Business Management
Help with two part assignment. Must use APA Format throughout to include Reference Page.
Unit VIII Assignment 1
For this assignment, select a specific business; it can be one you work for or, better yet, one you would like to work for in the future. Make sure the company you select meets the following criteria: It must have a written code of ethics and operate at the benevolent level of CSR (corporate social responsibility).
Search online for the company’s website and review its code of ethics and its report on its corporate social responsibility programs; be sure to identify any of its sustainability practices—this may be a separate link.
Write a report on your chosen company’s code of ethics and CSR. In your report, address whether you believe that leaders of organizations have a duty to all stakeholders or just to stockholders. Present a business argument either for or against corporate social responsibility.
Be sure to include an introduction. Your report should be two pages in length, not counting the title or reference pages. Adhere to APA style when constructing this assignment, including in-text citations and references for all sources that are used. Please note that no abstract is needed.
Unit VIII Assignment 2
As an international manager, your effectiveness can be greatly influenced by your understanding of cultural differences and their impact on staff. Hofstede’s Model of National Culture and Project GLOBE (pp. 583–585 in your textbook) details dimensions that help managers identify cultural differences within countries.
Write a one-page reflection paper about how this research has increased your understanding of different cultures and how you would use this understanding if managing staff who would be taking on expatriate assignments.
If outside sources are used, please adhere to APA style when creating citations and references for this assignment. APA formatting, however, is not necessary.
Unit VIII Lecture Transcript
Slide 1
Unit VIII, Organizational Ethics, Sustainability, & Social Responsibility,
and Global Issues for Human Resource Managers
Slide 2
In order to gain a deeper understanding of the concepts presented in
this course, the unit lessons will be structured in question and answer
format. Each slide will provide at least one question based on concepts
presented in this unit and an accompanying audio response from a subject
matter expert. Review each slide to further enhance your practical
knowledge about the field of human resource management.
Slide 3
Meet Marilyn Pike. Marilyn has over 20 years of experience in HR
leadership positions in both the public and private sector, large and small
businesses, and union and non-union environments. She currently holds
both the SPHR and SHRM-SCP.
Question: What do you believe the concept of ethics entails?
Answer: There are probably as many different ideas about ethics as
there are people, but I think most people would agree on the need for trust.
I’m certainly no expert on the mafia and/or gangs, but I believe members of
those organizations have their own set of “rules” or ethics they live by in
order to trust one another. As the saying goes, “there is honor among
thieves.” My point is that in every relationship, be it personal or business, a
fundamental trust is necessary for the relationship to succeed. I think this
speaks to the necessity of organizations having a specific code of ethics,
which gives employees a guide to follow. Ethics should be part of the culture
of the organization. Every culture has concepts of right and wrong, although
those values do vary some from culture to culture, a primary objective of the
code of ethics is to define what the company is about, and make it clear that
the company is based on honesty and fairness. Managerial support, and
especially top management support, is absolutely critical to a successful
code of ethics. If senior managers pay no attention to the code of ethics,
subordinate managers and employees will pay no attention as well. But that
said, everyone needs to practice personal responsibility. This is the concept
that everyone in the organization is responsible for the ethical conduct of
business, not just “the boss.” Personal responsibility also refers to
accountability for one’s own actions, so we need to identify the
consequences to an employee if they violate the code of ethics. And then, of
course, there is compliance. The compliance factor can identify applicable
laws or industry regulations that must be adhered to as part of the code of
ethics.
Slide 4 (2:06)
Question: What is corporate social responsibility (CSR)? (2:06)
Answer: Corporate social responsibility (CSR) is the idea that
organizations have a duty to all stakeholders to operate in a manner that
takes each of their needs into account. “All stakeholders” means everyone,
not just shareholders or executives. Legal CSR focuses on maximizing profits
while obeying the law; it focuses on increasing sales and cutting costs to
maximize returns to stockholders. In dealings, these firms meet all of their
legal requirements. Of course, that begs the question, “If something is legal,
does that mean it is ethical?” That’s an issue that people and businesses
have to struggle with constantly. Child labor is legal in third world countries
and the cost of goods may be lower, so is it okay for our business to buy
products made in sweat shops? It is legal for pay day loan companies to
charge exorbitant interest rate and (some say) prey on the poor—is that
ethical? Do we want to be involved in that type of business? There’s not
necessarily a right or wrong answer. One could argue both sides of the
question. But every business and person has to make the choice. Ethical
CSR focuses on profitability and doing what is right, just, and fair. These
companies meet reasonable societal expectations and exceed government
laws and regulations to be just and fair to stakeholders. Benevolent CSR
focuses on profitability and helping society through philanthropy. This
highest level of CSR is also called “good corporate citizenship.” Benevolent
firms are philanthropic, giving gifts of money or other resources to charitable
causes. Employees are expected, encouraged, and rewarded for being active
volunteers in the community, often on company time. Some would call this
“good PR or Public Relations”. I’m sure you can all think of organizations in
your community which are known for benevolent CSR.
Slide 5 (0:33)
Question: What is sustainability?
Answer: Sustainability involves meeting the needs of the current
generation without compromising the ability of future generations to meet
their own needs. Business must practice sustainability today because so
many resources are being overused to the point that they cannot be
replenished and will ultimately disappear unless we quickly change our
practices. The most common, or well-known, sustainability practices are
done by what are known as green companies. A green company acts in a
way that minimizes damage to the environment.
Slide 6 (0:44)
Question: Why do some businesses work to transition to global
operations?
Answer: The main reason is to increase business. Goods, ideas,
services, and knowledge flow freely across national borders, creating greater
demand for products. So the biggest reason for globalization is to remain
competitive and increase business. For example, let’s face it, if you are a
major corporation, like Coca-Cola, is there any place in America to expand?
No, the market is saturated. Ultimately, in many industries, at least, the
company will consider international operations of some type to gain a
competitive advantage over its competitors. Enter the expatriate employee,
an employ who leaves their home country to work in another country.
Slide 7 (1:15)
Question: What are some human resources trends and issues in
globalization?
While the world appears to be moving more toward protectionist trade
policies, it appears the degree of globalization is continuing to rise based on
the most recent available data. At the same time, evidence shows that some
developed countries are retrenching when it comes to international
operations. Governments continue to pressure business to reshore some of
their operations. Some companies are retrenching jobs back to their home
country. For example, call centers in the U.S; a recent article in Forbes
highlighted the fact that in the last 5 years, the trend to outsourced
overseas call centers has begun to reverse. American companies began to
figure out that customers did not want to talk with someone 10,000 miles
away, even if their English is perfect, often their understanding was not
(Dichter, 2019). That said, it appears that some production and service jobs
will continue to be moved out of home countries to other locations around
the world to take advantage of capital cost savings. This means that
managers, including HR managers, are going to have to continue getting
more capable in training and preparing employees for international
assignments.
Slide 8
This concludes the Unit VIII question and answer session with subject
matter expert Marilyn Pike. Reflect on this question and answer session as
you review your readings for this unit.
Slide 9
Reference
Dichter, T. (2019). Call centers return to the U.S. – More companies get the
link between customer service and profit. Retrieved from
https://www.forbes.com/sites/thomasdichter/2019/03/30/call-centers-
return-to-the-u-s-more-companies-get-the-link-between-customer-
service-and-profit/#31495c7114ff
https://www.forbes.com/sites/thomasdichter/2019/03/30/call-centers-return-to-the-u-s-more-companies-get-the-link-between-customer-service-and-profit/#31495c7114ff
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©iStockphoto.com/tzahiV
15
Organizational
Ethics
, Sustainability, and Social
Responsibility
Media Library
CHAPTER 15 Media Library
PREMIUM VIDEO
HRM in Action
Organizational Ethics
LICENSED VIDEO
Corporate Social Responsibility
LEARNING OBJECTIVES
After studying this chapter, you should be able to do the following:
15-1.
Discuss the term ethics and the factors that commonly contribute to unethical behavior.
PAGE 541
15-2.
Briefly discuss each of the identified ethical approaches and the factors to consider in creating codes of organizational ethics.
PAGE 546
15-3.
Discuss the terms authority, responsibility, and accountability and how they relate to ethical behavior.
PAGE
549
15-4.
Identify some of the common ethical issues that managers face in business.
PAGE 551
15-5.
Define corporate social responsibility (CSR) and briefly discuss the “business case” for CSR.
PAGE
553
15-6.
Identify and briefly discuss the three levels of CSR available to the organization.
PAGE 557
15-7.
Briefly describe the concept of sustainability in a business context.
PAGE
558
15-8.
Discuss some of the common sustainability-based benefits organizations are using and the question of whether or not diversity training actually works to improve performance in diverse organizations.
PAGE 562
CHAPTER OUTLINE
Ethical Organizations
Ethics in Business
Ethics Defined
Contributing Factors to Unethical Behavior
Justification of Unethical Behavior
Ethical Approach
es
General Guides to Ethical Decision Making
Codes of Ethics
Creating and Maintaining Ethical Organizations
Authority
Responsibility
Accountability
Just Because It’s Legal Doesn’t Mean It’s Ethical!
Facing Ethical Questions
Corporate Social Responsibility (CSR)
CSR Defined
Stakeholders and CSR
Levels of Corporate Social Responsibility
Where You Stand Depends on Where You Sit
Sustainability
HR and Organizational Sustainability
Sustainability Training
The Sustainable Organization
Trends and Issues in HRM
Sustainability-Based Benefits
Does Diversity Training Work?
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Practitioner’s Perspective
Reflecting on ethics, Cindy says: There are many definitions of ethics and many shades of gray in their interpretations. Some decisions may be legal but not “fair,” justifiable but not “correct,” and sometimes it is hard to determine who should even be setting the standards. I prefer to compare ethical behavior to behaving with integrity. My definition is C.S. Lewis’s observation: “Integrity is doing the right thing, even when no one is watching.” Business does not always behave with integrity, as we know from scandals since the turn of the century. In 2002, a lack of integrity was exemplified by Enron and its accounting misrepresentations; in 2007, it was the banking industry and the subprime mortgage morass. Each time, new rules and regulations are put into place to prevent such ethical abuses from ever happening again. But it takes more than reactive rules and regulations. To really make a difference in business behavior, we need to begin with ourselves—we can chart the course for a better future.
Chapter 15
takes an in-depth look at what you need to know about business ethics.
ETHICAL ORGANIZATIONS
LO 15-1
Discuss the term ethics and the factors that commonly contribute to unethical behavior.
Dishonesty has become an accepted part of daily life for many people in their personal, government, and business lives.1 Some people ask, Does it pay to be ethical? The simple answer is yes. Research studies have reported a positive relationship between ethical behavior and leadership effectiveness.2 Being ethical may be difficult, but it has its rewards.3 It actually makes you feel better.4 Honest people have fewer mental health and physical complaints, like anxiety and back pain, and better social interactions.5 On the reverse side, unethical behavior is costly, as it contributed to the 2007–2009 financial crisis that resulted in the world economy going into recession.6
Let’s take a personal view. Many companies seek integrity in job applicants and even test for ethics.7Job satisfaction (happiness) comes from strong, rewarding relationships.8 Relationships are based on trust,9 and you get and keep friends and customers based on trust.10 Unethical behavior that you justify might give you some type of short-term gain, but in the long run, you’ve sabotaged yourself.11How? Because we usually eventually get caught being dishonest and lose people’s trust—hurting our relationships, sometimes losing friends, and even going to jail (like Bernie Madoff for his Ponzi scheme). Victims of dishonesty often use counterproductive behavior and revenge tactics.12 It can take years to build trust and only one lie to destroy it. How many friends do you have that are dishonest with you and take advantage of you for their own personal gain at your expense? According to founder and CEO Ray Dalio of Bridgewater hedge fund, that being radically truthful and transparent pays off in excellent performance.13 So yes, truth absolutely, unequivocally does matter.14 At the end of the day, the truth is all that matters.15
SHRM
HR CONTENT
See Appendix: SHRM 2016 Curriculum Guidebook for the complete list
C. Ethics (required)
1. Rules of conduct
2. Moral principles
4. Organizational values
7. Facing and solving ethical dilemmas
9. Compliance and laws
10. Confidential and proprietary information
11. Conflicts of interest
12. Use of company assets
13. Acceptance or providing of gifts, gratuities, and entertainment
F. Managing a Diverse Workforce (required)
3. Aging workforce
10. Gay, lesbian, bisexual, transgender (GLBT)/sexual orientation issues
11. Glass ceiling
R. Corporate/Social Responsibility and Sustainability (secondary)
2. Ethics
8. Community/employee engagement
10. The business case for CSR
Get the edge on your studies.
edge.sagepub.com/lussierhrm3e
• Take a quiz to find out what you’ve learned.
• Review key terms with eFlashcards.
• Watch videos that enhance chapter content.
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WORK
APPLICATION 15-1
Thinking of business leaders, preferably where you work or have worked, do you trust them to act ethically? Why or why not?
There have been strong and recurring calls for more ethical business practices globally. To improve ethics, business schools are improving their curricula.16 They doubled the number of ethics-related courses to help students prepare to face ethical dilemmas during their careers.17 We constantly have to make decisions that are ethical or unethical.18 But what is ethics, and what business practices are, or should be, considered “ethical”? Let’s take a look at some information on ethics and ethical organizations.
Ethics in Business
Ethical failures can cause significant upheaval in organizations. You probably recall that Wells Fargopressured employees to open credit card and deposit accounts without customers’ knowledge for years, and when it was brought to light in 2016, Fortune and other business periodicals estimated that the scandal could cost Wells Fargo billions of dollars.19 Within a few months, credit card applications had fallen more than 50% and new checking accounts dropped 43%.20 When a second scandal concerning auto insurance that was forced on auto loan customers hit the company about 6 months later, Wells Fargo took an even bigger hit to its bottom line. The company immediately said that it would refund about $80 million directly to those customers, plus another $25 million to repay certain fees and additional interest.21 The CEO and at least six other executives lost their jobs, and organizational leaders, including the CEO, had to pay back performance bonuses and stock grants—$69 million from the CEO alone.22
This unethical behavior is costly to society as well. It has long-term negative consequences for companies, including hurt reputation, legal fees, and fines.23 Sales declines, increasing cost of capital, market share deterioration, and network partner loss can also be the result of unethical corporate behavior.24 Some companies have even gone out of business, and thousands of people have lost their jobs. The loss of public trust threatens the integrity of business.25
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543
Before we define ethics, complete Self-Assessment 15-1 to determine how ethical your own behavior is.
Ethics Defined
Ethics has been defined in many books and articles. Let’s do a quick review here of some of the common definitions of ethics and then see if we can apply those definitions to business ethics.
• “Ethics is a reflection on morality, that is, a reflection on what constitutes right or wrong behavior.”26
• “[Ethics is] the principles, values and beliefs that define right and wrong decisions and behavior.”27
• “Ethics is a set of moral principles or values which is concerned with the righteousness or wrongness of human behavior and which guides your conduct in relation to others.”28
SHRM
R:2
Ethics
You might notice that these definitions all have some common elements: morals, values, beliefs, principles of conduct. So for our purposes, ethics is the application of a set of values and principles in order to make the right, or good, choice. It is not a long leap to then note that ethics also must include personal integrity and trust in the character and behavior of others. Integrity means being honest; lying, cheating, and stealing are unethical. Lying has long been identified as a critical unethical behavior.29 If we do not think that an individual can be trusted and that they have integrity, we will not believe that they will make ethical choices if there is an opportunity to enrich their personal situation even to the detriment of the organization. If you are not honest, the truth will eventually catch up with you.30And when it does, you will lose the trust of people and hurt your relationships for a very long time before you will be able to earn their trust back—if you ever can.31 Remember the common elements listed as we review some factors contributing to unethical behavior and learn about a few ethical approaches.
Contributing Factors to Unethical Behavior
Most people understand right and wrong behavior and have a conscience. So why do good people do bad things? Let’s discuss some of the reasons why unethical behavior occurs.
PERSONALITY TRAITS AND ATTITUDES. You probably already realize that because of their personalities, some people have a higher level of ethics than others, as integrity is considered a personality trait. Unfortunately, a culture of lying and dishonesty is infecting American business and society as these behaviors have become more common and accepted.32 Some people are at the point that they don’t even realize they are dishonest and don’t see anything wrong with lying.33 Others lie deliberately, based on the attitude that lying is no big deal; some people don’t even realize that they are liars.34
MORAL DEVELOPMENT. A second factor affecting ethical behavior is moral development, which refers to distinguishing right from wrong and choosing to do the right thing.35 People’s ability to make ethical choices is related to their level of moral development.36 There are three levels of personal moral development. At the first level, the preconventional level, a person chooses right and wrong behavior based on self-interest and the likely consequences of the behavior (reward or punishment). This preconventional level is typical of a young child. Those whose ethical reasoning has advanced to the second, conventional level seek to maintain expected standards and live up to the expectations of others. Most people are on this level and do as the others in their group do—they easily give in to peer pressure to act ethically or unethically. Those at the third level, the postconventional level, make an effort to define moral principles for themselves; regardless of leaders’ or the group’s ethics, they do the right thing. People can be on different levels for different issues and situations.37
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15-1 SELF ASSESSMENT
How Ethical Is Your Behavior?
For this exercise, you will respond to the same set of statements twice. The first time you read them, focus on your own behavior and the frequency with which you behave in certain ways. On the line before each statement number, place a number from 1 to 4 that represents how often you do that behavior (or how likely you would be to do it) according to the following scale:
The numbers allow you to determine your level of ethics. You can be honest, as you will not tell others in class your score. Sharing ethics scores is not part of the exercise.
Next, go through the list of statements a second time, focusing on other people in an organization that you work for now or one you have worked for. Place an O on the line after the number of each statement if you have observed someone doing this behavior; place an R on the line if you reported this behavior within the organization or externally: O = observed, R = reported.
In College
____ 1. ____ Cheating on homework assignments
____ 2. ____ Cheating on exams
____ 3. ____ Submitting as your own work papers that were completed by someone else
On the Job
____ 4. ____ Lying to others to get what you want or to stay out of trouble
____ 5. ____ Coming to work late, leaving work early, taking long breaks/lunches and getting paid for them
____ 6. ____ Socializing, goofing off, or doing personal work rather than doing the work that you are getting paid to do
____ 7. ____ Calling in sick to get a day off when you are not sick
____ 8. ____ Using an organization’s phone, computer, Internet access, copier, mail, or car for personal use
____ 9. ____ Taking home company tools or equipment without permission for personal use
____10. ____ Taking home organizational supplies or merchandise
____11. ____ Giving company supplies or merchandise to friends or allowing friends to take them without saying anything
____12. ____ Applying for reimbursement for expenses for meals, travel, or other expenses that weren’t actually incurred
____13. ____ Taking a spouse or friends out to eat or on business trips and charging their expenses to the organizational account
____14. ____ Accepting gifts from customers/suppliers in exchange for giving them business
____15. ____ Cheating on your taxes
____16. ____ Misleading a customer to make a sale, such as promising rapid delivery dates
____17. ____ Misleading competitors to get information to use to compete against them, such as pretending to be a customer/supplier
____18. ____ Taking credit for another employee’s accomplishments
____19. ____ Selling more of a product than the customer needs in order to get the commission
____20. ____ Spreading rumors about coworkers or competitors to make yourself look better, so as to advance professionally or to make more sales
____21. ____ Lying for your boss when asked or told to do so
____22. ____ Deleting information that makes you look bad or changing information to make yourself look better
____23. ____ Allowing yourself to be pressured, or pressuring others, to sign off on documents that contain false information
____24. ____ Allowing yourself to be pressured, or pressuring others, to sign off on documents you haven’t read, knowing they may contain information or describe decisions that might be considered inappropriate
____25. ____ If you were to give this assessment to a coworker with whom you do not get along, would she or he agree with your answers? If your answer is yes, write a 4 on the line before the statement number; if your answer is no, write a 1 on the line.
After completing the second phase of the exercise (indicating whether you have observed or reported any of the behaviors), list any other unethical behaviors you have observed. Indicate if you reported the behavior, using R.
26. ______________________________________________________________________________________________________
27. ______________________________________________________________________________________________________
28. ______________________________________________________________________________________________________
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Note: This self-assessment is not meant to be a precise measure of your ethical behavior. It is designed to get you thinking about ethics and about your behavior and that of others from an ethical perspective. All of these actions are considered unethical behavior in most organizations.
Another ethical aspect of this exercise is your honesty when rating your behavior. How honest were you?
Scoring: To determine your ethics score, add up the numbers for all 25 statements. Your total will be between 25 and 100. Place the number that represents your score on the continuum below. The higher your score, the more ethical your behavior.
INCENTIVES. We respond to “incentives” and can usually be manipulated to behave ethically or unethically if we find the right incentives.38 The incentive (or reason we are unethical at times) is usually for personal gain,39 to avoid getting into trouble, and some people don’t believe the rules apply to them.40 Why did people at Countrywide Financial give mortgages to people whose homes would most certainly be repossessed?41 Why did people at Wells Fargo Bank open accounts that customers didn’t ask for? There were financial gains for doing so, and some employees feared losing their jobs if they didn’t meet high quotas.
THE SITUATION. In addition to incentives, in certain situations, it can be tempting to be unethical,42 such as when you are negotiating.43 Unsupervised people in highly competitive situations are more likely to engage in unethical behavior. Unethical behavior occurs more often when there is no formal ethics policy or code of ethics and when unethical behavior is not punished. In other words, people are more unethical when they believe they will not get caught.44 Unethical behavior is also more likely when performance falls below aspiration levels.
People are also less likely to report unethical behavior (blow the whistle) when they perceive the violation as not being serious or when they are friends of the offender. It takes high moral responsibility to be a whistle-blower.
WORK
APPLICATION 15-2
Give an example of unethical business behavior from your personal experience or the news and the reason given to justify it.
Justification of Unethical Behavior
Most people understand right and wrong behavior and have a conscience. So why do good people do bad things? Most often, when people behave unethically, it is not because they have some type of character flaw or were born bad. Most people aren’t simply good or bad. Just about everyone has the capacity to be dishonest.45 One percent of people will always be honest, 1% will always be dishonest, and 98% will be unethical at times, but just a little.46 We respond to “incentives” and can usually be manipulated to behave ethically or unethically, if we find the right incentives.47 The incentive can be personal gain or to avoid getting into trouble.48
Few people see themselves as unethical. We all want to view ourselves in a positive manner. Therefore, when we do behave unethically, we often justify the behavior to protect our self-conceptso that we don’t have to feel bad.49 If we only cheat a little, we can still feel good about our sense of integrity.50 Take a look at some common justifications for our unethical behavior:
• Everyone else does it—we all pad the expense account.
• I did it for the good of others or the company—I cooked the books so the company looks good.
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15-1 APPLYING THE CONCEPT
Level of Moral Development
Place the letter of the level of moral development on the line next to the statement that illustrates it.
a. preconventional level
b. conventional level
c. postconventional level
____ 1. I lie to customers to sell more products because the others sales reps do it, too.
____ 2. I lie to customers so that I can sell more products and get larger commission checks.
____ 3. I don’t lie to customers because it is unethical to lie.
____ 4. Carl says to John, “You’re not selling as much as the rest of us. You really should lie to customers like we do. If the boss asks why you aren’t selling as much as the rest of us, you’d better not tell him we lie, or you will be sorry.”
____ 5. Karen says to John, “Telling lies to customers is no big deal–we’re helping them buy a good product.”
• I was only following orders—my boss made me do it.
• I’m not as bad as the others—I only call in sick when I’m not sick once in a while.
• Disregard or distortion of consequences—No one will be hurt if I inflate the figures, and I will not get caught. And if I do, I’ll just get a slap on the wrist anyway.
CAUTION AGAINST ESCALATION OF UNETHICAL BEHAVIOR. It is important to understand the subtlety of how unethical behavior can take hold of you. Today we live in a time of ethical confusion, with relativismsaying there is no absolute truth or right or wrong—which contradicts itself by using an absolute. It’s tempting to change the rules or truth and be unethical for personal gain, justifying the behavior by telling ourselves it’s OK “to do whatever I want,” “to do what works for me,” or “to do what makes me feel good,” which often leads to unethical behavior. The things we do repeatedly determine our character.51
Did the people at Enron and other companies start out planning to lie, cheat, and steal? Most didn’t. What tends to happen is the company doesn’t hit the target numbers, and the employees think “let’s give inflated numbers this quarter and we will make it up next quarter and no one will know or get hurt in any way.” The problem is, for several quarters, the same thing happens, so they get to the point of not being able or willing to admit their unethical or illegal behavior until they get caught. Little white lies are not little.52 The subtlety creeps up on us because the more we engage in the unethical behavior, and especially if we don’t get caught, the easier it is to be unethical. Everything tends to come out in due time anyway, so it’s better if it happens early.53 The moral of the story is don’t take the first step that leads to escalation of unethical behavior.
ETHICAL APPROACHES
LO 15-2
Briefly discuss each of the identified ethical approaches and the factors to consider in creating codes of organizational ethics.
Several common ethical approaches, or guidelines, exist to help you make ethical choices. Understanding some of the common approaches will help you resolve ethical dilemmas that you will certainly face at work. What common approaches exist? Let’s discuss three guides to ethical behavior and codes of ethics in the next section.
SHRM
C:7
Facing and Solving Ethical Dilemmas
General Guides to Ethical Decision Making
GOLDEN RULE. Do you know the Golden Rule? “Do unto others as you would have them do unto you,” or “Don’t do anything to anyone that you would not want someone to do to you.” It is a lesson that our body knows, and when we follow it, we feel an immediate reward.54 Most successful people live by the Golden Rule.55 This is a moral principle in virtually every religious text in the world. Following the golden rule will help you to be ethical. The workplace and world could change overnight if we all followed this one simple guide to our behavior.
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15-2 APPLYING THE CONCEPT
Justifying Unethical Behavior
Place the letter of the justification given for engaging in unethical behavior on the line next to the statement exemplifying it.
a. Everyone else does it.
b. I did it for the good of others or the company.
c. I was only following orders.
d. I’m not as bad as the others.
e. Disregard or distortion of consequences.
____ 6. Don’t blame me. It was the boss’s idea to do it. I just went along with it.
____ 7. It’s no big deal that I lie to customers because no one gets hurt. In fact, I’m helping them buy a good product.
____ 8. I changed the numbers so the department will look good on our quarterly report to top management.
____ 9. Yes. I do lie to customers, but it’s the way we do business here.
____ 10. I do take some of the company product home, but I take a lot less than the others.
FOUR-WAY TEST. Rotary International has a motto, “Service Above Self.” This is a great motto to live by because helping others, as opposed to the “What can you do for me?” mentality, will improve relationships. Rotary uses a four-way test to determine ethical behavior:56 (1) Is it the truth? (2) Is it fair to all concerned? (3) Will it build goodwill and better friendship? (4) Will it be beneficial to all concerned? If the answers are yes, then the action is probably ethical.
STAKEHOLDERS’ APPROACH TO ETHICS. The stakeholders’ approach tries to create win-win results for all stakeholders affected by the decision. You can’t always create a win for everyone, but you can try. Unfortunately, this is not easy because multiple stakeholders often have conflicting interest,57 such as in a layoff. However, as
Salesforce.com
CEO Marc Benioff says, to successfully manage a modern organization, you need to have multistakeholder dialogues.58 This is the approach put forth by Warren Buffett at Berkshire Hathaway, known as one of the most ethical organizations in business today.
Exhibit 15-1
gives the statement taken from Berkshire’s Code of Business Conduct and Ethics.
Exhibit 15-1 BERKSHIRE HATHAWAY CODE OF BUSINESS CONDUCT AND ETHICS
Source: http://www.berkshirehathaway.com/govern/corpgov , retrieved August 8, 2017.
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So, if you are comfortable telling people who are affected by your decision what you have decided, it is probably ethical. But if you keep justifying and rationalizing the decision and try to hide it from others, it is quite likely unethical—at least to some of the affected stakeholders.
WORK
APPLICATION 15-3
Describe any guidelines you use, or will use in the future, to help you make ethical decisions.
DISCERNMENT AND ADVICE. Research shows that making a decision without using an ethical guide leads to less ethical choices.59Using ethical guides at the point of making a decision helps keep you honest.60 If you are unsure whether a decision is ethical, talk to your boss, higher-level managers, and other people with high ethical standards. If you are reluctant to ask others for advice on an ethical decision because you may not like their answers, the decision may not be ethical.
Each of these approaches should cue you to think about some concepts that we have previously discussed in this text—trust, integrity, and consistency. If you recall our conversation about trust in
Chapter 10
, you will remember that trust is “faith in the character and actions of another.” Does that sound familiar when you take a look at the definitions of ethics given earlier? Without trust, we cannot successfully manage others in the organization for very long, so we have to do what we said we would do consistently over time in order to get our stakeholders to trust us.
So integrity (honestly doing what you say you will do) and trust (the expectation that you will continue to do so) are important to managers in the firm because research shows that companies with leaders who have the trust of employees have lower turnover and higher revenue, profitability, and shareholder returns. But how do we also get others to be trustworthy and make decisions based on principles, values, beliefs, and character? Most organizations (like Buffet’s Berkshire Hathaway) today use a code of ethics, sometimes called a code of conduct, to project the values and beliefs of the organization to their employees.
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Codes of Ethics
Every culture endorses an ethical way to live.61 Following a code of ethics is actually an ethical approach. The Houston Chronicle provides a good template on their
http://chron.com
website for an organizational code of ethics that includes the following factors:62
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Organizational Values
VALUES. Values are our basic concepts of good and bad, or right and wrong. Values come from our society and culture. Every culture has concepts of right and wrong, although these values do vary some from culture to culture (we will discuss this further in
Chapter 16
). The Chronicle article notes that “a primary objective of the code of ethics is to define what the company is about and make it clear that the company is based on honesty and fairness.”
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Rules of Conduct
PRINCIPLES. Principles are a basic application of our values. We apply principles to specific situations in order to come up with a set of actions that we consider to be ethical. An example of an ethical principle would be to maintain personal integrity. This is obviously based on the application of the values of honesty and integrity. Another example would be the principle to treat all employees fairly, which would match up with the value of equality.
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Moral Principles
MANAGEMENT SUPPORT. Managerial support, and especially top management support, is absolutely critical to a successful code of ethics. Remember what Jack Welch of GE said, “We need to walk the talk.” If senior managers pay no attention to the code of ethics, subordinate managers and employees will pay no attention as well. In addition, we need to encourage reporting of unethical behavior to management. In the Chronicle article, they note that open-door policies and processes that allow the anonymous reporting of ethics issues should be included in the code. These processes help management maintain and uphold the code across the organization.
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WORK
APPLICATION 15-4
Describe a code of ethics, preferably where you work or have worked. Provide a copy if possible.
PERSONAL RESPONSIBILITY. This is the concept that everyone in the organization is responsible for the ethical conduct of business, not just “the boss.” Personal responsibility also refers to accountability for one’s own actions, so we need to identify the consequences to an employee if they violate the code of ethics. The Chronicle article also notes that people have a personal responsibility to report others’ violations of the code to the appropriate authority.
COMPLIANCE. The compliance factor can identify applicable laws or industry regulations that must be adhered to as part of the code of ethics. Certainly, the OSH Act, the Sarbanes-Oxley Act, and the Dodd-Frank Act would apply to pretty much all public companies, but other laws and regulations apply to certain industries and groups, so we need to note them in the code as well. This is just another reinforcement of the annual training that we have to do regarding each law or regulation that covers our business and industry.
Remember that the code of ethics is important because a culture of misconduct can result in higher turnover and lower productivity and profitability.63 Management always has to take the lead in being ethical, or employees will not perform.
THE FOREIGN CORRUPT PRACTICES ACT (FCPA). The FCPA law bars US–based or US–listed companies from bribing foreign officials in exchange for business and requires them to keep accurate books and records. But it is sometimes hard to tell the difference between a legitimate business expense and a bribe. Thus, global companies need to clarify the difference in their code of ethics, top managers must set the example, and penalties for illegal behavior must be enforced. GE is known for taking pride in not paying bribes to gain business globally.
CREATING AND MAINTAINING ETHICAL ORGANIZATIONS
LO 15-3
Discuss the terms authority, responsibility, and accountability and how they relate to ethical behavior.
The code of ethics is a first strong step in maintaining an ethical organization, but as already noted, managers must lead ethically. However, is the right (ethical) choice always the obvious choice? Unfortunately, it is not that easy. People that we interact with continuously give us the opportunity to be unethical by providing us with personal advantages that help us but do not help the organization—for instance, by offering us gifts. What is the right thing to do when we have the opportunity to improve our own personal situation but must do it at the expense of the company that we work for? In order to understand what managers should do, we need to look at what they can do, based on authority, responsibility, and accountability. Let’s look at these concepts in an organizational setting.
Authority
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Conflicts of Interest
Authority is the right to give orders, enforce obedience, make decisions, and commit resources toward completing organizational goals. Authority is one type of organizational power, and it is based on the position that a person occupies in the organization, not on the person and their individual knowledge or skills. In other words, the manager will have the right to use certain resources, including human resources, to complete items of work assigned to their department or division within the company purely because they are the leader of that division or department. Managers generally must have some authority to utilize organizational resources in order to manage the areas assigned to them. So authority allows managers to tell people who work for them what to do and to use organizational resources in the course of their work.
Responsibility
Responsibility is the obligation to answer for something/someone—the duty to carry out an assignment to a satisfactory conclusion. So responsibility means that, when we are given authority, we have to accept a position-based obligation to the organization to use those resources that we are given to help the organization meet its goals. Responsibility can’t be forced on people in the authority–responsibility relationship. They have to accept the obligation. If they will not do so, then they cannot be allowed to use the authority. Usually, the person will implicitly “accept” responsibility by accepting the position and its commensurate authority. Authority and responsibility have to be balanced in the organizational context.
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15-3 APPLYING THE CONCEPT
Ethical Approach
Place the letter of the approach to making ethical decisions on the line next to the statement that illustrates it.
a. Golden Rule
b. Four-way test
c. Stakeholders’ approach
d. Discernment and advice
e. Code of ethics
____ 11. I’m a member of Rotary International, and I use its approach when I make decisions.
____ 12. When I make decisions, I follow the guidelines the company gave all of us to use to make sure I’m doing the right thing.
____ 15. Hi, Latoya. What do you think of my decision about how to handle this customer’s complaint?
____ 13. I try to make sure that everyone affected by my decisions gets a fair deal.
____ 14. I try to treat people the way I want them to treat me.
____ 15. Hi, Latoya. What do you think of my decision about how to handle this customer’s complaint?
Justin Sullivan/Getty Images
It is critical that employers maintain a strict ethics code. Uber was under investigation due to allegations of ignoring sexual harassment and discrimination. Holding employees to an ethical standard can help prevent a culture of unacceptable behavior.
Accountability
Accountability is the personal duty to someone else (a higher-level manager or the organization itself) to use organization resources effectively to complete an assignment. In other words, the manager can be held personally liable for failing to use resources in the way that they should to help the organization. Unethical behavior often has personal negative consequences based on this personal accountability for our actions,64 such as getting into trouble at work, being fired, and even going to jail. If you get away with unethical behavior, it can be contagious and lead to more and larger transgressions.65 It’s the lies and cover-up, not the initial unethical behavior, that take people down.66
PUTTING IT ALL TOGETHER. So why do you need to understand these concepts, and what is the difference between responsibility and accountability? First let’s look at authority and responsibility. Henri Fayol, in his 14 principles of organizing, noted that authority and responsibility are linked and that they have to be balanced. Note that authority is a right to give orders, and responsibility is an obligation to answer for those orders. This means at its core that authority can be granted by the organization, but responsibility has to be accepted by the party. Peter Drucker, the noted management author, also said, “Whoever claims authority thereby assumes responsibility.”67 In order to be allowed to use the authority given, the person must accept or assume responsibility. Both of these concepts are tied to the position of the manager in the organization. In other words, if you have the position of HR manager, you may be given some types of authority (for instance, authority to require all employees to attend annual EEO and sexual harassment training). However, you have to accept the responsibility to carry out these training programs—the buck stops here, with you. If you do not accept the responsibility for doing so, then the authority needs to be rescinded (you need to be taken out of the position of HR manager).
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Authority and responsibility always need to be balanced. This is one of the most common failures in organizations. An example would be a CEO who requires subordinate managers to take responsibility for their department’s expenditures but doesn’t give them authority to veto purchases. This is requiring the subordinate to accept responsibility without commensurate authority. Or consider the sales manager who uses their authority to require subordinates to complete minor tasks that take up large amounts of time and then provides these subordinates with a poor evaluation for failure to sell. This is using positional authority without taking responsibility. So we have to try to make sure that these factors are balanced and that the person accepts their responsibilities.
If you accept responsibility, at that point you become accountable (personally liable) for the effective completion of the action. In the case of the HR manager and training, you would have personal accountability even if someone else who works for you actually sets up and does the training. Accountability goes beyond an obligation to do something for the organization. It now requires that the person be held to account for their actions—that they give reasons why they did or did not do a certain thing and justify how their actions helped the organization reach its goals. So authority and responsibility give the manager rights and obligations based on their job in the company, but accountability concerns when they can be punished—in some cases even go to prison—if they do not exercise their authority in a responsible manner.
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Confidential and Proprietary Information
DOING THE RIGHT THING. So we can now look at how understanding authority, responsibility, and accountability can help us with ethical issues. As we noted, we constantly have the opportunity to make decisions that will benefit us as an individual but do harm to the organization or our subordinates. Think about the ability that you have as a manager to use your employees’ time to benefit you but not the organization. For instance, you could use employee time to complete a task that makes you look good to your boss but that costs the employee the ability to do their own job. If you apply the concept of responsibility to the situation (an obligation to use those resources to benefit the organization), then it is easy to see that you are being unethical. If you then continue anyway, the consequences of your actions might cause you to be held accountable by the organization and potentially disciplined or even fired if you misuse resources to a great extent.
JUST BECAUSE IT’S LEGAL DOESN’T MEAN IT’S ETHICAL!
LO 15-4
Identify some of the common ethical issues that managers face in business.
Let’s take an example to help put this all together. You are the manager in charge of purchasing products used in the daily operations of your company. The salesperson for a chemical company that has been trying to become your main chemical supplier just happens to have tickets to the concert that—you checked last week—is sold out, and your spouse really wants to go. The salesperson gives them to you after hearing that your spouse loves the band. There are no strings attached . . . or are there? Is this an ethical thing to do based on your position in the company? Even if the salesperson does not specifically ask for favorable treatment in return, can you be objective in your interactions in the future? Whether the tickets are worth $1,000 or $10, they still may cause you to fail to act in an ethical, responsible manner, and since you have purchasing authority, this can put you in a bad spot.
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Use of Company Assets
Facing Ethical Questions
Should you choose a favorite employee to do overtime work instead of the employee who is best for the job because you know your favorite needs extra money? Should you tell the manager of another department a small lie because you haven’t completed a project yet? Should you accept the concert tickets from the salesperson who wants your business? We have to learn to apply the concepts of authority, responsibility, and accountability constantly in order to avoid unethical actions, and in doing so, we gain the trust of others in the organization. We have to know the appropriate use of company assets and what constitutes misuse of those assets as well. What are some of the most common ethical issues that both managers and their companies have to deal with on an ongoing basis?
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Acceptance or Providing of Gifts, Gratuities, and Entertainment
BRIBERY. A bribe is a payment meant to cause someone to make decisions that may help a person or an organization but do significant harm to other organizations or other stakeholders in the decision. (We will discuss how companies are able to do this even though a US law prohibits it in Chapter 16.) In a recent case where a company was determined to be acting illegally, pharmaceutical firm GlaxoSmithKline PLC recently paid the government of China a $500 million fine for bribing multiple officials in 2014.68
CORRUPT PAYMENTS TO GOVERNMENT OFFICIALS. This type of payment is designed to allow the company to avoid scrutiny of their actions by government agencies or to facilitate a desired company action, such as building a new factory in an environmentally sensitive area. A 2015 CNBC story warned US companies about problems doing business in Cuba as relations were being restored between the two governments. They noted that “The opportunities are not unlimited, however, and they do not come without risks, particularly those related to corrupt payments to government officials prohibited under the federal Foreign Corrupt Practices Act.”69
EMPLOYMENT AND PERSONNEL ISSUES. Who to fire or hire or promote and changes in compensation and working conditions all can be affected by managerial decisions, which in turn will affect productivity, absenteeism, and turnover in the company. Uber is a good example of a company that has been accused of having managers that use bias in making personnel decisions, and as a result, its founder and CEO was pressured to resign. In addition, in many countries, practices such as the use of child labor and forced labor by convicts are common, and many other discriminatory labor practices occur, but many of these practices are not only unethical but illegal in US and European firms.
MARKETING PRACTICES. Dishonest marketing practices can ruin corporate reputations and even cause them to fail.70 Remember the ignition switch issue in some General Motors (GM) cars that was hidden from customers and regulators for several years and that was connected to a number of deaths.71 The effects on GM sales are yet to be assessed in this case. However, Countrywide Financial is an excellent example of a company that made billions of dollars by unethical marketing of low-documentation and no-documentation loans to individuals during the housing boom of the early 2000s, and it was still in danger of bankruptcy, even after being purchased by Bank of America as late as 2013.72
IMPACT ON THE ECONOMY AND ENVIRONMENT. Unethical practices on the part of many financial firms (including Countrywide) are thought to be the main cause of the massive recession that started in late 2007. In addition, past practices in many industries have had a long-lasting (if not permanent) effect on the environment around the world. Examples include the use of asbestos long after we knew the health hazards, strip-mining leading to massive flooding in many countries, or recent concerns that some pesticide producers are possibly creating “superbugs” that will be pesticide resistant.73
EMPLOYEE AND CUSTOMER PRIVACY. Due to advancements in technology, the ability to gather and maintain large amounts of personal data has become common in organizations. Use of such data must be for legitimate business purposes only. You may recall that Facebook received a huge number of complaints when they decided to experiment on their users by showing them happier or sadder newsfeeds on their personal pages.74 Many of these customers felt as though this was not done for a legitimate business purpose. There are also many companies who now monitor all employee communication on company computers and other devices. Is this universal monitoring ethical, or is it an invasion of employee privacy?
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Of course, all of the information that we have discussed does no good unless and until the manager makes the choice to do the right thing—makes the ethical decision. And this is not always easy. In many cases, there is no single right or wrong decision—it is shades of gray. One decision may be more ethical, but it still harms some stakeholders, while the other decision harms more people and has fewer beneficiaries. In other cases, the ethical decision may be bad for us personally because it exposes the fact that we may have made a previous decision that was wrong—for instance, we may have lied on a report to the federal government because our boss pressured us to, and now we have to verify that lie because evidence has been found that refutes it.
Here is the simplest takeaway that we can provide you: If you don’t think about making the ethical decision before a situation arises that requires you to have integrity, you will probably make the expedient decision (the decision that does you the least personal harm) and not the ethical decision, and you will know this because you will not be willing to tell others what is going on and what decision you have made. So following the ethical approaches including the code of ethics does help us make ethical decisions.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
LO 15-5
Define corporate social responsibility (CSR) and briefly discuss the “business case” for CSR.
Ethics and corporate social responsibility (CSR) are closely related, as being socially responsible means going beyond legal and economic obligations to do the right things by acting in ways that benefit society.75 CSR is an umbrella term for exploring the responsibilities of business and its role in society.76 CSR has been in the news constantly for the past several years.77 Many of the business problems that have occurred—from the early-2000s financial crisis to a recent Walmart bribery scandal78 to Volkswagen’s programming of automotive computers to fake emissions results79—have been caused at least in part by a lack of corporate social responsibility. Let’s review this concept and then take a look at some of the stakeholders that are affected by CSR.
CSR Defined
What is corporate social responsibility, and what do managers need to know about it? The concept is based on the belief that “companies have some responsibilities to society beyond that of making profits for the shareholders.”80 CSR is about doing good and doing no harm81 and relationships with stakeholders.82 When Google started, it had the motto, “Don’t be evil.”83 So corporate social responsibility is the concept that organizations have a duty to all societal stakeholders to operate in a manner that takes each of their needs into account. In other words, companies need to look at their effects on society and all corporate stakeholders, not just shareholders. They must provide employees with safe working conditions and with adequate pay and benefits. Companies must provide safe products and services to customers. For society, the company should improve the quality of life, or at least not destroy the environment. The company must compete fairly with competitorsand work with suppliers in a cooperative manner. It must abide by the laws and regulations of government. At the same time, the company must provide shareholders with a reasonable profit.
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The Business Case for CSR
THE BUSINESS CASE FOR CSR. A “business case” is simply a justification for an organizational action. In other words, does it pay to be socially responsible? The answer is yes. If it didn’t, why would virtually all of the Fortune 500 companies have formal CSR programs?84CSR can improve stock returns.85 Some companies with reputations for good CSR have much larger profits than those that have poor reputations, including Starbucks and Costco.86 In a study, companies considered to be highly socially responsible by Forbes, “The Just 100: America’s Best Corporate Citizens (including American Express, F5 Networks, Ford, Peak Performer, PepsiCo, Pioneer Natural Resources, Southwest Airlines, SVB Financial Group), had an average return of 13.6% compared to 9.9% for those that have lower ratings of CSR.87 With a choice of two products of similar price and quality, 80% of surveyed customers said they are willing to buy the more sustainable option.88
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Being socially irresponsible has negative consequences, as it gives the company a negative reputation that leads to more difficulty in attracting customers, investors, and employees, and it can lead to costly lawsuits, as with the Volkswagen and Wells Fargo cases mentioned earlier. Money can be made again, but a negative reputation can take years to improve, and a good reputation may be lost forever.89
If you are attending a nonprofit college or university, the odds are that it receives money or other resources from companies as part of its CSR. Visit your favorite large corporation’s website and you will most likely find a link stating how the firm engages in CSR; it is even included in most companies’ annual reports, where it is often called a social audit because it is a measure of social behavior.
If we were to look only at shareholders, the business case would always be based on whether or not an action made the shareholders wealthier. However, we cannot ignore other stakeholders—especially in today’s business world, where other stakeholders can create very difficult situations for the company. For instance, you might have read about the short strikes that have occurred with some frequency at fast-food businesses across the country.90 Workers at these businesses want better wages and have set out to publicize the fact that they are paid rather poorly. These employee stakeholders have caused a lot of bad publicity for restaurants in the industry. In other cases, customer stakeholders have forced companies to stop using sweatshop labor in their manufacturing. Government stakeholders have limited the ability of companies to merge (for example, the merger between Aetna and Humana insurance companies) or to spin off parts of the company if the government thought that it would cause competition problems.
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Community/Employee Engagement
So the business case for CSR is based on the ability of the organization to help or harm various stakeholder groups and the ability of all stakeholder groups to help or harm the company. Each stakeholder group has different—and sometimes competing—interests, but the organization must balance these “social responsibilities” among all of the groups. If we help shareholders make more money to the detriment of society, government stakeholders will step in and sanction the company. If we help customers by sourcing items from questionable suppliers, the community may get angry with us and put pressure on customers to stop doing business with us. Each stakeholder group has to be balanced against the others and managed for maximum engagement with the organization. Every group has to be thought of in a modern company, much more so than ever in history.
A concept called the social contract model, which discusses the need for the company to take society into account while doing business, has been around for a number of years now.91 This contract says that all organizations have an implied contract with society as a whole (remember our discussion of implied contracts in Chapter 10). A productive organization should enhance the welfare of, and minimize the drawbacks to, employees, consumers, and other stakeholders in any society in which the organization operates. A social contract should also avoid violating the rights of individuals in the society in which it operates. We discussed employee rights in
Chapter 9
, and we can extend those rights and other societal rights to all organizational stakeholders.
Recall, too, that when we discussed those employee rights, we also said that the organization has a contrasting obligation to allow and protect those rights. It is the same with other stakeholder members of the society in which the organization operates. The organization has a specific duty92
1. not to actively deprive persons of their rights;
2. to help protect people from deprivation of their basic set of rights; and
3. to aid those who are deprived.
So the organization has to take the interests of all stakeholders into account.
Finally, for those of you who are considering whether or not all of this CSR is really necessary, remember that it is “hard to hide” now with the immediate availability of mountains of information. If you try to bury information inside the organization, it is quite likely to get out because of the power of the Web and its ability to connect people who may be interested in what your company is doing. Again, we can note the Facebook privacy breaches and GM ignition switch failures, both of which were at least partially revealed in Web posts at first. Think about how rapidly Twitter forwards information to users and how comprehensive LinkedIn is when it covers company issues. So if you think the information won’t get out, you may want to think again.
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SOCIAL ENTREPRENEURS AND HYBRID ORGANIZATIONS. There is growth in the number of social entrepreneurs who combine their concern for social issues with their desire for financial rewards.93Social entrepreneurs create social enterprises or hybrid organizations. Hybrid organizations pursue a social mission and sustain their operations through commercial activities through work integration social enterprises (WISEs). The dual social and profit mission drives WISE social performance.94
The late actor Paul Newman started Newman’s Own to sell products and give all the after-tax profits to charities. Blake Mycoskie founded TOMS shoes at age 29 to make money and help solve a social problem of children having no shoes to wear, resulting in blisters, sores, and infections. His business model is “With every pair you purchase, TOMS will give a pair of new shoes to a child in need. One for One.” He wrote Start Something That Matters (2012) to guide others in helping society.95 With a social mission, TOMS received lots of free publicity, and sales have increased, resulting in Mycoskie making lots of money for being SR.
The B Corp. B Corps (benefits corporation) are a new type of company that uses the power of business to solve social and environmental problems. B Corp is a title given to companies that meet certain certification requirements. There are around 2,000 certified B Corps from 50 countries, including Ben & Jerry’s, Cabot, Etsy, and Patagonia. For information on certification requirements, visit
www.bcorporation.net
.96
©iStockphoto.com/asiseeit
Volunteering during work hours is part of CSR that many organizations have embraced.
CSR REPORTING. Virtually all the Fortune 500 companies have formal CSR programs. Corporations are even measuring and assessing how well they meet their SR goals.97 The measures are commonly called corporate social performance (CSP).98 Visit your favorite large corporation’s website, and you will most likely find a link stating how the firm engages in CSR; it is even included in most of the firm’s annual reports, often called a social audit as its measure of social behavior.
Stakeholders and CSR
In addition to being good public practice, CSR is also being codified more often in law in the United States and in other countries. There are a number of corporate compliance laws written by state and federal government stakeholders, many of which we have already discussed. The Dodd-Frank Wall Street Reform and Consumer Protection Act (
Chapter 12
), the Sarbanes-Oxley Act (Chapter 10), the OSH Act (
Chapter 14
), the Fair Labor Standards Act (
Chapter 11
), and many others have already been covered, and we will briefly review another significant compliance law in Chapter 16 called the US Foreign Corrupt Practices Act. You will have to become familiar with each of the major compliance laws as well as those other compliance regulations in your state or country as you begin your career as a manager.
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Compliance and Laws
Employees are the most valuable resource, and how the firm treats its employees is related to its performance.99 Many employee stakeholder subgroups are also beginning to receive much more attention than has historically been the case. Among these groups are older workers, women in management and the executive suite, gay/lesbian/bi/transgender employees, and a more racially and ethnically diverse employee pool. Public pressure has contributed to the interests of these and other groups in organizations, and therefore companies are having to figure out how to meet the needs of these stakeholders in the organization. Let’s quickly review some of the major issues that the organization has to take into account with each.
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Aging Workforce
OLDER WORKERS. The evidence speaks for itself. Americans and workers in many other countries are working much later in life than they historically have. A record number of Americans over the age of 65 are continuing to work. In fact, the number of workers over the age of 75 has increased by more than 75% in the last 20 years.100 While there are many reasons for this, the reasons don’t matter as much to the HR manager as the fact that we have these workers available in our organizations. However, we also have to be careful to not run afoul of the various age-related laws, including the ADEA, as we manage these individuals at work.
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Glass Ceiling
WOMEN EXECUTIVES. Women in the executive suite have been getting a lot of attention since the book Lean In by Sheryl Sandberg of Facebook. The book encourages women to seek executive careers and break the “glass ceiling” that still exists today, even though women have been in the workforce in large numbers since the 1970s. The glass ceiling is the thought that there are invisible barriers to advancement in business to women as well as minority employees. The truth is that women still only fill about 19% of the board seats at Fortune 500 public companies101 and are only 6.4% of CEOs in those same firms,102 despite the fact that more than 50% of bachelor’s degrees in the United States are held by women.103 Part of CSR is providing appropriate opportunities to women and minority employees in the firm to change this ratio.
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Gay, Lesbian, Bisexual, Transgender (GLBT)/Sexual Orientation Issues
LESBIAN/GAY/BI/TRANSGENDER (LGBT) EMPLOYEES. Several recent state laws and executive orders at the federal level have brought the topic of LGBT individuals to the forefront of attention in many businesses. While there is no federal law that currently prohibits workplace discrimination on the basis of sexual orientation, the EEOC and other federal agencies have made rules covering the issue based on their interpretation of the 1964 Civil Rights Act and other anti-discrimination laws, and there have been a number of recent changes in state laws and regulations.104 A presidential amendment to Executive Orders 11246 and 11478 did, however, recently make it illegal for federal agencies and federal contractors to discriminate based on sexual orientation or gender identity.105 It should be expected that the law concerning these employee groups will continue to change over the next few years, including the possibility that a new federal law may be passed concerning nondiscrimination against individuals because of sexual orientation or gender identity.
WORK
APPLICATION 15-5
Select a business, preferably one you work or have worked for, and identify how it is socially responsible on a specific issue.
INCREASING DIVERSITY. It is now true: The majority group in the United States is a minority in at least one area. The birthrate of Caucasian children is now less than 50% of the total birthrate.106 In 10 states, white children are a minority, and in 23 states, minorities now make up more than 40% of the child population.107 One in 12 children (8%) born in America are offspring of illegal immigrants, and those children are US citizens.108 The total Caucasian population throughout the world, including America, is decreasing as there are more deaths than births,109 and the percentage of the US population that is Caucasian is decreasing.110 By 2030, one in five Americans is projected to be 65 and over; by 2044, more than half of all Americans are projected to belong to a minority group (any group other than non-Hispanic White alone); and by 2060, nearly one in five of the nation’s total population is projected to be foreign born.111 What does this shift mean to the organization? It means that employee diversity will continue to grow and we will have to become better at managing that diversity than we have been in the past. Recall what we said back in
Chapter 3
about workforce diversity: “There is currently a shortage of skilled workers—and there will be for the foreseeable future, so to exclude a qualified person because that individual is different in some way is counterproductive to business success.” Managing diversity is becoming critical in all organizations and in all industries. We have to continue to get better at this HRM task in order to engage all of our future employees.
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LEVELS OF CORPORATE SOCIAL RESPONSIBILITY
LO 15-6
Identify and briefly discuss the three levels of CSR available to the organization.
Clearly, in today’s society, the question is not whether business should be socially responsible. Instead, the question is, At what level of CSR should the business operate?Businesses do vary greatly in their social responsibility activities, based on the overall level of CSR at which they decide to operate.112Managers can choose to operate the business at one of three levels of CSR. The levels of corporate social responsibility are legal, ethical, or benevolent. However, a firm can be between levels or be on different levels for different issues. See
Exhibit 15-2
for an illustration of the three levels.
1. Legal CSR focuses on maximizing profits while obeying the law; it focuses on increasing sales and cutting costs to maximize returns to stockholders. In dealings with market stakeholders, these firms meet all of their legal responsibilities, such as fulfilling contract obligations and providing legally safe products while honoring guarantees and warranties. They do what it takes to beat the competition legally. In dealing with nonmarket stakeholders (society and government), they obey all the laws and regulations, such as not polluting more than the legal limits and meeting all OSHA standards. Some firms have been criticized for their behavior at this legal level. Philip Morris (PM) and others sell cigarettes that are not illegal, but some question the ethics of a business that causes health problems.
2. Ethical CSR focuses on profitability and doing what is right, just, and fair. Providing ethical leadership and avoiding questionable practices mean doing more than is required in dealing with market stakeholders, such as treating employees right and paying them fair wages, providing safer products, not squeezing suppliers, and competing to win business ethically. These companies meet reasonable societal expectations and exceed government laws and regulations to be just and fair to stakeholders. Many companies, including Costco and Dick’s Sporting Goods, have return policies that allow customers to get refunds or exchanges without good reason, exceeding legal requirements.
3. Benevolent CSR focuses on profitability and helping society through philanthropy. This highest level of CSR is also called “good corporate citizenship.” Benevolent firms are philanthropic, giving gifts of money or other resources to charitable causes. Employees are expected, encouraged, and rewarded for being active volunteers in the community, often on company time.
Apple under CEO Steve Jobs operated at the ethical level, as Jobs did not believe in corporate philanthropy. However, under its current CEO, Tim Cook, Apple now operates at the benevolent level. For example, Cook implemented a matching program to supplement employee donations to nonprofits that Jobs long resisted.113
Exhibit 15-2 LEVELS OF CORPORATE SOCIAL RESPONSIBILITY
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In addition to giving corporate money, many rich entrepreneurs set up foundations and give their own money (e.g., Carnegie Foundation, Ford Foundation, and Bill & Melinda Gates Foundation). Billionaire Bill Gates (cofounder of Microsoft) pledged to give away 95% of his family’s wealth, only giving a fraction—a mere few million—to his three children. Warren Buffet teamed up with the Gates family, giving billions to the foundation. So far the foundation has given away more than $41 billion.114 Facebook founder Mark Zuckerberg plans to give away 99% of his Facebook stock, current value $45 billion.115 However, Mark and his wife Priscilla Chang are creating a limited-liability company rather than a foundation, which may become the new philanthropic model.116
AN OVERALL APPROACH TO CSR. Let’s be clear about the difference between an overall and a situational approach to CSR. Top corporate managers decide on the firm’s overall commitment, or level, of CSR. The board of directors and managers often make corporate policies to guide employee actions in dealing with stakeholders, and some have CSR mission statements. Some companies even have separate departments and executive titles for CSR.
WORK
APPLICATION 15-6
Select a business, preferably one you work or have worked for, and identify its level of corporate social responsibility. Be sure to explain your answer with examples of specific things it does.
A SITUATIONAL APPROACH TO CSR. Although firms have an overall guiding commitment to CSR, the level of CSR can and does vary based on individual issues. CSR has been called enlightened self-interest because firms will be motivated to engage in CSR activities when the benefits outweigh the costs, as there is a link between single stakeholder-related issues and CSR and financial performance.117 However, determining the appropriate level of CSR to meet the business’s and stakeholders’ self-interests is not quick and easy. Each issue requires analysis, risk–reward considerations, and determining how stakeholder relations affect the overall health of the corporation.118
Where You Stand Depends on Where You Sit
You can see from our discussion that ethics and CSR are not concrete subjects—especially when you look at what is acceptable in the eyes of each stakeholder group. It is always a balancing act to make good decisions concerning the ethical path of the organization. However, we have to keep all of these groups in mind as we make managerial decisions if we want to continue in business for very long. Nobody said being a manager was easy. If it were, people would not be paid so well to be managers. Remember: If you don’t think about making the ethical decision using an ethical approach before a situation arises, you will probably make the expedient decision (the decision that does you the least personal harm) and not the ethical decision that is socially responsible to stakeholders.
SUSTAINABILITY
LO 15-7
Briefly describe the concept of sustainability in a business context.
Sustainability practices are part of CSR. As with ethics and CSR, it pays to implement sustainability practices. Sustainabilityinvolves meeting the needs of the current generation without compromising the ability of future generations to meet their needs.119 It is the process of accessing how to design products that will take advantage of the current environmental situation and enhancing how well a company’s products perform with renewable resources. Sustainability is now a business buzzword,120 and based on the gravity of environmental problems, it is an important topic for all countries.121 Organizations are working to reduce their environmental impacts.122 Countries and businesses are realizing that economic growth and environmental sustainability can work together.123 Some people refer to the triple bottom line: concern for profit, society, and the environment.
Society expects sustainability and for managers to use resources wisely and responsibly; protect the environment; minimize the amount of air, water, energy, minerals, and other materials found in the final goods we consume; recycle and reuse these goods to the extent possible rather than drawing on nature to replenish them; respect nature’s calm, tranquility, and beauty; and eliminate toxins that harm people in the workplace and communities.124 Corporations are accepting the environment as an important external stakeholder.125 The use of renewable energy is on the increase,126 and sustainability standards are becoming the standard.127 Thus, including sustainability in managing the business is being socially responsible. In addition, many corporations are addressing sustainability changes, and an important part of the reason is that it can pay to do so.128 Walmart is saving billions in costs by reducing its environmental footprint.129
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What does business need to do in order to be considered sustainable? Organizations use up resources in the course of their operations. Any resource that is used must be replenished or it disappears forever. In years past, it was thought that resources were so abundant that we could never use them up, but we now know better. There are already shortages of some critical items necessary for the survival of humans and other species over the long term—shortages of good drinking water in some areas, for instance. A recent World Economic Forum report says that more than 4 billion people in the world are currently facing some type of water scarcity.130
HR and Organizational Sustainability
Organizations have to practice sustainability in today’s business environment. We cannot afford to waste resources that are difficult to replace.
SUSTAINABILITY PRACTICES AND GREEN COMPANIES. Sustainability issues influence activities in the business world.131 A green company acts in a way that minimizes damage to the environment. With the current worldwide environmental problems, many new ventures have been created in green management.132 Social entrepreneurs are taking advantage of sustainability. For example, Bob Shallenberger and John Cavanaugh launched Highland Homes in St. Louis to build environmentally friendly condos and houses.133
Suzi Pratt/Getty Images for RE
REI employees. REI takes sustainability very seriously, keeping the environment at the top of its agenda. The company has reduced its carbon emissions, set a goal to bring its landfill waste to zero by 2020, and collaborates with organizations that protect forests.
Large corporations are engaging in sustainability practices in a big way. We can find a chief sustainability officer (CSO) in many companies. In those companies, CSOs are in charge of the corporation’s environmental programs. Some examples of organizations that have CSOs include AT&T, DuPont, Google, and Sun Microsystems. Many companies, including Intel, are giving annual sustainability reports.134 However, many companies are now moving beyond having a single person in charge of sustainability efforts toward having many touch points for sustainability reviews and practices in the company. For instance, EMC, an information technology company “requires every software and hardware product to undergo an energy-efficiency review before launch. The review is not a separate process owned by the sustainability function, but ‘embedded in the corporate process for all products.’”135
Johnson & Johnson and Weyerhaeuser now have dedicated sustainability programs.136Starbucks encourages sustainable farming for its coffee growers.137 Google has a zero-carbon quest and has a goal of becoming the world’s most energy-efficient company.138 Amazon and Walmart have both reduced packaging and work to make sure all packaging is made from recycled materials that can be recycled again.139 Amazon’s headquarters was also built to have eco-friendly buildings with LEED- (Leadership in Energy and Environmental Design) certified interiors and exteriors. Pratt Industries makes corrugated boxes using 100%-recycled paper, saving an estimated 50,000 trees a day, with an estimated company value of $3.4 billion.140 With the trend toward online shopping and boxed delivery, Pratt is making an environmental impact.
WORK
APPLICATION 15-7
Select an organization, preferably one you work or have worked for. Describe its sustainability practice efforts.
Walmart continues its leadership in sustainability. They are doubling sales of locally grown produce in the United States and expanding sustainable sourcing to cover 20 key commodities. They are also implementing a new plan to achieve science-based targets for reducing greenhouse gas emissions.141 Walmart is saving money by wasting less energy by putting solar panels on store roofs, using LED light bulbs, and making refrigerator cases more efficient.142 Even the greenest companies tout their close ties to Walmart in their promotional materials.143 They plan to “work with suppliers to reduce emissions by 1 Gigaton by 2030, equivalent to taking more than 211 million passenger vehicles off of U.S. roads and highways for a year.”144
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At a lower level, many businesses are at least recycling. However, many companies are not yet doing what they should in terms of sustainable business practices.145
THE NEED FOR MANAGEMENT COMMITMENT. Sustainable practices require a strong commitment by companies in order to create the necessary follow-through at all levels of the company. Sustainability management is important.146 As with any other ethical issue, we have to get the most senior level of management to commit to sustainability and walk the talk. The process of sustainable design requires that everyone think about what resources are being used in every action the company takes.
Sustainability goals and objectives tied to the company strategy are an essential part of the efforts to “green the company,” and HR must play its part in these efforts. Performance evaluations of all managers should contain items relating to their sustainability efforts, and in many cases part of their incentive compensation may be tied to those efforts. HR may even decide to source some employees locally in some cases, instead of from a wider recruiting pool, in order to minimize impact on the environment. While this is only possible in some limited circumstances, management—including HR management—needs to think about every way in which they can minimize the company’s ecological impact. It takes tenacity to make any program take hold in an organization, and the effort to become sustainable is no different than with any other program. HR managers also need to implement sustainability training to inform and guide all employees in their sustainability efforts. Let’s take a look at sustainability training now.
Sustainability Training
Look back just a few years and you would probably find that there were very few sustainability training programs in major corporations. The first US CSO was appointed in 2004 at DuPont.147Fortunately for all of us, this is no longer the case. While a very small number of organizations have been concerned with social responsibility and sustainability for many years (for example, Ben & Jerry’s Ice Cream, founded in 1978), most larger businesses didn’t become concerned with sustainability programs until about the turn of the 21st century. However, the concept of sustainability is increasingly viewed as providing value to “the so called triple bottom line of economic, social, and environmental performance.”148
Organizations with sustainability programs tend to gain the trust of their customers and surrounding communities. By doing so, these organizations may gain great competitive advantage over their rivals who are less oriented to the sustainability of the community in the environment. Because a sustainable organization embodies the values of its customers and community, those customers and community members become willing to provide reciprocal concern for the organization. This can create significant loyalty to the organization and its brands.
WORK
APPLICATION 15-8
Select an organization, preferably one you work or have worked for. Describe how it is using training and development to meet the challenges of sustainability.
However, as we just noted, it can be extremely difficult for organizations to embed the concept of social responsibility and sustainability throughout the firm. A sustainability mind-set must be incorporated into the corporate culture, and that can only typically happen from the top of the organization down.149 So any organizational sustainability training program must begin at the top and change the culture of the executives and managers. Strong organizational cultures that have sustainability as one of their core concepts can begin to create a collective commitment to social responsibility and sustainability within the entire workforce. But how do corporations disseminate this culture of sustainability down into the employee ranks?
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Certainly, training that involves identification of the concept of sustainability and how the organization can affect its environment plays a large part in disseminating this information. In addition, the organization may choose to provide all employees with information in the company code of conduct or code of ethics that identifies sustainability as one of the core principles of the firm.
In conjunction with the training and code of conduct, the organization must measure the impact of their sustainability programs to allow modifications to those programs if necessary. Changes in company policies and procedures, as well as organizational structure, may also assist in improving sustainability within the organization. Again though, training on the changes in policies, procedures, and structure must occur in order to modify those employees’ behaviors.
Several challenges have been identified to teaching employees about sustainability issues.150 The first challenge concerns organizational resources. All organizations have limited resources and as a result must make choices concerning which stakeholder issues to address. Overcoming resistance to addressing environmental issues is one of the main challenges to training for sustainability.
Second, raising awareness of sustainability issues may engender optimism concerning the company’s ability to “solve the problem.” Organizations conducting sustainability training must ensure that the employees understand that there are limits to what the firm can accomplish on its own.
Third, solutions to some sustainability problems may lie beyond the knowledge and skills of the organization and its members. If the knowledge and skills necessary to solve a problem involve bringing in personnel from outside the firm, the organization may revert to the first challenge above and claim that limited resources prevent it from resolving the issue.
The fourth issue concerns employee willingness to learn and commit to change actions to improve organizational sustainability. At this point, the change in culture at the top of the organization can assist in pushing culture change at lower levels. If successful, the culture change that values sustainability will, over time, lower employees’ levels of resistance to change.
So, as you can see from these challenges, organizational training must provide information on both the concept of sustainability and the impact of the organization on the sustainability of its environment, as well as provide training to modify the organizational culture to place greater value on organizational social responsibility and environmental sustainability. If the organization succeeds in these training efforts, corporate sustainability efforts will be likely to significantly improve over time.
The Sustainable Organization
There is evidence that more than three-fourths of customers are concerned with sustainability and that more of them today are willing to avoid doing business with companies who do not pay attention to their social responsibility and sustainability.151 So what will our sustainable 21st-century company look like? What do organizational leaders need to know? Unfortunately, there is no single answer to this question. However, we do know some of the things that companies need to think about in their quest to become more sustainable.
MIT Sloan Management Review and the Boston Consulting Group research business sustainability on an annual basis. According to this research, in 2016, 75% of senior executives in mainstream investment firms believe sustainability performance is materially important to their investment decisions. Seventy-four percent of surveyed investors also said that corporate sustainability performance matters.152 Other articles note that “the concept of sustainability is moving from ‘nice to have’ to ‘need to have,’”153 and that “there is an entire ecosystem of stakeholders who care. Governments care. Investors care. Employees care.”154 Evidence shows that companies are going to have to become more transparent in their efforts to create sustainable products, because social media, and especially Web-based social media, is going to cause those companies to be held more responsible and accountable for their decisions that affect the environment.
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Leading companies are already starting to put their sustainability efforts out in full view of their customers as well as their detractors to show what they are doing. In some cases, they are even asking, “What else can we do?” Patagonia is doing this through “The Footprint Chronicles,” which examines Patagonia’s habits as a company. Sustainability is evident in their mission statement, which says, “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”155 And 25 global food and beverage companies have launched an initiative called FReSH—Food Reform for Sustainability and Health Program. According to Food Business News, “The program seeks to accelerate change in global food systems, ensuring healthy diets for all with food that is produced responsibly within planetary boundaries.”156 Many other companies around the world have similar initiatives. But what can your company do if it has not yet jumped on the transparency bandwagon?
The World Business Council for Sustainable Development (WBCSD) provides a reasonably compact set of takeaways in its “Action 2020” document:157
1. Get business to buy into long-term goals for sustainability.
2. Change the nature of the debate from attacks and counterattacks on company sustainability initiatives to the science behind the need for sustainable business practices.
3. Speak the right language—the language of business. This means putting the information into the business cycle of “plan, do, check, act.”
4. Work toward building partnerships and collaboration, because that is the only way to have a large-scale effect on the environment.
5. Make solutions “open source” and allow all entities who can benefit from them to use them.
Companies in every industry are beginning to be affected by the issue of sustainable supplies along with the sustainability of their own products and/or services. The need to act is not only created because of the ability of the Internet to make business practices transparent. The need to act is driven by business necessity. If we do nothing, supplies in many global industries will eventually run out, and we will have no ability to recover them. The fact is, the earlier companies decide to take action, the less severe the operational changes and adaptations will need to be.
Where can you go for more information? There are many good sources for data and information on corporate environmental impact and sustainability.
Exhibit 15-3
provides you with information on some of the major sites hosting this information.
Now that you have some working knowledge of ethics, CSR, and sustainability and where to find more information, let’s move on to this chapter’s trends and issues.
TRENDS AND ISSUES IN HRM
LO 15-8
Discuss some of the common sustainability-based benefits organizations are using and the question of whether or not diversity training actually works to improve performance in diverse organizations.
For this chapter’s trends and issues, we are going to take a look at some sustainability-based benefits available in organizations today, followed by a look at the value of diversity training.
Sustainability-Based Benefits
One area that has seen recent interest is sustainability-based benefit programs. A number of companies are looking at options for providing benefits to their employees that assist with improving environmental stability and sustainability over the long term. It is not only politically correct; it is an additional way to show the corporation’s true concern for the environment as well as their concern for their employees. These programs can range from providing “credits” to employees for riding bicycles or public transportation to work all the way to sharing the costs of cars or home appliances that lower energy usage.
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Exhibit 15-3 INTERNET RESOURCES FOR CORPORATE SUSTAINABILITY
WORK
APPLICATION 15-9
Select an organization, preferably one you work or have worked for. Identify any sustainability-based benefits it currently offers and state some benefits it could offer.
Benefits that will lower the employee’s individual “carbon footprint” help the environment and help the employee because such benefits almost always lower the employee’s cost of living. Gemelli Solutions in Great Britain has a Cycle to Work program that helps employees buy bicycles to use on their daily commute. They advertise that it will “save you money, reduce your carbon footprint and help you keep fit at the same time.”162 Duke University has also gotten into the business of lowering employees’ collective carbon footprints. They created a Duke Carbon Offsets Initiative (DCOI) through which they assisted employees in improving the energy efficiency of their homes through low-interest loans for retrofitting.163
Companies may also provide a variety of other “green” subsidies so that employees can help the environment. These might include assistance to employees with purchasing renewable energy options for their homes such as solar cells or hybrid, electric, or alternative-fuel vehicles. Clif Bar & Company in Berkeley, California, “provides points to employees for selecting alternate modes of transportation to work, such as walking, biking, carpooling, or mass transit.”164 Even telecommuting can be a sustainability benefit because it lowers the number of employees commuting to work. So employers just need to use a bit of imagination and a good search engine to find ways in which they can encourage sustainable practices on the part of their employees as well as practices that they can put into effect within the company.
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Does Diversity Training Work?
Competitive organizations always need to work to maximize the talent pool from which they can draw recruits. If, in fact, the organization arbitrarily limits the number and types of recruits through artificial limits on organizational diversity, it restricts its ability to draw on the best talent available from the at-large workforce. However, most organizations today accept the fact that unmanageddiversity can decrease employee commitment and engagement, lower job satisfaction, increase turnover, and increase conflict. Organizations must create a cultural change in order for diversity training to be successful. But since cultural change is very difficult, many organizations try to shortcut the process and, as a result, end up with failed programs.165
How can organizations create and deliver a diversity training process that has a chance of being successful? Common diversity initiatives include such things as diversity recruitment, diversity training, and formal mentoring programs. However, plugging these programs into organizational training without providing a process by which they can be integrated into the daily activities of the members of the organization will likely lead to minimal if any success. Let’s take a quick look at the history of diversity training and its effectiveness.
Diversity training has been around in some form since the 1960s. In its earlier days, diversity training primarily focused on organizational compliance with equal-opportunity laws. Later on, diversity training moved through a sequence of options—from attempting to assimilate different individuals into an organizational culture through attempting to make employees sensitive to others and their differences and more recently to trying to create inclusion of all individuals, from all backgrounds, into the organization.166
In each of the phases of diversity training, there appeared to be significant pushback on the part of one or more groups involved in the training. Whether the pushback was from the white male majority, feeling that they were being persecuted, or from females or minority individuals, feeling that they had to conform to the organization and its practices, each of the phases had significant hurdles to overcome in order to move the organization forward. Today, organizations are attempting to integrate diversity more directly into the business and its strategies. Companies that lead the diversity initiative are becoming much more involved at all levels of the organization, from the executive suite to the shop floor.
WORK
APPLICATION 15-10
Select an organization, preferably one you work or have worked for. Describe how it is using training and development to meet the challenges of an increasingly diversified world.
Throughout each phase of diversity training’s existence, its effectiveness has been questioned by many organizations and researchers. Evidence appears to be growing that diversity training in its present form does add value to the organization, both sociologically and economically.167,168In addition, when diversity training focuses on the similarities between individuals rather than on their differences, trainees appear to become more capable of resolving conflict that may occur as a result of individual diversity.169 Finally, the bottom line is that most major corporations believe that diversity adds significant value to their organizations, both from the perspective of providing different viewpoints and solutions to problems and from the perspective of providing the organization with a larger talent pool in a period when qualified applicants are becoming less and less available in the at-large workforce.
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DIGITAL RESOURCES
Organizational Ethics and Social Responsibility*
Business Ethics
Ethical Organizations*
The Role of HRD in CSR, Sustainability, and Ethics
Corporate Social Responsibility*
Stand-Alone Ethics, Social Responsibility, and Sustainability Course Requirements
CSR
Starbucks Social Responsibility
* premium video only available in the interactive eBook
CHAPTER SUMMARY
15-1. Discuss the term
ethics
and the factors that commonly contribute to unethical behavior.
There are many definitions of ethics, but they all have some common elements. The common elements include the concepts of morals, values, beliefs, and principles. These in turn lead to the need for personal integrity and trust in the character of another, or we won’t believe that they will act ethically if they have an opportunity for self-enrichment at the expense of others.
Factors that contribute to unethical behavior include individual personality traits and attitudes, moral development and the situation. Personality makes some people more susceptible to unethical decisions when they have an underdeveloped sense of integrity. Moral development can cause individuals to act more childlike or to create their own strict sense of moral principles. The situation can tempt even those who might be otherwise ethical to be unethical in some cases if they think it is unlikely that they will get caught.
15-2. Briefly discuss each of the identified ethical approaches and the factors to consider in creating codes of organizational ethics.
The Golden Rule is one approach that says to basically treat others as you would want to be treated. The Rotary’s four-way test asks four questions: (1) Is it the truth? (2) Is it fair to all concerned? (3) Will it build goodwill and better friendship? (4) Will it be beneficial to all concerned? If the answers are yes, then the action is probably ethical. The stakeholder approach says that if you are willing to have your decisions written about on the front page of the newspaper, then you can probably feel comfortable that your decision was ethical.
Factors to consider: Values “define what the company is about and make it clear that the company is based on honesty and fairness.” Principles apply our values to specific situations to identify actions that we consider ethical. Management support is critical, because if senior managers do not pay attention to the code, others will not either. Personal responsibilityidentifies the fact that everyone is personally accountable for their own behavior and is expected to act ethically. Finally, compliance identifies applicable laws and regulations that guide ethical behavior in specific industries.
15-3. Discuss the terms
authority,
responsibility, and
accountability
and how they relate to ethical behavior.
Authority is a positional right within the organization that allows the person to give orders to others in order to accomplish organizational goals. Responsibility requires the individual to accept their positional obligation to use the company’s resources effectively to help reach the organization’s goals. Accountability is the personal duty to use organizational resources correctly, and if we do not do so, we can be held personally liable for that misuse.
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15-4. Identify some of the common ethical issues that managers face in business.
Bribery—Payments are made to others to cause decisions that are favorable to the person providing the bribe.
Corrupt payments—These are made to allow the company to avoid scrutiny of their actions by government agencies.
Employment and personnel issues—Bias, child labor, forced labor, and other discriminatory labor practices all create the danger of unethical decisions.
Marketing practices—Dishonesty in marketing and the hiding of safety and quality defects may be tempting because of the cost of being honest.
Impact on the economy and environment—Unethical activity on the part of financial institutions can create terrible economic consequences, and other organizational actions that don’t take the consequences of those actions into account can cause irreversible harm to the environment.
Employee and customer privacy—Personal privacy can be harmed by unethical actions on the part of company employees, especially the use of databases with large amounts of personal information for unauthorized purposes.
15-5. Define corporate social responsibility (CSR) and briefly discuss the “business case” for CSR.
Corporate social responsibility is the concept that organizations have a duty to all societal stakeholders to operate in a manner that takes each of their needs into account. CSR says that organizations have a duty to all stakeholders to operate in a manner that takes each of their needs into account. “All stakeholders” means all—not just shareholders or executives. The business case for CSR is based on the ability of the organization to help or harm various stakeholder groups and of those stakeholder groups in turn to help or harm the company. Each stakeholder group has different—and sometimes competing—interests, but the organization must balance these “social responsibilities” among all of the groups in order to succeed.
15-6. Identify and briefly discuss the three levels of CSR available to the organization.
1. Legal CSR focuses on maximizing profits while obeying the law; it focuses on increasing sales and cutting costs to maximize returns to stockholders. In dealings with market stakeholders, these firms meet all of their legal responsibilities. In dealing with nonmarket stakeholders (society and government), they obey all the laws and regulations.
2. Ethical CSR focuses on profitability and doing what is right, just, and fair. These companies meet reasonable societal expectations and exceed government laws and regulations to be just and fair to stakeholders.
3. Benevolent CSR focuses on profitability and helping society through philanthropy. This highest level of CSR is also called “good corporate citizenship.” Benevolent firms are philanthropic, giving gifts of money or other resources to charitable causes. Employees are expected, encouraged, and rewarded for being active volunteers in the community, often on company time.
15-7. Briefly describe the concept of sustainability in a business context.
Sustainability means meeting the needs of the current generation without compromising the ability of future generations to meet their own needs. Business must practice sustainability today because so many resources are being overused to the point that they cannot be replenished and will ultimately disappear unless we quickly change our practices. Sustainability goals must be created and managed like any other organizational goal in order to improve business sustainability.
15-8. Discuss some of the common sustainability-based benefits organizations are using and the question of whether or not diversity training actually works to improve performance in diverse organizations.
Company programs can range from providing “credits” to employees for riding bicycles or public transportation to work all the way to sharing the costs of cars or home appliances that lower energy usage. Benefits that will lower the employee’s individual “carbon footprint” help the environment and help the employee because such benefits almost always lower the employee’s cost of living. Companies may also provide a variety of other “green” subsidies so that employees can help the environment. These might include assistance to employees with purchasing renewable energy options for their homes such as solar cells or hybrid, electric, or alternative-fuel vehicles. Telecommuting can be a sustainability benefit because it lowers the number of employees commuting to work. So employers just need to use a bit of imagination and a good search engine to find ways in which they can encourage sustainable practices on the part of their employees as well as practices that they can put into effect within the company.
Diversity initiatives include such things as diversity recruitment, diversity training, and formal mentoring programs. However, plugging these programs into organizational training without providing a process by which they can be integrated into the daily activities of the members of the organization will likely lead to minimal if any success. Let’s take a quick look at the history of diversity training and its effectiveness. Throughout each phase of diversity training’s existence, its effectiveness has been questioned. Evidence appears to be growing that diversity training does add value to the organization. In addition, when diversity training focuses on the similarities between individuals rather than their differences, trainees appear to become more capable of resolving conflict that may occur as a result of individual diversity. The bottom line is that most major corporations believe that diversity adds significant value to their organizations.
KEY TERMS
accountability 550
authority 549
corporate social responsibility 553
ethics 543
glass ceiling 556
principles 548
responsibility 549
sustainability 558
values 548
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KEY TERMS REVIEW
Complete each of the following statements using one of this chapter’s key terms.
1. __________ is the application of a set of values and principles in order to make the right, or good, choice.
2. __________ are our basic concepts of good and bad, or right and wrong.
3. __________ are a basic application of our values.
4. __________ is the right to give orders, enforce obedience, make decisions, and commit resources toward completing organizational goals.
5. __________ is the obligation to answer for something/someone or the duty to carry out an assignment to a satisfactory conclusion.
6. __________ is the personal duty to someone else for the effective use of resources to complete an assignment.
7. __________ is the concept that organizations have a duty to all societal stakeholders to operate in a manner that takes each of their needs into account.
8. __________ is the thought that there are invisible barriers to advancement in business for women as well as other minority employees.
9. __________ involves meeting the needs of the current generation without compromising the ability of future generations to meet their needs.
COMMUNICATION SKILLS
The following critical-thinking questions can be used for class discussion and/or for written assignments to develop communication skills. Be sure to give complete explanations for all answers.
1. Do you think the term ethics is overused in today’s business environment? Justify your answer.
2. Will applying the Golden Rule always result in a decision that you can defend as “ethical”? Why or why not?
3. Can you think of situations in which someone might violate the code of ethics in a company but should not be punished for it? Give examples.
4. As the HR manager, how would you go about getting the senior executives of the company to buy into adhering to the code of ethics?
5. Using the concepts of authority, responsibility, and accountability, can you explain what should happen to an individual who misuses company resources for personal gain? Provide an example.
6. Give two examples of decisions that could be made in a company that are legal but are still unethical.
7. Do you agree that companies have a duty to stakeholders other than their shareholders? If so, justify who else they are obligated to and why.
8. Can you identify one case in which you think the government (state or federal) is the most important stakeholder of a firm (do not use the government as a customer but as another external stakeholder)? Explain your answer.
9. In your opinion, do companies have a “social contract” with society? Why or why not?
10. If you were in charge, what would you do to help some disadvantaged employee groups gain equality in your company?
11. Is sustainability just a marketing tool to get people to “think green,” or is it a necessary business tool? Defend your answer.
12. How would you motivate people in your organization to practice sustainability? Be specific with the managerial tools that you would use.
CASE 15-1 CEO COMPENSATION: DO THEY DESERVE ROCK STAR PAY?
Can’t sing, dance, or hit a baseball out of the park? You can still earn “big bucks” by becoming a CEO of a Fortune 500 firm, according to the AFL-CIO, who used data gathered from the Department of Labor, Bureau of Labor Statistics. The average pay for a CEO in 2016 was $13.1 million based on an analysis of 420 firms in the S&P 500 index. From the worker’s perspective (average earnings of $37,632), a CEO earns in 1 day what a worker earns in 1 year (335 times an average worker’s pay in 2015, 347 in 2016). Worse, while the pay of the average worker increased by 2% from 2015 to 2016, CEO pay rose by 6%. Taking inflation into account over a 50-year time period, wages of this workforce were actually less than stagnant; in 1967, workers earned 10% more than in 2016, the equivalent of $41,473 adjusting for inflation.
The AFL-CIO’s research clearly indicates that while the country as a whole has grown and unemployment is at a near all-time low, the worker in the United States is not similarly prospering as compared to his or her counterpart in corporate headquarters. There is a growing wage gap, a gap clearly that does not seem equitable from the largest federation of US labor unions as well as the general public.
Why such a high salary given the fact that the US economy has grown at most 2% per year over last few years, one-third of the growth of CEO salaries? US CEO pay is often high because it is based upon the average pay of their peer group. The AFL-CIO suggests that to eliminate this practice, similar to British concerns, shareholders have binding votes on CEO compensation. Yet the reality is that in 2015, 91% of investors’ “advisory votes” in S & P 500 firms supported CEO pay levels.(1)
Stockholders aside, the general public certainly feels that CEOs are overpaid. Stanford University’s Rock Center for Corporate Governance in 2016 ran a national study (1,202 participants who reflected US socio-demographics including age, gender, race, household income, state residence, and political affiliation) tapping into people’s beliefs concerning the compensation packages of the 500 largest publicly traded corporations.
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The net result? Nearly three-quarters (74%) think CEO pay is out of synch with worker compensation, with only 16% thinking otherwise. Socio-demographic differences aside, most individuals feel quite adverse when discussing CEO compensation. According to Professor David F. Larcker of Stanford Graduate School of Business,
There is a clear sense among the American public that CEOs are taking home much more in compensation than they deserve. While we find that members of the public are not particularly knowledgeable about how much CEOs actually make in annual pay, there is a general sense of outrage fueled in part by the political environment.(2)
CEO pay needs to be dramatically cut since their salaries are off the chart. How this is to be accomplished though, with or without government regulation, is where disagreement arises and usually along political affiliations. For example, while both groups feel that there should be a ceiling on CEO pay (nearly 65%), those who hold Democratic and Independent affiliations differ with Republicans by almost 15% (66%/64%/52%, respectively). When it comes to actually setting a cap on CEO pay, those surveyed thought that six times the average worker pay was acceptable. This is way below the average multiple of all CEO pay, which is 17.6.
Interestingly, there was nowhere near a majority consensus on how to use regulation to limit CEO pay. Some advocated large tax increases over a certain level (28%), others opted for setting dollar amounts relative to worker wages (25%), while a minority wanted to set pay ceilings not tied to worker pay (17%), and a similar percentage wanted CEO pay directly tied to firm performance. Only 9% thought to eliminate stock options, while another 8% would cut out all forms of equity compensation.(3)
Yet many experts do not agree with the public and would argue the public does not have all of the facts. Jannice Koors, managing director at Pearl Meyer & Partners in Chicago, has a different perspective on CEO compensation.
I think most companies are on the right track with their [executive] pay programs. Yes, CEO pay increased this year—because average company profits and share prices grew. Compensation is more closely tied to performance than ever before, which is exactly what shareholders have been pushing for. Today, only a very small percentage of a typical CEO pay package is in the form of a guaranteed annual salary.(4)
Donald Delves, director, Towers Watson in Chicago, justifies CEO pay as follows.
CEOs are paid about three times as much as the next level of executives. . . . In my experience, it is a very rare person who has the skills and experience required to run a huge global corporation. And their average tenure continues to decline. There is not a lot of patience shown by shareholders and boards when a company underperforms.(5)
Author of The Taboos of Leadership Anthony Smith noted that
The reality is that the free market is alive and well, and is the true dictator of CEO pay. While what one’s peers are making is still a legitimate barometer, critics should look at the macroeconomics of “stars” in all fields (after all, CEOs are the “stars” of the business world), and not just the microeconomics of CEO pay, if they are serious about understanding the calculus in determining compensation. Such valuation analysis must factor in the track record of the CEO; his or her potential; competing job offers; personal enticements; what he or she is leaving behind; their reputation on the “street”; and the team of other executives he or she is likely to bring or attract. . . . Only a handful of people are capable of leading major multinational corporations with 100,000+ employees and $50+ billion in annual revenue. Bottom line: true stars are in short supply and high demand. It’s pure Economics 101.(6)
Whether you agree or disagree with the fairness of CEO pay, CEOs make as much in one day as the average worker makes in one year.
Questions
1. How does ethics apply to this case?
2. What factors might contribute to what some perceive as unethical behavior concerning CEO pay?
3. What are the differing ethical approaches, and how might they apply to this case?
4. How might the issue of CEO compensation be dealt with in a firm’s code of ethics?
5. How might the issue of CEO compensation be used by a firm to create and maintain an ethical organization?
6. Use the “legal doesn’t mean it’s ethical” argument to disagree with current CEO compensation practices. What makes it legal, and why might it still be unethical?
7. What is your own opinion about CEO compensation? Provide facts and arguments supporting your position from this case.
References
(1) Kerber, R., & Szekely, P. (2017, May 9). CEO pay dwarfing pay of U.S. workers: Union reports. Reuters: Business News. Retrieved May 17, 2017, from
http://www.reuters.com/article/us-usa-compensation-ceos-idUSKBN1851SV
(2) Larcker, D., Donatiello, N., & Tayan, B. (2016, February). Americans and CEO pay: 2016 public perception survey on CEO compensation. Stanford Rock Center for Corporate Governance. Retrieved May 17, 2017, from
https://www.gsb.stanford.edu/faculty-research/publications/americans-ceo-pay-2016-public-perception-survey-ceo-compensation
(3) Ibid.
(4) Le Beau, C. (2013, August 20). Is CEO pay too high? Crain’s Custom Media. Retrieved May 17, 2017, from
http://www.chicagobusiness.com/article/20130820/NEWS01/130819903/is-ceo-pay-too-high
(5) Ibid.
(6) Smith, A. (n.d.). Executive pay controversy. Business-know-how. Retrieved May 17, 2017, from
http://www.businessknowhow.com/growth/ceocompensation.htm
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Case written by Herbert Sherman, Long Island University
CASE 15-2 MICROSOFT, NOKIA, AND THE FINNISH GOVERNMENT: A PROMISE MADE, A PROMISE BROKEN?
At the turn of the 21st century, Microsoft seemed invincible as both a firm and an operating system and controlled the tech industry by completely overshadowing its nemesis, Apple. After launching successful operating systems like Windows XP and 2000, the company gained wealth, recognition, and power by creating a near monopoly over personal computing devices.(1) Although they were not the pioneers of user-friendly operating systems (accolades to Apple for developing the first mass merchandised system), they were enjoying a 97% market share. In 2000, personal computers were the only available noncommercial computing devices, and Microsoft dominated them all.(2)
As of 2005, the demand for smartphones started to increase, and the market increased opportunities for new entrants. Microsoft’s decline started in 2007 after Apple introduced the first iPhone. The market was moving away from Microsoft’s products; compared to Apple’s Mac operating system, Windows Vista was barely holding up and was considered inferior to its predecessor, Windows XP. Apple showed tremendous growth over the next decade, and Wall Street announced that Apple was valued higher than Microsoft in 2010. Google then introduced its Android system to compete with Apple’s iPhone OS. This new system was adopted by the other half of the smartphone industry. As a late entrant, Microsoft introduced their first Windows Phone in 2010, and the next year, they announced their commitment to Finnish expertise in the telecommunications sector by partnering with Nokia and functioning as one team. This arrangement permitted all Nokia devices to use Microsoft operating systems, which reintroduced Microsoft to the smartphone market.(3)
By 2013, there were approximately 2.5 billion computing devices, including tablets, that were dominated by three companies: Microsoft, Google, and Apple. The total number of personal computer sales had yet to reach 500 million, but smartphones had already sold more than 1.5 billion units over a decade.(4) Smartphones had dominated the tech industry as the major item in the personal computer market. Apple’s iPhone was a huge success, which created billions of dollars’ worth of supplementary revenue from mobile applications. In this respect, Apple’s iTunes and Samsung’s alignment with Google enhanced user experiences with smartphones. Microsoft, on the other hand, was not prepared for the sudden shift in the market, and although still a tech giant, they were clearly caught off guard.
With its market cap at 20%, Microsoft desperately wanted to regain market share. They installed a new CEO, who was tasked with realigning the company under the “One Microsoft” vision. The company was ready to change its business model, to increase the speed of innovation, increase efficiency, and rebuild the company culture. To that end, they announced Office 2013, a new operating system called Windows 8.1, and Xbox One, their new gaming console.(5)
In 2013, the agreement between Microsoft and Nokia became more than a partnership as Microsoft bid to acquire Nokia in a $7.2 billion deal. Founded in 1865, Nokia is a Finnish telecommunications and technology company that engaged more than 90,000 employees and reported around $12 billion in annual revenues. This was a big move for Microsoft, since Nokia had experienced its own declines, as indicated by its stocks dropping by 80% in the prior few years. Both companies had ignored the winds of change, and both paid the price for letting their competitors slide past them.(6)
The acquisition of Nokia, however, was delayed by numerous legal issues with the Finnish government, who approved the deal with the understanding that layoffs would not be forthcoming. The purchase was finally approved by the numerous international governmental regulatory agencies in the first quarter of 2014. With purchase in hand, Microsoft felt they now had good access to the mobile phone industry with $50 billion in annual sales. Three months after the deal was inked, Microsoft’s first major action was to lay off 18,000 people in their workforce. This was the largest layoff in the tech industry, but it helped Microsoft save about $600 million a year.(7)
Finnish prime minister Alexander Stubb received a call in July 2014 from Stephen Elop, the head of Microsoft Corp.’s device business and a former Nokia Corp. chief executive. Elop alerted him that Microsoft would cut 1,100 of the 4,700 jobs in Finland that came with its purchase of Nokia’s mobile phone operations. Mr. Stubb called the layoffs “extremely regrettable” and said the government would do all it could to cushion the blow to those affected. Finnish politicians issued statements calling on Microsoft to show social responsibility and offer retraining and generous severance packages to the people it was dismissing, something that Nokia has done in the past in Finland and abroad. Some went further and accused Microsoft of reneging on the promises it supposedly made about job security and Finland’s place in its strategy. “You can say we were betrayed,” said Finland’s newly minted minister of finance, Antti Rinne, a Social Democrat.(8)
Questions
1. Who are Microsoft’s key stakeholders in this case? Why?
2. Using the five forces model from
Chapter 2
, describe how the changes in the computer technology industry impacted Microsoft’s ability to compete. Which force most negatively impacted Microsoft? Why?
3. What seems to be Microsoft’s ethical approach? How does this approach seem to impact their human resource management decisions?
4. Describe the conflict between stakeholders’ interests and the Finnish government’s perception of Microsoft’s lack of social responsibility to Nokia’s employees. Whom do you side with and why?
5. Instead of layoffs, what if Microsoft decided to decrease the total compensation to Nokia employees? What part of that package would you decrease and why?
6. Besides changing the compensation package, what other human resource management options might Microsoft consider rather than layoffs?
p.570
References
(1) Blodget, H. (2014). In case you don’t appreciate how fast the “Windows monopoly” is getting destroyed. . . . Business Insider. Retrieved August 13, 2014, from
http://www.businessinsider.com/windows-monopoly-is-getting-destroyed-2013-7
(2) Worstall, T. (2014). Microsoft’s market share drops from 97% to 20% in just over a decade. Forbes. Retrieved August 13, 2014, from
http://www.forbes.com/sites/timworstall/2012/12/13/microsofts-market-share-drops-from-97-to-20-in-just-over-a-decade/
(3) Yarow, J. (2014). Chart of the day: The collapse of Microsoft’s monopoly. Business Insider.Retrieved August 13, 2014, from
http://www.businessinsider.com/chart-of-the-day-consumer-compute-shift-2012-12?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=SAI%20Chart%20Of%20The%20Day&utm_campaign=SAI_COTD_120712
(4) Leonard, H. (2014). There will soon be one smartphone for every five people in the world. Business Insider. Retrieved August 13, 2014, from
http://www.businessinsider.com/15-billion-smartphones-in-the-world-22013-2
(5) Callaham, J. (2014). The top 10 Microsoft news stories of 2013. Neowin. Retrieved August 13, 2014, from
http://www.neowin.net/news/the-top-10-microsoft-news-stories-of-2013
(6) “Nokia.” Wikipedia. Retrieved August 14, 2014, from
http://en.wikipedia.org/wiki/Nokia
(7) Rossi, J. (2014). Microsoft layoffs hit Finland staff hard. Wall Street Journal. Retrieved August 14, 2014, from
http://online.wsj.com/articles/microsoft-layoffs-hit-nokias-finland-1405624498
(8) Ibid.
Case created by Herbert Sherman and Theodore Vallas, Department of Management Sciences, School of Business Brooklyn Campus, Long Island University
SKILL BUILDER 15-1 ETHICS AND WHISTLE-BLOWING
Objective
To determine your level of ethics
Skills
The primary skills developed through this exercise are as follows:
1. HR management skills—Conceptual and design skills
2. SHRM 2016 Competencies—C: Ethics
Assignment
For this exercise, first complete Self-Assessment 15-1 in the chapter.
Discussion Questions
1. Who is harmed and who benefits from the unethical behaviors in items 1 through 3?
2. For items 4 to 24, select the three (circle their numbers) you consider the most unethical. Who is harmed by and who benefits from these unethical behaviors?
3. If you observed unethical behavior but didn’t report it, why didn’t you report the behavior? If you did blow the whistle, what motivated you to do so? What was the result?
4. As a manager, it is your responsibility to uphold ethical behavior. If you know employees are doing any of these unethical behaviors, will you take action to enforce compliance with ethical standards?
5. What can you do to prevent unethical behavior?
6. As part of the class discussion, share any of the other unethical behaviors you observed and listed.
You may be asked to present your answers to the class or share them in small groups in class or online.
SKILL BUILDER 15-2 CODE OF ETHICS AND CORPORATE SOCIAL RESPONSIBILITY
Objective
To better understand a business’s ethics and CSR
Skills
The primary skills developed through this exercise are as follows:
1. HR management skills—Conceptual and design skills
2. SHRM 2016 Competencies—C: Ethics
Assignment
Select a specific business. It can be one you work for or, better yet, one you would like to work for in the future. Make sure the company you select meets the following criteria: It must have a written code of ethics and operate at the benevolent level of CSR.
Go online to the company’s website and get a copy of its code of ethics and its report on its corporate social responsibility programs. Be sure to identify any of its sustainability practices—this information may be at a separate link.
Be prepared to make a report on your company’s code of ethics and CSR to the entire class or in a small group.
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©iStockphoto.com/simonkr
1
6
Global Issues for Human Resource Managers
Media Library
CHAPTER
16
Media Library
PREMIUM VIDEO
HRM in Action
Culture Shock
LICENSED VIDEO
Hofstede’s Cultural Framework
LEARNING OBJECTIVES
After studying this chapter, you should be able to do the following:
16-1.
Identify and discuss the reasons for increasing business globalization and the stages through which companies move from local to global operations.
PAGE 573
16-2.
Identify and discuss the five dimensions of Hofstede’s model of culture and how the
GLOBE Dimensions
differ from Hofstede.
PAGE 580
16-3.
Briefly discuss the Big Five personality traits in relation to international assignments and the advantages and disadvantages of parent-country, host-country, and third-country nationals for international assignments
.
PAGE 585
16-4.
Explain issues involved in negotiating the assignment and the potential effects of culture shock on the expatriate employee.
PAGE
589
16-5.
Briefly define the options for compensation of expatriate workers.
PAGE 593
16-6.
Discuss the issue of business globalization and why it is so important.
PAGE 597
CHAPTER OUTLINE
Globalization of Business and HRM
Reasons for Business Globalization
Ethnocentrism Is Out and “Made in America” Is Blurred
Stages of Corporate Globalization
Is HRM Different in Global Firms?
Legal, Ethical, and Cultural Issues
International Laws
US Law
International Ethics
National Culture
Global Staffing
Skills and Traits for Global Managers
Staffing Choice: Home-, Host-, or Third-Country Employees
Outsourcing
as an Alternative to International Expansion
Developing and Managing Global Human Resources
Recruiting and Selection
Expatriate Training and Preparation
Repatriation After Foreign Assignments
Compensating Your Global Workforce
Pay
Incentives in Global Firms
Benefit Programs Around the World
Trends and Issues in HRM
Globalization of Business Continues as a Trend!
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Practitioner’s Perspective
Cindy says: One of the biggest changes in business has been the explosion of the global marketplace. Business competes not just across the country but around the world. Americans tend to be Eurocentric (the viewpoint that Western civilization is superior). We must recognize that foreign cultures deserve to be valued in the same manner as a diverse workforce is valued and that what is acceptable behavior in the United States can be anything but in another country.
Zac is an assistant manager for Kawasaki Heavy Industries, a global company with US manufacturing plants. After escorting US employees to company meetings in Japan, Zac has some amusing stories to tell. His favorite is about the fellow who went around waving and saying “Hi” to everyone. Hi in Japanese means yes, so imagine how strange this literal “yes-man” appeared. Another interesting difference is giving and receiving business cards. In the United States, one would usually put a business card away after receiving it, but in Japan, that would be considered extremely rude. There, one must leave the card lying on the table until all business is concluded.
What will you discover about global issues in
Chapter 1
6?
GLOBALIZATION OF BUSINESS AND HRM
LO 16-1
Identify and discuss the reasons for increasing business globalization and the stages through which companies move from local to global operations.
We live in a world that is dynamically globally interconnected.1 The major factor increasing the complexity of the environment is the globalization of markets2—the buying and selling of goods and services worldwide. Globalization is one of the most vital business trends of the past 50 years,3 as large corporations have employees from and conduct business all over the globe.4 Think about the complexity of FedEx’s environment, delivering to more than 220 countries and territories.5Therefore, it has to follow the rules and regulations of different governments in countries with different economies, labor forces, societies, and so on. Refer to
Chapter 2
,
Exhibit 2-5
, for a review of the SWOT analysis of the environment. Clearly, to be successful, companies need global leaders.6Having a global mind-set is a key standard for contemporary managers.7 For example, Carlos Ghosn is the chairman of three companies, Renault, Mitsubishi, and Nissan, on two different continents conducting business globally. Today’s managers—and students of management—cannot afford to underestimate the importance of the global environment to business.8
SHRM
HR CONTENT
See Appendix: SHRM 2016 Curriculum Guidebook for the complete list
C. Ethics (required)
3. Individual versus group behavior
17.
Foreign Corrupt Practices Act
F. Managing a Diverse Workforce (required)
5. Language issues
13. Cultural competence
K. Total Rewards (required)
B. Employee Benefits
11. Global employee benefits
14. Outsourcing (secondary)
O. Globalization (required—graduate students only)
1. Global business environment
2. Managing expatriates in global markets
3. Cross-border HR management
4. Repatriating employees post international assignment
6.
Inshoring
7. Offshoring/outsourcing
9. Cross-cultural effectiveness
Get the edge on your studies.
edge.sagepub.com/lussierhrm3e
• Take a quiz to find out what you’ve learned.
• Review key terms with eFlashcards.
• Watch videos that enhance chapter content.
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SHRM
O:1
Global Business Environment
It is important to realize that no matter where you are, you live in and are affected by the global environment. Globalization may require you to interact effectively with people from many different cultural backgrounds:9 as an employee with coworkers, suppliers, and customers; as a customer in a local store; as a student in college; and as a consumer you use and buy products from other countries. Capital and goods flow easily between countries. Because of the ability to communicate instantly, services can generally be performed in the location where they have the lowest cost for the most efficient (notnecessarily the best, but the most efficient!) service quality. One model identifies four types of capital that flow between countries:10
• Natural capital. Natural resources such as timber, water, and minerals are “components of nature that can be linked with human welfare.”
• Social capital. This “consists of the social networks that support an efficient, cohesive society, and facilitate social and intellectual interactions among its members. Social capital refers to those stocks of social trust, norms and networks that people can draw upon to solve common problems and create social cohesion.”
• Manufactured capital. This is human-made capital like machines, tools, buildings, and other infrastructure that are used to produce other assets.
• Human capital. This “generally refers to the health, well-being and productive potential of individual people.”
If you take another look at these types of capital, there appears to be a theme throughout—humans, people, us! Because every form of capital that is exchanged between countries is controlled in some way by people, we have to figure out how to manage those individuals in order to maximize organizational returns.
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However, there are significant cultural differences between countries and regions. In fact, in many cases, there are multiple cultures in a single country. All of this makes global business more challenging. Let’s take a look at how HRM has to be managed differently in global firms.
Reasons for Business Globalization
The world was simpler when it was difficult to move goods across borders or oceans and it was just as difficult to move people between countries. A business could work in its local environment, taking only its local customers into account as it produced the goods and services that those customers wanted. However, our environment has conspired to make it easier to move both goods and people, along with abstract ideas and concrete knowledge, across borders and around the world. In turn, business must adapt to this new environment as surely as having to adapt to a climate change or a threat of disease. What has happened that created this environment?
There are many reasons why business continues to globalize on a scale never seen before. One is to increase business. Another reason businesses have reached beyond their own borders is the rise of the “global village,” with associated declining barriers to trade in goods, investment, travel, and communication. Declining barriers of distance and culture, international normative agreements on trade between countries, the rise of trade blocs, and uneven competition between domestic and international firms are other reasons why companies are expanding beyond their own countries’ borders.
INCREASE BUSINESS. Let’s face it: Most large corporations want to continue to grow. If you are a major corporation like Coca-Cola, is there any place in America to expand? No, the market is saturated. Also, the US population is only 325.5 million, a small fraction of the world’s population of 7.4 billion.11So if large corporations want to grow, they have to go overseas. However, businesses of all sizes, regardless of how saturated the US market is, also have billions of other potential customers if they go global. The other reasons for the globalization of business apply regardless of the size of the business.
THE GLOBAL VILLAGE. The global village concept has become—in many ways—a reality. Essentially the entire world can see and interact with goods and services that were only available to others in “the village” a hundred years ago. Ideas, goods, and services move easily across borders and around the world. This free flow of ideas, information, and knowledge through the use of the Internet and other media has reshaped the way people see their world. It has also allowed connections between people with shared interests in a much more intimate manner than was ever possible before. All of this serves to, among other things, bring vendor and customer closer together, creating global demand for products that the customer would not have even been aware of 25 years ago.
DECLINING TRADE BARRIERS. Declining Trade Barriers, GATT, and now the World Trade Organization (WTO). Another impetus for increasing globalization over the past 50 years was the changing disposition toward the use of tariffs and other trade barriers by country governments. During the 1920s and 1930s, many countries erected barriers to international trade in the form of tariffs—taxes that a government imposes on imported goods. The aim of tariffs is to protect domestic industries and jobs from foreign competition. However, as often happens when one entity makes a move to give it a competitive advantage but has no way to defend that advantage (no ability to protect the advantage or make it hard to copy), if one country imposed tariffs on goods coming in, other countries immediately retaliated with the same types of trade barriers to goods from the first country’s market. So retaliation became the norm when tariffs were imposed. In fact, there is at least some evidence that the Great Depression of 1929 was in part caused by these tariff and trade wars.12
Shortly after World War II, an agreement framework called the General Agreement on Tariffs and Trade, or GATT, originally signed by 23 member countries, was negotiated.13 It was the basis for an era in which tariffs and other trade barriers were significantly reduced in much of the world. Ultimately in the 1990s, the GATT agreements were formalized into the World Trade Organization, with a mission to be “the international organization whose primary purpose is to open trade for the benefit of all.”14 The WTO monitors and arbitrates trade disputes among its more than 160 member countries. Because the WTO and its predecessors have been so effective at lowering trade barriers, international trade has opened up to businesses that would not have been able to compete internationally before these organizations and agreements existed.
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576
In 2016, with the trend turning to protectionism, Britain voted to drop out of the EU (Brexit), which will also affect its US trade,15 and President Trump threatened protectionism. China is already moving to replace the United States as trade champion,16 and Russia, Japan, and China are rushing to fill the trade gap.17 Whether you agree with free trade or not, despite its recent setback, globalization remains an irreversible trend of our times.18 Let’s face it, just about every country needs trade to provide goods and services it doesn’t have to maintain or increase its standard of living, and the only way most large MNCs can continue to grow sales and profits, which increase jobs, is through global trade.
Christopher Pillitz/Getty Images
Global businesses such as Nike utilize manufacturing facilities around the world and also sell their products extensively in international markets.
DECLINING BARRIERS OF DISTANCE AND CULTURE. In the 1950s, it was difficult to transport goods across country borders and over oceans. It was also difficult to communicate between one location and another. Think about it: If you wanted to call up a friend in central China in 1955, would you have been able to do so? It’s highly unlikely that you would. Along the same lines, would you be able to manage a production facility in Shanghai if you were in New York? You couldn’t easily call from one facility to the other; you certainly couldn’t just hop on an intercontinental jet and fly to Shanghai; you couldn’t contact the plant via Skype, or even email. International business was a very difficult thing to manage. That is why most businesses did not have international operations. Both communication and transportation were difficult things to accomplish in an international business.
But—things have changed! Communication to most parts of the world is nearly instantaneous. You can dial up your friend in China or get on the Internet and use a webcam to see exactly what is wrong with your production equipment in Shanghai and provide instructions on how to fix it in a few minutes. If you need to send experts to the plant, they can be anywhere in the world in about a day (in the 1950s, it would have taken about three weeks!). And as soon as it became possible to operate a business globally, managers were figuring out how to create a strategy to build a sustainable competitive advantage by doing so.
THE RISE OF TRADE BLOCS. Around the early to mid-1990s, we started seeing countries forming reasonably large trade blocs to encourage trade between member countries but discourage trade from outside the trade blocs through trade barriers, again including at least some tariffs. Although there have been recent movements toward trade protectionism in a number of countries, global trade in goods continues to grow, albeit at a slower pace than in the early 2000s, and trade blocs continue to hold at least some power. Trade blocs are groups of countries who form an association for the purpose of facilitating movement of goods across national borders. One of the early trade blocs was NAFTA—the North American Free Trade Agreement among Canada, the United States, and Mexico. Others include the European Economic Community (EEC—which later became the European Union [EU]), the Association of Southeast Asian Nations (ASEAN), and the Central American Free Trade Agreement (CAFTA), plus several others. These trade blocs allow free or low-cost passage of goods among member nations to encourage companies to specialize in certain types of goods to become more efficient and therefore lower the cost of those goods to all member countries.
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Since 2001, with the help of WTO, some dozen countries have been negotiating The Trans-Pacific Partnership (TTP), but President Trump threatens vetoing Congress’s bill to allow membership in TTP. However, that doesn’t mean the United States will not join TTP. Trump stated that he believes the United States is not getting a fair deal with present trade agreements, but he may renegotiate some changes to TTP that will gain his support for US membership. But Russia, China, and Japan are not waiting for the United States; they are maneuvering to lock in trade deals now.19
WORK
APPLICATION 16-1
Identify a global business, one you have worked for if possible. Discuss the reasons it went global.
However, if you are not part of the bloc, trade barriers tend to be significant, and they will raise your cost of doing business with the countries in the bloc. One method of getting around the barriers is to become part of the bloc. This is usually accomplished by having business operations in at least one country within the bloc, which will make your company a de facto member of the bloc and reduce or eliminate this barrier. So companies will frequently build factories or design facilities, component plants, or other facilities within the bloc in order to overcome the trade barrier associated with that trade bloc.
TO REMAIN COMPETITIVE! The last reason for business globalization is simple:
Global corporations vs. Domestic organizations = One-sided competition
In many cases, if a domestic firm is competing head to head with a global firm, the competition is seriously one-sided. The global firm will source all of its capital resources from wherever they are the most efficient. If the global company sources raw materials from one country for half the cost, component production in another country for 75% of the cost, and labor from a third country for 25% of the cost of the domestic competitor, who is going to win the battle for the customers? The customer will not pay double the price for the same good of the same quality, no matter where it is made! The domestic firm is at an absolute cost disadvantage versus the global firm.
Ethnocentrism Is Out and “Made in America” Is Blurred
Parochialism means having a narrow focus, or seeing things solely from one’s own perspective. Ethnocentrism is regarding one’s own ethnic group or culture as superior to that of others. Thus, a parochial view, which we will discuss again later, is part of ethnocentrism, which is a negative stereotype.20 Another negative stereotype is the not-invented-here (NIH) syndrome, described as a negative attitude toward knowledge/technology/products from other external sources.21 Successful managers of large companies headquartered in the United States (including Coca-Cola, FedEx, GE, and 3M, to name just a few) are not ethnocentric; they don’t view their firms simply as American companies but rather as companies conducting business in a global village. If they can buy or make better or cheaper materials, parts, or products and make a profit in another country, they do so. British Petroleum (BP) has been doing business in the United States for more than 100 years and employs close to 250,000 workers across America.22
Many consumers subscribe to the idea behind “Buy American,” but few know the country of origin of the products they regularly buy. Look at the labels in your clothes and you will realize that most clothing is not made in America; around 60% of shoes and about 43% of other clothing comes from China.23 Did you know that although Nike is an American company, its clothes and sneakers are not made in the United States? Some GM cars are made in America but with more than 60% of the parts coming from foreign companies. Toyota makes some cars in America, with around 25% of the parts coming from foreign companies. So what’s really made in America? The Made in America store has a challenge stocking the store with fashionable only-American merchandise and hasn’t been able to find any electric or electronic products because they are all made abroad.24
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16-1 SELF ASSESSMENT
Products by Country of Origin
For each item, determine the country of origin. If your answer is the United States, place a check in the left-hand column. If it’s another country, write the name of the country in the right-hand column.
1. Shell is owned by Royal Dutch Shell of the Netherlands. 2. Nestlé is headquartered in Switzerland. 3. Unilever is British. 4. Nokia was a Finnish company but was acquired by US Microsoft in September 2013. 5. L’Oreal is French. 6. Johnson & Johnson is a US company. 7. Burger King is Brazilian owned. 8. Samsung is South Korean. 9. Bayer is German. 10. Anheuser-Busch InBev is Belgian owned. 11. Volvo and 12. AMC are both Chinese owned.
How many did you get correct?
WORK
APPLICATION 16-2
Do you believe in buying American products? Do you try to buy only American products, and should you?
In addition to not knowing products are foreign, some people don’t care where the products they buy come from; price is more important to them. Plus, some people prefer products, such as cars, made by foreign companies. Test your global knowledge of companies’ and products’ country of ownership by completing Self-Assessment 16-1.
Stages of Corporate Globalization
Marshall McLuhan’s “global village,” whether you like it or not, is a reality! In many ways, people around the world are becoming more similar in what they want, especially as consumers.25 The Internet and other forms of instant communication have changed the way people around the world think, act, and react. These individuals—whether in the United States, India, Russia, or Peru—desire many of the same consumer goods and services and want the same employment opportunities. So business has to expand to where the customers are and to where capable recruits are ready to go to work. But how does a business expand from being a local producer to an international firm? There are several different models of international expansion, but for our purposes, we can take a look at just one that helps to identify how companies expand globally. Nancy Adler has been studying global businesses for more than 30 years. She has noted four stages in the evolution of a company from local producer to global firm: domestic, international, multinational, and transnational.26 Take a look at the different phases in
Exhibit 16-1
.
As you can quickly see in the exhibit, the HRM function becomes more complex as we move further down the stages of globalization of the firm. As we move to the transnational firm, we have to develop transnational HR systems that take into account the culture and business practices of every country in which we operate.
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Exhibit 16-1 STAGES IN CORPORATE GLOBALIZATION
WORK
APPLICATION 16-3
Select a business, preferably one you work or have worked for, and describe its stage of globalization.
So, if going global complicates the management of the organization, why expand operations to other countries? Let’s take a look at some reasons for globalization and also some problems that we are sure to encounter if we decide to continue with our international expansion.
Is HRM Different in Global Firms?
“To function effectively in a multicultural global business environment, individuals and organizations must be capable of adapting smoothly and successfully across cultural boundaries.”28 This means that as the organization expands beyond its original borders, employees need to learn to change their personal perceptions from a local focus toward a broader concept of society. They need to become capable cultural chameleons—able to change on the fly in order to interact with other employees, customers, vendors, and any other stakeholders—to manage the business. Yet the evidence shows that this is one of the most significant weaknesses of individuals who have graduated with a business degree but have little work experience.29
Companies nearly always start out small and local—they have one shop or store in one town in a single country. If you remember back to Chapter 2 where we talked about organizational structure, when managing this “simple” organization structure, the complexity is minimal. Generally, all decisions are made by the boss. As we get larger and more complex, management in the organization has to change and adapt to that complexity by loosening up on centralized authority so that things can get done in a reasonable time frame.
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16-1 APPLYING THE CONCEPT
Stages in Corporate Globalization
Place the letter of the state of corporate globalization on the line next to the corresponding description of each firm.
a. domestic
b. international
c. multinational
d. transnational
____ 1. Our company exports our books to other countries through our website in America.
____ 2. Our company opened its third factory overseas to better serve our customers in those countries.
____ 3. Just because we only do business in one country doesn’t mean we don’t compete with global companies.
____ 4. Our company prides itself on not having any geographical boundaries or barriers, as we conduct business globally.
____ 5. We import tires from Japan and sell them in America.
Ultimately, in many industries at least, the company will consider international operations of some type to gain a competitive advantage over its competitors. And along with the creation of an international presence, the complexity of the firm goes up even more. This is the point at which HR must become a different and more complex department. International operations require us to rethink every major function in HRM. For example:
• Staffing. Home-country, host-country, and third-party employees all require different sourcing, training, disciplinary actions, and compensation and may require many other differences in management.
• Training. From orientation to culture and religion to language problems and managing infrastructure, training will need to be modified. For instance, safety training will need to be provided in multiple languages in many cases, and it will have to be accomplished so as to comply with multiple country laws and regulations.
• Employee and labor relations. Different countries’ laws concerning employee relations require HR to become competent in legal issues where the company operates. Many countries’ labor laws are strongly oriented toward protection of the individual employee—much more so than in the United States—and the HR manager must become competent in all of these legal differences. In addition, cultural attitudes and national laws also affect when and how employees are disciplined.
• Compensation. Should the company pay local average wages, home-country average wages, or other wage levels? How do incentives work with employees from different cultures?
These are just a few of the many issues that must be taken into account as we move from a single-country business to a global firm. Throughout the rest of this chapter, you will learn more about global HRM functions.
LEGAL, ETHICAL, AND CULTURAL ISSUES
LO 16-2
Identify and discuss the five dimensions of Hofstede’s model of culture and how the GLOBE Dimensions differ from Hofstede.
“If you see in any given situation only what everybody else can see, you can be said to be so much a representative of your culture that you are a victim of it.”
—US Senator S.I. Hayakawa
Legal, ethical, and especially cultural issues also have to be examined by companies considering global operations. The HR department has responsibility for many of these issues, including international labor laws, organizational ethics policies, communication training, and cultural training—for both national culture adaptation and corporate culture orientation.
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International Laws
As the company begins to operate in more than one country’s market, the managers, including HR managers, have to ensure that the company complies with each country’s legal requirements. In what areas does HRM need to adapt as we move more toward a multinational or transnational firm? The major HR laws tend to be in the areas of staffing, labor relations, and disciplinary action/termination. Let’s look at a few examples that allow us to see the types of complexity involved in global operations.
CHINA30,31
• “Dispatch” workers (temporary or contract workers) are capped at 10% of total employment.
• Employers can include a noncompete clause in employment contracts but must pay the worker who leaves the company during the noncompete period.
• Government constrains both hiring and firing practices to a great extent. Employees can only be terminated for one of the identified statutory reasons (including criminal conduct, violation of company rules, corruption, etc.) or at the end of their employment contract. There is no employment-at-will.
• Severance must be paid to terminated employees in nearly all cases.
BRAZIL32,33
• Most labor relations are regulated by national laws; there is no employment-at-will.
• Employees have a right to 30 days of vacation per year.
• Overtime pay is required for more than 8 hours per day or 44 hours per week.
• A bonus is typically paid to all workers at the end of the year.
• Temporary workers can only be used as a general rule in two situations: to substitute for a regular employee on leave or during an extraordinary increase in workload. They can generally only be used for a maximum of 3 months.
GERMANY34,35
• Although negotiations for a minimum wage beginning in 2015 are currently occurring, wages are controlled for most workers by employee unions’ collective bargaining agreements.
• “Temporary” workers must actually be temporary. The general limit is no more than 18 months.
• In terms of age discrimination, companies are allowed to use the fact that a worker is vested in their state pension to justify dismissal.
• Workers generally have protection against dismissal except in three cases: personal capability or health, misconduct, or redundancy (downsizing).
• “Works councils” elected by and acting on behalf of employees in nonunion environments negotiate various working conditions with employers.
As you can see from just these examples, employment and labor law in different countries is highly complex. Your organization will need to do significant research before moving operations into another country to avoid violating that country’s labor laws.
US Law
You know that most organizations within the United States are subject to a variety of EEO laws. But are employees of foreign companies working in the United States subject to the same laws, and are employees of US companies operating in other countries subject to these laws? Again, the EEOC gives us guidance on these situations.
p.
582
According to the EEOC,
All employees who work in the U.S. or its territories . . . are protected by EEO laws, regardless of their citizenship or work authorization status. Employees who work in the U.S. or its territories are protected whether they work for a U.S. or foreign employer.36
So if you are in the United States or a US territory, you are covered by US EEO laws.
But what about Americans working outside the United States? According to the EEOC, “U.S. citizens who are employed outside the U.S. by a U.S. employer—or a foreign company controlled by a U.S. employer—are protected by Title VII, the ADEA, and the ADA.” However, “U.S. employers are not required to comply with the requirements of Title VII, the ADEA, or the ADA if adherence to that requirement would violate a law of the country where the workplace is located.”37 Finally, if you are employed by a foreign company in a country other than the United States, the laws of that country would apply, so you would not have the protection of US EEO laws in such a case.
The United States also has a law specifically addressing corruption and bribery by US national companies while operating in other countries. The Foreign Corrupt Practices Act (FCPA) bars US–based or US–listed companies from bribing foreign officials in exchange for business. The FCPA also requires companies to keep accurate books and records concerning their foreign operations. However, it is sometimes hard to tell the difference between a legitimate business expense and a bribe.38 So global companies need to clarify the difference in their code of ethics, top managers must set a good example, and penalties for unethical and illegal behavior must be enforced.
SHRM
C:17
Foreign Corrupt Practices Act
Remember that different countries have different employment laws that must be obeyed. So think about the complexity facing the HR executive working for a multinational company doing business in more than 100 countries! Thus, multinationals need HR legal specialists in each country.
International Ethics
Recall our discussion of ethics in
Chapter 15
in which we noted that ethics are based on societal values, principles, and beliefs. This creates some issues for businesses operating in multiple countries. Different countries’ cultures have different values and beliefs and therefore will have different ethics—at least to some extent—as what is considered ethical in one country may not be considered ethical in another country. Whose ethical perception should be followed in situations in which the values in one country conflict with those in another? How do employees know how they are expected to act?
The answer to this question should be found in the company code of ethics. Remember that this code is the document that is used “to project the values and beliefs of the organization to their employees.” So even though the company culture may not exactly match the culture of a country where they are doing business, the company has laid out a set of principles that employees can apply to a situation to determine whether they are acting ethically according to the organization’s desires. But how does that word culture affect the employees in the company? Let’s take a look.
National Culture
Recall that we discussed organizational culture in Chapter 2. All of that information also applies to national culture, but national culture is even more powerful in many cases. It is what people have known their entire lives, and like the old adage about a fish in water not knowing that there is any other possible environment, people who have lived their lives in one culture many times don’t even realize that there are other options for values, beliefs, and culture. This view of the world is called parochialism— a narrow-minded view of the world with an inability to recognize individual differences. Managers in global organizations cannot survive with a parochial view of the world.
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Joshua LOTT/AFP/Getty Images
Ursula Burns, CEO of Xerox, has helped Xerox become one of the world’s most ethical global companies. This requires an understanding of the values in other cultures and how they affect behavior.
Thus, employees from different countries do not see the world in quite the same way because they come from different national cultures.39Understanding national culture is important because it affects nearly every aspect of human behavior,40 making cultural sensitivity an important skill.41 For the MNC, all the workplace diversity exists, plus national culture as well.42 Therefore, capability to manage such cultural diversity has become one of the most important skills for global leaders.43
Differences in national culture influence the effectiveness of different managerial behaviors, so if you are going to have to manage in an international setting, you will need to understand the cultures that you are dealing with. For instance, singling out and praising an individual worker in Japan is tantamount to yelling at an American employee on the shop floor and telling them that the report they wrote looked like it was written by a third-grader. Japan, as a highly collectivist culture (we will discuss this momentarily), does not single out the individual for either praise or discipline in a public setting.
SHRM
F:13
Cultural Competence
HOFSTEDE’S MODEL OF NATIONAL CULTURE. Let’s look at the first way that we can classify country cultures in order to determine how to train managers to successfully work with employees in that culture—Hofstede’s model of national culture.
SHRM
C:3
Individual Versus Group Behavior
Geert Hofstede is a trained psychologist who was hired in the 1960s by IBM (at the time, one of the few really global companies in the world with about 100,000 employees in more than 70 countries) to help them identify cultural differences within countries in which they operated.44 His data allowed him to develop a model of national culture that is still widely used today. He originally identified five dimensions—each of which allows a country culture to be plotted along a continuum. He later added another dimension, but we will stick with the original five, since that is the model that most people know about. Each dimension was measured on a scale of 0 to 100, with 100 being the highest exhibition of that dimension. (More countries were added to Hofstede’s model in later years, resulting in some scores moving above 100.) Let’s look at the dimensions of the model in
Exhibit 16-2
.45 These cultural dimensions continue to be studied.46
WORK
APPLICATION 16-4
Give an example of cultural diversity you have encountered, preferably at work.
After reading through the exhibit, you are probably saying to yourself, “So what?” What is the value in knowing that Russian culture is oriented toward the short term, Japan is highly masculine, and India is moderately collectivist? The value in the model is in knowing how significant the differences are between two countries’ cultures. The greater the difference in the two cultures on each of the dimensions, the more difficult it is to bring employees from one culture into the other. For instance, if you compare China and the United States, you will find that China has high power-distance, low individualism, and a fairly low level of uncertainty avoidance and is long-term oriented.47 The United States is moderately low in power-distance and very high in individualism, has a moderate level of uncertainty avoidance, and is reasonably short-term oriented. This means that a manager coming from China to run a facility in the United States is going have some difficulty adjusting to the culture (unless they have previously been exposed to it) without significant culture-adaptation training by the organization. Similarly, putting employees from these two cultures together to accomplish any task is likely to fail unless they are given cultural training before working together. The HR department is typically charged with cross-cultural training of employees who will be working outside their native culture. (On a side note: If you ever get bored and want to watch a pretty good movie about extreme culture clash, watch a film from the 1980s called Gung-Ho with Michael Keaton. You will quickly see why cultural differences matter in business.)
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Exhibit 16-2 HOFSTEDE’S MODEL OF NATIONAL CULTURE
Sources: The Hofstede Centre; home.sandiego.edu/~dimon/CulturalFrameworks .
GLOBE. As Hofstede’s research became dated, Project GLOBE confirmed his dimensions are still valid today and extended and expanded his five original dimensions into nine. The project includes hundreds of companies and includes more countries. GLOBE stands for Global Leadership and Organizational Behavior Effectiveness, and it is an ongoing cross-cultural investigation of leadership and national culture. The GLOBE research team uses data from hundreds of organizations in more than 62 countries to identify nine dimensions in which national cultures are diverse. See
Exhibit 16-3
for a list of the dimensions with examples of country ratings.48 Notice that some of the GLOBE dimensions have the same or similar names as Hofstede’s five dimensions. As shown, through cross-cultural comparisons, there are differences,49 especially between Eastern and Western cultures.50
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GLOBAL STAFFING
LO 16-3
Briefly discuss the Big Five personality traits in relation to international assignments and the advantages and disadvantages of parent-country, host-country, and third-country nationals for international assignments
As you can see, operating a business on a global scale requires some complex sets of skills. How are we going to staff the organization with people who have both the ability and the desire to work in this type of environment? We will need to recruit people with a specific set of skills. We will also have to make some choices about what types of employees we are going to recruit and from which countries. Then we will have to determine what training is necessary for them to be successful. These choices by the HR manager can determine the success or failure of our global organization.
Exhibit 16-3 GLOBE DIMENSIONS
Source: Adapted from M. Javidon and R. J. House, “Cultural acumen for the global manager: Lessons from Project GLOBE,” Organizational Dynamics, 29 (2001), 289–305.
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16-2 APPLYING THE CONCEPT
GLOBE Dimensions
Place the letter of the dimension of cultural diversity on the line next to the statement exemplifying it.
a. assertiveness
b. future orientation
c. gender differences
d. uncertainty avoidance
e. power distance
f. societal collectivism
g. in-group collectivism
h. performance orientation
i. humane orientation
____ 6. The people seem to prefer sports like soccer and basketball to sports like golf and track and field.
____ 7. Managers place great importance on status symbols such as the executive dining room, reserved parking spaces, and big offices.
____ 8. Managers provide poor working conditions.
____ 9. Employees get nervous and stressed when changes are made.
____ 10. Incentives motivate employees to achieve high levels of success.
Skills and Traits for Global Managers
Going back to Chapter 1, you probably remember that we identified four skill sets that managers need to have in various measures in order to be successful in their particular jobs. We noted that all “managers require a mix of technical, human relations, conceptual and design, and business skills in order to successfully carry out their jobs.” In international assignments, all of these skill sets can differ from what a manager or employee would typically learn in order to do their job. The way work is carried out—for instance in a high–power-distance culture in which employees expect to receive and carry out orders without question—may affect the way a manager does their job, so an American manager going into a high–power-distance culture would need different technical skills than normal. Certainly with multiple cultures, probably speaking multiple languages, in one location, managers will need very strong human relations skills, and even conceptual and design skills may need to vary from what the manager would consider “normal” in different cultures. And finally, as we have already noted, business skills can be significantly different due to the variance in laws, regulations, and business structures in different countries (think of the keiretsu and chaebol partnerships in some Asian countries).
Cultural values and beliefs are often unspoken and taken for granted; even with a common language accurate communication can be difficult.51 We tend to expect people to behave as we do. However, to be successful in the global village, you need to be sensitive to other cultures52 as you interact with people whose values and behaviors differ from your own.53 You need to get along with others,54 and to do so, you need to have a global mind-set.55 In fact, companies seek employees who have intercultural competences56 and those with multicultural backgrounds.57
But what else do we need to take into account before sending someone to another country to work with or manage others? Companies may want previous international experience in the employees that they are considering sending on assignments outside of their home country. The feeling is that people who have made the adjustment before will have an easier time adjusting to yet another environment. This is not always true, but it can help to have a history of living in different cultures. Culture shock (we will discuss this shortly) is thought to decrease as people are exposed to and live in multiple different cultures. This can be advantageous to both the individual and the organization because the individual can settle in and become more productive sooner if they do not have to learn how to behave within the culture.
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WORK
APPLICATION 16-5
How would you assess your personality fit, family situation, and language ability in terms of an overseas assignment? Are you interested in working in another country? If so, in which country(ies) would you like to work?
We noted in
Chapter 8
that it is sometimes necessary to evaluate individual traits when evaluating our employees. This is one of those cases in which it is indeed necessary. “Personality traits have been widely regarded as among the most important potential factors leading to expatriate adjustment,”58 so a global assignment is one situation in which we will need to attempt to assess the traits of the people we are considering sending to another country to live. Some very strong evidence says that expatriates will fit into a culture better if their personality traits match up well with the culture’s most significant characteristics.59
Let’s take a look at some of the information that we can get from the Big Five personality characteristics about ability to adapt to a different culture:60,61
• Extroversion. Some evidence shows that extroverts will have an easier time adjusting to a different culture. However, little evidence shows that extroverts are more effective in their work relationships. Extroverts are also less likely to terminate an international assignment early—which costs the organization a significant amount of time and money.
• Openness to experience. In most cases, people with high openness to experience will be able to adjust better to a foreign culture than those who are low on this scale.
• Conscientiousness. Conscientiousness apparently has little effect on a person’s overall ability to tolerate international work assignments.
• Agreeableness. Agreeable individuals also tend to adjust to a new culture well. Again, people who are higher in this trait are less likely to terminate their assignment early.
• Neuroticism (negative affectivity). People high on this characteristic tend to have more trouble adjusting to living conditions that are different from home and, as a result, may have a stronger negative reaction to taking on an international assignment. Higher neuroticism is correlated with a higher likelihood of terminating the assignment early.
So you can quickly see that this is one case in which we do need to take a person’s personality traits into account because they have a direct impact on their ability to do the job.
SHRM
F:5
Language Issues
Secondary only to the individual employee’s traits are the personalities and suitability of immediate familywho will accompany the employee. We have to consider the entire family when making an international assignment unless the assignment will be “unaccompanied,” which means the family will not move with the employee. If they do accompany the employee, they will need to be assessed for suitability and disposition as well as being trained right along with the employee.
All of the assessment that we will accomplish prior to sending an individual on an international assignment is designed to identify the “fit” of the individual with the assignment. Remember that we also discussed personality–job fit and person–organization fit along with ability–job fit in
Chapter 6
. Personality–job fit and person–organization fit will need to be measured and analyzed in conjunction with a potential international assignment just as if we were hiring the person into the organization from the outside world. They will have to adapt to the organization and the job in a very different environment from the one that they are coming from, and there is a high risk of failure in the job if we don’t do the analysis successfully.
Finally, language ability is something that may need to be taken into consideration. This will depend on the assignment, the difficulty of learning the language, the benefits of language training, and other considerations, but we do have to at least identify the possible need for the employee to speak the native language of the people in the assignment location.
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Staffing Choice: Home-, Host-, or Third-Country Employees
Our next consideration is where we will source the individual from for an international assignment. We have three generic options, each of which may be the best in some circumstances:
• Parent- (home-) country nationals—People who work for the organization in the country where the organization is headquartered
• Host-country nationals—People who live in a different country where a work assignment will take place
• Third-country nationals—People who happen to have a skill set needed for an international assignment but who are not citizens of either the home or host country
Which one we choose is probably driven by the general approach that we choose in managing the organization. These approaches are (1) ethnocentric, (2) geocentric, or (3) polycentric.62 Ethnocentricorganizations tend to believe that their values and culture are superior to those of others, and they will therefore frequently choose to staff international facilities with home-country managers. Polycentric firms will generally emphasize adapting to local culture and practices and will generally choose to use host-country employees. Finally, geocentric businesses believe in managing globally, using the best people no matter where they are located, and therefore will usually choose to mix in third-country nationals along with parent- and host-country employees.
Each of the three staffing options has advantages and disadvantages.63 Let’s identify what you might need to know in order to consider each option in
Exhibit 16-4
.
Exhibit 16-4 ADVANTAGES AND DISADVANTAGES OF PARENT-, HOST-, AND THIRD-COUNTRY NATIONALS
Source: Dörrenbächer, C., Gammelgaard, J., McDonald, F., Stephan, A., & Tüselmann, H. (2013). Staffing foreign subsidiaries with parent country nationals or host country nationals? Insights from European subsidiaries (No. 74). Working Papers of the Institute of Management Berlin at the Berlin School of Economics and Law (HWR Berlin).
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16-3 APPLYING THE CONCEPT
Global Staffing
Place the letter of the type of staffing on the line next to each example statement.
a. ethnocentric
b. polycentric
c. geocentric
____ 11. I work for the American company GM, but I live in China and have been promoted to a management position.
____ 12. I work for the Japanese company Toyota, and they are sending me to America to fill a high-level management position.
____ 13. I’m French, but I work for American IBM in England, and they are sending me to work in Germany.
____ 14. I’m American and work for US Google, and I’ve already worked in two different European countries, and now they are sending me to China.
____ 15. I’m Australian and work for an Australian company, but I am looking forward to my transfer to work in America.
Outsourcing as an Alternative to International Expansion
SHRM
K:B14
Outsourcing
As an alternative to expanding the home organization, outsourcing is one way in which organizations can manage work without creating a direct international subsidiary. Outsourcing is the process of hiring another organization to do work that was previously done within the host organization. In quite a few cases, the organization to which we outsource a particular process will be located in another country. In this case, the outsourcing is often referred to as offshoring. This can have the effect of lowering the number of employees in the home-country organization and, as a result, lowering the cost of managing the human resources within that company. Nike doesn’t own any manufacturing facilities—all its manufacturing is outsourced.
SHRM
O:7
Offshoring/Outsourcing
On the other hand, in the United States and many other developed countries, there has been a recent governmental push to return jobs that have been offshored to the home country. This is called onshoring (you may also see the terms inshoring and reshoring). Onshoring is the process of shuttering operations in other countries and bringing work back to the home country to increase employment there. In some cases, this onshoring makes sense, but in others it may not. However, it is also an ethical question in the minds of a significant number of home-country citizens.
SHRM
O:6
Inshoring
The ethical question in each of these cases first involves the potential for job loss or gain within the home organization because of shipping jobs overseas. In the case of offshoring, the organization may cut entire divisions’ worth of employees and send that work to the offshore organization. Many US firms did this with customer service operations in the early 2000s, but you may also know that several high-profile failures occurred in offshoring, such as Dell moving several thousand jobs back to the United States in 2003 after significant customer complaints about support. Secondarily, companies have to be concerned with doing what is best for their shareholders and, in fact, they have a fiduciary responsibility to do so. As a result, even when there is pressure from governments to reshore jobs, companies have to consider this option very carefully before taking that step. Most Apple products are made in China, but Apple has agreed to make some of its products in the United States.
SHRM
O:3
Cross-Border HR Management
DEVELOPING AND MANAGING GLOBAL HUMAN RESOURCES
LO 16-4
Explain issues involved in negotiating the assignment and the potential effects of culture shock on the expatriate employee.
Once we have determined that we are going to expand internationally, we need to ensure that our employees will be able to successfully integrate into another country culture and complete their assignments. We need to select the right types of individuals, train them appropriately, and support them during their international assignments. Finally, we will have to make sure that they reintegrate into the home-country operations once they return from the assignment. Let’s look at some details on how we can do that.
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Recruiting and Selection
We mentioned the problems companies are currently facing with finding knowledge workers in Chapter 1. This continuing issue is causing more and more companies to source employees, including managers, from wherever they can find them. If they have to build a facility in another country to find enough of these workers, then that is what they will do. Historically, advanced companies operated out of advanced economies—what we generally call the developed countries. Talented people from these advanced companies were called on to leave their home country in order to establish or work in a plant in another country where less expensive but less skilled labor was available. However, in today’s world economy, where those low-skilled jobs are going away and we are constantly searching for knowledge workers, we have seen a shift to sourcing skilled employees from any country where they can be found and moving them to the locations where they are most needed. Many of the “lesser-developed economies,” such as the BRIC economies (Brazil, Russia, India, and China), are now developing at a rapid rate and have become sources of talented knowledge workers, where 15 years ago they were importing skilled talent to these countries.64
So, companies are now sourcing managerial and technical talent from offshore.65 Social media tools are one method that we are now using to reach these knowledge workers worldwide. LinkedIn may very well be the leading source for such talent searches. But what processes are we using to recruit and select this talent? Both recruiting and selection follow the same basic steps that we outlined for you in
Chapters 5
and 6, but we have to take particular care in a few areas. Let’s take a quick look at negotiating the assignment, including individual tax issues and relocation costs.
• Negotiating the assignment. This is a bit more complex in an international recruiting and selection process. We need to make the offer in the same way we discussed in Chapter 6, but we also have to negotiate compensation differently than we ordinarily would (we will discuss this in the next major section), the length of the assignment and repatriation (we will also discuss this shortly), allowances for relocation to and from the assignment, housing arrangements, family accompaniment, income and other individual tax issues, and potentially several other items. So the negotiation process will necessarily be longer and more detailed.
• Tax issues. Taxes are one of the more complex parts of international assignments. Where will the employee pay taxes—in their home country or in the country where they are assigned? This isn’t an individual choice. It is set by the laws of the country in which the individual works, as well as sometimes by laws in their home country. So to avoid unnecessary harm to the employee, we have to assist them in developing a tax strategy for the duration of the assignment.
• Relocation costs. Relocation costs including housing can also be difficult when moving to certain locations. There may not be enough housing, or it may be prohibitively expensive (think of the cost of living in Hong Kong, where a one-bedroom apartment runs $2,000+, or Singapore, where a similar apartment would cost $2,900).66 Housing may also be substandard in some areas unless a premium price is paid. So we may have to have company housing or have contracts with local firms that will house employees for a set fee. The key is that these issues must be negotiated up front. Now let’s see what we need to do to prepare our employee for the move.
SHRM
O:2
Managing Expatriates in Global Markets
Expatriate Training and Preparation
Carlos Ghosn, the chairman of Renault-Nissan Alliance, said:
You have to know how to motivate people who speak different languages, who have different cultural contexts, who have different sensitivities and habits. You have to get prepared to deal with teams who are multicultural, to work with people who do not all think the same way as you do.67
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591
With increasing globalization and workforce mobility, there is a chance that you will be sent to another country to conduct business.68 It may be a brief visit, or it can be an international assignment as an expatriate. An expatriate is an employee who leaves their home country to go work in another country. As discussed, they can be home-, host-, or third-country employees. The cost of expatriates is very high, so we have to carefully select and develop these human resources.69
It can be difficult to adjust to a different language, culture, and society.70 So MNCs, such as IBM and EMC, are training managers and employees in local languages, customs, and business practices so they can be successful in the global market. Some people say that taking—or refusing—an international assignment affects career advancement, especially for top-level management. Whether you are asked to take an international assignment or not, as a global manager, you need to be flexible and adapt to other ways of behaving; you cannot expect others to change for you.71
CULTURAL TRAINING. So global competencies are becoming necessary for expatriates in the workplace, and as demand for these competencies increases, companies have to create and apply a set of tools to help prepare their employees for international assignments. Preparing employees for expatriate assignments will primarily be a training process, and the biggest training issue will usually be cross-cultural training. Why is cross-cultural training necessary? Culture shock can occur when we move from one culture to another. This culture shock can cause significant problems for the expatriate employee, and in fact there is evidence that up to 50% of employees fail to complete their international assignment, with the major reason being an inability (on the part of the employee or family members) to adapt to cultural differences.72 This inability to adapt may be because the parent company does not support the employee and family members in learning the culture that they will have to live in for an extended period of time.73 Alternately, it may be due to a bad selection process, as we noted in the section on personality traits.74 Regardless, culture shock is one of the main reasons for early termination of an international assignment. But what is culture shock? Let’s look at a diagram in
Exhibit 16-5
to help explain.
SHRM
O:9
Cross-Cultural Effectiveness
If you take a look at the diagram, you will see that at about 4 to 6 months into an international assignment, many people actually become depressed because they don’t understand the culture that they have been forced to live in. This leads to hostility toward the culture, which can also cause significant behavioral changes in the employee and may make it difficult or impossible for them to interact with others in order to do their job successfully. As a result, we may have to end up bringing the employee home before the end of their assignment. This problem of serious culture shock can be mitigated, though, through cross-cultural training before the assignment begins. If people know what to expect and have some training in how to adapt, the problems associated with hostility and depression can be lessened. They will not go away, but they can be lessened, and this lessening may be enough to allow employees to ultimately adapt and be able to finish their assignment. “Effective pre-departure training is essential to support the employee to adapt to a new culture and country—as well as a new job.”75
COMMUNICATION TRAINING. A second type of training that is frequently required is communication training. Both language training and other communication training (verbal, nonverbal, and symbolic) may be needed before sending an employee on assignment. As we noted in
Chapter 10
, communication is sometimes difficult even when everyone is speaking the same language.76 It becomes much more difficult when there is more than one language being spoken and also when you have different nonverbal and symbolic cues based on two different cultures. Verbal communication is obviously the language being used, and nonverbal communication includes things such as hand gestures, facial expressions, and other forms of body language, all of which vary based on culture. So individuals need to be trained on how to manage their body language and other nonverbal cues.
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Exhibit 16-5 CULTURE SHOCK
I Honeymoon phase (approximately the first 1–3 weeks). Everything is interesting and new. It is exciting to be in a new country, and you feel like you are on an adventure.
II ΩCulture shock (month 1–3, or longer). The initially interesting and new things that you recently saw are now annoying. Why can’t they do things the same way as they are done at home? You are frustrated by simple everyday things like going to the store or the bank, driving or commuting rules and procedures—and what’s that smell?
III Depression or hostility (month 4–7+). You are frustrated constantly with how different things are. You may even be depressed and not want to go outside and interact with people. You may avoid doing anything that requires that you involve yourself in the culture of the country.
IV Adaptation (month 7+). You start to accept the cultural norms and can interact with others successfully. You are now accustomed to the way things are done and the normal way to act in common situations. You feel “normal’ in your everyday activities.
But what is symbolic communication? It is communication using items that we surround ourselves with. It can be a type of clothing or hat; it can be a crucifix necklace; it can be jewelry or body piercings, or even the type of vehicle that you drive. Everything that we surround ourselves with that then conveys meaning to others is part of symbolic communication, and it can have very different meanings in different cultures. You would not want to have a visible crucifix in many Muslim countries. If you drive a large SUV in other countries, you may be considered to be a drug dealer or worse. So our employees need training on the various forms of communication.
WORK
APPLICATION 16-6
Assume you were going to become an expatriate. What questions would you have about going to live and work in another country, and what specific training would you like to have?
OTHER EXPATRIATE ISSUES. Other key problems associated with expatriate employees include the following:
• Reporting structure. Who will the employee report to in the host country and at home?
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• Performance management process. Will host-country or home-country managers complete the performance appraisal and manage the employee’s performance during the assignment?
• Mentoring. Will they have a host-country mentor to assist with cultural adaptation?
• Other support. What other support will be available during the assignment?
• Repatriation. What assistance will be provided upon completion of the assignment and repatriation to the home country?
This last question is our next topic.
Repatriation After Foreign Assignments
Would you care to guess what is likely to happen after a lengthy international assignment when an individual (and possibly their family, too) returns to their home country? You probably guessed right. They are going to go through another culture shock. The same adjustment will be necessary as they return home, because they have adapted to another culture and other ways of doing everyday things. So reacculturation training will most likely be necessary.
SHRM
O:4
Repatriating Employees Post International Assignment
Repatriation generally should include a series of steps that need to occur in order to get the employee back into the home-country work routine. These items include the following:77,78
©iStockphoto.com/svega
Foreign assignments help develop international business skills, although adjusting to culture shock may take some time.
• Reentry training, including cultural training (things change in several years—even if you are moving back to your home culture!)
• Job placement into a position commensurate with the employee’s level of expertise and that will use their knowledge, skills, and abilities developed during their assignment in the host country
• Possibly mentoring assistance and other support to help the returning employee reintegrate quicker and more successfully
• A show of appreciation for the employee’s international service and facilitation of knowledge transfer to others who may benefit from a better understanding of the host country and its culture
Repatriation is a critical activity because there is strong evidence that there are high levels of voluntary turnover of repatriates once they complete their international assignments and return to the home office. Because the process of preparing expatriates and sending them to another country is a significant expense for the organization, we need to improve the odds that our newly returned employees will stay with the firm once they do return.
COMPENSATING YOUR GLOBAL WORKFORCE
LO 16-5
Briefly define the options for compensation of expatriate workers.
The obvious first question about compensation in a global environment is whether compensation in various countries needs to be different and, if so, why and how do we compensate a global workforce fairly? In this section, let’s discuss the components of a compensation system we discussed in
Chapters 11
to 13 (pay, incentives, and benefits) as they relate to a global workforce.
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Pay
Do we need to compensate differently in a global firm? The answer is “Of course,” and the reason is that each country has a different standard and cost of living, and labor laws that vary greatly across countries must be met. We leave the discussion of the various labor laws to a global HRM course. Here we focus on expatriate pay.
I If we want to keep high-quality managers and workers in our organization while asking them to work in various countries around the world, we need to compensate them fairly. But what is fair? Is it fair to take a manager from a high-cost country and send them to a location that has a lower cost of living (United States to China), and once there, lower their pay to match the local norm? If you were the manager, would you accept this?
Conversely, if we bring a manager from a low-cost economy to a higher-cost environment, we probably need to increase their pay to match the country or region in which they will be working. However, if we return them to their home country or location, should we lower their pay back to the original rate? Another question concerns the currency in which the employee will be paid. Should we pay our employees in their home currency, or should we pay them in the local currency where they are assigned?
As you can see, compensation of a global workforce becomes pretty complex very quickly. Let’s discuss some options for paying expatriates.
WORK
APPLICATION 16-7
Assume you were going to become an expatriate. What questions would you have about your pay, and which pay method would you want to have?
BALANCE SHEET APPROACH. The most common method to manage expatriate compensation is called the balance sheet approach. Using the balance sheet approach, the organization continues to pay the individual at a rate equivalent to their home-country salary, and usually in their home currency, while providing allowances during an overseas assignment to enable that employee to maintain their normal standard of living. Obviously, this is only necessary when an individual is moving to a higher-cost environment and out of their home country.
SPLIT-PAY APPROACH. A variant on the balance sheet approach is to use split pay.79 In fact, about half the organizations in a recent survey said that they use split pay as at least part of their compensation strategy.80 Split pay is a process in which the organization pays the individual partly in home-country currency and partly in the currency of their work location. This allows the individual to lower currency exchange rate risks in moving money from one location to another and to pay obligations in both their home location and their work location much more easily than if all their pay were in one currency.
16-4 APPLYING THE CONCEPT
Global Compensation
Place the letter of the type of compensation on the line next to the corresponding example.
a. balance sheet
b. split-pay
c. negotiation
d. localization
e. lump sum
_____ 16. I’m going overseas for a 6-month assignment, and they are giving me half the money in US dollars and half in euros.
_____ 17. I’m going overseas for a 6-month assignment, and they are paying me in the other country’s currency, the euro.
_____ 18. I’m going overseas for a 6-month assignment, and they are continuing to pay me in euros, but they are also giving me a US dollar allowance for the higher cost of living in New York.
_____ 19. I’m going overseas for a 6-month assignment, and we are having a meeting to discuss my compensation for while I’m away.
_____ 20. I’m going overseas for a 6-month assignment, and they are giving me one check to pay for the entire time I’m away.
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Stephen Brashear/Getty Images
Starbucks China vice president Molly Liu. Starbucks has an international workforce and must account for the fact that people in some cultures tend to resist individual incentive programs.
LOCAL-PLUS APPROACH. In this option, the employee will receive compensation based on the host country’s ordinary pay structures and then receive allowances to allow them to more closely match their living standard in their home country. So, for example, if the host country has similar salary structures but much higher taxes, the employee will get an allowance to help pay the higher tax costs. The same can be done for housing, educational assistance, transportation, and so on.81
OTHER APPROACHES. Other options for compensating employees on international assignments include a negotiation approach, in which the employer and employee mutually agree on a compensation package; a pure localization approach, in which the expatriate’s compensation is based on local (host-country) norms; and a lump sum option, which pays the expatriate a lump sum of money to use on items such as taxes, vehicles, housing, and similar items during their assignment.82
Compensation in an environment in which workers are operating all over the world is a very difficult process. However, HR must play a part in the analysis and implementation of a compensation system that will allow the company to attract and retain high-quality managers and employees for their facilities. The only way to do this, based on our discussions of operant conditioning and reinforcement as well as equity and expectancy theories, is to provide reasonable and fair returns to those employees for the job that they do.
Incentives in Global Firms
Effective global leaders are a vital asset that can offer a competitive advantage within organizations today.83 Former CEO Mike Duke of Walmart said that his biggest challenge was to continue to develop the leadership talent to grow the company around the world.84 But do incentive programs work the same worldwide? The answer, briefly, is “No, but they are becoming more similar over time.” In fact, in some emerging-market countries, variable pay is a higher proportion of overall compensation than in most developed markets.85 However, in other countries, variable pay still has negative connotations, especially as an individual incentive. Many countries’ cultures do not mesh well with individual incentive programs, and some do not readily accept even group incentive programs.86
WORK
APPLICATION 16-8
Assume you were going to become an expatriate. Would you prefer straight salary or to have incentives? What type of incentive would entice you to take an overseas assignment?
One study of two cultures notes that “many multinational companies have ‘exported’ their human resource practices overseas,” but some studies “have revealed that people in different cultures prefer different means of reward distribution.” This study analyzed the United States (an individualistic society) compared to Hong Kong (a collectivist culture) and determined that “people in a collective culture more readily relate individual contributions to group performance and they also appreciate linking rewards with group performance.”87 There are many other studies that relate similar information concerning the effectiveness of incentive pay across the globe. The main thing that compensation professionals need to understand is that we cannot provide the same types of incentives to employees regardless of the organizational and country culture and structure. We have to understand the function of “significance” in expectancy theory and always make sure that our system rewards are significant and acceptable to our employees.
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Benefit Programs Around the World
If we just think about it, benefit programs must adapt to the part of the world in which our employees work and live, as labor laws must be met. For one thing, some countries mandate certain benefits that are not required in other countries, and we have no choice but to offer them. In other cases, the living conditions may be such that different benefit packages just make sense. Let’s take a look at some examples of differences that we might see in benefit programs in other parts of the world.
SHRM
K:B11
Global Employee Benefits
Due to government laws, companies in many of the European Union countries have to provide more benefits than in the United States. One of the most significant factors in international benefits management has been the worldwide recession that put pressure on both governments and companies to reduce their expenses. Because of these cost pressures, governments started looking at reducing the benefits that they provided to workers in their countries, especially for retirement programs and health care. Companies also felt the same cost crunch around the world and are constantly looking at ways to cut their expenses while still providing the benefits necessary to attract and retain top-quality employees.
Retirement benefits vary among countries, with some governments providing a strong centralized retirement system (Australia is a good example) and others providing very little in the way of centralized retirement planning and savings. Even in countries where there is a strong central government plan, most employees are concerned that they have not saved enough for retirement. In a survey that included employees in five countries—Australia, Brazil, India, Mexico, and the United Kingdom—in every country, “outliving retirement money” was one of the top three worker concerns.88 One reason for this is that people are living longer today than ever before—all across the globe. Another issue is that in most countries, the population is planning on retiring at an earlier age than has historically been the case. In most cases, workers plan to retire in their 60s or earlier.89 This combination of living longer and retiring earlier is creating the potential for a gap in retirement plan funding. More and more companies are working with employees to narrow this gap through a series of options. Some are providing financial counseling to show workers how much they need to be saving for retirement, and others are providing additional voluntary benefit programs through which the employee can fund additional retirement accounts that will help fill the gap in their current retirement plans.
A significant trend is the move by companies toward offering more and a larger variety of voluntary benefits that are fully paid by the employee instead of the employer providing at least part of the money to cover the cost of such benefits. In Brazil, for example, almost a third of female employees expressed interest in accident and pension funds for which they would pay 100% of the cost. Likewise, in Mexico, 56% of workers said that they would like a wider choice of voluntary benefits, and about one-fourth said they would pay the full cost for life, disability, and health insurance.90
Even if there are some significant differences in benefit plans around the world due to differing government policies, the consensus is that a good benefit package is a powerful force in employee satisfaction and retention—and employees globally like flexible benefits so that they can choose the benefits they want and need the most. Employers worldwide would be well served to start formal communications with their employees to find out what types of benefits will best serve to improve satisfaction and retention in their organizations.
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TRENDS AND ISSUES IN HRM
LO 16-6
Discuss the issue of business globalization and why it is so important.
In our last “Trends and Issues” section, we will take a look at protectionism as a surging globalization issue. So let’s get to it.
|
HRM in Action |
Globalization of Business Continues as a Trend!
The world appears to be moving more toward protectionist trade policies at the present time—restructuring or even breaking up trade blocs.91 So is it really all that important to be concerned with globalization in the companies that you will be working for? The evidence says that it is. Forbesmagazine noted that “the major cause of [business model] disruption is the rapid advancement of technology and globalization, which allows new business models to be introduced at an ever-increasing rate and with rapidly declining costs.”92 A recent Brookings Institute report also notes that “On two of the three measures, the degree of globalization is continuing to rise based on the most recent available data, contrary to the claim that globalization is receding. And on two of our three measures, the global economy is more globalized today than during the peak of the early 20th century.”93 So globalization of production of both goods and services continues to move forward, despite current rhetoric by country governments.
At the same time, though, evidence is also pretty strong that some developed countries are retrenching a bit when it comes to international operations. Governments continue to pressure business to reshore some of their operations. In fact, in a 2013 survey, a majority of large manufacturers said that they are planning to reshore at least some production jobs back to the United States.94 But don’t think global business is going to go away anytime soon. Even with retrenchment of businesses in the developed economies after the 2007–2009 recession, the World Trade Organization (WTO) expected merchandise trade to grow at 2.4% in 2017.95
So the bottom line is that while companies may retrench some jobs back to their home countries, it appears that some production and service jobs will continue to be moved out of home countries to other locations around the world to take advantage of capital cost savings. This means that managers, including HR managers, are going to have to continue getting more capable in training and preparing employees for international assignments.
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.
DIGITAL RESOURCES
Global Issues for Human Resource Managers*
Global Workforce Managements
Hofstede’s Cultural Framework*
International Experience
Trends in Global HR
Lessons From a Global Learning, Virtual Classroom
Big Five Personality*
Training and Developing Expatriates
* premium video only available in the interactive eBook
CHAPTER SUMMARY
16-1. Identify and discuss the reasons for increasing business globalization and the stages through which companies move from local to global operations.
The main reason is to increase business, which is aided by the world becoming a global village in which goods, ideas, services, and knowledge flow freely across national borders, creating greater demand for products. Barriers to trade have been minimized compared to historical norms, even though there is a series of trade blocs that operate in multiple countries. Barriers to transportation, communication, and culture have also lessened. But the biggest reason for globalization is to remain competitive.
The stages are domestic, international, multinational, and transnational. Domestic firms generally operate in one country’s market. International firms operate in a few, typically similar countries’ markets, primarily through importing and exporting. Multinational businesses start to source capital resources from wherever they are lowest in cost, own operating facilities in multiple countries, and integrate their various country operations. Transnational firms compete on a global scale without boundaries or barriers, strongly integrating their operations to improve efficiencies and lower costs. They are also culturally sensitive.
16-2. Identify and discuss the five dimensions of Hofstede’s Model of Culture and how the GLOBE Dimensions differ from Hofstede.
Power-distance is the degree to which societies accept that people will have different power because of their abilities and social status. Individualist cultures believe in the value of the individual and judge the individual, while collectivist cultures believe that the group is the unit of value in society, not the individual. Masculine societies value performance, winning, competition, and success, while feminine societies value relationships between members and quality of life more than winning. High–uncertainty avoidance cultures will do whatever they can to minimize risks to members of the society, and low–uncertainty avoidance cultures will not try to mitigate these risks nearly as much. Finally, short-term societies focus on immediate or short-term outcomes, while long-term societies focus on saving for the future, thrift, and persistence.
GLOBE confirmed Hofstede’s dimensions and extended and expanded his five original dimensions into nine. The dimensions include: Assertiveness—People are tough, confrontational, and competitive; Future Orientation—People plan, delay gratification to invest in the future; Gender Differences—People have great gender role differences; Uncertainty Avoidance—People are uncomfortable with the unknown/ambiguity; Power Distance—People accept power inequality differences; Societal Collectivism—Teamwork is encouraged (vs. individualism); In-Group Collectivism—People take pride in membership (family, team, organization); Performance Orientation—People strive for improvement and excellence; and Humane Orientation—People are fair, caring, and kind to others.
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16-3. Briefly discuss the Big Five personality traits in relation to international assignments and the advantages and disadvantages of parent-country, host-country, and third-country nationals for international assignments.
Evidence shows that extroversion makes it somewhat easier to adapt to a new culture, and extroverts are therefore less likely to terminate an expatriate assignment early. People high on the openness to experience scale also adjust better to a foreign culture. There isn’t much effect on ability to enter a different culture from being highly conscientious, but agreeableindividuals do adjust to a new culture well and are less likely to terminate an assignment early. Finally, people high on the neuroticism scale tend to have trouble adjusting to a new culture and are more likely to terminate an international assignment early.
Parent-country members usually know the organization better, know the strategy and structure, and communicate better. However, language, compensation issues, cultural barriers, and national laws on income may be disadvantages. Host-country nationals present advantages with respect to the language, culture, compensation issues, and local laws and regulations, but they may not have the company knowledge that is needed, may be less loyal to the firm, and could have problems communicating with the home office. Third-country nationals allow us to hire the best person for a job and may be less expensive in some cases. They may also share a language or similar culture with the host-country office. Disadvantages include host-country laws concerning third-party employees, income and other tax rules, and potential lack of knowledge of company procedures and culture.
16-4. Explain the issues involved in negotiating the assignment and the potential effects of culture shock on the expatriate employee.
The three major issues in negotiating the assignment include:
• The actual negotiation. We need to make the offer in the same way we discussed in Chapter 6 but have to negotiate compensation differently than we ordinarily would, the length of the assignment and repatriation, allowances for relocation, housing arrangements, family accompaniment, income and other individual tax issues, and potentially several other items.
• Tax issues. Where will the employee pay taxes—in their home country or in the country where they are assigned? This is set by the laws of the country in which the individual works, as well as sometimes by laws in their home country. So we have to assist them in developing a tax strategy.
• Relocation costs. Relocation costs can be difficult. There may not be enough housing, or it may be prohibitively expensive. Housing may also be substandard in some areas unless a premium price is paid.
People who suffer from culture shock go through four phases:
Honeymoon phase. Everything is new and interesting, and the job is an adventure.
Culture shock. Things start to bother the employee. They are more frustrated with everyday things like going to the store.
Depression or hostility. Constant frustration leads to anger and potentially depression, so the employee doesn’t want to interact with local nationals and participate in the culture.
Adaptation. The individual starts to understand and accept the way things are done in this culture and feels reasonably normal acting the same way as the local citizens.
16-5. Briefly define the options for compensation of expatriate workers.
The balance sheet approach is one of the most common methods. This is when the employee is paid their home salary, but allowances are provided to “balance” the different costs associated with the overseas assignment. Another option is split-pay, when part of the compensation is paid based on the home-country norm and part is paid in the assignment-country currency to minimize exchange rate risk. The next option is the local-plus approach, when the employee receives compensation based on the host country’s ordinary pay structures and then receives allowances to allow them to more closely match their living standard in their home country. We can also use a straight negotiation approach, in which the compensation package is agreed to upfront; a localization approach, in which compensation is based on the host-country standards; or a lump sum approach, in which a set amount of money is given to the employee to use on unique expenses associated with an assignment to a particular country.
16-6. Discuss the issue of business globalization and why it is so important.
The world appears to be moving more toward protectionist trade policies. However, the degree of globalization is continuing to rise based on the most recent available data. At the same time, evidence shows that some developed countries are retrenching when it comes to international operations. Governments continue to pressure business to reshore some of their operations. But even with retrenchment, the World Trade Organization (WTO) expected merchandise trade to grow at 2.4% in 2017.
So while companies may retrench some jobs back to their home countries, it appears that some production and service jobs will continue to be moved out of home countries to other locations around the world to take advantage of capital cost savings. This means that managers, including HR managers, are going to have to continue getting more capable in training and preparing employees for international assignments.
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KEY TERMS
expatriate 591
Foreign Corrupt Practices Act 582
onshoring 589
outsourcing 589
parochialism 582
trade blocs 576
KEY TERMS REVIEW
Complete each of the following statements using one of this chapter’s key terms:
1. _________ are groups of countries that form an association for the purpose of facilitating movement of goods across national borders.
2. _________ bars US–based or US–listed companies from bribing foreign officials in exchange for business.
3. _________ is a narrow-minded view of the world with an inability to recognize individual differences.
4. _________ is hiring another organization to do work that was previously done within the host organization.
5. _________ is the process of shuttering operations in other countries and bringing work back to the home country.
6. _________ is an employee who leaves their home country to go work in another country.
COMMUNICATION SKILLS
The following critical-thinking questions can be used for class discussion and/or for written assignments to develop communication skills. Be sure to give complete explanations for all answers.
1. Do you expect that globalization of business will continue to expand? Why or why not?
2. Is it fair to utilize the least expensive “capital resources,” no matter where they come from? Why?
3. Is the use of a trade bloc simply another form of trade barrier that we shouldn’t use? Explain your answer.
4. How should countries manage transnational firms that have no real home country, including with tax policies and employment laws?
5. How would you as the HR manager prepare another employee for managing the workforce in a transnational firm?
6. Do you agree or disagree that people all over the world are getting more similar in their desire for certain products and services? Is this a good or a bad thing?
7. Should tariffs and other trade barriers be increased in order to protect jobs in the home country? Why or why not?
8. The United States is one of only a few countries that has a law like the Foreign Corrupt Practices Act. Does it put us at a disadvantage as compared to other countries’ businesses? If so, should it be repealed? Why?
9. Do you believe that Hofstede’s culture model is accurate? If not, what would you change to make it more useful in training people to work in a different culture?
10. Is knowing the local language always necessary when working internationally? Why?
11. Who would you rather assign to manage a foreign office of your business? Would you rather have a home-country, host-country, or third-country national? Why?
12. Should companies reshore more jobs that have been moved overseas? What are the pros and cons of doing so?
13. Would you ever consider sending someone to work in another country without cultural training if you were the HR manager? If so, in what circumstances?
14. Have you ever spent more than 6 months in a foreign country? Did you feel culture shock? If so, what did you do to get over it?
15. Can you think of some instances in which symbolic communication might be critical? Give examples.
16. Which option for compensation would you want if you were assigned by your company to work in another country? Why?
CASE 16-1 SAND BY SAYA: THE CHALLENGES OF A SMALL BUSINESS GOING GLOBAL
Sand by Saya is a New York–based women’s luxury sandal brand that sells flip-flops with glamorous embellishment sewn on the top and receives rave reviews.(1) It maintains two full-time and two part-time employees in a location of approximately 2,200 square feet.(2) Sand by Saya is sold in nine countries as well as online. The main market of Sand by Saya is the Asia region, especially Japan and China, where Sand by Saya has contracts with major wholesalers and department stores. In the United States, the market channels are mainly their online website and consignment retailers such as Bluefly, Shoptique, and Farfetch.(3)
The CEO of Sand by Saya is a native Japanese entrepreneur named Ms. Sayaka Fukuda. She directs every part of business from product design to sales. Her main employees (both Japanese citizens) are Tsugumi, the office manager and accountant, and Asuka, who is in charge of design and production. Eugene, a college intern from Canada, was the assistant to Asuka dealing with design and production, while Karolina, a French intern, was the assistant to Ms. Fukuda working on marketing and sales part-time. Sand by Saya used to import sandals and embellishments from factories in China and assembled them in its New York office. As Sand by Saya grew, manufacturing was offshored to a Chinese factory owned by a Japanese importer, Mr. Nozawa.
The designs for the 2016 Charm Collection had been finalized in October when in early November, Sayaka told Asuka and Eugene that Mr. Nozawa thought having a cheaper line/collection with a more simple design, possibly using a metal stud technique, would increase sandal sales and the brand’s visibility. Sayaka agreed that she needed to boost sales, and if Mr. Nozawa thought lower-priced sandals would increase business, it was good enough for her. Sayaka asked her staff to develop a new inexpensive product line using modified images from the internet to create a virtual line of sandals that would be marketed to potential buyers. Eugene took issue with this approach, saying you should not try to sell what you do not have. Regardless, Sayaka was the boss, and Asuka insisted that she and Eugene create a new, less expensive sandal line. Asuka and Eugene did remind Sayaka that all production needed to be finished by February. They already had a tight schedule with Mr. Nozawa given the logistics of sending packages back and forth with his Chinese factory, and therefore an additional product line seemed nearly impossible to get out in time.
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Mr. Nozawa was right! Orders were now pouring in for the new lines of sandals, including a huge order from Mr. Saito. This was Sayaka’s main buyer, her “Walmart,” and she had to keep him happy. He thought a lower-priced line with similar quality standards would be a huge hit with his retail buyers, and he had received several pre-orders for the sandals just based upon the product descriptions he forwarded from Sayaka to his clients. She did not want to disappoint Mr. Saito and thought Mr. Nozawa could figure out a way to get her order in and make her deadlines.
Mr. Nozawa was very apologetic but also very clear—there was no way that he could, without having already run preproduction and testing, meet her deadlines, especially for the sandals that required studs. He did not carry this type of equipment in his factory, and he would have to order it and then train his employees on its usage. This would also negatively affect his manufacturing costs and therefore his price for making these sandals. Even without his factory being closed for 3 weeks for the New Year, he could not fulfill her needs. Mr. Nowaza did have an idea, though. He had several contacts in Bangladesh, and perhaps they could produce these sandals for her. He provided her with several e-mail addresses, names, and phone numbers and wished her the best.
Several days later, after numerous e-mails and phone calls by Karolina to manufacturers of sandals in Bangladesh both on Mr. Nowaza’s list as well as through her own research, a manufacturer was located. This firm already had stud technology on the premises, had access capacity to meet Sayaka’s production needs, and seem priced well within Sayaka’s per-unit cost. Eugene sent, after a nondisclosure and noncompete agreement were signed by the manufacturer, samples of their current sandal line so they would get an idea as to the quality of the sandal as well as the unique embellishments. Preproduction samples arrived back in New York at Sayaka’s a week later (early February) with a deadline for producing the units requested—Sayaka could meet Mr. Saito’s needs if she signed now!
Everyone in the shop examined the preproduction sandals, and they seemed fine. The workmanship was not as good as Mr. Nowaza’s, but the sandals seemed good enough given the lower price point for this product line. Sayaka quickly signed the papers and e-mailed them back to their new manufacturer and everyone breathed a major sigh of relief—but not for long.
It was early May, and Sayaka was on the phone with Mr. Saito and her voice was serious, and so was the speech coming out of the receiver. Even though Sayaka was speaking softly and deferentially in Japanese, everyone in the room noticed that something was wrong regardless of seeming pleasantries. Their discourse continued for almost an hour. Sayaka finally hung up the phone with a polite voice yet with trembling hands. With a very calm demeanor, Sayaka talked with her two full-time employees, Tsugumi and Asuka, very fast in Japanese. Then she turned to Karolina and Eugene, her part-time employees, and broke the news in English. “Saito will not order with us this year. He is very disappointed in the quality of our new product line. He has decided to discontinue our contract and seek other more quality-conscious suppliers.”
How did this happen? Sayaka and her staff were caught completely off guard, because all of the sandals were drop shipped to the buyers. She and her staff never saw what the sandals actually looked like as they arrived at the buyers, and therefore they had no idea what their buyers and the buyers’ customers were receiving. Saito’s returned sandals arrived a few days later, and Sayaka’s worst fears came to fruition. The sandals were very different from the preproduction sandals they had received from their new manufacturer in Bangladesh. The returned sandals were in very poor shape, used very cheap materials, and just did not fit the Sandals by Saya quality brand image. They certainly could not be sold (and now resold) under her company’s name, and she immediately called her Bangladesh manufacturer to find out why these sandals were substandard.
Speaking in very slow English, Sayaka explained the situation to the head of manufacturing at the Bangladesh plant. His response was curt and to the point. This was the level of quality that every sandal designer firm received from him given the price she had bargained for. His plant had met the prescribed specifications in the contract, and that was that. When Sayaka brought up the issue of the preproduction samples, the head of manufacturing reminded her that these samples had been developed before a price was agreed upon. If she had wanted that quality of sandal, then she should have agreed to the quoted price rather than bargain for a much lower price. From the manufacturer’s perspective, the quality of product fit that price point.
Sayaka then called her lawyer, who talked about such issues as misrepresentation and breach of contract. The bottom line was that Sayaka probably had a winning case, yet Sayaka was not hopeful, given her upfront out-of-pocket legal fees, that she would have to sue in a Bangladesh court, and that it might take anywhere from 6 months to a year to settle the case. More important, even winning a court settlement would not get her reputation back. She sat in her office wondering what she had done to get herself into this mess and how she was now going to get out of it.
Questions
1. Sand by Saya is a small five-person New York–based business, yet it has gone global. Describe its global operation and the underlying reasoning behind going global.
2. What is the current stage of corporate globalization of Sand by Saya?
3. How might international ethics apply in this case between Sayaka and her employees? Between Sayaka and her Bangladesh supplier?
4. How might cultural differences apply in this case between the Sayaka and her employees? Between Sayaka and her Bangladesh supplier?
5. Explain Sayaka’s choice of staff using home-, host-, or third-country employees. Does her choice seem to be polycentric, geocentric, or ethnocentric?
6. Sand by Saya used to import sandals and embellishments from factories in China and assembled them in its New York office, yet it later offshored manufacturing first to China and later to Bangladesh. What are the pros and cons of offshoring this type of work?
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7. What type of training might you recommend for Sayaka and her staff and why?
8. What are some global trends that may impact Sand by Saya’s human resources policies and operations?
References
(1) Anonymous. (2017, June 7). Sand by Saya. Yelp. Retrieved from
https://www.yelp.com/biz/sand-by-saya-manhattan
(2) Anonymous. (n.d.). Sand by Saya. Hoovers. Retrieved June 7, 2017, from
http://0-subscriber.hoovers.com.liucat
. lib.liu.edu/H/company360/overview.html?companyId=6062371
(3)
https://www.sandbysaya.com/pages/where-to-buy
, June 7, 2017.
Case created by Herbert Sherman and Theodore Vallas, Department of Management Sciences, School of Business Brooklyn Campus, Long Island University
CASE 16-2 THE GREAT SINGAPORE SALE AT JURONG POINT: FINDING AND RETAINING BARGAIN EMPLOYEES
Singapore is an island of 646 square kilometers, about the size of Chicago. It is located at one of the crossroads of the world. Singapore’s strategic position has helped it grow into a major center for trade, communications, and tourism. In just 150 years, Singapore has grown into a thriving center of commerce and industry.(1) Shopping is second to eating as a national pastime in Singapore. The island has an outstanding range of products that are available in shopping malls, department stores, boutiques, and bargain stores. Avid shoppers love the annual Great Singapore Sale, which usually falls in June to July. It has become a legendary annual event for both Singaporeans and visitors alike. Wide ranges of goods, including designer products, are marked down to present a mighty shopping extravaganza. The bargains are genuine and definitely give value for money. Shoppers can also expect private events that are hosted by the distinguished Sotheby’s, Christie’s, Tresors, and Glerums & Bonhams and feature exclusive items, such as works of art and jewelry. Antique rugs and carpets can also be bought at a cheaper price during the Great Singapore Sale.(2)
Jurong Point Shopping Centre (“Jurong Point”) is a leading suburban retail mall situated in the western part of Singapore. Strategically located next to Boon Lay MRT Station and Bus Interchange, Jurong Point serves as the gateway to the Jurong West industrial estate, Singapore’s key educational institutions, and the residential population in the west. Jurong Point in 2014 was the largest suburban mall in Singapore, housing about 450 retailers and showcasing their products and services to 6 million visitors a month. The revamped Jurong Point houses a range of retail zones—expanded and revamped Ginza Delights, Mongkok, Rackets & Track, Korean Street, Malaysia Boleh, Takeaway Alley, Gourmet Garden, and many more. In addition, there are also a 67-bay air-conditioned bus interchange, 11 civic community tenants, and to top it all off, a 610-unit condominium nestled above the retail podium.
Jointly owned by Guthrie GTS Limited and Lee Kim Tah Limited, Jurong Point is poised to take a leap forward to be the “heart of a vibrant community, abuzz with activity and a passion for life, offering WOW experiences for one and all.”(3) Jurong Point Shopping Centre has an HR staff of 3 employees who oversee 160 in-house staff, with an additional 2,500 employees working for the mall’s tenants. Singapore is seeing a growing number of mall projects as more foreign retailers enter the local market, with 13 new malls in the works and scheduled to open between 2014 and 2017. As competition heats up, existing retailers are seeking new and innovative ways to engage and retain their employees.(4)
HR at Jurong Point has launched a number of initiatives to attract the right talent into its fold. One of the most effective means has been the organization’s in-house staff referral program, shares Sally Yap, senior HR and administration manager at Jurong Point Shopping Centre. “They receive cash incentives if the employee is confirmed after three months.” Recruitment efforts do not stop at in-house and operational roles but extend to the tenants. The mall launched its own job portal in 2012 to help its tenants look for staff. It also runs regular recruitment fairs to attract suitable candidates. This additional help is especially valued by the mall’s smaller shops that have resource constraints, shares Yap.(5)
Jurong Point has also beefed up its service levels to keep its customers coming back for more. One of the ways it achieves this is by conducting training programs for its tenants. Employees from the mall’s various outlets are taken through bite-sized modules that focus on areas such as how to serve people better, personal grooming, and basic conversational English. The latter can be a barrier for some staff, so courses like these help them perform their daily tasks better, says Yap. “We treat our tenants like family. We won’t be strong if they are not strong.” The mall is also partnering with Singapore Polytechnic (SP) to offer a service training program for its retail and food-and-beverage staff. In this program, employees undergo 30 hours of training focusing on areas such as retail strategies and operations, visual merchandising, restaurant management and challenges, and menu design and pricing. Upon completion, course participants receive a joint certificate from SP and Jurong Point. “It’s a sweetener that will encourage them to stay at Jurong Point,” Yap says. “It adds value and enhances their employability.”(6)
Jurong Point is fully absorbing the cost of training and hopes to put 500 to 700 service staff through the program’s 2-year pilot phase. It plans to extend it to the mall’s full staff within the next 5 years. According to Yap, the customized training will focus on improving the productivity, emotional intelligence, and entrepreneurial mind-set of in-house and tenant staff.
Once employees are recruited and trained, an employee empowerment program sets the culture for the firm. A bottom-up team approach gives employees the freedom to work out the operational details with their teams. This makes decisions less hierarchical, and employees are also happier, as they are not micromanaged, says Yap. Employees are not limited to the roles that they initially signed up for. If an employee in the operations department is interested in a marketing role, they can get a transfer when the right opportunity arises. This flexibility is appreciated by the organization’s younger employees in particular. “They are more restless and don’t want to be stuck at the computer doing mundane things. We are very open to doing things differently,” says Yap.(7)
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The HR team at Jurong Point follows this ethos and takes a nontraditional approach to its role. It works very closely with other departments to push out new ideas and programs. It also serves as the umbrella HR organization for the mall’s tenants and is actively involved in ensuring a consistent culture across the property. Interaction between departments is also encouraged through activities such as overseas trips. “Every department is represented by a team member, and it allows employees to bond outside of work,” says Yap. Quarterly buffet lunches are organized to encourage employees to eat and mingle together while exchanging updates on the latest happenings. “We don’t work in silos and like to come together to support each other,” says Yap.(8)
Questions
1. Taubman Centers Inc. (TCO) is the owner, manager, and/or lessor of regional, super-regional, and outlet shopping centers in the United States and Asia. They are looking to extend their expertise to booming markets in China and South Korea. Assuming they wanted to break into the Singapore market, what international expansion strategies might they have relative to Jurong Point?
2. Assuming Taubman was to purchase Jurong Point, what legal and cultural issues must they address in order to facilitate a smooth ownership transition?
3. Given your answer to question 2, what global staffing issues would Taubman have to immediately address? Longer-term issues?
4. Human resources play a critical role in Jurong Point’s competitive strategy. What HR functions does the small HR staff focus on? Why?
5. Jurong Point’s HR staff outsources some of its functions to its tenants. What are those functions, and how does this HR strategy fit Jurong Point’s generic strategy?
6. Organizational culture seems to be a distinctive competency for Jurong Point. What is their culture, and what HR policies nurture that culture? How might this culture change if Jurong Point were acquired by Taubman?
References
(1)
Marimari.com
. (2014, August 4). Singapore: General information. Retrieved from
http://www.marimari.com/content/singapore/general_info/main.html
(2) Marimari.com. (2014, August 4). Singapore: Shopping. Retrieved from
http://www.marimari.com/content/singapore/shopping/main.html
(3) Jurong Point. (2014, August 4). Jurong Point Shopping Centre: Singapore’s largest suburban life style paradise! Retrieved from
http://www.jurongpoint.com.sg/corporate/
(4) Ibid.
(5) Selvaretnam, S. V. (2014). At your service. HRM, 14(2), 17.
(6) Ibid, 18.
(7) Ibid, 19.
(8) Ibid.
Case created by Herbert Sherman and Theodore Vallas, Department of Management Sciences, School of Business Brooklyn Campus, Long Island University
SKILL BUILDER 16-1 THE GLOBAL HRM ENVIRONMENT
Objective
To develop your global HRM awareness
Skills
The primary skills developed through this exercise are as follows:
1. HR management skills—Conceptual and design
, and business skills
2. SHRM 2016 Curriculum Guidebook—Parts of multiple guides including Question 3—B: Employment Law, Question 4—F: Managing a Diverse Workforce, Question 5—I. Staffing: Recruitment and Selection, Question 6—L: Training and Development, Questions 7 and 8—K: Total Reward, Question 9—C: Ethics
Assignment
For this exercise, select a company that conducts business as an MNC or a transnational global corporation, preferably one you work or would like to work for. You will most likely need to conduct some research to get the answers to the questions that follow, such as visiting the company’s website and talking to HR professionals.
1. Explain the stage of corporate globalization.
2. List at least five countries it conducts business in and the trade agreements these countries participate in.
3. Identify some of the key differences in laws among the five countries.
4. Compare the company’s nine GLOBE dimensions for the five countries it does business in. Make a chart similar to Exhibit 16-3: GLOBE Dimensions.
5. Explain how it recruits and selects expatriate employees.
6. Describe how it trains its expatriates and families.
7. Discuss the method(s) of compensation for its expatriates.
8. Compare the compensation (pay, incentives, and benefits) among the five countries.
9. Does the company have any specific code of ethics for conducting business in other countries, and if so, describe the code.
Your professor may or may not require you to answer all nine questions.
You may be asked to pass in this assignment, present your answers to the class, and/or discuss your answers in small groups or online.
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SKILL BUILDER 16-2 CULTURAL DIVERSITY AWARENESS
Objective
To develop your global cultural awareness
Skills
The primary skills developed through this exercise are as follows:
1. HR management skills—Human relations skills
2. SHRM 2016 Curriculum Guidebook—F: Managing a Diverse Workforce
Assignment
Procedure 1 (4–6 minutes)
You and your classmates will share your international experience and nationalities. Start with people who have lived in another country, then move to those who have visited another country, and follow with discussion of nationality (e.g., “I am half French and half Irish but have never been to either country”). The instructor or a recorder will write the countries on the board until several countries/nationalities are listed or the time is up.
Procedure 2 (10–30 minutes)
You and your classmates will share your knowledge of cultural differences between the country in which the course is being taught and those listed on the board. This is a good opportunity for international students and those who have visited other countries to share their experiences. You may also discuss cultural differences within the country.
SKILL BUILDER 16-3 THE MOST IMPORTANT THINGS I GOT FROM THIS COURSE
Objective
To review your course learning, critical thinking, and skill development
Skills
The primary skills developed through this exercise are as follows:
1. HR management skills—Conceptual and design
2. SHRM 2016 Curriculum Guidebook—The guide will vary with student answers
Assignment
Think about and write/type the three or four most important things you learned or skills you developed through this course and how they are helping or will help you in your personal and/or professional life.
You may be asked to pass in this assignment, present your answers to the class, and/or discuss your answers in small groups or online.