BUSINESS ETHICS - HRM

BUSINESS ETHICS - HRM

Human Resource Management (HRM) deals with work force management, manpower planning and other employee related activities in an organization. Therefore, we can say that it is a special branch of management where ethics play a crucial role. HRM concerns human issues, especially those related with compensation, development, industrial relations, health and safety issues. However, there are sufficient disagreements in managing HRM issues that stem from various quarters.

Ethics and Market System

Various types of market systems affect business and HR ethics differently and hence, business ethics becomes negotiable. Occupations in which the market conditions do not favor the employees, it becomes necessary to have government and labor union interventions for controlling the possible exploitation of employees.

Free market systems empower employees and the employers equally; negotiations are used to create win-win situations for both of these parties. Government or labor union interventions are often harmful in free market systems because they stall the operations and create unnecessary hindrances.

With the growth of globalization, the concept of globalizing labor has gained importance. Trade unions have ceased to exist and the role of HR as such in issues like employee management, desirable policies and practices has become debatable topics.

Many people now have the opinion that HR is nothing but a part of the stakeholders, which initiates major strategic and policy decisions to divulge the organization and gear it towards profit making.

There cannot be a single opinion about ethics in HR that is completely convincing. Market is neither an ethical institution nor an unethical one; no policies and procedures can govern and align the markets for human well-being. However, the need of these policies and procedures cannot be denied or ignored because human development is the ultimate aim of all human initiatives.

HRM Ethics

Out of all organizational issues or policies, ethical considerations are the most difficult to deal with. Issues arise in employment, remuneration and benefits, industrial relations and health and safety.

Important Clusters of HRM related with Ethics

Some HRM issues are more important than the rest because we, as human beings, are more responsible for the development and empowerment of the human resources involved in the operation and management of organizations. Some of these issues are discussed below.

CASH AND COMPENSATION PLANS

There are some general ethical issues pertaining to the employee salaries, executive perquisites and compensations and the annual incentive plans, etc. The HR department is often under pressure to increase the band of base salaries. There is always an increased pressure upon the HR function to pay out more incentives to the top management and provide justification for the same to retain them.

Further, ethical issues arise when HR deals with long-term compensation and incentive plans by consulting with the CEO or an external consultant. There is a pressure on the HR managers on favouring the interests of the top management in comparison to that of the other employees and stakeholders.

RACE, GENDER, AND DISABILITY

There are several examples of organizations where, until recently, the employees were treated differently based on the race, gender, origin, and their disability. This is not the case anymore since the evolution of laws and a regulatory framework standardized for the employee behavior. In ethical organisations, the only factor of appraisal is performance.

EMPLOYMENT ISSUES

Human resource managers face many dilemmas in hiring employees. One particular dilemma stems from the pressure of hiring one, who has been recommended by a friend or someone from the family of a top executive.

Another major dilemma arises due to employees who are later found to have fake documents. Both of the issues are critical. In the first case, the person may have been trained and filling the position is critical. In the second case, the person may be efficient in his work and have the right kind of attitude. Both the situations are tough and HR managers face such cases day in and day out.

PRIVACY ISSUES

All human beings working with any organization have their personal life. An employee needs the organization to directly or indirectly protect his/her personal life. This personal life includes things like the religious, political and social beliefs etc.

There are many ethical issues in HR that are related to health and safety, restructuring and layoffs and employee responsibilities. A debate is still going on whether some activities are ethically permitted and why some are not. Layoffs, for example, are not considered unethical as they were thought of in the past.

"I'd rather attempt to do something great and fail than to attempt to do nothing and succeed."

                                            ---- Robert H. Schuller

ENVIRONMENTAL CHALLENGES...

ENVIRONMENTAL CHALLENGES..

Ethical issues arise in every stage of business. There is a considerable effect of environment on the application of business ethics. Let’s see how the environment and various stages of business affect the application process of business ethics.

Ethics, Economics, and Politics

It is now an accepted fact that there is an integral relationship between ethics, economics, and politics. That is the reason, they should be understood when it is integrated and should not be studied in silos.

Economics is the study of individual pursuit of prosperity through markets. There are three dimensions of economic goal of prosperity, which are efficiency, growth, and stability.

Politics is concerned with the community's pursuit of justice through the government. The goal of their justice has three dimensions, namely individual freedom, equity in the distribution of benefits and burdens, and social order.

Economic and political environment can both help and distract the application process of ethics. Ethics that doesn’t have support of economics and politics has no means to achieve the community ends.

Workplace-Safety Issues

Businesses need to know the legal bindings related with workplace safety. It is a very important part of business ethics and not knowing the rules may prove to be costlier than usually perceived.

LEGAL LIABILITY

Harming customers or members of the public may make you liable for damages. The organizations must act in a legal manner to solve the legal issues. If they are unaware of the legal outcomes, they may cease to become a leading organization in their industries.

IMAGE PROBLEMS

Reputation and the image of a business is a very important factor for the organization. It may make or break a company. It has been proved that the more the reputation, the more are the profits. Therefore, image problems associated with legal process are very important for organizations.

THE REACH OF LAW

Usually, governments establish rules and procedures for business processes. Businesses that do not follow the guidelines often face large fines or penalties. Breaking law can lead to costly legal battles which may be fairly larger than the cost of maintaining legal standards. Additionally, executives at companies who break the law and engage in unethical behavior could find themselves facing criminal charges.

DURING BUSINESS FORMATION

Even before the business influences the business plan to potential investors, there could be ethical issues already piling up. All the co-founders of an organization must share the same business values, principles, and ethics. If they are of conflicting principles, they will face difficulty in securing funding or even finding clients.

BEFORE EMPLOYMENT

Hiring and selection procedures also affect the company's ethics which can be a challenge. The organizations must be ethical in employment aspects so that they can employ the right candidate without any discrimination or partiality.

WHILE COMPLYING WITH LAW

A company, its management and staff must conduct business in a manner that according to certain business standards and principles. Compliance has to do with the oversight regarding certain rules and regulations, written laws or common laws. It is a very sensitive issue for businesses as not conforming to laws may make the organization obsolete.

"There are two great days in a person's life - the day we are born and the day we discover why."

                                         -----William Barclay

BUSINESS ETHICS - MORAL REASONING...

What is Morality?

In a broad sense, morality is a set of rules that shapes our behavior in various social situations. It is more sensitive doing the good instead of the bad, and therefore, it establishes a level of standard for virtuous conduct.

The Corporate Governance Code of Coca Cola

Coca Cola makes it clear that the company is inclined towards a good business morality. Its corporate governance code starts with these starting announcements.

“At the Coca-Cola Company, we aim to lead by example and to learn from experience. We set high standards for our people at all levels and strive to consistently meet them. We are guided by our established standards of corporate governance and ethics. We review our systems to ensure that, we achieve international best practices in terms of transparency and accountability. The foundation of our approach to corporate governance is laid out in our Corporate Governance Guidelines and in the charters of our Board of Directors’ committees.”

Where Does Morality Come From?

The principles of moral ethics can be injected into any business. Ethical businesses recognize the power of conducting businesses in socially responsible ways and they realize that doing so leads to increase in profits, customer satisfaction and decrease in employee turnover.

Business ethics is concerned with applying a moral framework to the way organizations do business. From dealing with human resources issues to sales and marketing policies, ethical viewpoints can shape and change the way businesses operate.

Business ethics has both normative and descriptive elements −

The normative part of business ethics has to do with understanding, how the behavior you and your employees exhibit in relation to cultural issues or social upbringing. The key to normative ethics for business owners is to understand how personal beliefs affect the choices made as a business owner.

The descriptive part of business ethics, on the other hand, is related to how you incorporate "best practices" into your organization's policies and procedures.

Henry Ford on Business Morality

“There is one rule for the industrialist and that is: make the best quality goods possible at the lowest cost possible, paying the highest wages possible.”

The Meaning of Moral "Justification"

"Justification" in terms of business ethics can be portrayed in two different ways. In business ethics, do the means justify the ends, or do the ends justify the means?

Is it better to have a set of rules telling you what you ought to do in a particular situation, or should one worry more about how things are going to end up and do anything to reach that goal?

Let’s take an example. John ran a medicine business in California, USA. His herbal product used to stop nausea and vomiting for chemo patients. California regulators had allowed his business entity, but federal agencies had not approved it. Therefore, selling it on national level was breaking the law. On the other hand, not selling could consign his clients to suffering. So, when federal agents came knocking on his door, he had to make a decision.

If the means justify the ends − If he follows the rules no matter what the consequences are, then the agents ask John directly whether he is selling the medicine and the ethical action would be to admit it.

If the ends justify the means − If your ethical interest focuses on the consequences of an act instead of what you actually do, then the ethics change. Therefore, when agents ask him whether he is selling, he has a reason to lie.

The Importance of Context

When we ask questions, such as "Which is more important, telling the truth or preventing harm?” often the context is more important. Context can be determined from factors such as time and place, the nature of the situation, other people's expectations, and the relevant history.

To understand the context, let’s assume you are a resident of Nazi Germany, in 1940. A family of Jews is hiding in your attic. The German police come searching that particular family of Jews. In such a case, preventing harm is clearly more important than telling the truth.

The Importance of Relationships

Business morality largely depends on business relationships. Our rights and obligations spring largely from relationships. These include our relationships with shareholders, customers, and general stakeholders.

These relationships can offer moral reasons for particular actions. For example, relationship with your shareholder means moral duties to them (such as to offer profits and be transparent) which you do not have for non-stakeholders.

Moral Questions are not Distinct

Moral problems are not a separate, special or particular domain to that is followed only on special occasions. Moral issues are present all the time. Most decisions that people make usually have a degree of moral importance. The challenge is in recognizing that fact. Morality is often finding the best choice overall, taking into consideration the result, economics, and technical (e.g., finances) appropriateness, and balancing them against other sorts of business values, which the organization follows.

Moral Decision Making

There is no crafted-out formula or algorithm for moral decision-making. Good moral decision-making includes knowledge of the facts, and careful consideration of the moral values (principles) relevant to a given situation. Importantly, sensitivity and awareness of the range of interests are also highly sought in moral decision-making process.

GETTING THE FACTS STRAIGHT

To make a good decision, we have to get the facts of the situation straight. In some difficult cases, additional facts may make the correct course of action apparent. These facts are available through science, or from the experiences of people who have studied the situation for a long time.

THE IMPORTANCE OF MORAL SENSITIVITY

Sensitivity to the moral issues involved in everyday activities is important for moral decision-making. Sometimes, we may take the help of instincts for taking trivial decisions. For example, most of us do not require an impetus to avoid lying in most cases.

For a problem with moral importance, the first and perhaps the most important step in resolving the problem lies in finding out the range of considerations. This includes an awareness of the parties going to be affected, sensitivity to the set of values or principles probably to be applied, and a sensitivity to the factors that influence the decision.

The Role of Discussion in Morality

If morality in business ethics is primarily about shared values, then business discussion, which can take many modes of communication with various parties, takes a central place in moral business-decision making. In many cases, more than one party may often be involved, and we should include others in our decision-making processes.

DISCUSSION AS A MEANS OF CONSENSUS-BUILDING

Discussion is important in moral business-decision making, as it is often important that others around us agree with or understand our decisions. For example, the consumer products industry often collects feedback through surveys and marketing gigs to take the business discussion forward.

DISCUSSION AS A WAY OF LEARNING FROM OTHERS

We can learn from discussing moral questions with others. Others can provide valuable insight or experience. For example, the software makers can have valuable feedback from users. That is why they beta test their products before launching a product.

GUIDE TO MORAL DECISION MAKING

There is no formula for making good medical diagnoses, or for giving good legal advice. All of these involve significant elements of experience and sensitivity.

Experience and sensitivity will not guarantee that a good decision is made, but they help assure that decisions are not hasty, or lacking in sufficient consideration of ranges of problems.

" I am blessed to have so many great things in my life - family, friends and God. All will be in my thoughts daily."

                                                         ----Lil' Kim

BUSINESS ETHICS

BUSINESS ETHICS - INTRODUCTION....

Ethics is a subject of social science that is related with moral principles and social values. 'Business Ethics' can be termed as a study of proper business policies and practices regarding potentially controversial issues, such as corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities.

Businesses must abide by some basic principles. It should provide quality goods and services at reasonable prices to their consumers. It must also avoid adulteration, misleading advertisements, and other unfair malpractices.

A business must also perform other duties such as distributing fair wages, providing good working conditions, not exploiting the workers, encouraging competition, etc.

Business Ethics – Definition

There are many definitions of business ethics, but the ones given by Andrew Crane and Raymond C. Baumhart are considered the most appropriate ones.

According to Crane, "Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed."

Baumhart defines, "The ethics of business is the ethics of responsibility. The business man must promise that he will not harm knowingly."

Features of Business Ethics

There are eight major features of business ethics −

Code of Conduct − Business ethics is actually a form of codes of conduct. It lets us know what to do and what not to do. Businesses must follow this code of conduct.

Based on Moral and Social Values − Business ethics is a subject that is based on moral and social values. It offers some moral and social principles (rules) for conducting a business.

Protection to Social Groups − Business ethics protect various social groups including consumers, employees, small businesspersons, government, shareholders, creditors, etc.

Offers a Basic Framework − Business ethics is the basic framework for doing business properly. It constructs the social, cultural, legal, economic, and other limits in which a business must operate.

Voluntary − Business ethics is meant to be voluntary. It should be self-practiced and must not be enforced by law.

Requires Education & Guidance − Businessmen should get proper education and guidance about business ethics. Trade Associations and Chambers of Commerce should be active enough in this matter.

Relative Term − Business ethics is a relative term. It changes from one business to another and from one country to another.

New Concept − Business ethics is a relatively newer concept. Developed countries have more exposure to business ethics, while poor and developing countries are relatively backward in applying the principles of business ethics.

Principles of Business Ethics

The principles of business ethics are related to social groups that comprise of consumers, employees, investors, and the local community. The important rules or principles of business ethics are as follows −

Avoid Exploitation of Consumers − Do not cheat and exploit consumer with measures such as artificial price rise and adulteration.

Avoid Profiteering − Unscrupulous business activities such as hoarding, black-marketing, selling banned or harmful goods to earn exorbitant profits must be avoided.

Encourage Healthy Competition − A healthy competitive atmosphere that offers certain benefits to the consumers must be encouraged.

Ensure Accuracy − Accuracy in weighing, packaging and quality of supplying goods to the consumers has to be followed.

Pay Taxes Regularly − Taxes and other duties to the government must be honestly and regularly paid.

Get the Accounts Audited − Proper business records, accounts must be managed. All authorized persons and authorities should have access to these details.

Fair Treatment to Employees − Fair wages or salaries, facilities and incentives must be provided to the employees.

Keep the Investors Informed − The shareholders and investors must know about the financial and other important decisions of the company.

Avoid Injustice and Discrimination − Avoid all types of injustice and partiality to employees. Discrimination based on gender, race, religion, language, nationality, etc. should be avoided.

No Bribe and Corruption − Do not give expensive gifts, commissions and payoffs to people having influence.

Discourage Secret Agreement − Making secret agreements with other business people to influence production, distribution, pricing etc. are unethical.

Service before Profit − Accept the principle of "service first and profit next."

Practice Fair Business − Businesses should be fair, humane, efficient and dynamic to offer certain benefits to consumers.

Avoid Monopoly − No private monopolies and concentration of economic power should be practiced.

Fulfil Customers’ Expectations − Adjust your business activities as per the demands, needs and expectations of the customers.

Respect Consumers Rights − Honor the basic rights of the consumers.

Accept Social Responsibilities − Honor responsibilities towards the society.

Satisfy Consumers’ Wants − Satisfy the wants of the consumers as the main objective of the business is to satisfy the consumer’s wants. All business operations must have this aim.

Service Motive − Service and consumer's satisfaction should get more attention than profit-maximization.

Optimum Utilization of Resources − Ensure optimum utilization of resources to remove poverty and to increase the standard of living of people.

Intentions of Business − Use permitted legal and sacred means to do business. Avoid Illegal, unscrupulous and evil means.

Follow Woodrow Wilson's rules − There are four important principles of business ethics. These four rules are as follows −

Rule of publicity − According to this principle, the business must tell the people clearly, what it tends to do.

Rule of equivalent price − The customer should get proper value for their money. Below standard, outdated and inferior goods should not be sold at high prices.

Rule of conscience in business − The businesspersons must have conscience while doing business, i.e. a morale sense of judging what is right and what is wrong.

Rule of spirit of service − The business must give importance to the service motive.

Example of Unethical Business Practices

Satyam Computers, a global IT company, was defamed in a notorious list of companies involved in fraudulent financial activities. The list includes names such as Enron, WorldCom , Parmalat, Ahold, Allied Irish, Bearings and Kidder Peabody.

Satyam’s CEO, Ramalinga Raju, accepted his role in a broad accounting impropriety that had overstated the company’s net revenue and profit. The company had earlier reported a cash reserve of approximately $1.04 billion that actually existed only in books but not in reality.

In his letter to his board, exposing the fraud, Satyam’s Raju showed the propensity of the fraud. He stated that, “What started as a marginal gap between actual operating profits and ones reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions. …”

Later, he described the process as “like riding a tiger, not knowing how to get off without being eaten.”

     "A little thought and a little kindness are often worth more than a great deal of money. "

                                                                                    ---John Ruski