nowhere, as senior 7th Fleet officers either watered the communication down into insignificance or blocked

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it entirely (Whitlock, 2016c). By 2010, the Naval Criminal Investigative Service (NCIS) had started to investigate the red flags and opened two criminal investigations of GMDA for overbilling. But, in addition to having moles in the Navy’s contracting offices and among logistics officers, Francis had a Navy special law enforcement officer acting for him in the NCIS. In return for cash, prostitutes, and luxury travel, this decorated criminal investigator, based in Singapore and then Quantico, Virginia NCIS offices, alerted Francis to the Navy’s suspicions and, by his own admission, “used his special training as a law enforcement agent to help Francis avoid detection” (Associated Press, 2013, n.p.). Francis openly bragged about his NCIS mole, confident that the 7th Fleet’s own staff would exert pressure on anyone within the Fleet who tried to expose his crimes. His confidence was well-placed. Francis’ engaging personality and continuing flow of bribes and lavish inducements had created a culture of protection, whereby Francis’ misdeeds became an acceptable part of daily operations. Potential whistleblowers were either informally sanctioned by criticism, bullying, and ostracization or met with attempts to lure them into Francis’ web of corruption.

Suspicions among NCIS officials finally led to a sting operation on Francis’ NCIS operator in 2013, and the scandal went public. Two channels of investigation and punishment are running parallel: the DOJ is prosecuting criminal cases in the District Court of Southern California, while the Navy opened up a CDA—a “Consolidated Disposition Authority”—headed by a senior officer charged with investigating acts that cannot be labeled felonies but fall under breaches of the Navy’s operational and ethics regulations (Cavas, 2015). By the end of 2018, the DOJ investigations included 60 admirals (Whitlock, 2018a), federal prosecutors had charged 32 Navy personnel including the ranks of admiral, commander, captain, and petty officer (Cassin, 2017) and indicted 3 more on corruption charges (Farem, 2018), while 440 cases had been turned over to the Navy for investigation (LaGrone, 2019). Several of those charged by the DOJ have served or are serving jail time; Navy punishments include a court martial, censure, admonishment, and early retirement. Investigations are ongoing as of this writing. Francis himself was arrested in 2013 and detained by the U.S. Marshall’s Service in San Diego. When the U.S. Navy subpoenaed him for a trial against one of their commanders in the GMDA case, federal authorities disclosed that Francis had been given a medical leave and, although released from custody, was living in an undisclosed place under constant surveillance. He would not be given clearance, U.S. officials told the Navy, to attend the trial (Whitlock, 2018a).

The scandal will negatively impact the U.S. 7th Fleet, and the Navy as a whole, for a long time. Many senior officers have effectively been frozen in place because of the ongoing criminal and ethical violation investigations

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(Cavas, 2015). The loss, if only temporary, of their knowledge and experi- ence undermines the Navy’s operational goals (Cordle, 2017; Jampoler, 2018). Beyond the investigations, the cloud of suspicion that hangs over almost everyone who came in contact with Francis during the decades of misdeeds has put a hold on promotions to senior ranks. Given the Navy’s “up or out” policy whereby junior officers are either promoted or retired out of the service (Cordle, 2017), this has resulted in a leadership void that will have significant consequences in an organization where 77% of the employees are under 25 years old (Kurtz, 2020). The immeasurable but palpable lack of trust that bubbles up through this scandal—between Pentagon officials and the 7th Fleet leadership, sailors and officers, stymied whistleblowers and colleagues, and the American public and their lawmak- ers and the U.S. Navy—will likely have wave effects on early retirements, recruitments, and the cohesion of a culture that needs to be rebuilt from the bottom up and top down. The reputation of the Navy, domestically as representing a standard of national character and externally as a resilient fighting force, has been diminished (Jampoler, 2018). Most debilitating of all is the potential negative impact of the illegal acts and unethical behav- ior, especially the loss of confidence in the leadership and the resulting faults in the chain of command, on the Navy’s mission “to maintain, train and equip combat-ready Naval forces capable of winning wars, deterring aggression and maintaining freedom of the seas” (Prine, 2017; U.S. Navy, n.d.). Organizations that fail to recognize the connection between opera- tional goals and ethical behavior lay themselves open to the same loss of KSAs, resource capacity, and value.

Throughout the years when the corruption scandal went unaddressed, the Navy’s ethical standards were on full display and support systems were in place that appeared to buttress the emotional support network of sailors who might succumb to unethical temptations while far from home. Navy leaders vow to conduct themselves so as to be examples of “virtue and honor … and to “guard against and suppress all dissolute and immoral practices” in the ranks (Vogt, 2015, p. 43). The Navy’s Core Values Charter, highlighting “Honor, Courage, and Commitment,” directs sailors to act with integrity and “in the highest ethical manner,” to meet “the highest standards of personal conduct and decency,” and to “exhibit the highest degree of moral character” (U.S. Navy, n.d.). Recruits take an enlistment oath, a promise to uphold the Constitution, and ethics training courses.

The failure of these ethics codes and practices to prove resilient to the charms of Glenn Francis is endemic in many organizations: the compo- nents of the Navy’s piecemeal HR ethics policies were never combined to create an integrated set of ethical practices that aligned with operational and performance goals, individual and collective employee values, percep- tions about the relevance of ethical standards, and attitudes about “how

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things really worked” in the organizational environment. The 7th Fleet’s personnel were well aware of the ethics codes and standards of conduct, but apparently viewed them as heuristic platitudes that had little con- nection with their daily activities or decisions (Carter, 2014; Bray, 2018). While officers were held to a higher standard in pledging to guard against immoral behavior in the ranks, their overriding concern with “getting the job done” in a new and potentially hostile environment may have clouded their judgment when it came to balancing the excellent services provided by GMDA and the unethical ways in which they were provided. Leading up to the scandal, both the ethical climate and the ethical culture on 7th Fleet ships and in ship-servicing offices were weak and vulnerable to penetra- tion by unethical actors and actions. Francis spotted the weaknesses and turned both the climate and culture around to his advantage. As illustrated by organizational ethical scandals of various kinds—Enron, Wells Fargo, and Volkswagen—this can happen to any organization when the pursuit of operational goals blinds decision makers to the unethical implications of the means by which the goals are pursued.

THE CAPTURE OF WEAK ORGANIZATIONAL ETHICAL CLIMATES AND CULTURES

When Glenn Francis appeared on the 7th Fleet scene, the ethical climate in some of its operational environments was weak: a critical mass of officers and recruits perceived that both value- and legal-driven ethical standards referenced in HR policies were aspirational platitudes; ethics training was cursory (Bray, 2018). Decision-making processes were geared toward oper- ational concerns, and leadership had its own integrity problems. Ethical standards and expectations of ethical behavior were not embedded in daily routines or contracting practices; violations were addressed on an indi- vidual basis, with no attempt to discover systemic problems.

A review of Navy HR practices in the 1990s and early 2000s indicates an emphasis on operational competencies, from recruitment—the enlist- ment oath makes no mention of ethical or character standards—through retention (National Research Council, 1997). The 2005 Fifth Annual Navy Workforce Research and Analysis conference emphasized complex research methods and implementation algorithms to support the Navy’s integrated and aligned “Total Force Human Capital Management” systems, but these were almost exclusively directed toward recruitment and manage- ment practices that centered on operational competencies (Hattiangadi & Horne, 2005). The natural consequence was an emphasis on an efficient and effective procurement of the resources required for operational excel- lence. The one reference to anything even tangentially related to ethical

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behavior was the word “integrity” in a combined “dutifulness/integrity” trait on a ten-trait personality profile used for recruitment. There was no follow-up on how integrity would be cultivated or managed. The eighth iteration of the same conference, 3 years later, placed more emphasis on quality of life issues and morale problems associated with lack of sleep, anxiety and depression, loneliness, and limited opportunities to speak with loved ones—factors that may compel unethical behavior—but no recogni- tion of the potential ethical consequences or connection to recommended HR practices that might counteract them.

A Navy CO at the 2008 conference referenced a management tool that had been used “to measure character and deck plate behaviors in the fleet,” including 360 leadership assessments and predictive analytics, but the focus of the tool was the annual financial cost of “misconduct/unsafe behavior” and “misconduct discharges” (Stafford & Moskowitz, 2009, p. 107), without reference to the damages to trust, social capital, operational capabilities, retention, personnel advancement, and organization and personal reputa- tions caused by ethics violations. An emphasis on operational excellence and financial viability are laudatory goals in a military organization on the front lines of America’s national security threats. But the lack of integration of ethical expectations and practices into HR and HC systems presents its own threats, as the 7th Fleet corruption scandal illustrates: potential dam- age to national security through information leaks, the decimation of the 7th Fleet’s leadership structure, the weakening of organizational cohesion, and the erosion of trust in the Navy as institution, which could threaten recruitment, retention, and operational performance.

HRM practices, already lacking an emphasis on ethical behavior, received little support from Navy leadership. In 2012, Navy Captain Mark Light reported that “the U.S. Navy has an integrity problem in the ranks of its commanding officers (COs)” (Light, 2012, p. 136). Using Navy per- sonnel data, he found a significant increase in the number of captains and COs “dismissed for cause” or fired between 2002 and 2010 because of char- acter issues involving personal misconduct or ethical violations, though specific causes were not always specified. Captain Jason Vogt identified the same integrity problem among COs in 2015, despite measures taken since Light’s (2012) report to emphasize the importance of leadership character modeling and managing. The continuing lack of transparency about causes for demotions, dismissals, and forced retirements weakened the ethical climate: with transgressions dismissed as individual aberra- tions and the failure to collect data on unethical behavior warning signs, the Navy failed to recognize the systemic nature of unethical behavior and to identify “character issues” in rising leaders (Light, 2012; Vogt, 2015). The absence of financial deterrents for unethical conduct exacerbated the problem: Navy officers demoted or dismissed from leadership positions

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At the Crossroads of SHRM and SHCM 201

usually received their full pensions and suffered no financial consequences or loss of bonus rewards as “compensation for the time, training, and trust invested in them” (Vogt, 2015, p. 40). Both Light and Vogt identify the problems as HRM issues: insufficient training and personnel policies, failure to collect and integrate data from leadership evaluations and to systematically compile incident reports, the absence of pre-command char- acter evaluations, and the lack of financial penalties for the consequences of misconduct all contributed to the perceptions in a relatively small, but significant, number of COs that maintaining standards of ethical behavior was not central to Navy operations (Light, 2012; Vogt, 2015).

Leonard Glenn Francis, sensing the vulnerabilities in leadership charac- ter and HR/HC practices, effectively captured critical HR policies to create an unethical climate that promoted his own interests. Part of HRM’s task is to create expectancy on the part of employees as to what gets rewarded and punished, which risks are worth taking, and how much effort to use to attain organizational goals. Expectancy theory posits that employees cal- culate the pros and cons, in terms of rewards, for certain types of behavior within organizational environments (Deci, 1971; Lunenburg, 2011). By informally controlling the reward system for breaking rules and violating procedures, Francis baked unethical behavior into the expectancy theory equation: sailors learned to expect rewards by violating rules and proce- dures; the risk was worth taking because there were no punitive measures applied. Minimal effort, in terms of overlooking contracting and billing rules, not only resulted in either almost immediate payback or the prom- ise of future gain, but fulfilled the Navy’s performance goals of acquiring husbanding services as efficiently and effectively as possible.

To add motivation to employees seeking rewards—personal recogni- tion, friendship, gifts, sex, financial support, operational performance skill recognition—they found affirmation in fellow shipmates, who both par- ticipated in unethical acts and chastised those who refused or threatened to expose the corruption. Within his own theatre of operations, Francis assumed recruitment and onboarding functions, as he sought willing col- laborators in his schemes and encouraged Fleet members to do the same (Whitlock, 2018b). One recruit e-mailed Francis with his evaluation of “whether the new 7th Fleet [CO] [is] corruptible and hence a potential [addition] to the conspiracy;” another wrote that the USS Blue Ridge Chief of Staff was “completely comfortable” with Francis and “felt safe” (Cas- sin, 2017). Together, Navy “recruiters,” and in some cases their spouses, engaged in what they called “shaping operations,” effectively an onboard- ing process whereby new collaborators were primed to accept bribes in return for favors, and potential whistleblowers were sabotaged, shamed, or ostracized (Cassin, 2017; Whitlock, 2016c).

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Branching out to ensure delivery and protection, Francis established a network of informants throughout the 7th Fleet’s extended bureaucracy— inside a Navy regional contracting office in Singapore, among logistics personnel, and in the U.S. embassy in Manila; the informants provided Francis with information that allowed him to cheat the Fleet and evade detection (Whitlock, 2016c). The willingness and ability of senior offi- cers to block “ethics alerts” sent to all 7th Fleet personnel indicates that Francis controlled a key element of the Fleet’s communication system (Cas- sin, 2017; Whitlock, 2016c). Combined with Francis’ mole at NCIS, this provided Francis effective control over the 7th Fleet’s ethics compliance mechanism, thus allowing ethics violations to proceed apace for more than a decade.

At the same time that he manipulated HR practices, Francis cleverly and insidiously turned a culture already weak in its ethical foundations into a full-blown culture of corruption. Despite the Navy’s attempts since the 1980s to institutionally discourage deeply embedded sailor attitudes, such as tales of derring-do, womanizing, drinking, and port leave exploits, a “smoldering cultural legacy” whereby “behavioral standards are in com- petition with long-standing cultural norms [resulted in] increased personal accountability without addressing the cultural deficiencies that underlie unacceptable behavior” (Light, 2012, p. 143). Francis tapped into the legacy cultural orientations to offer sailors throwback experiences to wild parties, sexual exploits, and comradery centered on drunken bouts of excess (U.S. DOJ, 2017).

The application of Schein’s paradigm (Schein, 2016) illustrates how Francis first insinuated himself into organizational “artifacts” and then manipulated “underlying attitudes” to serve his own ends by effectively creating HC practices that served socialization, communication, network- ing, teamwork, collective identity, and personal fulfillment purposes. Navy “espoused values” faded into the background or were actively renounced, as the fate of the 2006 and 2010 “ethics alerts” illustrates. First using organizational symbols and language to legitimate his activities, Francis proceeded to informally change the rules of the game and alter the proce- dures by which a variety of services were procured for 7th Fleet ships. He made sure to appear in official photographs with a large number of COs at official events and ceremonies, received effusive “Bravo Zulu” (“well done”) notes on Navy letterhead that he published in company brochures, ingratiated himself into Navy change-of-command rituals, purchased a decommissioned British warship that he turned into a party boat for 7th Fleet officers, and had GDMA sponsor the nonprofit Navy League of the U.S. (Whitlock, 2017, 2016b). Francis jokingly used Navy terminology to label strippers and prostitutes he secured for his collaborators (Whitlock, 2017, 2016b); Navy memorabilia were used at Francis’ sex parties for Navy

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At the Crossroads of SHRM and SHCM 203

sailors (Whitlock, 2018b). Once he became part of the important symbolic fabric of 7th Fleet culture, it was easier to persuade personnel to bend con- tracting, procurement, bribery, and gift-taking rules, and procedures. The 7th Fleet personnel, aided by Francis’ moles in contracting and logistics offices, adapted Navy rules and procedures to adhere to Francis’ interests and terms.

As Francis became legitimated as friend of the Navy and GDMA as the source of operational excellence, many 7th Fleet sailors determined that the unethical behavior associated with Francis’ activities was “normal” and acceptable. The Navy’s espoused values—ignored by flag officers and staff alike—had no role to play in decision making or socialization practices because they were not embedded into operational tasks and thus con- nected to the realization of the Navy mission. One retired Navy Captain laments that the Sailors’ Creed—to “proudly serve with Honor, Courage, and Commitment”—is not aligned in practical ways with the Navy’s mis- sion to “conduct prompt and sustained combat operations at sea” (Eyer, 2017). Performance measured by operational goals and mission accom- plishments, devoid of concomitant expectations of ethical behavior, not only dominated HRM functions but was also embedded into the culture of “never say no” to operational missions and “never fail” to complete the assigned operational task (Light, 2012; Olson, 2017). The “zero defect” culture that developed in the Navy over decades led to deeply embedded attitudes that attaining resources to fulfill operational goals in the most efficient way possible was the paramount value in the nation’s supreme seafaring military force (Miller et al., 2019). Decades of throwing ethics overboard in the pursuit of operational excellence led Francis’ lawyers to say with confidence that there was a “culture of corruption” in the Navy and Francis simply played right to it (LaGrone, 2019; Prine, 2017).

The Fat Leonard ethics scandal in the 7th Fleet clearly involves an abdi- cation of leadership by the COs who actively engaged in or turned a blind eye to years of ethical violations that occurred out in the open for everyone to see. Leadership’s involvement or disengagement widened the scope of ethics violations, as junior officers and sailors figured that if their COs were taking part in, or not taking actions against, Francis’ schemes, they were free to engage in similar behavior, even if their actions violated their own sense of right and wrong. As in the Wells Fargo scandal involving hundreds of bank staff, when leaders formally or informally perpetrate an unethical course of action and fail in both their ethical role-modeling and managing functions, official organizational values and ethics codes become meaning- less words on paper.

The failure of COs to offer ethical guidance allowed the charismatic Francis to step in as an ersatz comforter-in-chief to 7th Fleet staff sailing in foreign waters, navigating unfamiliar ports-of-call, and facing new and

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uncertain threats in the South China seas, with the increasing assertion of China and Russia in the East (LaGrone, 2019). Offering friendship, sympathy, extracurricular activities, crew solidarity, concern about family members, an empathetic ear, and perhaps most importantly, ease of access to resources the 7th Fleet badly needed, Francis stepped into the leader- ship role, modeling unethical behavior and eventually even managing it by performing traditional HRM functions. As Francis informally took over key HR tasks in a large part of the 7th Fleet, there was no leadership inter- vention to mitigate the effects of violations of procurement, payment, and reporting practices. Many senior staff officers were willing participants in an ethical climate that made ethics violations a normal part of operational procedures.

At the same time, Francis captured critical socialization and communi- cation processes that created a collective identity and sense of solidarity based on the unethical conspiracy to hide illegal and unethical activities from the Navy brass. Several of Francis’ 7th Fleet recruits called Francis “The Lion King” and referred to themselves as “the Lion King’s Harem”; they communicated with Francis and each other on private foreign-based email accounts using false identities (U.S. DOJ, 2017). “[Francis] was a crook,” said one Commander convicted of a felon in the case, “but he was our crook” (LaGrone, 2019). Attitudes such as these corrupted an organiza- tional culture that by all accounts already lacked the courage of the Navy’s ethical convictions.

NCIS investigators knew for a long time about unethical practices in the 7th Fleet but failed to penetrate the defensive measures put in place by Francis’ operatives to get hard evidence. After the sting operation revealed the extent of the corruption scandal, many senior officers implicated denied any wrongdoing, while some junior officers and staff admitted that they knew they had committed unethical acts (Whitlock, 2016c). Some, including a retired Navy chaplain, either claim ignorance of the Navy’s ethics rules or ignorance that their—or their colleagues’—actions were in any way a violation of Navy contracting rules (Whitlock, 2018b). Several officers indicted by the DOJ made false statements, concealed the extent of their relationship with Francis, and destroyed evidence of their collu- sion (U.S. DOJ, 2017). The very fact that Francis’ facilitators characterized potential recruits as “corruptible” or not indicates their awareness of their own engagement in and furthering of unethical behavior. DOJ punish- ments for federal crimes and the Navy’s CDA for violations of ethical rules center on individual wrongdoing; there is little evidence of attempts to discover the roots of the unethical behavior in a climate focused on opera- tional performance and a culture focused on “zero failures” in attaining operational goals. Navy prosecutors tend to punish defendants within the Navy system less harshly than the original charges would warrant, in large

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At the Crossroads of SHRM and SHCM 205

part because of the difficulty of proving complicity and the unreliability of Francis’ testimony (Farem, 2018); this results in the widespread percep- tion on Navy blogs that senior officers get off lightly, while the lower ranks become scapegoats. Attitudes about unfairness and inequities in proce- dural and distributive justice involving the handling of unethical behavior increase distrust in the organization and undermine efforts to promote ethical behavior (Treviño & Weaver, 2001).

The good news: The Navy’s response to the Fat Leonard scandal appears to indicate a sea change in the organization’s orientation toward ethical behavior. Recognition that strengthening ethical compliance measures is not enough to address the causes of the scandal or inoculate sub-groups in the organization against future mass ethical breaches has led to an inte- grated approach to embedding ethical standards into all components of Navy operations (Bray, 2018; Cassin, 2017). Courses and leadership pro- grams at the U.S. Naval Academy, as well as new enlisted officer training programs, now emphasize character development and include inter-active training sessions based on participants’ interaction with their peers, as well as real-time feedback between them and their instructors (Lowe, 2019). Collective learning is emphasized over individual punishment for ethical violations, and there is a conscious effort to combine the highest standards of operational performance and ethical behavior: “competency and char- acter” (Eckstein, 2018; Maucione, 2017). In 2014, the Navy’s Command Leadership School at the Naval War College was transformed into the Naval Leadership and Ethics Center (NLEC); in 2018 this evolved into the College of Leadership and Ethics with the charge of proactively develop- ing ethical leaders, instilling the Core Values throughout the ranks, and “improving the culture of character development,” whereby ethics per- vades informal discussions up and down the chain of command (Eckstein, 2018; Vogt, 2015, p. 26).

A faculty “ethics team” takes “ethics across the curriculum” approach, as 10 days of class time in all core courses are dedicated to ethics training (Eckstein, 2018). Going beyond the classroom, the Navy is changing its officer evaluation system (“FITREPS”) to include formal assessments of personal character, and 360-degree evaluations based on feedback from all ranks. In de-emphasizing the orientation of evaluations toward promotion boards and directing them toward the individual being evaluated (Eckstein 2018), the Navy is moving from an HR approach that directly leverages human resources for organizational performance to an HC strategy that emphasizes individual growth and development, which can improve trust in the delegation of power and ultimately performance. At the deck plate level, both chaplains and licensed clinical counselors (DRCs: “deployed resiliency counselors”) provide emotional support for sailors to guard against personal reasons for ethical violations; Fleet and Family Support

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Centers (FFSCs) and quality of life programs provide shore-based support (McGough, 2014; Wright, 2015). Recreation (“FUN”) and Fitness (“FIT”) directors and programs now proactively address the personal needs of staff to prevent another Glenn Leonard Francis from manipulating vulnerable sailors to forget their oaths and corrupt their own moral identity (Currie, 2016; McGough, 2014). The Navy’s new training program, announced in May 2019, will be based on a “character-focused learning continuum” that will “integrate training throughout the sailor’s entire enlisted career” (U.S. Navy, 2019). The impact of these measures will depend on the extent to which they are bundled into a system of HR and HC practices that produce an ethical organizational climate and encourage an ethical organizational culture that both stand the test of time. What follows are a series of inte- grated SHRM and SHCM strategies that may help other organizations learn from the Navy’s mistakes.

MOVING TOWARD SHRM-SHCM INTEGRATION TO FOSTER ETHICAL CLIMATES AND CULTURES

I. Understand the Roots of (Un)Ethical Behavior

For many years, students of organizational ethics relied on moral phi- losophy as the foundation for teaching people to make ethical decisions (Kohlberg, 1984); the method is also used in organizational ethics HRM (Schumann, 2001). This approach focuses on individual personality fac- tors, including traits and values (Ford & Richardson, 1994; Low et al., 2000). While some approaches recognize certain ambiguities in ethical decision making and offer strategies for working through them to make ethical decisions, others depict ethical decision making as having “no gray areas” (Kemp, 1997).

Research in behavioral ethics, in contrast, clearly reveals “gray areas” involved in ethical decision-making that impact strategies to foster ethical climates and cultures. Whereas moral psychology approaches tend to assume a direct relationship between personal values and ethical behavior (Kohlberg & Candee, 1984), behavioral ethics research illustrates that intervening factors often cause people to behave in ways that betray their personal values (De Cremer & Vandekerchhove, 2017). “Ethical fading” occurs when people intend to behave ethically in a given situation only to make unethical decisions when contingencies emerge during the actual event (Tenbrunsel & Messick, 2005; Tenbrunsel et al., 2010). Internal psychological proclivities or external pressures may create a “bounded ethicality,” whereby people neglect the ethical consequences of decisions or actions in order to attain certain outcomes that they perceive to have

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At the Crossroads of SHRM and SHCM 207

priority (Chugh et al., 2005; Chugh & Kern, 2016). When “ethical fading” occurs within “bounded ethicality” contexts, people often engage in “ethical framing”—convincing themselves that their behavior was more ethical than it actually was, and caused less harm than it actually did (Fehr et al., 2020).

SHR and SHC managers must address both organizational- and per- sonal-level factors that compel (un)ethical decision making if they are to create ethical climates and lay the foundations for ethical cultures. At the organizational level, SHRM requires that operational goals do not crowd out ethical decision making by producing a “bounded ethicality” environ- ment that induces employees’ ethical compass to go awry. SHCM strategies should focus on the personal qualities required to help employers recog- nize and address potential employee responses to ethical conundrums in a specific organizational context. On an individual level, behavioral psychology research has identified and developed ways to measure per- sonal value orientations such as a “moral identity”—“a complex knowledge structure consisting of moral values, goals, traits, and behavioral scripts”— (Aquino et al., 2009, p. 124)—and a “moral displacement propensity” (MDP)—“the deactivation of self-regulatory mechanisms governing moral conduct—(Bandura, 1999, p. 193) that both play a role in (un)ethical decision-making outcomes (Detert et al., 2008; Fehr et al., 2020). While organizational environment may impact both employees’ moral identity and MDP levels in terms of behavioral outcomes, these value orientations can also impact the strength of an organization’s moral climate, trust in organizational leadership, and the underlying attitudes that lie at the foun- dation of organizational culture. SHR and SHC managers thus have a vested interest in understanding and potentially measuring employees’ moral identities and MDP levels. Using the tools provided by behavioral psychology research (Fehr et al., 2020; Kuenzi et al., 2020), and increas- ingly by artificial intelligence technology, SHRM can focus on recruiting, hiring, and training employees who prove to be a good ethical fit with the organization; SHCM on developing strategies to align employee moral identities with organizational values and to reduce the likelihood that their MDP levels will undermine them.

II. Assess the Organizational Environment and Measure Organization Climate and Culture

The SHRM “resource-based view” (RBV) of organizations asserts that firms can gain a competitive performance advantage by cultivating a combination of human resources that cannot be replicated by competitors (Becker & Huselid, 2006). The SHCM version of RBV posits that organizations gain a

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competitive advantage by cultivating human capital qualities that increase the value of the organization in terms of more intangible factors such as trust, dependability, and a workforce whose values align with organizational values (Afiouni, 2013; Wright et al., 2014). In both cases, considering ethical behavior as a resource, along with KSAs, will have positive long-term effects on both performance and value and should thus be an integral part of both SHRM and SHCM systems. SHR and SHC managers should assess the internal and external organizational environments to determine factors that may impede unethical behavior, which undermines both performance and value.

Internally, the emphasis on operational goals in both the 7th Fleet and Wells Fargo cases, for example, created a “bounded ethicality” environ- ment in which staff, under pressure to attain performance metrics, crowded out ethical considerations in their decision making. The failure to embed ethical values in social interactions and informal communication processes allowed unethical practices easily and with less resistance to frame the way employees made decisions. Increased stress caused by unreasonable per- formance expectations, and in the case of the 7th Fleet, lack of training and workloads that led to extreme exhaustion (GAO, 2015, 2017, 2019; Miller et al., 2019; Jampoler, 2018), increased the likelihood of “ethical fading”—a disconnect between personal moral identities and behavior (Moffit, 2019). Recent research has shown that employees’ positive and negative “activated moods”—the arousal of feelings such as excitement, determination, fear, and nervousness—all of which might surface in the face of performance pressures, can increase their tendencies to help team- mates engage in unethical acts (Umpress et al., 2020). Externally, in the case of Wells Fargo, competition in the banking sector led even CEOs who “stressed ethics” to announce that “the most important metric of success [is] revenue growth.” In the 7th Fleet, new threats that had emerged in Asian waters with increased aggression on the part of China and Russia compelled COs to rely on the one firm that offered services, security, and knowledge of unfamiliar ports, regardless of the corrupting influences of its leader. Assessing both internal and external environments can help SHR and SHC managers devise strategies to overcome the hurdles that impede ethical behavior.

SHR and SHC managers can determine the extent to which internal and external pressures might compel unethical behavior by measuring organizational climate and culture. This would illuminate the extent to which ethical standards are considered to be embedded in HR practices and HC value systems. The results can establish an ethical baseline to determine what needs to be done to enhance the status and perpetuation of ethical behavior. Kuenzi et al.’s (2020) ethical organizational climate (EOC) model includes a questionnaire that taps into perceptions of the

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At the Crossroads of SHRM and SHCM 209

(un)importance of ethics in an organization, an ethical climate index that measures responses about perceptions of organizational (a)moral identity, and a scale that rates (un)ethical leadership tendencies. This methodology can be adapted to organizational contingencies and used as a diagnostic tool, given their findings about the impact of leaders’ behavior and the strength of a collective moral identity on ethical organizational climates.

In like measure, various methods have been designed to measure orga- nizational culture. Cameron and Quinn (2011) utilize the “organizational culture assessment instrument (OCAI),” which measures six dimensions of organizational culture based on the “competing values framework” to diag- nose cultural tendencies and implement change management strategies. The OCAI can be adapted to assess the attitudes about ethical standards in an organization’s competing values environment and to establish a foun- dation for change strategies. “Ethical Culture” and “Ethical Leadership” Inventories (ECI and ELIs) can be adapted to organizational circum- stances and goals to diagnose attitudes, such as the importance of “ethical clarity” and “self-transcending values” in an organization, to get a sense of employee attitudes about the (un)importance of ethical standards as embedded in formal and informal systems and practices (Kaptein, 2009).

Tremblay et al. (2017) develop a diagnostic “ethics profile” tool specifi- cally oriented toward attitudes about ethical organizational programs and practices. The tool first assesses and graphs managers’ application of six types of ethical practices: engagement, experiential, consultative, struc- tural, normative, and detection-based. “Individual ethics profiles” then assess employees’ personal attitudes about which practices are preferable. This type of survey may also illustrate how diverse groups of employees approach ethical practices from different class, race, ethnic, gender, or religious perspectives. The final stage of the process involves comparing the “official” ethics organizational profile graph as compiled by managers with the aggregate employee profile. The latter could indicate “collective preferences for certain ethical practices … as well as hints to the most effi- cient ways to encourage ethical behavior” (p. 230). Divergent management and employee profiles would indicate a misalignment of ethical practice expectations that could undermine attempts to foster an ethical organiza- tional culture. Aligning the profiles could help managers develop strategies to embed ethical standards into socialization and communication practices in ways that resonate with employees. (Fehr et al., 2020).

III. Evaluate Leader Orientations and Leader-Employee Ethical Relationships

Organizational culture literature emphasizes the importance of leader- ship in promoting ethical cultures in terms of both modeling behavior and

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managing it. Behavioral ethics complements the qualitative approaches of this literature with quantitative evidence to explain how leaders impact employees’ perceptions of organizational priorities and their underlying attitudes in ways that compel (un)ethical behavior. Kuenzi et al. (2020), for example, use social information processing theory (SIPT) to provide quantitative evidence showing that when leaders model ethical behavior and manage ethically-infused HR and HC decision making systems, they significantly contribute to the creation of an ethical organizational cli- mate (EOC). That EOC in turn motivates employees to behave ethically, resist pressures to behave unethically, and seek an understanding of how to respond to ethical dilemmas (p. 49). This research clarifies the mediating mechanisms by which leader ethical modeling and management promote ethical organizational behavior and shows the importance of integrating ethical standards in a system of HR and HC policies and practices.

Leaders’ high “bottom-line mentality” (BLM) levels, for example—the extent to which they consider operational goals to outweigh all other orga- nizational functions (Greenbaum et al., 2012)—has been shown to increase unethical employee behavior. Both the 7th Fleet and Wells Fargo scandals show how leader’s BLM, as well as their communication cues to employees about the preeminence of attaining bottom-line goals, likely contributed to the scope of unethical behavior in both organizations. Top Navy leaders in the Pentagon pressured Navy COs to deploy as many ships and under- take as many missions as possible, regardless of the shortage of manpower and inadequate training (Miller et al., 2019). This motivated 7th Fleet commanders to procure contracted services as swiftly and securely as pos- sible—and Glenn Francis made sure that his company was the only game in town. The Wells Fargo CEO stressed the goal of selling customers as many bank and investment products as possible, to the point where his “Going for Gr-Eight” communication cue to employees motivated some to create fake accounts without customers’ knowledge to reach the coveted eight, fearing for their jobs if they did not (McLean, 2017). In both cases, leaders’ high BLM levels created an organizational bounded ethicality environment, within which some employees’ ethical fading led to organiza- tion-wide unethical behavior. More recent research illustrates the cognitive mechanism by which a leaders’ high BLM results in employee unethical behavior: Babalola et al. (2020) employ SIPT to show that a leader’s high BLM may increase employees’ “self-interest cognitions” (p. 20) in terms of how their performance is perceived by the leader, which crowd out their moral values and make the ethical fading that increases unethical behavior more likely.

Further research by Fehr et al. (2020) shows how employees’ MDP levels impact their trust in leaders who engage in unethical behavior. High-MDP employees tend to maintain trust in these leaders; low MDP employees

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At the Crossroads of SHRM and SHCM 211

to withdraw trust. In addition to the trust factor having an impact on HR concerns such as organizational commitment and retention, the relation- ship between high-MDP employees and unethical leaders may also result in increased employee ethical fading as they “readily override sanctioning cognitions when they act unethically or observe their leaders acting unethi- cally” (p. 88). This more precisely explains why leaders are so central to the cultivation of an ethical organizational culture: the effects of their unethical behavior can be amplified by employees with high- MDP levels who con- tinue to trust leaders who behave unethically. This orientation may compel employees to justify their own unethical actions, a widespread tendency in the 7th Fleet case.

Much of this research is still in its infancy but it can help lay the foun- dation for developing strategies to select and train potential leaders and to mitigate the impact of leaders who behave unethically. By targeting leaders who combine bottom-line operational expectations with ethical standards, selection committees and training programs can attempt to reduce “bounded ethicality” environments that produce the potential for unethical behavior. Incorporating ethical standards in all components of HR systems works toward an alignment of organizational ethical practices that is more impervious to the effects of unethical leadership behavior. SHC managers can assess and attempt to lower employee MDP levels through formal and informal employee engagement policies that focus on employee-leader relationships. Feedback practices that allow employees to anonymously register their perceptions of leader behavior, training to help employees respond to ethically-ambiguous or stressful situations caused by high-BLM leader behavior, and leader “open-door” policies may enhance underlying attitudes about the importance of ethical behavior throughout the entire organization. Ensuing attitudes would contribute to an ethical organizational culture, helping to anchor SHR strategies to create an ethi- cal organizational climate in more deeply-rooted values orientations.

IV. Training

HRM ethics training, especially in large organizations, usually occurs in compliance-based formats. These provide opportunities for choice in answering questions, and can be visually appealing, interesting, and infor- mative. But, as a compliance-driven exercise with only one correct answer for each question, the active participation of the respondent is limited. SHC ethics training strives to provide more autonomy to decision-makers who must navigate their way through ethical conundrums in consulta- tion with peers to provide a diversity of views and different perspectives. Hong Kong’s Police Force, for example, shows a professionally produced

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video to all recruits of a police officer committing an ethical violation that might confront all of them in the course of their careers; viewers discuss and debate the (un)ethical choices involved, as well as the negative conse- quences for the Police Force if ethical violations go unchecked (Brewer et al., 2015). Georgia’s largest utility company, Georgia Power, uses real-life cases of ethically-questionable behavior in the company with identifying details removed as the foundation of training programs in which in-house training teams lead role-playing deliberations (Olson, 2013). At the U.S. Army’s West Point Academy, cadets’ ethics violations that do not warrant dismissal are also used as learning case studies. Violators complete an Honor Mentorship Program that includes teaching part of an Honors course, and students’ debate the circumstances of the case, with a stress on the implications for the Army if ethical violations go unprevented and unchecked (Offstein & Dufresne, 2007).

Ethical decision-making problems from military environments illustrate the importance of cognitive/emotive training as a complement to field experience for employees who must make rapid-fire decisions in stressful and ethically-ambiguous theatres of operations, including police officers and healthcare professionals. Mullaney and Regan (2019) apply the con- cept of “Recognition-Primed Decision Making” (RPD) to an actual case in which a U.S. Marine shot and killed five men in Iraq after a bomb exploded on his convoy, killing one Marine and seriously wounding another. Con- vinced that the men were responsible for the explosion and posed an ongoing threat, the Marine sergeant fired reflexively, even though the men took no offensive action. The victims turned out to be four college students and their driver, on their way to classes. Was the sergeant mor- ally responsible for his decision to shoot innocent civilians? Mullaney and Rogan add a moral component to RPD (“MRPD,” 78) and, drawing on neuroscience research, argue that emotions come into play alongside cog- nition when individuals make unconscious decisions that result in (un) ethical behavior. They advocate ethics training that teaches decision mak- ers to recognize patterns of “morally-salient environment cues” (p. 89) and develop a prior plan of action to allow the unconscious mind to make an ethically-desirable decision in a time-constrained, stressful situation. The implication: if the Marine sergeant had been trained to balance the goals of protecting his squad and protecting innocent civilians, he could more accurately have recognized the cues indicating that the five men he shot were not the attackers. This adds a whole new dimension to ethics training involving “bounded rationality” environments: the method uses cogni- tive processes to teach the conscious mind how to make ethical choices in situations where unconscious affective processes combine with cognitive decisions to drive outcomes. The method could be significant for police officers deciding when to use lethal force and health care professionals

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At the Crossroads of SHRM and SHCM 213

deciding how to triage patients. It could also help avert cases of “moral injury” when employees on the front lines suffer extreme remorse for hav- ing committed acts that violate their own moral conscience (Shay, 2014).

Feldman and Kaplan (2018) address the same problem of unethical decision making in bounded ethicality situations from supervisors’ point of view. Big data analytics, they argue, can identify situations in which unethi- cal outcomes are likely to ensue in the areas of law enforcement, financial advising, and sexual harassment—among others—to train employees to recognize situational patterns and be alerted to the dangers of emotively making unconscious choices about how to act. “Ethical nudges,” such as targeted ethics alerts, would then be transmitted to employees to “prompt improved ethical deliberation” (p. 10). As the “Fat Leonard” scandal illus- trates, however, “ethical nudges” are not effective without prior training about how bounded ethicality situations might compel people to overlook the unethical implications of their decisions and actions.

V. Socialization, Value Alignment, and Employee Role-Modeling

SHRM emphasizes the incorporation of ethical standards of behavior into all HR practices to create the collective perception that the organiza- tion makes ethical behavior a priority (climate). SHCM goes beyond the perceptions driven by HR practices to align personal values with orga- nizational values and foster a collective organizational moral identity (culture). Measures to influence an organization’s collective moral identity are based on three propositions: that individuals are receptive to incor- porating an organization’s values into their own moral identity (Aquino et al., 2009; Manroop et al., 2014; Offstein & Dufresne, 2007); that they “act in accordance with these values and match their own behavior to the standards of the group” (Kuenzi et al., 2020, p. 50), and that organizations with stronger collective moral identities experience less unethical behavior (De Cremer & Vandekerckhove, 2017). This would suggest that SHCM strategies can enrich SHRM ethical compliance measures by socializing prospective employees into the organization from the time they apply through to ongoing value-interaction processes throughout the entire organization. Several businesses have adopted this strategy by including value-oriented mission statements in their application materials. Zappos takes this one step further—after applicants are interviewed and tested in ways that tease out their compatibility with employee-sanctioned core values, the company offers new employees thousands of dollars to quit if they find it impossible to align their values with organizational practices during a 5-week onboarding program (Olson, 2013).

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Offstein and Dufresne (2007) illustrate how the U.S. Military Academy at West Point uses both SHRM and SHCM, as defined here, to weave ethi- cal communication and socialization into peer-to-peer relations to create a collective moral identity. The recruitment process goes beyond matching an applicant’s values to those of the Academy through biographical data scanning to providing applicants with socialization materials similar to the “Realistic Job Previews” used in business and government that help applicants acclimate to the organization’s value environment. Successful applicants receive “In Search of Honor,” a book and CD explaining the Honor System. The Honor Code stresses individual and collective ethi- cal behavior, highlighting cadets’ responsibility to condemn unethical behavior among peers. Ethics is a core part of the education curriculum and training programs, interwoven with operational skill development, included in performance evaluations, prioritized in leadership develop- ment, and central to reward and punishment processes.

West Point goes deeper into the organizational culture orientation of SHCM by adding individual and collective moral identity to their ethi- cal behavior strategies. The process begins with two assumptions: that applicants’ values do not correspond to Army values and that Army values can be internalized and acted upon by successful cadets. In addition to SHRM’s formal emphasis on these values, SHCM weaves these values into informal peer interactions with the goal of generating discussions about ethical behavior as related to environmental contingencies faced by sol- diers (Offstein & Dufresne, 2007). The formal Honor Code is accompanied by expectations that cadets follow the spirit of the Code by learning how to make proactive ethical responses to challenging and often ambiguous situ- ations. Cadets are given a clear set of “decision making heuristics” to guide them in making these responses, increasing their decision-making auton- omy (p. 104). To expose cadets to situations that involve ethical decision making in operational environments, they are given steadily increasing responsibilities in the field to test their responses to ethically ambiguous situations; assignment rotations through different field operations expose them to changing “bounded ethicality” environments. Cadets are required to participate in a team sport so that the value of “it’s not if you win, it’s how you play the game” is reinforced as the foundation of organizational solidarity.

Two especially important outcomes emerge from a SHCM strategy such as West Point’s: the organization’s collective identity is centered on ethi- cal behavior as an integral part of the organization’s operational goals and overall mission, and an emphasis is placed on developing “lateral role models”—peers who model ethical behavior. When ethical standards are successfully embedded in a collective moral identity, peers can do more than model—they help effectively manage ethical behavior through

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At the Crossroads of SHRM and SHCM 215

informal reward and punishment sanctions to communicate to peers the collective’s prioritizing of ethical behavior (Kuenzi et al., 2020). Neglecting to infuse ethical standards in informal processes can have devastating con- sequences if employee solidarity centers on engaging in unethical acts, with perpetrators rewarded for bad behavior and whistleblowers punished for calling it out, as happened in the 7th Fleet. SHCM strategies to strengthen character as a complement to operational skill development go beyond leveraging employees in order to enhance performance to treating them as whole individuals whose moral capacity will benefit the organization in more nontangible ways, such as building trust in its people and confidence in its decision-making practices.

VII. Organizational Learning

Recent innovations in artificial intelligence (AI) and virtual reality (VR) techniques have led to practical methods of realizing some of the SHRM and SHCM strategies that can be used to put behavioral ethics research into practice. To facilitate the recruitment of job candidates whose values align with organizational values as a way to attain the employee “value fit” necessary for successful SHCM, AI natural language processing tools, for example, can be used in video interviews to measure cognitive abilities, personality traits, and behavioral responses, such as stress levels (Cutter & Feintzeig, 2020). New software technologies can scan candidates’ online posts to identify skill competencies and behavioral orientations (Schell- mann, 2020). After using big data analytics to identify situational trends that may influence an employee’s (un)ethical decision making practices in stressful situations, managers can now use VR tools to virtually place employees in those situations that might involve MRPD (Cutter & Feintzeig, 2020; Krouse, 2019; Schellmann, 2020). Related technology can now ana- lyze respondents’ behavioral patterns, as well as “stress, engagement, and self-regulation skills” (Schellmann, 2020, p. R8). In combination with rele- vant MRPD training, this has the capacity to compel more ethical behavior in tense situations that trigger both cognitive and emotional responses.

Google’s former HR Director, Laszlo Bock, in expressing a key SHCM goal of “[driving] meaning and purpose at work” (Winkler, 2020, p. C6), initiated the start-up firm, Humu, Inc., using a system of “people analyt- ics” that he pioneered, to facilitate behavioral changes in organizations. Speaking directly to SHCM strategies that move beyond trying to control behavior, Bock (as cited in Winkler, 2020) seeks to “create the opportuni- ties for people to change their own behavior,” which results in deeper internalization and integration of the values behind the change (p. C6). To do this, Humu uses AI to identify changes in employees’ moods, as well

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as indications of their preferred ways to increase the “happiness factor” in the organization. Given Umpress et al.’s (2020) research on the connection between certain types of moods and unethical behavior, this strategy could be significant in promoting ethical practices. Using an AI-driven “nudge engine,” Humu sends targeted nudges to both employees and managers to encourage them to make small changes in their behavior to facilitate an organizational culture based on the company’s values. Bock notes that the nudges sent to managers based on employee surveys lead them to improve the communication of company policies and decision making rationale to employees. Again here, with the proper ethical training, “ethical nudges” have the potential to result in improved ethical decision making all across the organization. They may even enhance the capacity of a collective moral identity to mitigate individual MDP levels and unethical leader behavior by offering a “protective effect against the behavior of a bad manager” (Bock, as cited in Winkler, 2020, p. C6).

AI provides the opportunity to use ethical nudges for SHRM practices as well. New AI-based apps based on embedded personality trait measures help train managers to change their behavior in specific situations, provide feedback from employees, and develop real-time solutions to potential ethical problems raised by the organization’s members (Shellenbarger, 2019). By improving “solidarity and a sense of belonging” if used correctly, these apps could also help foster an EOC and more deeply embedded ethical cultures (Ibid., C6). New methods in data analytics used to track employee computer, phone call, and conferencing interactions can help improve both SHRM and SHCM strategies to encourage employee value alignment with organizational values. Tonal analysis of conference room discussions, wearable badges equipped with microphones, and posts on internal social media sites can gauge morale, mood, and stress indicators that may contribute to high propensities for unethical decision making. Software that captures keyboard strokes can help determine if employees are engaged in unethical behavior (Krouse, 2019). This may have helped prevent massive ethical violations in the Wells Fargo case, where employees created fake bank accounts, falsified customer signatures, and then shred- ded the relevant documents to evade regulators (McLean, 2017).

New technologies facilitate both SHRM and SHCM strategies to lay the foundations for ethical organizational climates and cultures and prevent egregious organizational ethics scandals, such as those in the 7th Fleet and at Wells Fargo. Given the intrusiveness and all-pervasiveness of new AI and VR-based technologies, as well as the lack of transparency in the algo- rithms used to drive the related apps, the question now is whether these new methods to encourage ethical behavior are not, in and of themselves, inherently unethical.

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. 225–239 Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. 225

CHAPTER 10

ETHICAL CHALLENGES HUMAN RESOURCES

MANAGERS EXPERIENCE IN HEALTHCARE ORGANIZATIONS

Rafael Rosado-Ortiz and Sheri K. Bias

INTRODUCTION

Organizations typically have a system or code of ethics by which employees are expected to operate and behave with the customers of the enterprise. In the healthcare arena, there are specific published ethical standards that prescribe the requirements and standards of conduct expected from medical professionals as well as human resources professionals (American Society for Health Care Human Resources Administration, 2020). Those who choose to enter into medical professions are expected to embrace this code of ethics in service to their patients. Additionally, according to Dowd (2018), many of the ethical issues faced by medical professionals are emotionally charged, put them at risk for burnout, but also may not impact all the employees within the organization. However, the intersection of business ethics, which is typically less emotionally charged than medical

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ethics, and medical ethics poses a challenge to human resources as there is application to all employed within the organization (McConnell, 2021).

The human resources function provides services and guidance to the organization that are critical to the success of the organization from both a legal and practice perspective. Human resource process and protocols should be integrated within an organization to ensure success, and this is paramount to the survival of the organization in attracting and retaining crucial medical professionals and staff. Based on the research by Townsend and Wilkinson (2010), human resources professional continue to face spe- cialized complexities within the field of health care, and the mere fact that the reforms of past health care initiatives have focused on structural changes and cost containment but not ethics and human resources.

In this chapter we will visit and discuss some of the key functions and duties of the human resource manager (HRM) that will challenge and test key professional ethical principles. McConnell (2021) described “The human resources department of today originated and developed in the same manner as most other areas of many healthcare organizations or any other kinds of organization” (p. 5). It is critical to mention that while working in a dynamic and ever-changing healthcare environment, human resource managers will experience multiple situations that will test their grit. These situations will challenge them on how to properly implement initiatives that will reduce or eliminate redundancy and impending chal- lenges, especially those that are multidisciplinary and multicultural.

Further, this chapter will identify and discuss areas and functions that the HRM needs to take into consideration when trying to implement effective initiatives that will facilitate a seamless process across both the administrative and clinical settings. Yes, doing this is a challenge by itself, and in many occasions implementing initiatives and effective protocols will create a work environment and atmosphere that will challenge some of the fundamental ethical principles to the core.

With regard to the healthcare setting, the HRM needs to be fully aware that to properly implement effective initiatives that will translate across administrative and clinical settings, they need know where the functions and duties intersect and integrate with the functions and duties of their clinical counterparts. There are standard practices and protocols for HRMs that are expected within this work specialty; however, there are also nuances specific to the field of healthcare that need to be considered in order to mitigate risk for the organization and build a successful and ethical human resources program.

Additionally, we will identify the common human resource challenges that are present in today’s healthcare setting. Further, we will identify some of the strategies an HRM can put in place to recognize and address these challenges to help the HRM in being proactive and avoid the day-to-day

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Ethical Challenges Human Resources Managers Experience 227

ethical pitfalls. These strategies, when implemented, can set the organiza- tion up for not only survival, but success.

COMPLIANCE WITH LABOR AND HEALTHCARE LAWS AND REGULATION

In the healthcare setting, organizations work with multiple standards, regulations, and laws that are not only related to the clinical setting, but clearly cross-over the administrative setting, as well. For the HRM to stay current on the ever-changing changing employment laws is not sufficient because they also need to keep up with the healthcare setting policies, regulations and standards changes that are applicable to these specialized entities. Juggling these multiple responsibilities can be a daily struggle for HRMs because multiple competing priorities must be balanced. The HRM is expected to be able to create and implement effective protocols and procedures that are seamless which is a challenge by itself, especially when they need to be in compliance with the organization’s clinical proto- cols and procedures. Ignoring this or believing they do not apply to their organization could mean audits, lawsuits, and possibly even the demise of the healthcare organization.

To avoid any issues or challenges, it is critical for the HRM to make sure that their organization is in compliance with local, state, and federal labor and healthcare laws. The understanding and proper compliance of the current labor law regulations will facilitate a synergistic effect across the administrative and clinical setting. These regulations address expected practices and protocols associated with the cradle to grave human resources operation. While regulations may be applicable within the wider scope of the human resources operations, there are some that are critically important within a hospital setting and could lead to ethical challenges as discussed below.

Occupational Health and Safety. One particular area of concern in the health care industry is that of safety. While all organizations want to ensure safety of their employees, in the healthcare environment, there is an increased focus on the safety of the patients as well. An ethical challenge could come from merely lack of training or education in the conduct of performance of duties of a position. In order to mitigate this potential pitfall, OSHA requires health care facilities to “create and deliver pro- grams for informing and training employees about hazardous substances in their workplace” (McConnell, 2021, p. 41) which is part of the Hazard Communications regulation. Further, Palmieri et al. (2010) suggest that from their research, it would behoove healthcare organizations to develop cultures of safety within their delivery systems which would improve patient

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228 R. ROSADO-ORTIZ and S. K. BIAS

outcomes. These combined efforts should afford the organization common understanding and expectation in order to optimize patient outcomes while ensure the safety of all within the enterprise.

Drug-Free Workplace Act. Inherent within the healthcare setting is access to drugs and controlled substances. According to Manchikanti (2007), there has not been a major shift in the attitude toward substance abuse and addiction within the U.S. which has led to a rise in the illegal use of drugs and other substance abuse. The coverage for and applicabil- ity of the Drug-Free Workplace Act would be any organization that has contracts or grants with the Federal Government totaling $25,000 or more (41 U.S. Code 8102). As previously mentioned, specific to the healthcare field is access to these substances and based on the continued expansion of the illegitimate use of these substances, ethical challenges should be expected within this line of business. Phillips (2013), there needs to be stricter enforcement in penalties associated with the illegal selling of pain pills or those who run scam pain clinics where the controlled substances have been secured illegally.

According to Vine (2018), employee drug abuse in the workplace can be attributed to many organization deficiencies such as lack of productivity, poor performance, negative attitudes, as well as occupational injuries. It stands to reason that HRMs would want to ensure the healthcare organiza- tion is free from the use of illegal drug use or other controlled substances within the workplace. These protections would be afforded to not only medical professionals and employees, but also extend to patients and visitors to the establishment. It should also be noted that the Drug-Free Workplace Act is only applicable to those organizations as specified with federal contracts or grants. However, in order to mitigate issues and align ethically with societal expectations, it would behoove all healthcare orga- nizations to embrace standard practices and protocols to ensure a safe working environment with this regard.

Health Insurance Portability and Accountability Act. Solove (2013) describes the initial implementation of HIPAA in 1996. The main premise of this Act was to provide the ability for employees to move among employer health care plans without experiencing gaps or waiting periods and without any restriction for preexisting illnesses. Therefore, it was not of real concern to health care professionals at the time. However, it quickly became apparent that the implication for healthcare professionals and HRM around the requirements of the Privacy Rule of this Act needed to be more fully considered.

According to U.S. Department of Health and Human Services (2020), the intent of the Privacy Rule, which covered the flow and control of information, was to set national standards for protecting health information associated with patients and ensure a balance of the use of the information

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Ethical Challenges Human Resources Managers Experience 229

with protection of patient privacy. Johnston and Warkentin (2008) conducted a study of 208 medical professionals in various healthcare organizations throughout the United States; this study was focused on patient information privacy which is thought to impose a significant burden on those involved with healthcare records. Ensuring the privacy of health-related information is paramount to the organization’s survival as the leakage of information or misuse of said information could lead to the organization’s downfall even if it is done unintentionally. From the study by Johnston and Warkentin, it was revealed that based on organizational and individual characteristics, healthcare organizations were struggling to meet compliance with the HIPAA Privacy Rule for medical records.

Patient Protection and Affordable Care Act. This Act was passed in 2010 and considered to be an instrumental piece of legislation regarding healthcare coverage for inclusion of all to have healthcare benefits. It is widely understood that potential ethical challenges specific to healthcare organizations and HRMs would be changes that could come as a result of the nature of the plan and its features. Additionally, management within the healthcare organization would need to be well versed on the intrica- cies of the plans in order to answer questions from employees and staff. McConnell (2021) notes that the “effects of plan reform on the organiza- tion’s health insurance plan will reside with the benefits-management area in the HR department” (p. 52). This equates to the HRM being well versed in the coverages afforded to employees within the organization as to avoid any pitfalls in this area.

Conclusion to Section. Overall, there have been many changes to the legal aspects of healthcare and specifically as related to HRM. As these examples have provided, there is a significant potential for abuse and fraud within the healthcare setting which can be mitigated by good HR practices and compliance with laws and regulations. Based on McConnell’s (2021) analysis, being compliant with law and regulations does increase organi- zational costs, and it is thought that this trend will continue as employees find new ways to act in manners that are not conducive to organizational success.

ORGANIZATIONAL DEVELOPMENT AND MANAGEMENT CHANGES IN THE HEALTHCARE SETTING

As the healthcare environment changes, we see a significant impact on the healthcare business growth, its strategies, structure, and internal pro- cesses, as well. This is a challenge for HRM because they need to rapidly adapt and make the appropriate changes and be able to cope with these changes. Organizational development should provide a framework for

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change within the organization that serves to impact the organization’s and individual’s performance and development in anticipation of being effective and efficient (Vukic, 2015). Many organizations may experience decreased productivity and poor morale during periods of such types of change, and it is up to the HRM to not only identify the changes but devise effective strategies that will make the organization a successful one. Further, Clegg et al. (2006) found that such changes can challenge employee ethics as these situations are often ambiguous and unpredictable as the organiza- tion evolves to a new and hopefully better state.

A key question that should be answered during these organizational development initiatives and times of change should be: “How should this organization be changing its philosophy, mission and vision, and its orga- nizational structure, to meet the demands brought on by changing social and economic environments and the changing healthcare delivery milieu?” (McConnell, 2021). Depending on the magnitude of the change, there can be significant organizational implications. There could be instances where organizational employees do not agree with the changes and try to sabo- tage the efforts which presents and ethical challenge in itself. Organizations need to discover ways to identify those who may not embrace the changes and try to mitigate these adverse efforts from the outset of the changes. In fact, recent research has shown that there is a swing toward ethical and socially responsible behavior is becoming more and more important to organizations (Burnes, 2009).

A potential solution for these ethical challenges will be the utilization of communications to secure the necessary support for change and ensure a unified vision in moving the organization forward. HRMs will need to focus on communicating the pros and cons of the changes. This could be a challenge by itself because when it comes to changes in the healthcare setting. There could be disparities with information being conveyed in a precise and clear manner which may or may not have the same impact on the clinical versus the administrative staff. A critical starting point to miti- gate any potential challenges would be for the HRM to conduct regular multidisciplinary staff meetings. This strategy is good because when both the clinical and administrative team understands the why, how, and when of the change, they will be more likely to get on board and embrace the changes necessary for organizational success.

WORKFORCE TRAINING AND DEVELOPMENT IN THE HEALTHCARE SETTING

One particular challenge that HRMs encounter in the healthcare setting is that many healthcare organizations do not see the positive impact of

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investing in the training and development of lower-level employees, espe- cially the nonclinical employees. Wilkins (2018) discussed the necessity for organizations to stay focused on training and development interven- tions as there is the expectation of staffing shortages in future years with generational changes prompting retirements and turnover within orga- nizations. Yet, when there are budget constraints, organizations typically will cut such training and development interventions in an attempt to save money. Additionally, even though training and development are important to every healthcare organization, these initiatives may take a back burner as far as attention given to such due to the criticality and urgency of the medical situations experienced in healthcare environments. When there is a life-or-death situation experienced, the urgency to address such situa- tion is paramount meaning that if some of the medical professionals were engaged in a training or development initiative, the expectation would be that it would take a subservient role to a patient’s medical needs.

Cross-training initiatives. An HRM’s challenge is to develop strategies and solutions that will promote cross-training at all levels of the organi- zation and not just the clinical setting. The HRM must find and outline what are the resources needed to do this based on the strategic plan of the healthcare organization. Healthcare organizations need to understand that front lines employees are not always considered to be the clinical staff, and these nonclinical employees are some of the hardest working employees. At some point in time they will need the time to train and develop their skills as effective healthcare setting workers. An example provided by McConnell (2021) shows how cross-training can benefit the organization:

An office manager may have three clerical-level employees who are as- signed in different capacities: a file clerk, a program secretary, and a data entry specialist. These three jobs reside in the same pay grade. As long as the three people simply do their own jobs, the department has limited flex- ibility. If one person is on vacation or is ill, no one is trained to assume the missing person’s duties. If all three people are capable of doing all three jobs, the employees can be moved around as needed. Resources can be shifted as work-loads or backlogs demand, and any of the three people can cover for any of the others as necessary.

This type of flexibility can be obtained by training the three employees in one another’s jobs. This requires time and effort. Each of the people can train the other two in job particulars, with the supervisor providing general guidance. This training will ultimately repay the time and effort involved. A department gains considerable flexibility in addressing backlogs and overage for vacations and illnesses. The individuals gain greater interests and challenges associated with their work through increased task variety. (p. 182)

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232 R. ROSADO-ORTIZ and S. K. BIAS

It is up to the savvy HRM that works in a healthcare setting to know how to identify and develop cost-effective training and development opportunities that the healthcare organization could have a positive impact and return on the investment. Cross-training is just one area where there should be consideration for such initiatives which would benefit the employees as well as the organization.

Specialized KSAs. The knowledges, skills, and abilities (KSAs) required of medical professionals is unique. There are many aspects to the health- care field which means that there are a variety of positions (Doyle, 2019). Since medical professionals typically possess a specialized subject-matter expertise based on education and experience, it stands to reason this infor- mation should be captured within the job descriptions. However, these specialized professionals are still people who are merely performing a unique skill, and they still deserve to have a focus for continued education and training opportunities. If this is not the case, then there could be ethi- cal challenges experienced as a result of the medical care providers not being up to date on best practices or able to provide the best care to the patients based on outdated methods.

Strategies for improving training and development challenges. One potential strategy that could be helpful for the HRM is to identify man- agers and senior leadership that will be able to help as mentors to their subordinate employees. Mentoring could come in the form of sharing tech- nical knowledge and expertise to providing insights on the organizational culture and politics. According to McConnell (2021), by formalizing the mentoring program within the organization, the organization is sending a message about the commitment to the development of the employees. This mentorship should be a two-way street with the mentee and the mentor both benefitting from the relationship.

Another potential strategy is to provide online training courses so peo- ple can go at their own pace. Sarkis and Mwanri (2014) discussed the shortage of skills of health care professionals in responding to the needs of the changing population and recommended to minimize this situation through the use of continuing education online. Additionally, research by Bryce et al. (2008) shows online coursework being and effective and enjoy- able way to gain knowledge. These researchers used an on-line module on infection control which encompassed interactive videos and animations which resulted in this course being rated highly for ease of use, ability to maintain participant interest, and effectiveness in teaching the materials (Bryce et al., 2008). Overall, healthcare organizations need to be aware that investing in their clinical and nonclinical workforce is the best way to have a loyal, productive workforce.

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Ethical Challenges Human Resources Managers Experience 233

DEALING WITH TURNOVER AND RETENTION

Hospital positions turnover in 2018 was at almost 19.1%, showing nursing and other clinical professionals at almost 17.2% (U.S. Bureau of Labor Statistics [BLS], 2019). This puts about 1 in 5 employees leaving their facility every year. In some states, the turnover rate for healthcare workers overall is double the national average for other jobs. Experts disagree about all the contributing factors, but many suggest shifts in organizational culture are needed to retain workers for all levels of providers.

According to the BLS (2019) regarding nursing professionals, almost 30% are looking to get new positions or get new ones that are related to their field and almost 5% are switching entirely to other healthcare areas that are not related to direct care. The BLS also projects a 5% growth in this category through 2026 and expects a general duties nursing shortage to intensify as less enter the general duty nurse field when there is an increase in service demand.

This is a major challenge for the healthcare HRM because of the grow- ing need and shrinking talent pool available. The HRM needs to look into effective strategies and recruiting and retention models that are creative and can result in lower turnover rates and an increase in clinical and non- clinical staff retention level.

Conclusion to section. Each organization faces the need to train and develop employees in order to ensure they have the KSAs to successfully perform their jobs. This typically would start with orientation efforts to acclimate the individual to the organization and then build the specific job knowledge. In the healthcare environment, there are specialized KSAs required of individuals to be able to provide service to the patients, particu- larly those involved in the clinical settings. Healthcare organizations need to consider the balance between costs, needs, and the practice of saving lives along with these needs for training and development.

ADAPTING TO HEALTHCARE INNOVATION AND TECHNOLOGY

When it comes to adapting to innovation, this area represents a high level of ethical challenges to the HRM that works in the healthcare setting. The implementation of new technologies into the healthcare environment has come with many challenges and barriers. Sometimes it can seem like a true nightmare for HRMs because of improper protocols and procedures that could compromise security and compliance. The HRM must have a focus not only on people management software to ensure appropriate

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234 R. ROSADO-ORTIZ and S. K. BIAS

processing of HR-related transactions, but also have an understanding of other technologies used within the field such as electronic health records.

Electronic Health Records. The implementation of electronic health records (eHR) has created a new avenue for potential ethical challenges. According to the U.S. Department of Health and Human Services (2020), there are several areas that are of ethical concern regarding electronic health records and processing such as duplicate billing practices, unbun- dling where there is a piecemeal practice to maximize payments, upcoding which reflects a code for a higher payment rate, false filing of cost reports, utilizing incentives that could be considered kickbacks, and limiting a patient’s freedom of choice. While there are ethical standards and expec- tations associated with these potential issues, HRM need to be vigilant regarding the potential for incentive to engage in these behaviors. The organization should consider a system of review or checks and balances to ensure that any potential for engagement in fraud or abuse is minimized.

Human Resource Information Systems. There are a variety of human resources information systems (HRIS) that can be implemented within an organization to help manage the people processes and data. The organization should consider which system would be best for the enterprise and implementation should be integrated within the other systems within the healthcare setting, such as the one described above. According to Tursunbayeva et al. (2015), HRISs can assist an organization with improving efficiency and effectiveness in facilitating workforce planning efforts, financial and operational administration, medical professional training, as well as providing information for management analytics. The organization does need to keep in mind separation of duties that would accompany good HR practices, such as the separation between the hiring process and the payroll process so that temptation is minimized to be unethical in the operations of these processes. Implementing an HRIS can increase organizational efficiency by also using employee self-service for routine changes such as address updates and open enrollment changes processing. These types of changes would allow for HRMs to engage in other organizational activities and focus more on the strategy of the human resources function.

Strategies for Healthcare and Technology Utilization. As discussed in this section, technology is constantly changing in the healthcare setting and healthcare organizations need and must adapt to these changes, or risk hefty fines and penalties. For the HRM the challenge is in the development and implementation of effective protocols and procedures that will secure and protect patients and the employees at all times without compromising any of the professional ethical principles that are guided by the embrace of innovation and new technologies. One strategy that the HRM can use to minimize challenges is to communicate expectations and changes at all

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Ethical Challenges Human Resources Managers Experience 235

times. In the healthcare setting, communication is critical. The HRM needs to make sure that employees fully understand the why, when, and how and set clear goals for the adoption of initiatives. Most importantly, the organi- zation should provide all employees with the training they need to embrace the technology and successfully perform the duties of the position.

RECRUITING TALENTED EMPLOYEES IN THE HEALTHCARE SETTING

One of the most common human resources activities is that of recruiting. All organizations want the best employees who are the right fit for the enterprise. According to McConnell (2021), “The heart of this activity is concerned with finding or identifying prospective employees, screening the, and arranging for them to be interviewed by supervisors and manag- ers throughout the larger organization” (p. 61). However, there are some nuances that are for consideration specific to healthcare.

In this area, HRM may encounter challenges and barriers related to the way healthcare organizations classify clinical and nonclinical employ- ees, as well as how they classify employees based on skills and credentials. It is well documented and recognized that to recruit a qualified medical professional, you simply need to ensure that the credentials, education, and experience are aligned with the requirements of the position. The qualifications of the candidate and such credentials can be clearly assessed by well-established sources and the documentation provided by said can- didate. On the other hand, when it comes to assessing the candidate’s administrative, communication, and emotional intelligence skills this is where the healthcare establishments fall short. Using a variety of different assessment tools, and by having a skillful and knowledgeable HRM that can properly assess and outline these skills ahead of time, will help facilitate the recruitment process.

HRMs continue to have challenges in recruiting talented and skillful employees because of the healthcare organization’s misguided perceptions of the differences between a nonclinical and clinical employee skills and talents. Based on this notion, HRMs will continue to have challenges in recruiting and retaining talented employees. For the HRM to be successful in recruiting and retaining talented employees, it is critical that they are a key member of the strategic planning for the organization and that they are part of the process at all levels of the organization. It is at this level that the HRM will accurately outline and provide the organization with the protocol and procedures to properly recruit and retain the employees with the best set of skills and qualifications needed to be successful in the healthcare setting. This not only true when an organization is recruiting

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236 R. ROSADO-ORTIZ and S. K. BIAS

talented nonclinical employee, but for all employees of the organization from top to bottom and bottom to top. The healthcare organization needs and must understand that by having strong HR protocols and procedures is an advantage and a huge opportunity to save time and money. This can be a difficult process for many healthcare organizations because they need to have a good balance between keeping the organization running and hiring the right people at the right time. Furthermore, having a seamless and effective recruiting process that will properly identify talent is key in reducing the challenges that a HRM will encounter in the future.

CREATING AN ETHICAL CULTURE

Some key recommendations that the HRM can put into practice that can facilitate his/her work of when it comes to ethical management of human resources in the healthcare setting is to apply the ethical conceptions of humanity’s great spiritual guides such as Confucius, Buddha, Moses, Jesus Christ, or Mohammed were the most important rules for moral behavior in society.

As outlined by Abren and Badii (2007), two researchers at a university in Mexico, HRMs can successfully introduce a model for ethical management in terms of the Zoroastrian religion. Zoroastrianism is one of the oldest religions founded by Zoroaster in the VI century in Persia (Abren & Badii, 2007). According to the doctrine of Angro Mainyush, Zoroastrianism deals with the idea “that the world experiences a constant struggle between two contrary elements: good, personified by the god of light Ahura Mazda and the evil personified by the god of darkness” (Valea, 2020, p. 3).

When it comes to human resource management, and according to the article by Lucas and Urescu (2009) in the journal Review of International Comparative Management, Zoroastrian theory is based on the “Vohu-Ksatra” concept, joining the two words with the meanings: Vohu = good thought and loving mind and Ksatra = spirit power. When the HRM puts these two words in practice, it will show benevolent power, equity, and justice. These concepts are key to promote and achieve a strong organizational culture of excellence, especially in the healthcare setting.

There is an underlying “Golden Rule” in human resources manage- ment. This rule centers around creating an effective organization, that provides an environment of good will, and solidifying the relationships between employers and employees under the same goals. The requirement for such is a strong, ethical culture within the organization that is embraced by all employees.

When it comes to healthcare organizations, human resource manage- ment is responsible for many key functions that have been discussed within

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Ethical Challenges Human Resources Managers Experience 237

this chapter. These functions can range from people processes as well as establishing the overarching culture within the organization. With regard to culture, HRMs must be involved in initiating, promoting, transmitting and maintaining an organizational climate of peace and harmony, similar to the doctrine of Vohu-Ksatra.

Healthcare organizations are fully immersed in issues and global chal- lenges particularly in the current state of the World today. This is why it is imperative that the HRM creates a culture of respect for diversity, for long-term vision, of responsibility for environment and community. As the healthcare needs of society continue to evolve, it will be incumbent upon HRMs and organizations to be socially responsible for the future of man- kind and society overall.

By applying the Vohu-Ksatra model in the healthcare setting, the HRM will promote and encourage a powerful set of values that fuel the healthcare setting organizational culture. Doing this will improve how the healthcare organization will put a strong emphasis on community, teamwork and serv- ing others. Vohu-Ksatra clearly and strongly connects the ethical values of the workplace: community, empowerment, equity, and benevolent power, which together play an important role in achieving a strong healthcare setting organizational excellence.

According to Lucas and Urescu (2009), for HRMs to be successful they will need to implement the Zoroastrian model in strategies such as:

• Selection of candidates based on and in addition to their techni- cal skills, values and attitudes;

• During the selection interview, candidates need to fully demon- strate their ability to work in multispecialty and multidisciplinary teams;

• After recruitment, and to facilitate integration, employees need to receive a full orientation and a welcome to the organization activity;

• Promote and encourage employees to think independently; • Implement human resources programs that will include a wide

variety of financial and nonfinancial rewards to all employees; • Promote recognition of merit and achievements of employees

through the organization of ceremonies and events; • Provide educational programs to strengthen ethical values of all

employees; • Implement a non-punitive approach for employees who have

made mistakes in judgment, but instead create a strong feedback and guidance program for improvement, in which errors will be transformed into organizational development opportunities;

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238 R. ROSADO-ORTIZ and S. K. BIAS

• Making sure that all ethical values are incorporated into the mis- sion statement of the human resources department and of the organization in general. (pp. 303–304)

CONCLUSION

Every organization has a standard for ethics by which the expectation is that the employees will operate. Professionals who are employed within a medical organization should be expected to be committed to integrity which would mean the ethical standards of the healthcare profession as well as those embraced by the business. As we discussed in this chapter, while there are common expectations regarding the standards of the human resources field, there are also specific situations to healthcare that HRMs should understand and employ tactics to attempt to mitigate. Overall, healthcare organizations need to remain vigilant regarding the standards of behavior expected from employees as well as how the established pro- cesses and protocols align with the expectations of ethics.

REFERENCES

41 U.S. Code 8102. Drug-free workplace requirements for Federal contractors. https:// www.law.cornell.edu/uscode/text/41/8102

Abren, J., & Badii, M. (2007). Proposal of an ethical model for human resource management. https://philpapers.org/rec/ABRLCC

American Society for Health Care Human Resources Administration. (2020). https://www.ashhra.org/

Burnes, B. (2009). Reflections: Ethnics and organization change—Time for a return to Lewinian values. Journal of Change Management, 9(4), 359–381.

Clegg, S., Kornberger, M., & Rhodes, C. (2006). Business ethics as practice. British Journal of Management, 18(2), 107–122.

Dowd, M. (2018). Legal & ethical issues that health care professionals face. https://work. chron.com/legal-ethical-issues-health-care-professionals-face-5648.html

Doyle, A. (2019). Healthcare and medical job titles and descriptions. https://www. thebalancecareers.com/healthcare-medical-job-titles-2061494

Johnston, A., & Warkentin, M. (2008). Information privacy compliance in the healthcare Industry. Information Management & Computer Security, 16(1), 5–19.

Lucas, E., & Urescu, E. (2009). Corporate political strategy on three continents a managerial comparative approach at global level. Review of International Comparative Management, 9(10), 755–769.

Manchikanti, L. (2007). National drug control policy and prescription drug abuse: Facts and fallacies. Pain Physician, 10, 399–424.

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McConnell, C. (2021). Human resource management in healthcare: Principles and practices. Jones & Bartlett Learning.

Palmieri, P., Peterson, L., Pesta, B., Flit, M., & Saettone, D., (2010). Safety culture as a Contemporary healthcare construct: Theoretical review, research assessment, and Translation to human resource management. Strategic Human Resource Management in Health Care: Advances in Health Care Management, 9, 97–133.

Phillips, J. (2013). Prescription drug abuse: Problem, policies, and implications. Nursing Outlook, 61(2), 78–84.

Sarkis, N., & Mwanri, L. (2014). The role of information technology in strengthening human resources for health: The case of the Pacific Open Learning Health Network. Health Education, 114(1), 67–79.

Solove, D. (2013). HIPAA Turns 10: Analyzing the past, present, and future impact. Journal of AHIMA, 84(4), 22–28.

Townsend, K., & Wilkinson, A., (2010). Managing under pressure: HRM in hospitals. Human Resource management Journal, 20(4), 332–338.

Tursunbayeva, A., Pagliari, C., Bunduchi, R., & Franco, M. (2015). Human resource information system in health care: Protocol for a systematic review. JMIR Research Protocol, 4(4), 135–149.

U.S. Bureau of Labor Statistics. (2019). Healthcare occupations https://www.bls.gov/ ooh/healthcare/home.htm

U.S. Department of Health & Human Services. (2020). Laws and regulations. https:// www.hhs.gov/regulations/index.html

Valea, E. (2020). The problem of evil in world religions. https://comparativereligion. com/evil.html

Vine, S. (2018). 4 laws that impact drug testing of healthcare employees. https://1sthcc. com/4-laws-that-impact-drug-testing-of-healthcare-employees/

Vukic, S. (2015). The benefits of integrating organizational development into your health care practice. https://www.healthcareglobal.com/supply-chain/benefits- integrating- organizational-development-your-health-care-practice

Wilkins, D. (2018). Six healthcare leadership development trends for 2018. https:// www.beckershospitalreview.com/hospital-management-administration/six- healthcare-leadership-development-trends-for-2018.html

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. 241–268 Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. 241

CHAPTER 11

HUMAN RESOURCE MANAGEMENT

Ethical Audits and Culture

Ronald R. Sims

INTRODUCTION

Organization scandals have in many instances dominated the news cycle more than ever over the past decade. And these scandals continue to occur in no-for-profit, public and private sectors. From Boeing’s disastrous handling of the 737 Max to Volkswagen’s emissions fiasco to Wells Fargo’s deceptive sales practices to Amazon’s working conditions for warehouse employees to Uber’s privacy intrusions to Disney reportedly underpaying workers at Disneyland and Disney World to Credit Suisse’s spying on two former executives to Goldman Sachs ignoring red flags in arranging loans for a Malaysian development fund, corruption corporate wrongdoing is a continuing reality in today’s world of work. Unethical behavior takes a significant toll on organizations by damaging reputations, harming employee morale, and increasing regulatory costs—not to mention the wider damage to society’s overall trust in business (Cialdini et al., 2004;

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242 R. R. SIMS

Cunningham, 2018; Racanelli, 2018). Few organizational leaders set out to achieve advantage by breaking the rules, and most organizations have programs in place to prevent malfeasance at all levels. Yet recurring scandals show that there is much more that needs to be done to do better.

In response to these ongoing organizational scandals, human resource management (HRM) professionals and other organizational leaders have increasingly focused on compliance as discussed in Chapter 6 and more par- ticularly on efforts to create an ethical culture, ethics programs and conduct ethical audits to prevent and detect illegal and unethical conduct or behavior which is the focus of this chapter.

The chapter first takes a look at HRM’s role in organizational ethics to include a discussion of how HRM professionals influence an organi- zation’s ethics and ethical culture. Next, the chapter focuses on ethical audits. Then, the chapter discusses how HRM professionals and other organizational leaders can help create and institutionalize an ethical cul- ture and organizational practices in their organizations before concluding the chapter.

HUMAN RESOURCES MANAGEMENT’S ROLE IN ORGANIZATIONAL ETHICS

While there are many possible roles for HRM professionals related the organization’s ethics efforts, one major development nearly twenty years ago deserves special attention: The Sarbanes-Oxley Act (SOX) of 2002, which carried with it high hopes of a dramatic and immediate reduction in fraud and gross misconduct. However, no such luck … at least judging from the continuing stream of misconduct stories in the press since origi- nation of SOX.

The Sarbanes-Oxley Act of 2002 came in response to financial scandals in the early 2000s involving publicly traded companies such as Enron Cor- poration, Tyco International plc, and WorldCom (Kenton, 2020). The act (1) created strict new rules for accountants, auditors, and corporate officers and imposed more stringent recordkeeping requirements and (2) added new criminal penalties for violating securities laws. The high-profile frauds shook investors and others stakeholders confidence in the trustworthi- ness of corporate financial statements and other actions and led many to demand an overhaul of decades-old regulatory standards.

The U.S. Sentencing Commission probed the solutions to corporate crime in their review of the sentencing guidelines standards for compli- ance programs that led to revisions in 2004 (see Harrison & Murphy, 2008; Rouse, 2018). What they heard was that codes of conduct, audits, compli- ance training, and “whistleblower” protection were all fine, but not enough.

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Human Resource Management 243

A key element is an enabling culture—an organization’s beliefs, attitudes, values, and traditions. They heard that the proverbial “ounce of preven- tion” lay largely with an enlightened culture. The commissioners broke important new ground in their 2004 revisions, advising that companies must “promote an organizational culture” that encourages a commitment to ethics and legal compliance.

The new language acknowledged that systemic, daily, visible, and even informal behaviors can form the foundation for a legally compliant orga- nization. Culture enrichment also breathes life into an organization’s quest for sustainability and responsible conduct. It is here where the HRM professional can play an important role. It also intersects with the reality that cultural leadership is among the top HRM qualities sought by senior leaders and why HRM professionals are such a natural fit in helping orga- nizations create and sustain ethical cultures and behaviors. As an initial look at the role HRM professionals can play in helping to build an ethical culture consider the following suggestions:

1. Be a student of ethics and learn the key elements of current HRM compliance law, like Sarbanes-Oxley and the Sentencing Guide- lines, and so forth, while being sensitive to the reality that outside of one’s host country there are compliance and ethics program standards as well.

2. Model the ethical leadership behavior that you and other organiza- tional leaders want throughout the organization.

3. Insist that ethics, the code of conduct and values be included in every orientation/on-boarding meeting, operations review and training program. Make it the “way we do things around here” or “table talk.”

4. Become proficient in complaint investigation but remember always to treat the accused and accuser with dignity and professionalism and especially keeping in mind the commitment to confidentiality.

5. Be a forceful advocate of cultural decency:

a. Discourage leadership pomposity including pretentious senior leadership perks.

b. Encourage senior leaders’ accessibility and visibility. c. For necessary layoffs insist on thorough preparation, sensitiv-

ity, and the preservation of human dignity. d. Teach the power of humility and transparency. e. Teach the power of nonfinancial rewards, to promote and

recognize ethical leadership and behavior at all levels of the organization.

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244 R. R. SIMS

f. Encourage colleagues at all levels to understand that respect, civility, and decency are an organization’s leverage to build and protect an ethical culture.

While the suggestions in the list above are a good general starting point for HRM professionals in their efforts to fulfill their role and responsibili- ties related ethics in their organization there are many ways this plays out in the real world.

HRM Professionals Influence on Organizational Ethics and Culture: A Closer Look

HRM professionals play a crucial role in shaping ethical codes, policies, and procedures and then communicating and teaching that information to employees. In many organizations, the most senior HRM professional either serves as the de facto chief ethics and compliance officer or works with the person in that role to manage ethics and compliance programs as discussed in Chapter 6. Apart from the organization’s most senior leader (e.g., CEO or administrator), there may be no more important ethical role in the organization than the HRM professional.

As will be noted later, HRM professionals who thrive as ethical role mod- els almost always play central roles in conducting ethics-related audits. This is most evident in the fact that HRM professionals are committed to trying to get employees to do the right thing. Their job puts them in the position where they are actively involved in the annual performance review process and operate the communications network within the organization, both of which are crucial to ethics audits. And because they are involved in such critical processes and operations they most often have a feel for whether certain behaviors or employee decisions as ethical as they need to be when confronted by ethical dilemmas.

Employees face many different ethical decisions, and they are often guided by their own values and personal behavior codes, as well as by various organizational, professional, and societal principles. Employees may ask the following questions when dealing with ethical dilemmas:

• Does the behavior or result meet all applicable laws, regulations, and government codes?

• Does the behavior or result meet both organizational standards and professional standards of ethical behavior? (Chron, n.d.; Ethisphere, 2017)

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Human Resource Management 245

Organizations that are known to be ethical have better long-term success because they develop policies that guide individual ethics. In this sense, HRM professionals play a key role as the keeper and voice of organizational ethics. HRM professionals can help develop an organizational culture by coordinating ethics training and creating policies that encourage employ- ees to report misconduct (Babcock, 2012a). They can also evaluate the current state of ethical culture by conducting an ethical audit as discussed in the next section, surveying employees, monitoring organization values, and being alert for conditions that encourage unethical behavior (Babcock, 2013). There are many different views about the importance of HRM in ensuring ethical practices, justice, and fairness are embedded in HRM practices. Table 11.1 identifies some of the most frequent areas of ethical misconduct that involve HRM activities.

Ethical issues pose fundamental questions about fairness, justice, truth- fulness, and social responsibility. As pointed out earlier, just complying with a wider range of requirements, laws, and regulations cannot cover every ethical situation that senior leaders, managers, HRM professionals, and employees will face. Yet having all the elements of an ethics program, for example, may not prevent individual managers or senior leaders from engaging in or failing to report unethical behavior. Even HRM profession- als may be reluctant to report ethics concerns, primarily because of fears that doing so may affect their current and future employment (Meisinger, 2012). However, when HRM professionals develop programs that encour- age ethics, employees should be more motivated to behave ethically.

Table 11.1

Examples of HRM-Related Ethical Misconduct

Compensation Employee Relations Staffing and Equal Employment

• Misrepresenting hours and time worked

• Falsifying work expense reports

• Showing personal bias in performance appraisals and pay increases

• Allowing deliberate inappropriate overtime classifications

• Accepting personal gains/ gifts from vendors

• Employees lying to supervisors and coworkers

• Executives/managers e-mailing false public information to customers and vendors

• Misusing/stealing organizational assets and supplies

• Intentionally violating safety/health regulations

• Discriminatory favoritism in hiring and promotion

• Sexual harassment of other employees

• EEO discrimination in recruiting and interviewing

• Conducting inappropriate background investigations

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246 R. R. SIMS

Another critical approach for guiding employees’ ethical decisions and behavior is ethics training, with research showing that many more organi- zations are using such instruction to enhance an ethical culture (Johnson, 2018; Mayhew, n.d.; Meinert, 2014; Peterson, 2019). How to address dif- ficult and conflicting situations is part of effective HRM training efforts. The Society for Human Resource Management has developed a code of ethics to help HRM professionals and its members deal with ethical issues and provides information on handling ethical issues and policies (Society for Human Resource Management, 2014).

The way organizational leaders and HRM professionals influence the ethics of employees, as well as the ethical practices of organizations as a whole, is closely linked with the strategic role of HRM. These various levels of ethics should be managed in a manner that affects employees and the workplace in a positive manner, thus aiding in the development of better work outcomes. As Figure 11.1 indicates, violating HRM protocols can lead to negative organizational and individual consequences, while insti- tutionalizing ethical practices can prompt many positive outcomes (Mayer et al., 2013).

Attention to ethics had been growing over the past decades, driven in part by the corporate scandals at numerous businesses in the United States and globally. These scandals show that ethical lapses are common,

Figure 11.1

Organizational Ethics and Human Resources Management

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Human Resource Management 247

and they can erode organizational culture so that employers, employees, and other stakeholders are negatively impacted. Research also suggests that the presence of “moral disengagement,” a tendency for individuals to make unethical decisions without feeling any regret or remorse, might also be driving unethical conduct in the workplace (Moore et al., 2012). This means that organizations and HRM professionals must partner with other organizational members to create an ethical culture, organizational prac- tices and conduct regular ethical audits so that employees are less likely to witness and/or commit unethical acts and feel more encouraged to do the right thing on the job.

TOWARDS ETHICAL AUDITS

Audits in general are designed to dig deep into company records to ensure reliability and accuracy in areas like HRM, accounting systems, financial reporting, and legal compliance. Audits generally deal with quantitative, easily measurable data. Ethical issues, on the other hand, are more often qualitative or subjective in nature. A number of qualitative research tech- niques make an ethical audit possible, but an ethical audit as discussed in Chapter 6 still necessarily functions similar to some extent to an HRM compliance audit but in reality differently from it and for example any kind of financial audit. Considering multiple perspectives to gain a big-picture understanding of an organization’s commitment to ethics is the key to an ethical audit.

Ethics audits ensure that behaviors an organization espouses in its code of conduct and policies and procedures exist in practice and that behavior forbidden in these documents does not occur. The risk of neglecting ethics audits can be severe as organizations experience financial and reputational costs and a loss of or deterioration of employees’ faith in the organization for ethical lapses and failing to conduct ethics audits.

At a minimum an ethical audit should focus on the following questions (Windward Organization, 2018):

1. How are organizational leaders perceived in terms of their integrity? Is ethics part of the leadership agenda?

2. How are ethics-related behaviors modeled by organizational leaders?

3. Are workers at all levels encouraged to take responsibility for the consequences of their behavior? To question authority when they are asked to do something that they consider to be wrong? How?

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248 R. R. SIMS

4. Does a formal code of ethics and/or values exist? Is it distributed? How widely? Is it used? Is it reinforced in other formal systems, such as reward and decision-making systems?

5. Are whistle-blowers encouraged, and are formal channels available for them to make their concerns known confidentially?

6. Is misconduct disciplined swiftly and justly in the organization, no matter what the organizational level?

7. Are people of integrity promoted? Are means as well as ends impor- tant?

8. Is integrity emphasized to recruits and new employees? 9. Are managers oriented to the values of the organization in orienta-

tion programs? Are they trained in ethical decision making? 10. Are ethical considerations a routine part of planning and policy

meetings, new venture reports? Is the language of ethics taught and used? Does a formal committee exist high in the organization for considering ethical issues?

Conducting an ethics audit requires a team effort as well as a clear definition of ethical behavior. There are a number of steps that HRM pro- fessionals and other members of the organization can take to help conduct effective ethics audits (see Ahmed, 2019; Clark, 2004; Ingram, n.d.; Krell, 2010):

• Start with a detailed foundation. An ethics audit is a comparison between actual employee behavior and the guidance for employee behavior provided in policies and procedures. The more descriptive and specific ethics-related policies and procedures are, the easier it is to make these comparisons.

• Develop metrics. Ethics audits may not be as black-and-white as financial or operational audits, but they run more smoothly when tangible ethics measures are in place. Consider adding ethics goals to annual performance reviews and, where possible, tying compensation to ethical behavior.

• Create a cross-functional team. Include an HRM professional familiar with people in the business unit being audited. Most ethics audit teams include an ethics and compliance manager where possible as well as an internal auditor and legal managers.

• Audit efficiently. Audits frequently disrupt normal operations in business areas subjected to review. Before scheduling an audit, find out if internal auditors or the finance team may be conducting reviews of the same area. If so, combine these efforts to limit disruptions. Once the audit has been scheduled, create

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a plan that spells out employees to be interviewed, information that requires review and any processes that require observation.

• Look for other issues. Keep an eye out for other improvement opportunities and share those with relevant colleagues. For ex- ample, ethics issues in a sales area may have revenue-recognition implications from a financial reporting perspective.

• Respond consistently and communicate. Discipline ethics violations in complete accord with policies and procedures and the code of conduct every time. Also, use ethics issues, when possible, as grist for “lessons learned” in ethics-related communications and training.

The primary issue for HRM professionals and their organization is to com- pare ethics guidelines with actual behaviors, but team members also look for other issues that may need to be addressed through communications, training, or subsequent audits.

HRM professionals also play a pivotal role in responding to ethical or legal issues or violations that the audit identifies, whether the response takes the form of disciplining an employee, conveying educational material about the topic to a larger audience or integrating the topic into training. If the ethics audit concerns employment issues, HRM professionals typically takes a lead role in conducting the audit.

For ethical audits to really make a difference HRM professionals and other organizational leaders must recognize that such an audit is in most instances a reactive tool which can only have a real impact if there is a com- mitment to an ethical culture and a zero-tolerance for bad ethics. So, how can HRM professionals help create and institutionalize an ethical culture in their organizations?

CREATING AND INSTITUTIONALIZING AN ETHICAL CULTURE AND ORGANIZATIONAL PRACTICES

One of the primary determinants of ethical behavior is a positive organi- zational culture involves the shared values and beliefs that are embedded within an organization. Every organization has a culture, whether it is newly created or well developed, and that culture influences how c-suite execu- tives and other leaders, and employees make organizational decisions. For example, if meeting objectives and financial targets is stressed as a cultural characteristic, then organizational leaders may feel encouraged to falsify numbers or doctor records. However, when an ethical culture exists in an organization, employees are often more motivated to behave according to appropriate ethical standards. If trustworthiness is emphasized as a

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250 R. R. SIMS

cultural value and is upheld by ethical leaders, then an organization can develop an enhanced image, and its employees can feel more engaged in the workplace (Brodsky, 2014).

Organizations often rely on a number of programs to increase employ- ee’s awareness of ethical issues. For instance, when the following programs exist, an ethical culture often develops, and ethical behavior is encouraged:

• A written code of ethics and standards of conduct • Training on ethical behavior for all leaders and employees • Advice to employees on ethical situations they face, often given

by HRM professionals • Systems for confidential reporting of ethical misconduct or ques-

tionable behavior

Organizations may also develop programs related to corporate social responsibility that focus on the enhancement of stakeholder interests and the advancement of social good. There is a growing awareness that socially responsible organization practices are artifacts of cultural values and can prompt positive employee outcomes (Gjarleghi et al., 2018; Morgeson et al., 2013). Organizations that are interested in sustainable practices that help the environment and society also incorporate as “benefit orga- nizations,” which makes organizations show how they are operating in a responsible way. This designation can enhance HRM activities such as hir- ing good employees (Babcock, 2012b).

As discussed in Chapter 6, it was noted that compliance is often thought of as referring to the relationship of compliance and ethics and the rules and regulations that apply to the organization (Ruelas, 2016; Hopkins, 2013). These rules and regulations most often take the form of local, state, and federal laws. In contrast is the commonly held thought that, as men- tioned previously, ethics relates to the value system that exists within an organization. This value system can be seen as consisting of two subsets. One subset is what many organizations within the same and different indus- tries tend to adopt and promote to their employees and customers. These values often take the form of social responsibility as it relates to how the organization works to be a responsible corporate citizen in the community in which it operates, or how the organization works to protect the environ- ment above and beyond what it must do to meet regulatory requirements.

The second subset of the value system that represents the ethics of an organization is the value system that is generated from within the organi- zation, often attributed to the culture that exists within an organization (Bonniver et al., 2015). This close relationship between an organization’s culture and its value system is what makes this second subset of the values

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that impact not only compliance but especially the ethics that are unique to each organization.

Value systems are also impacted by the challenge of trying to define or decide what is “right” or what is “wrong” with respect to the values that the organization wishes to reinforce (Gebler, 2006). For the most part, an organization’s compliance efforts or programs will feed into the ethical culture and helps to define what is right and wrong by attempting to align individual and group decisions with meeting the requirements of rules and regulations.

Simply stated, ethics is the internal intangible that drives people. It is the value system, or lack thereof, that guides us when employees make decisions in their day to day work actions. Compliance on the other hand is much more clear-cut as it is about following the rules, the policies, the regulations that are articulated in laws and internally drafted documents. There are consequences for violating those policies and regulations that can result in discipline up to and including termination. Often, there is no analysis related to intent. If an employee violates the rules, there will be consequences. Ethics is more about your personal values. One expert has said that either you have ethics, or you don’t (Bucaro, 2013). In reality, one might wonder whether or not the rules and regulations are for those that do not have guiding principles they live by.

Employees that will do anything to get where they need to go, need a structure in place to stop them from crossing the line. Organizations that incorporate an ethical culture or a culture of ethical behavior, get employ- ees to follow the rules, not just because they have to, but because it’s the right thing to do.

The challenge for HRM professionals and their organizations is to help employees understand that one can be compliant and yet be unethical. The law is black and white and there are consequences. What do you do when something unethical happens, but it is compliant? What your process modus operandi? What are the consequences? In short, it is important for HRM professionals and other organizational leaders to understand that compliance, by its very name is a reactive process. To be compliant is to respond to something you have been “taught” to obey, that is, law.

Ethics can only be a proactive process. To be ethical is to focus on values, character, principles, and so forth, what will give an individual a foundation to make those tough decisions, before they happen. It is important that HRM professionals and other organizational leaders put more time, effort, and money into ethics training than they do for compliance training. By doing so an organization will take a major step in the ethical direction, which may help employees choose to do right (Is my conduct consistent with our organizational values and expected ethical behavior?), rather than just making them do right.

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252 R. R. SIMS

Creating an ethical culture is a low-cost means by which to promote legal compliance. That is, the best way to ensure legal compliance is to promote a culture of ethics (Volkov, 2014). More importantly, an ethical culture benefits an organization in several significant respects: employee morale improves, employee misconduct declines, employee willingness to report any misconduct increases and overall corporate profitability and sustain- ability of operations increases.

These positive effects are not trivial—they can be the difference between success and failure in a competitive market. HRM professionals and oth- ers in their organizations have to recognize the significance of an ethical culture as a means to promote profitability and competitive advantage while being compliant and doing the right thing. It is also important that HRM professionals remember that an ethical culture is not very expensive. It does not require significant expenditures; it does not require significant resources.

An ethical culture depends only on commitment. It requires organiza- tions and senior leaders and HRM professionals to maintain focus and to follow up by asking the question—what are we doing to ensure that our cul- ture is communicated and reinforced in every aspect of our organization?

Another way to think of culture is to require disciplined thinking—HRM professionals and other leaders (senior, mid-level and lower-level leaders) have to ask how they are communicating and reinforcing the corporate culture of ethics. Fortunately, it does not have to be as hard as everyone thinks and just requires some creative approaches to an otherwise natural question—how can we promote an ethical culture? An ethical audit is one vehicle available to HRM professionals and other organizational leaders for building and institutionalizing an ethical culture. An ethical audit as discussed earlier provides an opportunity HRM professionals and other leaders to reassess the effectiveness of ethical standards in shaping internal behavior.

Ethical Culture: A Closer Look

An ethical culture is the foundation of effective HRM internal controls. It is important for HRM professionals to understand that internal controls are best practice and necessary to ensure ethical behavior with an organiza- tion’s values and expected behavior, applicable laws and regulations, and to ensure that there is a system of checks and balances to detect inappropriate actions and/or unethical behavior. Yet, without an ethical culture, employ- ees will find ways to circumvent internal controls, policies, and procedures.

As suggested earlier, the purpose of an ethical culture is to help steer employees to choose to do the right thing by ensuring that organization

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Human Resource Management 253

values are embedded in everyday work practices. This raises the question: how does an organization create an ethical culture?

Step 1. Organization Values. In line with the discussion in the previ- ous section, an organization should have clearly stated values to establish its ethical culture. Values that shape the organization’s ethical culture through daily work practice could include: integrity, respect, diversity, conscientiousness, creativity, safety, and more. For instance, safety can be an organization’s number one value—it might not seem an obvious choice, but if the employees work in an organization with high safety risks its pri- ority makes sense. Thus, safety would be a top value that is fundamental to the organization’s ethics programs and prioritized in their employees’ everyday work practices.

Step 2. Code of Ethics and Code of Conduct. The values chosen in Step 1 should be incorporated into the organization’s code of ethics—their guidelines about behavior and principles to govern decision making— and the code of conduct, which applies the code of ethics to a range of situations and actions. Both documents should also include high-level guidelines regarding ethics and compliance risk areas. For the code of conduct to be effective at guiding everyday work practices, it should give direction to employees on applying the code of ethics to specific issues that are important to the organization. For example, if an employee is work- ing in a foreign country, the code of conduct should provide guidance on complying with the Foreign Corrupt Practices Act rules regarding gifts, gratuities, and entertainment.

Of course, having a formal code of conduct does not guarantee real- world compliance or ethical behavior. A code of conduct audit will assess whether the code of ethics and code of conduct that exists in paper form is understood and internalized by employees in their lived experience. An internal HRM audit should:

• Ensure the code of conduct is provided to all employees • Assess what is done to ensure that employees understand the

code of conduct and are familiar with its requirements.

An internal HRM audit should also assess whether the employee code of conduct training is effective in ensuring employees understand its requirements.

Self-auditing an ethics program helps to ensure that it is functioning as intended, and that all organizational units and employees are complying with its requirements. Interviews with employees and leaders can be used to assess understanding of important areas of an ethical culture and/or ethics programs. HRM professionals can use the sample questions below in their interviews for a code of conduct audit.

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254 R. R. SIMS

To start, HRM professionals should choose a random sample of employ- ees and/or leaders from selected work units or sites (about 20 employees at each location) and (1) interview employees without the presence of their supervisors; (2) provide a standard questionnaire to each HRM profession- als participating in the ethics audit to be used in these interviews to ensure consistency; (3) use best practices to communicate to the employee before the interview begins that they are being questioned to assess how well the organization has communicated the appropriate guidelines; and (4) how- ever employees respond, they are not at fault and are not being judged. A list of employee interview questions to help HRM professionals assess the effectiveness of the code of conduct training in their organization are:

1. Does the employee understand their role in complying with the standards established by the code of conduct?

2. Does the employee believe the organization is serious about ethics (and compliance)? If not, why not?

3. What does the employee think are the organization’s risks regard- ing ethics (and compliance)?

4. Does the employee know the name and contact information of their HRM professional or ethics officer/advisor, or the person they can contact to report wrongdoing?

The answers to the above questions should be summarized to form an opinion regarding the effectiveness of the Code of Conduct training efforts.

Step 3. Risk Assessment. Once the HRM professionals organization has a code of ethics that employees understand and believe in, the next step is to understand ethics (and compliance) risks as well as risks in the code of conduct guidelines provided by the organization. To accomplish this, HRM professionals should perform a risk assessment to ascertain whether the organization is focusing on current organizational risks as a result of changes in organizations, business practices, and laws and regulations. When preparing each organizational unit risk assessment for compliance, for example, with applicable laws and regulations, HRM professionals should be sure to include issues that stem from the code of conduct guide- lines such as anti-kickback, anti-bribery, protection of organizational assets, or harassment issues.

Step 4. Ethics and Business Conduct Policies. Effective ethics initia- tives (and compliance programs) should include policies and procedures addressing the particular risks facing an organization. For example, poli- cies and procedures relevant to international trade should address risks related to import and export controls, anti-boycott measures, and money laundering, among others.

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Human Resource Management 255

An ethics and organization conduct policies audit will assess whether employees are aware of, understand, and are following these policies. An internal HRM audit should examine the list of policies to see if high risk areas from the risk assessment and the code of conduct are addressed. For current policies, HRM employees should conduct employee interviews to assess awareness of relevant policies by asking them how well they under- stand their responsibilities in connection with ethics and organization conduct policies, naming each policy individually.

• If an employee says they are not aware of the organization’s HRM guidelines on a listed policy, they should be referred to the relevant section of the code of conduct and the applicable policy.

• Identify HRM policies with which the majority of the employees were not familiar so that additional training can be provided in these areas.

Step 5. Awareness Training Audit. It is not sufficient for an organiza- tion simply to have HRM policies in place—there must be a program that trains employees to be aware of relevant ethics and corresponding compli- ance issues. When developing or evaluating, for example, an ethics training program, HRM professionals will want to consider:

• How is this training delivered to employees? Is it an online program or live sessions? Is the delivery method adequate to reach all employees who must take the ethics (and compliance) courses?

• How is one considered to have completed a course? Is there a quiz after a training course with a minimum score requirement?

• If a tracking mechanism is used to see the completion status of required courses, what percent of the employees have completed their required courses? What recourse is taken to follow up with employees who have not completed or passed training?

Step 6. Inquiry and Reporting Mechanisms. It is important for HRM professionals to ensure that the organization’s ethics (and compliance) efforts include a process for employees, customers, suppliers, and other stakeholders to ask questions or report concerns about ethics or violations of laws, regulations, and organization policies. To assess the process for investigating concerns reported through mechanisms, such as the organization hotline, internal audit should consider the following:

• Is there a prioritization of concerns received based on the sever- ity of the issues raised?

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256 R. R. SIMS

• Is there a formal protocol for deciding who investigates what? • Is there a formal protocol to ensure that all investigations are

done using certain guidelines and consistent standards for thoroughness?

• Were investigations documented in formal reports?

o Were investigations completed in accordance within the established timeline?

o Were the investigations thorough enough to reach a conclusion regarding the validity of the concerns?

o Was there any explanation for actions taken, or not taken, as a result of the concerns received, and investigations done?

o Was ensuing actions taken with appropriate management approvals and consultation with functional experts (e.g., HRM, legal)?

o Were the callers made aware of the results of the investigations?

A list of employee interview questions to help HRM professionals assess the effectiveness of a hotline reporting mechanism are:

1. Does the employee know that there is a hotline number they can use to report concerns?

2. Does the employee know where to find the hotline number? 3. Does the employee know that there will be no retaliation for re-

porting a concern even if it turns out to be unsubstantiated? If the employee answers that they fear retaliation, ask why. Is there any evidence of retaliation?

4. Does the employee know the name and contact information of their HRM professional and/or Ethics Officer/Advisor, or the person they can contact to report wrongdoing?

The answers to the above questions should be summarized by HRM pro- fessionals to form an opinion regarding the effectiveness of the hotline reporting mechanism.

Step 7. Communication Program. HRM professionals and other orga- nizational members should develop a communication plan to increase ethics awareness and remind employees that ethics (and compliance) are important to the organization. The most effective communication pro- grams should engage all audiences with specific messages about ethics using a variety of media. Effective communication program components include:

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Human Resource Management 257

• Separate pages on ethics (and compliance) in the organization’s internal and external websites.

• Internal ethics blogs from senior leaders to help set the tone from the top.

• Incorporate a variety of messages, short videos, and Q&A about ethics issues in the organization’s newsletter.

• Ethics posters with the toll-free hotline number and HRM professionals and ethics officer contact information should be displayed prominently at locations where employees gather frequently. Posters should clearly state that concerns can be reported anonymously, and that there will be no retaliation for reporting a concern even if it turns out to be unsubstantiated.

• Ensure that the code of ethics, code of conduct, and ethics mes- sages are distributed in all native languages of employees.

A strong communication program will keep ethics (and compliance) top of mind for all employees!

Step 8. Ethics Effort/Program Assessment and Evaluation. At all points in the process of building and institutionalizing an ethical culture, it is important for HRM professionals and other organizational leaders to maintain continuous program evaluation. There should be regular internal and external audits of the organization’s ethics initiatives or programs, and an assessment of how often internal controls are tested. HRM professionals should also conduct employee surveys and focus groups to assess employee impressions of the ethical culture. A constant vigilance and program evalu- ation is necessary to maintain a strong ethical culture.

Step 9. Leadership Commitment. To achieve and maintain an ethi- cal organization culture, there must be strong commitment from the top to create the perception that ethics and compliance is important to the company. Leadership commitment may be the final step in this list, but it is fundamental throughout the previous steps that leadership take respon- sibility for demonstrating through their actions the importance of ethics (and compliance). There are many ways that organizational structure and activities can demonstrate leadership commitment:

• Have the CEO make a statement to formalize the organization’s commitment to the highest ethical conduct in all aspects of the organization.

• HRM professionals or other leaders of the ethics organization can report directly to the Board of Directors or Chief Executive Officer.

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258 R. R. SIMS

• An Ethics and Compliance Committee with a senior executive as Committee Chairman can provide leadership and oversight to the organization’s ethics efforts or programs and review the sta- tus of ethics-related activities. The committee itself might consist of senior leaders from HRM, Legal, Internal Audit, Operations, Communications, Security, IT and other departments.

An ethical culture starts at the top and in reality for most employees, ethical culture is what they see up front every day. The message of ethical behavior should flow from the top leadership down to the lower-level supervisors who directly manage the organization’s business on a day-to-day basis, and from them to all employees.

A list of questions HRM professionals can ask leaders to assess the effec- tiveness of leadership commitment to ethics during interviews are:

1. What do you think is your role in establishing an ethical culture? 2. What specific things do you do to promote an ethical culture within

your organization? 3. What do you do to ensure that employees know how to voice their

concerns without fear of retaliation?

Leadership answers should include all or most of the following:

• Lead by example • Ensure that employees receive a copy of the code of conduct • Ensure that employees understand the organization’s ethics

standards • Create a culture that encourages employees to comply with com-

pany policies and voice questions and concerns • Respond immediately to concerns that are raised • Ensure that employees complete required ethics and compliance

training • Be cognizant of ethics exposures and take appropriate mitigating

actions • Reiterate on a regular basis that there will be no retaliation for

reporting a concern

If leader responses do not cover the above, this could indicate the message of ethical behavior has not flowed from the top leadership down to the supervisors who directly manage the company’s day-to-day business. Therefore, based upon their audits HRM professionals should recommend corrective actions such as additional training, communication, and coaching.

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Human Resource Management 259

To be effective, ethics cannot just be a program administered by the HRM professionals or Ethics and Compliance function—an ethical culture must be a process and a responsibility shared by all employees. Developing a strong culture of ethics that employees believe in will help to ensure that HRM policies and practices are not being circumvented due to lax ethical standards on the ground. Following the various steps and ideas highlighted in this chapter will help HRM professionals and other organizational mem- bers create and institutionalize an ethical culture where the organization’s values are embodied in its employee’s everyday work practices.

HRM professionals and other organizational leaders should design a system that makes being good as easy as possible. That means attending carefully to the contexts people are actually in, making ethical principles foundational in strategies and policies, keeping ethics top of mind, reward- ing ethical behavior through a variety of incentives, and encouraging ethical norms in day-to-day practices (Epley & Kumar, 2019). HRM professionals can make use of the checklists in Tables 11.2 to 11.4 to help create and institutionalize an ethical culture in their organizations (see Brooks & Selley, 2008; Kallins, 2019; Schwartz, 2013).

Table 11.2

An Ethical Culture: Elements & Motivation

+ Do your organization’s employees share a common set of:

• Beliefs

• Values

• Practices

Is that common set of beliefs, values and practices supported by:

• Specific identification & communications

• Codes, guidelines & reinforcement

• Monitoring, rewards & punishment

Does your management team understand:

• The elements of an ethical culture

• The reinforcers of an ethical culture

• Possible individual & team outcomes

• Possible areas of improved effectiveness

At what level does your company understand that ethical treatment is about how the interests of stakeholders are respected:

• Board of Directors

(Table continued on next page)

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Table 11.2

An Ethical Culture: Elements & Motivation (Continued)

+ Reinforcement through management capability development

• Executives

• Managers

• Workers

Does your ethical culture factor the need for stakeholder support into:

• Strategic planning

• Decision making

Do your Board, executives, managers & workers understand that an ethical culture:

• Is good business

• Enhances trust & reputation

• Increasing numbers of organizations are giving attention to it

• Is a new benchmark expectation for:

o Profit

o Corporate citizenship & corporate social responsibility

o Awards

• Preventing surprises

• Mitigates personal liability

• Requires diligent risk management

• Satisfies and encourages altruists

Table 11.3

Leadership, Core Values & Important Issues

+ Create a Governance & Leadership Framework

• Clarify roles of board & governance/ethics subcommittee, chair, CEO

• Identify ethics champion, chief ethics officer & role of each

• Identify reporting relationships & expectations

• Identify responsibilities and performance expectations

Develop the Core Values & Issues Foundation

Develop Core Value set by considering:

• Reputational values—trustworthiness, credibility, reliability, responsibility

• Hypernorms—honesty, fairness, compassion, integrity, predictability, and responsibility.

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Human Resource Management 261

• Ethical decision-making criteria—stakeholder impact analysis

• Constructing a Values Desirability Framework

Identify important issues requiring cultural guidance by:

• Stakeholder Impact Analysis

• Environmental scanning

• Stakeholder consultation

• Ethics audit

• Expectations gap assessment

• Ranking issues – urgent claims before powerful and legal

• Ranking issues – ethics risk assessment

Table 11.4

Reinforcement & Compliance

+ Reinforcement

Effective Reinforcement of Values

• Identify responsibility

• Commitment of leaders

Management Communications Concerning Ethical Conduct

• A visible contribution by the CEO at the beginning

• Letters by the CEO to senior management, all employees, suppliers, contractors, customers and shareholders should include, introduce, and link communication to the organization’s values

• A periodic ethics reminder letter can be sent from the CEO to employees, customers, agents & suppliers on a quarterly or semi-annual basis

• The chief ethics officer reports to the ethics, governance, or audit subcommittee of the board on the status of the company’s ethics program, any instances or patterns of conduct worthy of revised guidance or action, any trends noted in environmental scans that will impact the company, and any suggested revisions to the ethics program

• The annual report and annual meeting should include reports from the CEO & directors on how the ethics program is being managed

• Speeches given by the CEO should include a reference to the code and ethical issues, whenever appropriate

• Employee newsletters should include discussion of relevant ethical issues

• Company forms and reports should be modified to reflect the mission statement or code of ethics

• A company website could be established to house the code, updates, news events, and awards for good performance

(Table continued on next page)

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262 R. R. SIMS

Table 11.4

Reinforcement & Compliance (Continued)

+ • Communications from senior management on specific issues, particularly on strategic and tactical plans, contain references stressing compliance with the organization’s code of conduct

Reinforcement through management capability development

• Periodically review the code of ethics & criteria, tools, and processes that may be discussed for identifying and resolving ethical issues

• Discuss relevant ethical issues with a view to determining whether they were handled properly, whether feedback mechanisms were effective, and whether the code needs to be revised

• Hear from, and provide feedback to, the corporation’s ethics officer on the matters noted above for reporting to the board subcommittees

Reinforcement through an annual ethics training program

• Enhanced and updated from past years, covering current problems

Reinforcement through integration into general training

• Directors’ and senior officer sessions

Reinforcement through feedback facilitated by:

• Appointment of an ethics officer, or an ombudsperson

• An ethics inquiry hotline

• Ethics committees

• Subcommittee of the board of directors for general oversight

• Employee assistance programs

• A protected whistle-blowing program designed internally, or out-sourced, to induce the greatest level of employee trust

Effective feedback processes have:

• Sufficient resources to permit follow-up

• Documentation of feedback received

• Criteria to help establish priorities

• Policies concerning confidentiality

• Management involvement when policies are challenged on ethical grounds

• Feedback to the individual who raised the matter, and when relevant, to all employees

Reinforcement through recognition

Reinforcement through job descriptions and reward systems

Reinforcement through Whistle-blower Programs & Inquiry Services

• Whistle-blower anonymity

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Table 11.4

Reinforcement & Compliance (Continued)

+ • Whistle-blower protection

• Rapid & fair investigation

• Confidentiality of findings

• Quarterly or annual reports of inquiries and follow-up made to very senior officers and to a subcommittee of the board of directors

An ongoing Monitoring or Review Mechanism

• Responsibility assigned

• Report to board subcommittee

Employee and Management Compliance

• Sign off of compliance cards when hired

• Annual sign off

Evaluation of effectiveness of the Chief Ethics Officer and his or her supporting ethics committee with regard to reporting and actions taken with regard to the items noted below:

• The ethics program generally

• Communications processes established

• Employee training programs, including lunch and learn sessions

• Reinforcement and compliance initiatives

• Processes designed to obtain employee feedback and to follow-up on such feedback

• Processes designed to address violations and actions taken

• Processes designed to address new concerns and issues

• Integration of ethical performance goals into job descriptions and remuneration systems.

Addressing violations of the code of ethics

• Identification of responsibility for addressing violations

• Fairness & speed of hearing process

• Adequacy of penalties assessed

• Communication about violations to all employees and other stakeholders

CONCLUSION

HRM professionals are responsible for ensuring that culture management in its broadest since is a core focus of their organization’s efforts to not only survive but thrive. For HRM professionals to influence culture, they need to work with other organizational leaders to identify what the organizational

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264 R. R. SIMS

culture should look like. Strategic thinking and planning must extend beyond merely meeting organizational goals and focus more intently on an organization’s most valuable asset—its people—and their values and expected behavior.

HRM professionals have been described as the “caretaker” of organiza- tional culture (see Society for Human Resource Management, n.d.; Thite & Kavanagh, 2012). In carrying out this essential role, all HRM professionals should help build and manage a strong culture in their organization by:

• Being a role model for the organization’s beliefs. • Reinforcing organizational values. • Ensuring that organizational ethics are defined, understood, and

practiced. • Enabling two-way communications and feedback channels. • Defining roles, responsibilities, and accountabilities. • Providing continuous learning and training. • Sustaining reward and recognition systems. • Encouraging empowerment and teams. • Promoting a customer-supplier work environment. • Recognizing and solving individual and organizational problems

and issues.

How to conduct an ethical audit and create, sustain, or institutionalize ethical culture in an organization whose employees are happy, motivated, and ethical remains one of the most complex, elusive questions confronting HRM professionals and other organization leaders. Organizational culture is determined by the interaction of systems, norms, and values, all of which influence behavior.

The culture of an organization influences the moral judgment of employees and other stakeholders (Eisenstein, 2019). Organizations that work to create a strong ethical culture motivate everyone to speak and act with honesty and integrity. Organizations that portray strong ethics attract customers to their products and services.

Customers are happy and confident in knowing they are dealing with an honest organization. Ethical organizations also retain the bulk of their employees for the long-term which reduces costs associated with turnover. Employees want to work for an ethical organization that promotes integ- rity. They want to work for an organization that adheres to high standards because most employees believe in their own integrity and ourselves. An organization that is ethical promotes employee’s feeling of self-worth and they need that feeling to commit to work and self-actualization. Investors have peace of mind when they invest in organizations that display good

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ethics because they feel assured that their funds are protected. Good ethics keep share prices high and protect organizations from takeovers.

All HRM professionals have seen and experienced organizations that give them a positive feeling and reinforce the good in each employee. An important consideration for HRM professionals is that promoting an ethical culture is a “feel good” task. And in most situations it is a positive message, and everyone reacts well to a positive message. HRM profes- sionals serve as powerful agents of the organization by helping people understand how ethics do indeed work to help an organization meet its legal obligations, while more importantly promoting the organization’s value system. It is through the effective management of ethics and the use of ethics audits that results in an organization creating and institutional- izing an ethical culture.

Creating and institutionalizing an ethical culture will continue to be a challenging task for HRM professionals and other organizational leaders that offers enormous long-term rewards. The benefits go beyond the management of fraud, corruption, conflicts of interest, and other forms of unethical conduct. It goes beyond the need to reduce the cost of regulatory action, investigations, and financial penalties. Organizations with ethical cultures will have more sustainable growth, retain, and attract the best employees, earn public trust and consumer loyalty, and be far better placed to survive disruptive political, social, and environmental forces. There is no one-size-fits-all solution to creating and institutionalizing an ethical culture, but this chapter hopes to present some ideas and generate further discussion and ideas for how to do this.

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Human Resources Management and Ethics: Responsibilities, Actions, Issues, and Experiences, pp. 269–297 Copyright © 2021 by Information Age Publishing All rights of reproduction in any form reserved. 269

CHAPTER 12

HUMAN RESOURCES MANAGEMENT AND ETHICS

A Look to the Future

Ronald R. Sims and Sheri K. Bias

INTRODUCTION

Today’s and tomorrow’s organizations are coming to realize the bottom- line benefits of incorporating ethical behavior into their human resource management (HRM) policies and procedures or in essence it is DNA. It is beneficial for attraction, recruitment, selection and retention and it is the right thing to do. HRM must continue to be a key organizational leader and take the lead or partner with other leaders at all levels to work cross-func- tionally to integrate ethical behavior into how an organization’s business gets conducted. HRM professionals can act as translators or bridges of the organization’s ethical commitment vertically and horizontally across all levels, units, or departments.

Regardless of the type of organization, it is important to increasingly recognize that effective HRM leadership on ethical behavior integration requires commitment from the board, CEO, and executive/administrative

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leadership to be successful. Indeed, any future roadmap to creating or building and sustaining or institutionalizing an ethically oriented culture is predicated on the assumption of commitment from the top. However, we must continue to see more and more organizations accept and commit to “doing the right thing” in all their actions and to embedding ethical action into “all that they do,” HRM can increasingly help provide some guidance as to how to go about doing this.

Today’s and tomorrow’s HRM professionals and their organizations will be expected to have undergone significant transformation such that ethi- cal behavior no longer becomes managed as a separate deliverable, but is part of the experience of being an employee in an organization that lives its values. For organizations committed to creating and institutionalizing an ethically-oriented culture, HRM professionals must continue to understand the key role they can play and how they can foster an environment that embeds ethics in “the way we do business around here.”

During the creation of this text, an unexpected impact on organiza- tions was the COVID-19 Coronavirus which caused significant disruptions to business options. Many organizations were mandated to cease opera- tions, and those organizations deemed essential were forced to operate in a new normal. The Centers for Disease Control and Prevention (2020) has been intimately involved with providing guidance on ensuring the safety of employees, particularly those in certain lines of work.

While there is not a full picture of what these implications will be, the impact of ethical behavior will continue to be a high priority. One early trend seems to be teleworking arrangements with employees (Society for Human Resources [SHRM], 2020) which leads to the question of how will the organization know if the employee is actually working since productivity will not be physically seen by leadership. The perception of employees not working in a telework environment, therefore taking advantage of the organization, is inherent in McGregor’s Theory X management style (Lucas, 2019). Yet, the circumstances of the COVID-19 impact have left many organizations with no choice but to have employees telework. Only time will tell if trust can be built between employees and leaders within organizations that employees will do the right thing when no one is watching.

This concluding chapter highlights the nature and future scope of HRM and ethics and the role HRM professionals can continue to play in holding organizations, their leaders and other employees accountable for ethical behavior. Towards this end, the main purpose of this chapter is to drive home the point that future HRM professionals will be expected to redouble their efforts to help “build a better future”—for their customers, employ- ees, community, nation and the wider world. Those HRM professionals with effective business or organization ethics based on this core value (or

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competence) will have an added competitive advantage: attracting and retaining talent and generating positive reactions in the marketplace.

The first part of the chapter takes a look at the future of ethics in orga- nizations. Next the chapter offers a discussion of several trends HRM professionals will need to continue to pay attention to before focusing on the increased importance of HRM professionals creating trust and cultivat- ing an ethically-oriented organizational culture which has been a theme discussed at various points in this book. The chapter then continues the theme of cultivating an ethically-oriented culture by taking a look at HRM policies and practices in building strong ethical cultures. Before conclud- ing, the chapter takes a look at what we believe will continue to be ethical dilemmas confronting HRM professionals in the years to come.

A LOOK AT THE FUTURE OF HRM AND ETHICS

Ethics has to do with behavior—specifically, one’s moral behavior—right versus wrong, good versus bad, and the many shades of gray in between— with respect to organizations and society. The reality for HRM professionals (and other organizational leaders) as we look to the future is the importance of recognizing that the extent to which an individual’s behavior measures up to societal standards is typically used to gauge one’s ethicality—this is true for organizations as well as their employees. There are a variety of standards for societal behavior, of course, so ethical behavior is often char- acterized with respect to certain contexts. The Ethics Resource Center says, “Business Ethics refers to clear standards and norms that help employees to distinguish right from wrong behavior at work” (Joseph, 2003, p. 2). In the context of doing business in any type of organization, ethics refers to the extent to which a person’s behavior measures up to such standards as the law, organizational policies, professional and trade association codes, popular expectations regarding fairness and rightness, plus one’s own internalized moral standards.

It can fairly be argued that an ethical person behaves appropriately in all societal contexts. This indeed may be so, in which case one might prefer the term “ethics in organizations or business” to “organization or business ethics.” The distinction is subtle, but serves as a reminder that morality may be generalized from context to context. Adam Smith, for example, saw no need for ethical relativism when it comes to business:

It is impossible to determine just how business became separated from ethics in history. If we go back to Adam Smith, we find no such separation. In addition to his famous book on business and capitalism, The Wealth of Nations, Adam Smith also wrote The Theory of Moral Sentiments, a book about

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our ethical obligations to one another. It is clear that Smith believed that business and commerce worked well only if people took seriously their obli- gations and, in particular, their sense of justice. (Bruner et al., 1998, p. 46)

Others (May, 1995) have echoed this important point: “The marketplace breaks down unless it can presuppose the virtue of industry, without which goods will not be produced; and the virtues of honesty and integrity, with- out which their free and fair exchange cannot take place” (p. 693).

The law is one of the standards society uses to gauge ethicality. What precisely is the role of the law in determining moral behavior in business? Law has been defined as (Hosmer, 2003):

a consistent set of universal rules that are widely published, generally accepted, and usually enforced. These rules describe the ways in which people are required to act in their relationships with other people within a society. They are requirements to act in a given way, not just expectations or suggestions or petitions to act in that way. There is an aura of insistency about the law; it defines what you must [emphasis original] do. (p. 64)

The law plays an important—most would say an essential—part in estab- lishing the moral and practical milieu in which business takes place. For example, it has been said that, “The law … is … necessary since the laws are what establish the contractual framework within which businesses oper- ate” (Fieser, 1996, p. 458). Further “Modern business presupposes a stable fabric of law. Law, of course, means limits; there are some things that busi- nesses cannot do and remain legitimately in business” (Stackhouse, 1995, p. 18).

A review of the key legal standards and other guidance provided by the Federal Sentencing Guidelines, the Sarbanes-Oxley Act, the Securities and Exchange Commission (SEC), the Justice Department, the New York Stock Exchange, and a host of other agencies, commissions, and organizations indicates strong consensus for at least twelve important steps for HRM professionals and other organizational members to take in order to be in compliance with government regulations and recommended best practices in organizations (or for our purposes, for ethics to truly be in business) (see Sauser, 2008):

1. Assure commitment from top management for an organizational culture of ethicality;

2. Construct a written code of standards for behavior; 3. Communicate the standards of conduct effectively throughout the

organization;

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4. Conduct ongoing training and education programs with respect to business ethics;

5. Designate a compliance officer with clear responsibility for enforcing the standards;

6. Establish a process for reporting violations of the standards of conduct;

7. Maintain confidentiality and “whistle blower” protection; 8. Actively investigate all reported violations; 9. Ensure effective enforcement, compliance, and discipline;

10. Assure due diligence and active investigation by the organization’s board of directors;

11. Monitor and audit business transactions and other operations; and 12. Attend carefully to the law and make certain that all business

actions, policies, and procedures are conducted lawfully.

As we consider the future of HRM and ethics a major role of HRM profes- sionals is to integrate these ethical best practices into the very fiber of the organization such that employees at all levels naturally support them and live by them. This means that HRM professionals must strive for nothing less than ethicality being a core component of the organization’s culture as suggested or discussed at various points in this book.

A Brief Look at Future Trends That Will Impact HRM and Ethics

If HRM professionals think ethics is crucial in today’s scandal-ridden era, then just wait a few years. The reasons for running ethical organizations are only going to get more compelling—as well as more complex—over the coming decades. An ongoing and age-old question for HRM profes- sionals and other leaders is why should organizations behave ethically? At a minimum, it should be to protect an organization’s reputation or brand and of course to simply “do the right thing.” The reality is that organiza- tion ethics has both a bottom-line and ethical or moral implication for contemporary organizations.

As HRM professionals look to the future, there is no reason to believe that factors such as protecting the organization’s brand or reputation and maintaining customer and employee trust will not continue to be critical and at the forefront of the things they and other senior leaders must be attentive to. In reality, these things are no different from what HRM profes- sionals and other leaders have had to focus on yesterday and today.

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Globalization or the continued rise of multinational enterprises will continue to be an organizational driver of ethics in the future. HRM pro- fessionals cannot forget that globalization, as has been the case in the most recent decades, will continue to intensify market competition and increase the need for establishing organization-wide ethical organizational cultures and standards. And with more globalization on the horizon there is a legitimate concern as to whether or not this will lead to more unethical behavior in the future. That is, will globalization and its ensuing high- level of competition cause leaders and other organizational members to compromise an organization’s ethical standards because they fill pressure to meet unrealistic (or realistic) business objectives/deadlines? Will organi- zational leaders set unrealistic performance goals which will inevitably lead to a whole new era of ethical scandals?

On the other hand, will there be even greater pressure for organization’s to behave ethically as we have seen over the past decade resulting from the “corporate social responsibility (CSR) movement. By now there should be no doubt by any HRM professionals that CSR is here to stay as more and more senior leaders and board members recognize or accept that being held to higher CSR standards (by various stakeholders to include Millen- nials and Gen Z employees) is the norm and defines the organization’s way of doing business or culture.

Another important external driver of organizational ethics will be the ongoing focus on environmental issues. This means that there will be a continued movement towards a world of “green” ethics. As more and more stakeholders and social investors and customers decide to let their money “do the talking” leaders and HRM professionals will have no choice but to take environmental issues and “green ethics” into very serious consid- eration when developing and implementing their organization’s strategy, policies and procedures.

Organizational cultures will continue to play a more important role than formal compliance and ethics programs/audits, for example, when it comes to the efforts of leaders and HRM professionals to proactively prevent unethical behaviors in their organizations. As highlighted by several contributors to this book leaders are the key to an ethically-oriented culture. Leaders support and modeling ethical behavior (in partnership with HRM professionals and other organizational members) will continue to be even more important as a vehicle to consistently communicate what is expected and acceptable behavior. This means that ethical leadership must be exhibited through all levels of the organization which includes keeping promises, encouraging open communication in the form of dialogue, good moral conversation, and conversational learning. In addition, HRM professionals must ensure that their organizations keep employees informed and support and recognize those who uphold ethical standards.

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If an organization has leaders who simply do not “walk the talk” when it comes to ethics, there is little hope of building and maintaining a strong ethical organizational culture (SECO).

In the future, HRM professionals and other organizational leaders will also need to redouble their efforts in implementing specific programs and practices like corporate or organizational codes of conducts. Such codes must reflect and reinforce the values and principles of the organization. Ethics training and education for all members of the organization, CSR programs, ombudsman services, and help or hotlines will continue to play an important role in HRM professional’s efforts to institutionalize ethics. This means that employees need to have a code to set the ethics founda- tion, training, and education to help employees truly understand it, and programs that permit them to inquire about and report ethical violations. HRM professionals and other leaders must take the time to strategically integrate an ethics decision making framework in the organization. Of course, simply putting such programs in place will not be enough; HRM professionals will also need to work with leaders at all levels of the organi- zation to find ways to measure their effectiveness through such things as ethics surveys, customer complaints and ethics audits.

Looking to the future, it is clear that ethics challenges will be a part of what HRM professionals will need to address in their efforts to help other leaders run effective and ethical organizations. Treating employees with respect and dignity, ensuring their health and safety, and countering things like discrimination/harassment among other things will be impor- tant as HRM professionals and organizational leaders are expected to make sure the rights of all employees (and other stakeholders) are properly safeguarded. Along with being ethical in the future organization, HRM professionals will of course have to strive to make sure senior leaders com- mit to establishing and sustaining trust with all stakeholders.

As noted above, HRM professionals and other leaders will need to anticipate and increasingly respond to stakeholder expectations of high ethical organization effectiveness and performance. The expectation of ethically run organizations requires effectiveness in institutionalizing to sustaining ethics which means going beyond simply putting programs (e.g., compliance and ethics) in place intended to prevent misconduct or just discovering and repairing problems to excellence in values. Organizations will increasingly be judged by their reputation in not only prevention, but in all their interfaces with stakeholders such as employees, customers, sup- pliers, and government. For example, regulators may be satisfied if laws are not violated, but employees, customers and other members of society will demand other forms of performance validation to determine the overall ethical effectiveness of organizations. Stakeholders will want to deal with organizations that have a commitment to ethics and authentic values.

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As strategic partners, HRM professionals will need to take a systemic approach to business ethics that involves leaders at all levels of the orga- nization and go beyond compliance as a way of doing business. HRM professionals will also need to recognize that while personal values and character are important in ethical decision-making they are only one of the components that guide the values, policies, decisions, behaviors, and implementation of organizational strategies. The responsibility for developing and sustaining strong ethical cultures in organizations cannot be outsourced to lawyers, accountants, investment firms or just met with rigid compliance standards. HRM professionals and other organizational leaders must plan, commit sufficient resources, and achieve ethical perfor- mance that exceeds and not just meets the expectations of stakeholders.

Again, the reality is that the importance of institutionalizing ethics is a must in doing business in the global world of work. The institutionalization of ethics requires a multi-pronged and comprehensive approach that is guided by an organization’s senior leadership and most often implemented by HRM professionals. Such an approach is not dependent on simply meet- ing the demands of required mandates in government policy. Consider the fact that some mandates, such as the U.S. Sentencing Commission recom- mendations only apply when examining misconduct or a possible violation of law after the event. There are no program reports on a regular basis to determine effectiveness. The U.S. Sarbanes-Oxley Act, European Union Directive on Data Privacy, and other regulatory initiatives attempt to cre- ate proactive due diligence initiatives to help prevent misconduct. There is every indication that mandated activities will increase as laws, rules, regula- tions, and other requirements try to standardize expected ethical behavior in organizations intended to prevent violations of the law.

Benchmarked or best practices on ethics and compliance, for example, developed by trade associations such as the Better Business Bureau, Ethics and Compliance Officer Association, European Business Ethics Forum, and the European Business Ethics Network and organizations like the Defense Industry Initiative (DII) all provide highly appropriate conduct to engage in industry self-regulation and stakeholder expectations. Today’s and tomorrow’s benchmark or best ethical practices naturally will go beyond mandated laws and more toward achieving the high expectations of society. Good ethical practices give organizations a “buffer zone” that protects them from just trying to obey the minimum requirements of the legal system. That is, it focuses the organization’s attention on institutionalizing an ethically-oriented culture. The future of HRM and ethics in organizations depends on the voluntary practices used to build a SECO where ethics, character, integrity and doing the right thing are the DNA which drives all decisions and employee behavior. Values, norms, and the artifacts of ethics, character, integrity, and doing the right thing represent the tangible

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evidence of contemporary organizations that HRM professionals can use as metrics for measuring or evaluating the ethicality of the broader organization and HRM policies and practices.

HRM and Ethics and Transparency as an Organizational Priority

More than simply a legal or moral responsibility, ethics need to become a strategic organizational priority. Clearly, HRM professionals in collabo- ration with other organizational leaders will continue to have a lot on their minds in the highly competitive world. They must keep abreast of rapid technological advancements, competitor’s products and services, the effects of globalization, and opportunities and threats within their own industry, to name the most obvious, as mentioned earlier in this chapter. HRM professionals will as always have to keep a constant eye on the mis- sion, vision, values, culture, strategy, and goals of their own organizations. In the midst of all of this complexity, it will not be easy for HRM profession- als to find room on the HRM plate for another major priority. However, to succeed in the future, an organizational ethic of doing the right thing must be a priority.

Priorities are those few things that are deemed most important. Many things are important for HRM professionals, some more and some less important, but only a few things are most important. Ethical values and behaviors are important to organizational success as highlighted at various points in this book. As an organizational priority, doing the right thing has to be integral to all decision-making and organizational culture. To achieve this, there must be an alignment process that integrates business ethics with mission, vision, values, strategies, and goals. Ethical values are essentially social in nature, therefore, this alignment process will be concerned with relationships and defining relational expectations.

The goal of a SECO is the greater good of all. Internal relationships between HRM professionals and other leaders and organizational mem- bers, as well as external relationships with clients, customers, vendors, and the community are all prized. As a result, people are treated well consis- tently, and an ethical culture emerges. With that said, again, today’s and tomorrow’s organizations need to advance beyond a view of ethics as nec- essary for safeguarding their reputation and thereby avoiding bad media coverage, or as mere compliance with forced regulations. A great opportu- nity awaits HRM professionals and their organizations that are alert to the potential of strong ethical values in shaping the future. Before discussing more about what needs to be done to achieve such a state let us briefly look

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at several other trends that HRM professionals and other organizational leaders must pay attention to in the future.

Unprecedented hyper-transparency. An increasingly global world of work and stakeholder interest in how organizations operate will increasingly demand unprecedented demand for hyper-transparency. Many of the core benefits of increased transparency become apparent when its absence is considered. How can HRM professionals and other organizational mem- bers address misconduct if they are not aware of what employees are doing? How HRM professionals and other organizational members proactively prevent unethical actions if they are not collecting data on how employees are making decisions? Or whether the organization’s rewards or incentives are leading to the right employee behaviors? How can HRM profession- als and other organizational members mitigate ethical risk if they do not understand what the organization’s ethical risks actually are? And how can HRM professionals and other leaders at all levels of the organization encourage trust and transparency within their organization if it transpires that the organization’s processes do not support ethical behavior? Consider the recent experience at Wells Fargo where it was fined $185 million for fake accounts and fired 5,300 employees. The company found widespread fraud by thousands of its employees who opened accounts in customer’s names without their knowledge. And why, because such behavior was rewarded by the organization and various managers who modeled such behavior as being acceptable if an employee wanted to get ahead and make more money (McCoy, 2016).

Part of what is driving the trend toward hyper-transparency is there are some estimates that by 2025, there will be 80 billion devices connected to the internet (Kanellos, 2016). As internet access continues to grow, the media industry has fragmented, public debate has become less top-down and more diffuse, and companies have had to accept that the ability to control reputation has been greatly reduced. This new environment raises complex and morally fraught questions around privacy, surveillance, transparency, and freedom of expression (Taylor & Cohen, 2016). HRM professionals and their organizations in the future will behave as if every- thing they say and do may become public, but they will expect the same from employees. More broadly, the vast expansion of interconnectedness will transform how organizations lead and engage with their external and internal stakeholders. This will require rethinking approaches to reputa- tion, stakeholder engagement, and values.

Rethinking approaches to reputation, stakeholder engagement and values means that it will no longer be possible to distribute information one piece at a time nor will it be possible to control what kind of content is shared. This will continue to fundamentally shift the terms of engage- ment and open up new spaces of power and influence. HRM professionals

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and their organizations will need to think more broadly about whom their stakeholders are, understand that distinctions between local and global are increasingly blurred, and reconsider what this era means for their own brands, reputations, and practices.

One example of a need for an opportunity for HRM professionals and their organizations to be more transparent and sensitive to their stakehold- ers is tied to the more recent ethical debates around the rapid development of artificial intelligence (AI) technology (Neck et al., 2017). With enhanced speech recognition available, robot dogs in development, and solar-pow- ered drones and self-driving cards on the horizon, the risks associated with AI have quickly come to fore. Tesla Motors founder Elon Musk and the noted physicist Stephen Hawking are among those who have expressed concern about the ethical consequences of advanced technology. Still to be answered are questions about the danger of building robots for mili- tary use, the safety of self-driving cars, the possibility that jobs will be lost to drones and robots, and the general risk of creating software designed to help computers think like humans. Google, owner of several robotics companies, has set up an ethics board to ensure that AI technology is not exploited.

Google like other companies are conscious of ethical risks and the need for transparency as advanced technology like AI becomes more prevalent. Transparency around such areas as AI and other advanced technology is critical to building trust between with an organization and its internal and external stakeholders. In concluding our discussion of the increased inter- est in transparency it will be important that future HRM professionals and other organizational leaders recognize the need for a commitment to being open and honest.

In the financial world, for example, transparency means opening the books. In the context of business or organizational ethics and doing the right thing, it is important for HRM professionals to recognize that is increasingly being used to symbolize more open and honest sharing of information. Interest in transparency has been on the rise since passage of the Sarbanes-Oxley Act. The reality is that hyper-transparency is here to stay. HRM professionals will be in a better position to respond to the demand for more transparency by consciously being more open, account- able, and honest with all its stakeholders and the broader society. Some have referred to such an approach as interactional transparency (Crossley & Voglesang, 2009).

Interactional transparency comprises multiple components. First, trans- parent communication involves sharing relevant information. For example, organizational leaders take the time to clearly understand what ethics related information is important or relevant to its employees, customers, suppliers, and so on. Second, transparent communication involves being

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forthcoming regarding motives and the reasoning behind decisions. Such transparency about motives helps avoid the problems of faulty attributions that can often break down communication processes. Third, transparent communication involves proactively seeking and giving feedback. Trans- parent communication is two-way and collaborative, involving a free and open exchange of information, for example, between organizational lead- ers and other employees on such things as strategic decisions, ethical risks, and ethical or unethical behavior.

Achieving transparency requires an organization to communicate openly and honestly. And where possible, in the future HRM professionals should strive to ensure that this be the rule and not the exception for their organi- zation and its leaders. Failure to do so will do nothing but result in mistrust between the organization and its employees and other stakeholders and in some instances unethical conduct or behavior.

HRM’S FUTURE ROLE IN CREATING TRUST AND CULTIVATING AN ETHICALLY-ORIENTED

The morality and ethics of the modern workplace continue to be eroded by the litany of what appear to be almost daily reports of another high-profile ethical scandal. Clearly, HRM professionals cannot deny that these scandals are a product of a failure of leadership which includes the policies they establish and the behavior they model. No wonder there is an increasing sense of distrust of leaders’ motives as they are way too often seen to serve themselves, rather than the employees, the community, the environment, or even the customers! They are seen as not telling the truth, and doing whatever it takes to increase shareholder value. One cannot wonder if such erosion of trust may be pandemic. One bad apple spoils the barrel. What happened at Enron and WorldCom almost two decades ago and at Wells Fargo, Honda, Starbucks, Nissan, Tesla, Facebook, Google and many, many other organizations within the past few months and years colors, for example, all employee’ views of how their organizations and leaders operate. When the organization culture is undermined by distrust, the original excitement and enthusiasm about a job and commitment to an employer turns to cynicism, alienation, and disengagement. When this happens, work suffers. Such an organizational culture results in mistrust and negatively impacts employees’ motivation and performance.

Trust is a vital element in all our relationships—personal, professional, and community. While there are numerous definitions of trust in the literature, most focus on the idea of constancy (Bennis, 1989) and positive expectations of the intentions or behaviors of others (see Hodson, 2004; Rousseau, 1998; Mayer et al., 1995). Trustworthiness has been defined as

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an attribute of exchange partners in which an exchange partner who will not exploit another’s vulnerabilities is worthy of trust (Barney & Hansen, 1994). Merriam Webster Dictionary defines trust as, “assured reliance on the character, ability, strength, or truth of someone or something,” and includes trustworthiness in its definition as well) (Trust, n.d.). In the business ethics realm, some minimal level of trust is critical for employees and leaders to effectively interact with each other (Bandusch, 2008). Unfortunately, however, society generally regards business leaders as untrustworthy (Child, 2004).

Developing trust is important for HRM professionals and other leaders as noted earlier. From the leader’s perspective, trustworthiness is a trait that is most often associated with ethical leadership (Treviño et al., 2000). To establish trust, leaders must clearly and fully communicate, institutionalize, and embody the organization’s values. Leaders and employees perceptions of each other’s trustworthiness will affect their risk-taking behavior, which will ultimately influence trust (Mayer et al., 1995). Employees who believe that their manager has or will act with care and consideration will spend more time on required job performance tasks (Konovsky & Pugh, 1994). Further, employees are more likely to trust management if the manager’s behavior conforms to prevailing norms of fairness, integrity, and respect for employees’ rights and interests, such as predictability and justice (Caldwell et al., 2008; Hodson, 2004; Kickul et al., 2005). The following factors have been identified as significant influences upon trust (Bandusch, 2008): competency; openness; concern for stakeholders; shared goals; reliability; frequency of interactions; rewards; and sanctions.

It is obvious that employees contribute more when they are working for something they believe in. Two scholars (Kouzes & Posner, 2002) put it well: “There is more to work than is commonly assumed. There is rich oppor- tunity here for leaders to appeal to more than just the material rewards. Great leaders, like great companies and countries, create meaning, not just money” (p. 167). The aim for HRM professionals in looking to the future is to work with others to ensure organizations operate in such a way that they achieve stated goals and do so in a manner that is consistent with the higher values of the organizational community. When employees have no clear picture of the moral or ethical stance of the organization, they tend to operate at the lowest perceived level.

Creating and promoting organizational integrity becomes one of the most important functions of HRM professionals and leadership. Moral and ethical stances need to be consistently reiterated and clarified.

The failure to address and make adjustments to issues, for example, like the justice of corporations paying millions in bonuses to executives and haggling over pennies with salaried and hourly employees will do little but make it harder to rebuild trust and credibility in organizational cultures.

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Every day leaders create symbolic messages to employees about the orga- nization’s values of justice, fairness, and equity. Unless HRM professionals and others hold an organization’s leaders accountable by having them pay more attention to the ways in which morals and ethics are expressed (and modeled with), then employees will think that such things are not impor- tant. Employees express themselves in absenteeism and in wasting supplies and productive time. Employees, over time, replicate the behavior and ethics of their leaders. Like it or not, leaders are teachers—the question is, what are they going to teach in the future that builds sustainable trust.

Trust allows leaders and employees to enhance their relationships with each other (Wright, 2005), thus strengthening the employee-employer relationship or psychological contract. Accordingly, they can build a posi- tive, comfortable, and non- threatening communication climate-one that encourages employees to discuss organizational issues, problems, and other ideas openly and honestly, without fear of reprisal. It has been theo- rized (Gilley & Broughton, 1996) that such an environment establishes conditions that will expedite trust-based synergistic relationship processes that are:

The interdependence of individuals working toward a common goal, which simultaneously provides for growth and development opportunities for both participants as well as the organization. Such relationships yield five benefits: enhancing and building managers’ and employees’ self-esteem, enhancing productivity, enhancing and building organizational com- munications, enhancing and building organizational understanding, and enhancing and building organizational commitment. (Gilley & Broughton, 1996 p. 72)

Accordingly, trust-based synergistic relationships are healthy relation- ships between leaders and their employees, which yield five benefits (Gilley & Boughton 1996):

1. Enhancing and building self-esteem. 2. Improving productivity. 3. Improving and building organizational communications. 4. Enhancing and building organizational understanding. 5. Facilitating and building organizational commitment

Furthermore, a nine-step process has been identified for building positive, healthy, trust-based synergistic relationships (Gilley & Broughton, 1996). The steps are:

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1. Freedom from fear refers to creating work environments that are safe, respectful, and conducive to acceptance.

2. One-on-on-one communication actively sharing information with others.

3. Interaction is more than communication because it implies a per- sonal engagement with employees where members take the time to discuss issues and problems.

4. Acceptance requires respect for employees as a unique individual with differing characteristics, personalities, life experiences, and professional paths.

5. Personal involvement requires employees to spend significant time with each other.

6. Trust implies open, honest, and direct and truthful communication. 7. Honesty sharing more and more private information with others,

which increases the level of personal intimacy. 8. Self-esteeming is the mutual and reciprocal respect and confidence

present when two parties work collaboratively to achieve desired results.

9. Professional development is the key output of a synergistic relation- ship where employees directly and honestly discuss ways of improv- ing their colleagues’ competencies and skills designed to improve performance impact (Gilley et al., 1999).

When these nine are present, the leader-employee relationships are honest and trust-based, and employees are completely accountable for performance results, which is customary in highly effective organizations (Klein et al., 2009). When employees are respectful, caring, and coopera- tive, it can also enhance business results (Whichard & Kees, 2006). Thus, it is extremely difficult to produce the performance results desired by an organization without managers and employees establishing positive trust- based synergistic relationships (Gilley, 2006). In fact, the ultimate outcome of a positive trust-based relationship with employees is known as rapport, which is the unconditional positive regard between managers and employ- ees and is further defined as a deep concern for the well-being of others (Whichard & Kees, 2006). Rapport is established through your sincere interest in, and acceptance of others (Kirkman et al., 2000). HRM profes- sionals have a critical role in ensuring that their organization’s leaders establish rapport with all its key stakeholders if it is going to rebuild and sustain trust in the future.

An analysis of the relationship between ethical behavior and effective leadership reveals that it is a matter of choosing both the ends and the means. Corporations must be profitable in order to survive. Service orga-

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nizations must satisfy consumers’ expectations. Government must meet the needs of its citizens. The ends are the very reason for existence of the organization.

At the same time, the means by which they achieve those ends will con- tinue to be important as suggested by our discussion of hyper-transparency earlier in this chapter. Placing value on short term gains at the detriment of long-term results ends in disaster and mistrust. The loss of an organiza- tion’s reputation or demise of an organization is a tragedy because it affects the lives of families. Families depend on the responsible decisions of orga- nizational leaders. At the core of all business or organizational decisions are moral and ethical principles. Failure to clearly state and support and withhold high ethical standards has consequences like the loss of trust in the organization’s leaders.

As we look to the future it is important that HRM professionals work to make sure that their organization’s leaders recognize that they have a responsibility for creating trust and cultivating ethical values and cultures. Leaders are the most important and powerful influence on the culture of an organization and are responsible for creating credibility and trust. Research has suggested that the most important element for leadership, in general, is the ability to engender trust (Martin, 1999). Additional behaviors and skills critical for effective leadership are ethics (Walumbwa et al., 2011; Neubert et al., 2009); the ability to build relationships and enhance collaboration (Martin, 2005), and treat individuals as unique (Gilley et al., 2012), among others.

HRM AND ETHICS: HRM PROFESSIONALS RESPONSIBILITIES IN THE COMING YEARS

A key theme of this book has been that HRM professionals will continue to play an instrumental role in helping their organization achieve its goals to become an ethically (and socially and environmentally) responsible organization—one which reduces its negative and enhances its positive impacts on its internal and external stakeholders. Further, HRM professionals in organizations that perceive successful business ethics as a key driver of their financial and other performance, can be influential in realizing on that objective. While there is considerable guidance to organizations who seek to manage their employee relationships in an ethical and socially responsible way, and wish to be perceived as the best place to work with the best ethical and socially responsible brand, HRM professionals can continue to play an impactful role in embedding the organization’s ethical or moral values throughout the organization. In short, HRM professionals will continue to

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be in a position of helping senior leadership in integrating ethics and social responsibility in the organization’s DNA.

HRM’s role in building and institutionalizing an ethically-oriented culture will continue to change as individuals, employers, governmental agencies, and other entities evolve. Part of HRM’s role is to ensure that ethics are integrated into the organizational culture. Both explicit and implicit requirements are needed. The explicit requirements include spe- cific regulations, policies, and training and education. The implicit ones aid the organizational culture in encouraging appropriate organizational behavior when dealing with customers, suppliers, employees, and others.

Ethics and corporate social responsibility (CSR) by HRM has numerous advantages. One of the most important is the ability to attract and retain employees. Socially responsible jobs are increasingly popular, especially with millennials (Rudominer, 2016). One recent study found that 81% of millennials expect companies to make a public commitment to good cor- porate citizenship. By almost any measure, millennials place a premium on CSR efforts (Nielsen, 2015). Another study found that millennials say they would take a pay cut to work for a responsible company (Cone Com- munications, 2015; Peretz, 2017). These statistics indicate how attracting individuals with social responsibilities before hiring may lead to lower turn- over and higher productivity when they become employees.

In the coming decades an important lesson that must be learned by orga- nizations and their HRM professionals is that they have an ethical and legal duty to act in the best interest of all of their constituents—their employees, shareholders, suppliers, communities, and the environment. HRM goals and objectives can only be successfully achieved by the assurance that their actions are aligned equitably with each stakeholder’s expectations. Hence, the best that can be expected is for HRM to put forth balanced policies made with competent rationale that minimize or diffuse equitably the col- lateral damage associated with touch choices.

In looking to the future, good HRM policy analysis is not about choosing between the employee and the shareholder. Sound policy analysis is about understanding the context of the organization promissory agreement and all its derivative contracts. It is essential that HRM policies be ethically flexible in their construction and agile in their doctrine to respond to and efficiently meet changing internal and external forces that will affect the organizational environment. Expectations of consumers, coworkers, and society for organizational performance are constantly bursting through new dimensions. As one former secretary of the U.S. treasury pointed out, “People in business have not suddenly become immoral. What has changed are the contexts in which corporate decisions are made, the demands that are being made on business and the nature of what is considered proper corporate conduct” (Tracey, 1990, p. 94). In the context of a rapidly

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changing social and global environment HRM policy must be viewed as a long-term set of central conceptions marked by a perpetual series of amendments, each with its own unique HRM policy life cycle. Admittedly these concepts, however noble, fly in the face of precedence, consistency, and equitable application, each a cornerstone of the conventional U.S. worker expectation.

To be effective HRM policy must be ethically balanced in its construction. If the HRM policy sets ethical standards too low it is likely to face stiff substantive due process challenges like failing to meet stakeholders’ interests, for example, employee rights and shareholder protection. Conversely, if the HRM policy sets ethical standards too high the burden imposed on the organization and its employees may have a dangerous chilling effect that chokes off entrepreneurial risk-taking and innovation. To thwart this risk employees may retreat to an anticipatory defense whose strategy is to do nothing.

Trust in organizational policy alone is misplaced. HRM, traditionally, has not been very effective in insuring socially desirable behavior in an institutional environment. It is difficult to legislate a consensus of values through the policy-making process where property rights are polarized. For example, employee privacy rights, such as smoking, often conflict with organizational rights to contain health costs. Generally, the only significant measurement that organizations receive positive feedback from its good earnings. The capital markets are very efficient at providing feedback on corporate economic contracts. However, feedback on industry’s social con- tracts, for example, ethical performance, historically have been ignored until the past decade or so except in a negative context. These negative contexts include employee scandal, public corruption, and environmental disasters. It is heartening to note that much progress is being made in changing the payoffs in the areas of social contracts.

Environmental awards are receiving increased positive attention as more and more organizations have recognized the value of committing resources to doing the right things in regards to the environment. As vigorously as legislation reinforces the non-conformist’s conduct society must continue to develop positive incentive systems for the conformist in the area of ethical conduct. Positive incentives motivate organizations to champion causes in the area of ethical behavior and to covet their rewards, hastening the normalization of these ethical contracts.

Ethical issues will continue to pose major challenges to contemporary organizations. The ethical challenges that HRM will likely encounter will be a complex function of the industry, regulatory, and global and cultural environment specific to that organization. Hence, HRM professionals must be prepared to design and execute innovative solutions consistent with the complex set of diverse and competing stakeholder interests. The mission

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continually confronting HRM professionals is how to best align specific HRM programs with the overall strategic goals of the organization in order to maximize the mutual benefits of all stakeholders. More importantly, now and in the future, HRM must recognize these challenges as vital oppor- tunities. HRM has the formidable but unique opportunity to translate its historical role in the organization from being an overhead cost center to becoming a strategic profit center. By converting ethical and other issues into a decision process that is linked to cost savings, cost reductions, cost avoidance, or boosted production and quality HRM has not only added value to the organization in a moralistic sense but also made a positive, observable, and measurable contribution to the bottom line.

HRM professionals have a special role in ensuring that their organiza- tions deal fairly and ethically with employees and that the employees deal fairly with each other, the organization and clients or customers. Some theories of ethics list the duties that human beings owe to each other in general. Although organizations are not necessarily subject to all the ethical duties to which individuals are, at least some of their duties might be used by HRM professionals to guide the organization’s dealings with employees and applicants. These duties include respecting persons and not using them solely as means to one’s own ends; not doing any harm; telling the truth; keeping promises; treating people fairly and without discrimination; and not depriving people of basic rights, such as the right to free speech and association.

In organizational terms fulfilling these duties may translate into instituting careful health and safety practices, informing employees of potentially hazardous working conditions, and taking responsibility for occupational disease and stress-related illnesses traceable to working conditions (to include the pressure to commit unethical acts); being truthful in recruiting; avoiding the use of invalid and discriminatory selection, appraisal, and advancement systems; providing equal pay for work of comparable worth; providing ways for employees to voice their concerns and not illegally constraining employees from exercising their right to form a union; and following fair policies in regard to discipline, termination for cause, and reduction in force.

HRM professionals have several avenues for helping to build a strong ethical culture in organizations. They can assist senior leadership in understanding the importance of being visible role models and examples and actively demonstrating their concern for ethical practices. They can guide the process of developing and communicating the organization’s policies and code of ethics and an integrated strategic approach to ethical decision making. In their role as a buffer or bridge between employees and the organization they can activate a number of measures in the employee- organizational relationship including employee screening and selection,

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new employee onboarding (orientation, training and education), rewards for ethical conduct, and creating and maintaining ethical working conditions.

On the strength of the careful assessment provided above one can see that the payoffs for an HRM strategy that is ethically responsive to all the organization’s stakeholders can be substantial. An HRM strategy that holds contemplated organizational policy decisions in abeyance until the reasonably foreseeable outcomes among all constituents is carefully con- sidered may protect the organization from exposure to significant legal, economic, and reputational or social costs. Perhaps the most salient feature of an HRM strategy that is ethically balanced is that it will provide a com- petitive advantage to the organization in recruiting and retaining its most vital resource—an ethical and committed workforce able to handle ethical dilemmas in the future.

ETHICAL DILEMMAS CONFRONTING HRM PROFESSIONALS

As noted throughout this book, HRM philosophies are woven into the fab- ric of the organization, powerfully impacting the firm’s culture, policies, and practices. HRM professionals work through and with people across all levels of the organization; hence, the logical importance of ethics in all that HRM does. The challenge as suggested earlier in this chapter lies within the inherent nature of ethics. Ethics is personal. One’s ethical lens develops through one’s family, education, relationships, and life experi- ence. As a result, organizational leaders, HRM managers and supervisors, frontline employees, and other HRM professionals each possess different standards of, and approaches to, ethics. The potential for ethical dilemmas abound in HRM.

HRM’s main concern is people. Thus, as evidenced by the various contributors to this book, HRM policies impact all functions within an organization. Given the complexity, pressures, and constant change fac- ing firms, the rise of ethical issues is no surprise—some of which lead to litigation in the courts. Commonly cited drivers of ethical dilemmas facing organizations, their employees, and HRM professionals include:

• Constant or dramatic change • Longer working hours • Fewer benefits • Exorbitant executive/CEO pay • Job insecurity • Technology/information accessibility • Pressure to produce

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• Pressure to support family • Peer pressure • Mergers/acquisitions • Competition • Communications • Working conditions of U.S. companies and their employees in

other countries • Labor relations • Incentive compensation • New laws • Societal trends/changes

Clearly, the ethical landscape for HRM will continue to become more and more complex. Thus, the need for systematic and systemic HRM-driven ethics is well established.

HRM processes are infused throughout any organization. Ethics, there- fore, should be a critical component of all HRM processes, including recruiting and selection, goal setting, coaching, performance reviews, com- pensation and rewards, career planning, training and development, and leadership/management training (Gilley et al., 2008; Sims & Bias, 2019). It is also expected that, as a result of the Coronavirus impacts, HRM leaders must be cognizant of regulatory changes in order to provide appropriate organizational policy and set expectations for ethical behaviors within the organization.

Recruiting and selection. The recruiting and selection process intro- duces employees to the culture and inner workings of the organization. Interviewers, hiring managers, supervisors, and HRM practices face their first ethical tests during this phase. Are potential employees presented with a truly accurate picture of the organization, or just the positives? Does the organization seek and select employees with a history of honest, ethical behavior, or is that criterion ignored in selection? Are the most qualified individuals hired, or is the decision based on bias, favoritism, or nepotism?

Goal setting. Effective goals are specific, measurable, attainable, results- oriented, and time based (Bixler, 2019). In reality, performance goals are often a source of contention for employees. Goals that are too high de- motivate employees or, worse, encourage sabotage, while low goals fail to motivate. Are goals established based on one’s talent and ability, or tied strictly to organizational productivity demands? Are they determined in collaboration with employees or decreed by management?

Coaching. Coaching entails guiding employees to success, modeling behavior, and providing developmental feedback (Gilley & Boughton, 1996). Identify ethical employees and allow them to coach and mentor

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others. Are supervisors and managers actively engaged in coaching and developing their employees to behave ethically? Do leaders and manager’s model ethics or winning at any cost? Is appropriate and timely feedback provided regarding ethical and unethical behavior?

Performance feedback and reviews. Ethical behavior should be demanded in all aspects of organizational life. Ethics should be incorporated into the performance review process. The organization should consider not only measuring what is being done, but also how the job is being accomplished. If truly important, “ethics” should be a specifically evaluated component of behavior in formal and informal performance evaluations of employees at all levels (including C-suite).

Compensation and rewards. Exemplary ethical behavior deserves reward, while unethical behavior should be consistently disciplined. Organizations that value ethics heavily weight ethical behavior in compensation, reward, and promotion decisions. Are employees encouraged to work together, or to enhance their success at any expense? Are salespeople paid for how much they sell, or how they sell? Are employees punished for being the bearers of bad news, or rewarded for identifying opportunities for improve- ment? Are employees fairly and equitably compensated for their work?

Career planning. Career planning helps employees identify their talents and long-term goals while enabling the company to plan for future human resource needs. Are supervisors and managers equipped to successfully guide their employees in career planning? Do managers provide career planning guidance for their employees, or selfishly hold them back to suit their own needs?

Training, development, and interventions. Training and development engagements offer abundant opportunities to promote organizational and individual ethics. Ethics training should be continuous and organization- wide. Has an ethical dimension been incorporated into all training? Is ethics training mandatory for employees at all levels? Does unethical behavior trigger interventions? Does the organization define success by results and the way they are obtained?

Leadership/management training, development, and education. Ethics training should be mandatory for all employees, including managers, leaders, and executives. Do leaders communicate an honest, ethical message? Do they mandate ethical behavior of themselves, their peers, and the organization? Are leaders held accountable for ethical behavior?

Regulatory interpretation and policy formulation. HRM professionals are being faced with rapidly changing work environments requiring interpretation of new regulations. The guidance of the Families First Coronavirus Response Act provided from the U.S. Department of Labor (2020) is a multiphased approach to ensure, as much as feasible, business continuity and equitable treatment of employees while minimizing the

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spread of the virus during the pandemic. Ethical consideration will need to be given regarding formulation of new operational policies in the interpretation of this new legislation. Clear policy guidance needs to be provided to employees within the organization to avoid the potential for unacceptable behaviors.

Clearly, there are things that HRM professionals and other leaders can do to build positive employee relations. They can cultivate trust as dis- cussed earlier in this chapter and ensure that employees are treated fairly. They must always exhibit a deep and evident respect for their employ- ees and to “putting employees first.” The organizations HRM philosophy should emphasize trust, respect, and caring about their employee’s per- sonal and professional growth. By focusing on these kinds of things HRM professionals can help their organizations establish and maintain positive employee-employer relationships that contribute to satisfactory produc- tivity, motivation, morale, and discipline, and to maintain a positive, productive, cohesive and ethical work environment today and tomorrow.

Before concluding this chapter, it is important to recognize that ethical issues will continue to pose major challenges to organizations as we move further and further into the 21st century. The recent ethical scandals along with the ethical challenges that HRM will likely encounter in the coming years will be a complex function of the industry, regulatory, and cultural environment specific to that organization. Hence, HRM professionals must be prepared to design and execute innovative solutions consistent with the complex set of diverse and competing stakeholder interests. The mission continually confronting professionals is how to align best-practice specific HRM programs with the overall strategic goals of the organization in order to maximize the mutual benefits of all stakeholders.

HRM professionals and other leaders must be ever mindful that a strong ethical culture is built by intention. Its leaders possess strong moral fiber, and they seek to select, develop, and reward others like them through- out the organization. They work hard every day to infuse character into the organization through their day-to-day decisions and interactions with others. They use techniques like leadership, structure, values, rewards, decision-making processes, norms, heroes and role models, rituals, myths and stories, and language to create a culture that reflects their personal values and those of their stakeholders. Then they seek to develop the next generation of leaders such that the integrity of the organization they have served will continue into the future. This is the blueprint for building a cul- ture of character, a culture where everyone in the firm knows “what’s right, values what’s right, and does what’s right.” This is the challenge offered today’s enlightened HRM professionals.

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CONCLUSION

We continue to witness enormous transformations in transparency over the past few years, with the exponential growth of the internet, an increasingly fragmented media, diffuse and contentious public debate, and a new era of whistleblowing driven by massive data leaks. These trends affect how companies engage with all kinds of stakeholders.

The continued demands for organizations to be ethical and more trans- parent will continue to create challenges for HRM professionals and other organizational leaders to make sure their organizations and employees are proactive and responsive to key stakeholders. Today and tomorrow HRM professionals and other leaders must develop an organizational capacity for ethical judgment at the individual and organizational levels before particular crises or issues demand a reactive response. HRM profession- als must partner with other organizational leaders to aggressively work to develop and sustain an ethically-oriented culture and a supporting “ethi- cal infrastructure”—a framework and set of processes that will enable the organization and all of its employees to articulate, internalize, monitor, and sustain their commitment to a shared was of “doing the right thing,” so that its values and priorities will be reflected in all aspects of its operations.

HRM professionals and other leaders will continue to be challenged by an increasingly complex and global world of work which will require that they be proactive in building the organization’s ethical infrastructure and support an ethically-oriented culture. Tailored and refined in collaboration with all key stakeholders and the broader community and society will result in the organization having viable strategies what will help them weather the ethical issues, situations, or challenges in the years to come.

In concluding this book, it is important to remember that contemporary organization ethics or ethics in business requires that all HRM profession- als understand the important role they must continue to play to ensure that they don’t find themselves in the position of seeing their organization in the headlines for the WRONG reasons. Every employee has to be ethical and do their daily work by doing the right things in the right ways. Each employee has a role to play in creating a SECO that has at its core “doing the right thing.” With that said, HRM professionals have a responsibility to make sure senior leadership does not lose sight of the fact that they have primary responsibility for promoting and exemplifying ethical behavior. The importance of an ethical and values-based tone-at-the-top cannot be overstated. Ethics and compliance initiatives, for example, no matter how well designed and executed, will struggle to accomplish their purpose if employees see senior leaders behave with questionable ethics or accept such behavior from others.

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The specific methods HRM professionals and other leaders can use to promote ethical behavior will vary according to the organization’s envi- ronment and maturity. For a small organization with frequent interaction between senior leadership and employees, leadership by example and informal communication may be more influential. A larger, more mature entity with an enhanced, highly effective ethical culture will need to include most or all the following:

a. A formal code of conduct, which is clear and understandable, and related statements, policies (including procedures covering fraud and corruption), and aspirational views.

b. Frequent communications and demonstrations of expected ethi- cal attitudes and behavior by the influential leaders of the orga- nization.

c. Explicit strategies to support and enhance the ethical culture with regular programs to update and renew the organization’s commit- ment to an ethical

d. Several easily accessible ways for people to confidentially report alleged violations of the code of conduct, policies, and other acts of misconduct.

e. Regular declarations by employees, suppliers, and customers that they are aware of the requirements for ethical behavior in trans- acting the organization’s affairs.

f. Clear delegation of responsibilities to ensure that ethical conse- quences are evaluated, confidential counseling is provided, alle- gations of misconduct are investigated, and case findings are ap- propriately reported.

g. A designated person (e.g., an ombudsman) to whom employees can go for advice on how to deal with and whether to report an ethical issue.

h. Ethics education for all employees, suppliers, and major custom- ers, based on an integrated ethical decision-making framework including guidelines on ethical decision-making to help employ- ees when confronted with ethical dilemmas or situations they en- counter in their jobs.

i. Positive HRM practices that encourage every employee to contrib- ute to the ethical climate of the organization.

j. Protect whistleblowers—do not allow them to be subjected to ha- rassment or retaliation.

k. Empower the guardians of integrity—enable every member of the organization to take positive action to demonstrate a commitment to ethics.

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l. Regular surveys (and audits) of employees, suppliers, and custom- ers to determine the state of the ethical climate in the organiza- tion.

m. Regular reviews of the formal and informal processes within the organization that could potentially create pressures and biases that would undermine the ethical culture.

n. Regular reference and background checks as part of hiring proce- dures, rewarding, and promoting employees and prior to engag- ing in a contract with a customer or supplier including integrity tests, drug screening, and similar measures as applicable.

o. Compensation practices that do not inadvertently encourage bending the rules to achieve performance targets.

p. Appropriate punishments for unethical behavior regardless of the perpetrator (e.g., not making an exception for a powerful senior or the best salesperson or an employee who is critical to the suc- cess of a particular project) and publication of the punishment internally by whatever legally feasible means are available.

q. A designated chief ethics (and compliance) officer to act as coun- selor of leaders at all levels and other organizational members and as champion within the organization for “doing the right thing.”

HRM professionals will also need to continue to remember that mid- level managers or frontline supervisors are responsible for promoting, exemplifying, and evaluating ethical behavior in their areas of responsibil- ity. Just as tone-at-the-top is of paramount importance for the organization as a whole, every organizational leader’s attitude and behavior around ethics is centrally important to the ethical subculture in her or his areas.

Finally, HRM professionals and all those associated with the organiza- tion share responsibility for the state of its ethical culture. Because of the complexity and dispersion of decision-making processes in many organi- zations, each individual should be encouraged to be an ethics advocate, whether the role is delegated officially or merely conveyed informally. And, HRM professionals are in the best position to help more and more organizations and employees accept and commit to “doing the right thing” in all their actions and to embedding ethical action into “all that the orga- nization does.” In conclusion, HRM professionals have and will continue to help provide guidance as to how to go about doing this.

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299

ABOUT THE AUTHORS

Dorothea La “Chon” Abraham is an Associate Professor in the Mason School of Business at William & Mary in Williamsburg, Virginia where her research and teaching involve cybersecurity related topics, business intelli- gence, data management, and health information management. She is a graduate of the US Military Academy at West Point, has a PhD in Manage- ment Information Systems from the University of Georgia, and a MBA from Old Dominion University in Norfolk, Virginia. Chon is a Lieutenant Colonel and Cyber Officer in the United States Air Force Reserve based at the Pentagon in the Chief Data Office. She also is a Fulbright Scholar to Japan and an Abe Fellow researching cybersecurity strategy at the national level for the US, Japan, and the UK. Chon publishes in scholarly journals such as MIT Sloan Management Review, Journal of the Association of Information Systems, the European Journal of Management Information Systems, Journal of Strategic Information Systems and serves on a number of editorial boards. She engages in applied research to deliver practical insights to organizational leaders, managers, and frontline personnel. Additionally, she coauthored a 2018 book titled Hacking Healthcare: Understanding Real World Threats. Chon is a member of a number of professional organizations focused on cybersecurity governance, health informatics, and diversity in the higher education and defense workforces.

Marcia A. Beck teaches in the Master’s in Public Administration Program at the University of Miami, with a focus on organizational dynamics and management. She received her PhD in Comparative Politics from the

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300 ABOUT the AUTHORS

University of Notre Dame, where she also taught in the Government Department, and was a tenured Associate Professor at Bowdoin College. She was a National Fellow at the Hoover Institution on War, Revolution, and Peace at Stanford University in 1991/92 and is the recipient of a National Endowment for the Humanities archival grant for research in postcommunist Russian archives. She is the author of Russia’s Liberal Project: State-Society Relations in the Transition from Communism (2000) and coauthor, with James Bowman and Jonathan West, of Achieving Competencies in Public Service: The Professional Edge, 2nd edition (2010) and with John Donovan, Richard Morgan, and Christian Potholm, of People, Power, and Politics, 3rd edition (1993). Her articles and reviews have appeared in the journals Comparative Politics, The Review of Politics, The Russian Review, Demokratizatsiya, and Public Integrity, as well as in edited collections on human resource management and organizational dynamics.

Sheri K. Bias, SPHR, SHRM-SCP, has over 30 years of experience in a variety of Human Resources capacities. She holds a PhD in Human and Organization Systems from The Fielding Graduate University as well as an MBA from The College of William and Mary and an MA in Human Resource Development from George Washington University. She is currently an Associate Professor at Saint Leo University where she leads several doctoral dissertation committees, as well as teaching undergradu- ate and graduate classes on human resources topics. She has also served as department chair and lead human resources faculty at other academic institutions. Dr. Bias previously led HR initiatives for organizations such as Anheuser Busch, Philip Morris, Pricewaterhouse Coopers, American Airlines, Pennzoil, and NASA Langley Research Center. Her research interests include generations in the workplace and risk management strate- gies. Dr. Bias has also been heavily involved in the Odyssey of the Mind Program having coached for multiple years and most recently serving in a judging capacity at World Finals.

Karin Bogue earned a BBA in accounting, MBA in management, and JD from the University of Memphis. She also earned a DBA in international business from Argosy University. Dr. Bogue is an educator with experience teaching business law, international management, risk management, law and ethics for managers and other general business courses. She enjoys teaching in the traditional, online and blended modalities and is passion- ate developing and improving curriculum. Dr. Bogue is also a licensed customs broker with over 30 years of experience working in internation- al trade and compliance. She created, organized, and managed import compliance departments, directed cross-functional international compli- ance teams, developed training programs for import compliance, and

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About the Authors 301

served as a trade compliance consultant to a variety of multinational organizations. She is also the author of trade articles, procedure manuals, textbooks, and online courses for international trade compliance.

Wendy W. Brown, SPHR, CUHRCP, is the Chief Human Resources Officer at BayPort Credit Union. Wendy has over 30 years of experience in the banking industry serving in a variety of human resources capacities. Her current role involves strategic human resource planning, employee relations, coaching, succession and compensation planning, perfor- mance programs, retirement plans, HRIS, insurance benefits, and credit union mergers. Wendy completed her Bachelor of Science in Business Administration with a concentration in Management and Finance after attending Radford University and Christopher Newport University. She has volunteered over the years with the Junior Achievement, Hampton Roads Chapter’s Youth & Involvement Committee, Newport News–York– Poquoson Relay for Life and Event Leadership Committee with Relay for Life, Alzheimer’s Association and VA Peninsula Food Bank.

Rafael Rosado-Ortiz is an Assistant Professor and Chair of the Healthcare Management Department. A member of the Saint Leo Community since 2011. Dr. Rosado-Ortiz received his Medical Doctor degree in 1984 from UCIFAS University in the Dominican Republic and his MBA from Saint Leo University in 2011. Prior to coming to SLU, Dr. Rosado-Ortiz worked as the Assistant Medical Director of the Georgia Department of Juvenile Justice. Dr. Rosado-Ortiz teaches healthcare management course at SLU and serves as the department chair. His interests are development and implementation of cost effective healthcare prevention models, develop- ment of community health programs, and implementation of innovative healthcare teaching models.

James P. Sartain, Jr is a professor of leadership and strategy at the Jack Welch Management Institute. Leveraging lessons learned from his 30-year leadership career and his professional training as an Industrial/Organiza- tional psychologist, Dr. Sartain’s professional focus is on the design and delivery of evidence-based leadership development programs that facili- tate meaningful and sustained changes in leader performance. He has held several senior-level positions in human resources, social services, research and evaluation, and organizational development. He is also an executive coach for senior leaders working in a variety of settings, includ- ing Fortune 500 companies, universities, nonprofit organizations, and governmental agencies. Dr. Sartain also serves as a thesis advisor and comprehensive exam instructor for the graduate psychology department of Purdue University Global.

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302 ABOUT the AUTHORS

J. Adam Shoemaker is an Industrial/Organizational Psychologist and a dually-certified HR industry professional who started teaching full time in 2010 after a decade working as an I/O and HRM consultant both internally and externally for organizations large and small including Carebridge Corporation, the University of South Florida, the Prodigy Cultural Arts Program, FedEx Freight, Verizon Wireless, Hillsborough County Sheriff ’s Office, PDRI and many others. Dr. Shoemaker is an Associate Professor at Saint Leo University’s Tampa Education Center where he teaches in the Business and Psychology programs. He resides in Tampa, FL with three kids, two cats, and a wonderful wife.

Ronald R. Sims is the Floyd Dewey Gottwald Senior Professor in the Mason School of Business at William and Mary where he teaches leader- ship and change management, business ethics and human resource management (HRM). He received his PhD in Organizational Behavior from Case Western Reserve University. His research focuses on a variety of topics including change management, leadership business ethics, and human resources management (HRM). Dr. Sims is the author or coauthor of 39 books, more than 80 chapters and more than 90 articles. Profes- sor Sims has provided consultation, executive education and employee training in the areas of change management, business ethics/reputation management, HRM and human resources development (HRD) to organi- zations in the private, public, and not-for-profit sectors over the past forty years.

William J. Woska, JD, has been a faculty member at several colleges and universities including the University of California, Berkeley, Saint Mary’s College, Moraga, Golden Gate University, San Francisco, and San Diego State University. He is presently on the faculty at Cabrillo College in Aptos, California. His research interests include employment and labor law, human resource management (HRM), local government, and ethics. He has more than 30 years of experience representing employers in employ- ment and labor law matters. He is the author of 46 publications appearing in the Employment Law Forum, journal articles, book chapters, and book reviews. His publications address workplace investigations, sexual harass- ment, women’s rights, law enforcement, public sector retirement systems, negligent employment practices, and other employment/labor and HRM issues. He is a member of the Labor and Employment Law Section of The State Bar of California.

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CONTENTS
ACKNOWLEDGMENTS
HUMAN RESOURCES MANAGEMENT AND ETHICS
THE STUDENT, HUMAN RESOURCES, AND THE INTERNSHIP
DEVELOPING TALENT THROUGH LEADERSHIP TRAINING AND EXECUTIVE COACHING
ETHICAL BIAS
SOCIAL MEDIA POLICIES
HUMAN RESOURCES MANAGEMENT AUDIT
HRM’S ROLE IN CREATING A CULTURE OF ETHICS/ INTEGRITY FOR DATA PRIVACY AND BREACH DISCLOSURE
HUMAN RESOURCES AND ETHICS
AT THE CROSSROADS OF SHRM AND SHCM
ETHICAL CHALLENGES HUMAN RESOURCES MANAGERS EXPERIENCE IN HEALTHCARE ORGANIZATIONS
HUMAN RESOURCE MANAGEMENT
HUMAN RESOURCES MANAGEMENT AND ETHICS
ABOUT THE AUTHORS