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Ethical Issues in HR: Definition & Importance

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  • 0:02 Ethics Defined
  • 1:59 Laws, Regulations & Ethics
  • 2:48 Code of Ethics
  • 4:05 Corporate Social…
  • 4:48 Stakeholder Theory & HR
  • 6:36 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Unethical behavior from a business can create problems with regulators and have adverse effects on a company's bottom line. In this lesson, you'll learn about ethical issues relevant to HR and the importance of ethical organizational behavior.

Ethics Defined

Bridget is the new CEO of a large energy company, and she has a problem. She was brought in when her predecessor was asked to resign after the company suffered a series of ethical scandals. It caused a series of oil spills and then mismanaged the clean up. The company has also been using some creative bookkeeping to keep investors optimistic about the financial health and future profitability of the company.

Bridget is faced with two major consequences from her company's questionable ethical behavior. The environmental disasters and bungled handling of them has created a public relations nightmare and is driving the company's stock down as profits continue to decline because customers are moving to competitors in retaliation. And to make matters worse, the SEC is starting an investigation of the company's financial reporting. This announcement has created even more downward pressure on the company's stock price. Stockholders are angry.

Bridget sees a failure of ethical behavior as a root cause of the problems plaguing the company. Ethics is a system of rules and principles of appropriate conduct in any given culture, society or organization that guides people in their decision making and responsibilities. In simpler terms, it's a system of rules that tells us what behavior is 'good' and what behavior is 'bad.' For example, it is usually considered unethical to lie.

One of Bridgett's biggest concerns is whether her accounting department crossed the line into fraud with its creative bookkeeping. A company acts through its employees, and employee selection and development is within the purview of the human resources department. This makes HR an important team player in developing and maintaining a system of ethics for an organization. So, Bridgett drags in Dan, the VP of Human Resources, to discuss what needs to be done regarding human resource ethics.

Law, Regulations and Ethics

Sometimes the government decides to impose ethical rules upon businesses through legislation and regulations. One of the most important of these laws is the Sarbanes-Oxley Act, which was enacted to improve financial disclosures to investors and prevent accounting fraud. In fact, Bridgett is concerned about Sarbanes-Oxley's applicability to the company's current accounting snafu.

From an HR perspective, Dan needs to make sure that HR policies and procedures fit into compliance policies developed by the legal department. He also needs to make sure that the company doesn't unlawfully retaliate against whistleblowers. These are employees who report a violation of the law committed by the company. Finally, he may be asked to assist in compliance training.

Code of Ethics

Bridget then instructs Dan to have his people start reviewing the current company code of ethics for revision. A code of ethics is a written statement of an organization's values and principles that help guide organizational members in their decision making and responsibilities to those inside and outside the organization.

Codes of ethics can be compliance-based or integrity-based. Upon her review, Bridget discovers that the company has a compliance-based code of ethics. A compliance-based code of ethics is focused on preventing unwanted behavior, such as illegal acts. However, Bridget knows that you can be pretty darn unethical and still obey every law. She thinks a compliance-based code of ethics is inadequate.

An integrity-based code of ethics is concerned not only with prohibiting conduct that's illegal but also encouraging employees to engage in right actions in accordance with company values. For example, if the company had an integrity-based code of ethics that valued ecology, the company might have taken more precautions in its drilling to prevent the current oil spill disasters. Bridget wants to take the high road and adopt an integrity-based code of ethics.

Corporate Social Responsibility

One of the conditions Bridget had for accepting the job and cleaning up the current mess was a commitment from the Board of Directors supporting a policy of corporate social responsibility (CSR). Corporate social responsibility is the idea that a business has duties and obligations beyond making profits for shareholders and includes responsibilities to other stakeholders, including society at large.

Not all agree that a business has social responsibilities. Other people believe a business is in business to make money and nothing else. Bridget doesn't take this view and expects her company to operate in a socially responsible manner.

Stakeholder Theory and HR

Bridget plans on using a stakeholder theory in helping to guide the company ethically and meeting its corporate social responsibilities. A stakeholder is a person or organization that affects, or is affected by, the company. Stakeholders can be internal, such as employees and managers, or external, such as suppliers, creditors, customers, shareholders, competitors, government and society at large.

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