Case 1: Strategic HRM



Ethical Management

Ethical behaviour in organizations is largely determined by leadership and organizational culture. As will be discussed in Lesson 3, the behaviour of leaders largely determines culture and the organization’s culture signals to individuals which behaviours are expected and which are acceptable and unacceptable. Though people at all levels of the organization are, at least occasionally, faced with ethical choices, it is unrealistic to assume that their choices will adhere to a more rigorous moral standard than those of executives. There are two basic models of organizational change and the establishment of culture:

The Trickle Down Theory—this model assumes that change and culture trickle down from the top. Executives’ actions model acceptable behaviour for individuals below them in the organization.

The Bubble Up Theory—this model assumes that change and culture bubble up through pressure and actions of people on the “front lines.” The front line people recognize what is the right thing to do and what is best for the organization, and work to convince their superiors to change.

All of us can think of examples of the Bubble Up theory at work (e.g., the invention of Post-it Notes in 3M). When something goes wrong, managers often seem to believe in this theory and blame subordinate’s stupid or unethical actions (e.g., Barrings Bank). However, examples of the Bubble Up theory are few and far between. The recent leadership literature emphasizing transformational leadership is based on the Trickle Down theory. According to this research, the primary role of leadership is to establish a vision for the organization—a vision which appeals to values and emotions, which sets an ethical tone as well as the organizational mission and strategy.

Transformational leadership presumes that the psychological model of motivation fits most of the people most of the time. People have an ideal self image which is positive and which they are trying to live up to. Given a choice, people want to “do the right thing.” When they make unethical choices, it is usually because they fail to understand the choice they are making or because they fear the negative outcomes of doing the right thing (e.g., organizational sanctions) outweigh the benefits to their self-image of behaving ethically. Blanchard and Peale (1988) contend that the characteristics of ethical people are similar to those of ethical organizations. And organizations built on ethical principles encourage ethical behaviour in their members. They identify five Ps which provide a foundation for ethical behaviour for both people and organizations.

1. Purpose

For Individuals: Purpose means that people have a positive image of the person they want to be or the life they want to lead and are working toward it (the psychological model of motivation). They accept that they are not perfect, that what they are striving for is an ideal which is unlikely to be attained without difficulty. They can look in the mirror and, though the likeness may not be perfect, they can recognize the person they are trying to become.

For Organizations: The organization has a clear mission which is widely understood and accepted; it is one which people can readily identify with and it is based on integrity.

When a positive purpose is missing, both individuals and organizations will find it difficult to steer an ethical course.

2. Pride

For Individuals: Individuals accept themselves as they are. They possess a healthy amount of self esteem. The differences between who they are and who they want to be are acceptable. Most important, they rely on their own judgment as to who they are and how well they are doing. They can avoid feelings of inadequacy which lead to two pitfalls—false pride or self doubt. False pride exists when people attempt to maintain too exaggerated an ideal self. This means that they must be perfect or, barring that, must appear to be perfect; this results in behaviours such as defensiveness or denial, stealing credit from others, or covering up mistakes. Self doubt takes over when individuals lack faith in their ability to achieve their expectations and thus begin to feel worthless. Self doubt can lead to procrastination, avoidance of risk, or giving up easily—taking the path of least resistance rather than the action which is right.

For Organizations: People not only feel good about the mission of the organization, but feel that they are an important part of achieving that mission.

Ethical behaviour in an organization is more likely when people like who they are and what they do. If they do not like themselves in their organizational role, they are more likely to engage in unethical acts to enhance or protect their self concept. If they do not accept the legitimacy or importance of what they do, there is little point in striving to do it right.

3. Patience

For Individuals: They believe that things will eventually work out. In the short run, they can accept things the way they are or they can take action to change them.

For Organizations: Results are separated from process and process is taken seriously. Management is concerned that the integrity of systems is maintained. For example, if there is to be an open door policy, then the doors are open and the messenger is not shot for bearing bad news.

Much unethical behaviour is related to people’s impatience or lack of faith in various systems (e.g., ambitious individuals may lie or cheat to obtain a promotion either because they “need” it to reaffirm their self image or because they do not have faith in the accuracy or integrity of the organization's evaluation system).

4. Persistence

For Both Individuals and Organizations: Behaviour is consistent with purpose. Rather than just talking about what they are trying to do, they actually do it.

Persistence (consistency might be a better word, but it does not begin with P) encourages ethical behaviour because it signals to others what is really important—actions speak louder than words. Patience frequently follows from consistency. For those without strong ethical concerns, consistency can encourage ethical behaviour through their concern for the negative consequences which are expected to flow from unethical actions.

5. Perspective

For Individuals: Perspective is the key to the other four Ps. Most people are so busy doing, they forget what they are doing and whythey are doing it. Perspective keeps people on track. It is obtained by taking time for reflection on who you are and what is important to you.

For Organizations: Management sets aside time to ask: Where are we going? Where are we now? How are we going to get there from here? Such questions are also encouraged in day-to-day decision making.

Perspective encourages ethical behaviour as it maintains a focus on what you are trying to do and who you want to be. If people then behave in unethical ways they are at least aware of the choices they are making.

Though transformational leadership sets a context which should support ethical behaviour in organizations, control through culture and vision is very loose; having a positive vision for an organization does not guarantee that individuals will recognize ethical dilemmas or make wise choices when they do. It is useful to have a model to help individuals recognize ethical choices and guide their decision making in such situations. Since leadership in organizations involves information and work overload and is exercised under interpersonal and time pressure, simple models are more likely to be used. The model by Blanchard and Peale is useful (which is not to imply that it is the right or the best ethical model available) because it raises important issues and is easy to remember under pressure.

Ethics Check Questions

1. Is it legal?

Will this action violate civil law or company policy? There is really no right way to do something which is wrong. If you are taking actions which violate the law or company rules, be prepared to face the consequences.

2. Is it balanced?

Who will be affected by this decision or action? Who are the stakeholders? These may include: owners or government; employees; suppliers; customers or clients; community; or society.
Is the action fair to all concerned? Will the action or decision be fair in both the long and short term?
Will the action or decision promote win-win relationships? Those with more power are able to take win-lose actions based on “might makes right.” However, the evidence is that such power plays tend to turn into lose-lose outcomes in the long run (winning the battle and losing the war). If any of the stakeholders feels cheated by a decision, that decision may eventually haunt the individual or the organization who made it.
A major criticism of North American management in general is their concern with the bottom line, specifically the short-term bottom line, to the exclusion of all other considerations for stakeholders. Such a focus can be compared to coaching an athletic team by watching the scoreboard. Though you may know how well your team is doing it is hard to make decisions and effectively implement your strategy when you do not know what is going on.
Beer et al. (1984) offer a broader, more long-run framework for evaluating human resource decisions:
Competence—Will what we are doing help us to attract, keep, and/or develop people with the skills, knowledge, and energy we need now and in the future?

Commitment—To what extent do our HRM policies and actions enhance the commitment of people to their work and to the organization?

Congruence—Are actions and policies designed to enhance or sustain congruence [agreement] between the organization’s various stakeholders?

Cost Effectiveness—What is the financial cost of a given policy or action? In the long-run as well as the short-run? What is the cost to individuals and to society as well as to the organization?
3. How will it make you feel about yourself?

Will you be proud of this decision or action? Will you be able to look in the mirror and feel that you are living up to your image of what you want to be or think you ought to be?
Would you feel good if this decision or action were to be published in the newspapers?
Would you feel good if your family knew about it? Would you feel proud telling your children about the decision or action you took at work today?


Ethical Choices in HRM

Strategic HRM
Warren Jones sat at his desk and stared at the columns of numbers on his scratch pad in front of him. This sense of hopelessness was becoming increasingly common for Warren, and every month or two seemed to bring even more financial constraints on his family-owned sport shoe operation. Now his major customer was demanding yet another wholesale price cut, and wasn’t too subtle in suggesting they might have to go to another supplier if their demand wasn't met, and there was no way Warren could replace the capacity of this buyer if he lost them. Warren had just run some scratch numbers, and the bottom line wasn’t pretty.

The problem for Warren’s Shoes wasn’t quality or service or dependability—his firm had a rock solid reputation—the problem was purely financial cost and profitability. Prior to the opening of global trade markets Warren’s Shoes had enjoyed decades of prosperity, but the consumer was demanding more choice but also at lower prices, and Warren simply wasn’t able to compete any longer with the massive advertising campaigns and lower cost off-shore products flooding his traditional markets.

Warren gazed out the interior window to his office to the plant floor … over four hundred hard-working and long-term employees living in this small community were depending on him. He couldn’t ask them to take a wage rollback, and he’d already cut back on raises and hiring for the past two years. His company was already operating near the break-even point; he simply had no more fat to cut.

Warren knew all about the offshore manufacturing opportunities for his company—he attended the trade shows and already had several contacts. The labour savings alone would solve his cost problems, even if he only shipped his low-end products offshore. But what about his own workers? If he shipped half his production offshore he’d have to lay-off almost two hundred workers. On the other hand, if he didn’t, wouldn’t he eventually lose the whole company and have to lay-off everyone. Was shipping half the production overseas just the beginning of the end for all of his workers, and the other half of production would follow in a year or two? Further, Warren had read some very distressing news about shoddy labour practices and even child labour at some of these offshore plants, and this was certainly counter to the 87-year-old motto “Excellent Value With Excellent Values” of his firm. He wondered what choices he might have other than to ship his production offshore, or simply shut his company down. His buyer was demanding these cuts for the next contract period—Warren had four months to reach a decision.

Questions

Identify the ethical issues involved.
What would be the human resource implications of the various actions Warren might take?