Ethical Issues in Human Resource Management
HRD 327
Jeffrey N. Decker, Ph.D.
Class Times:
E-Mail:
Phone:
Office Hours:
7:00 to 10:00 on Wednesday evenings from September 6 th through October 18th
jeffreydecker@msn.com or jdecker@whittier.edu
(714) 394-5665 fax (714) 695-1462
prior to class or as arranged
Introduction:
The names of the recent business villains could fill this page, and now they are going to jail! The questioning of
their actions could fill a library, and their actions do imperil a nation; a world epoch has been soundly shaken. This
is important stuff. Throughout the history of the United States, businessmen and, recently women, have been called
to task. As a nation, we are increasingly divided about market capitalism and free enterprise. Over the past twenty
years we have seen deregulation come, and now the sea is changing, yet again. A famous Chinese curse reads: May
you live in interesting times! Yes, ethics are important to business people. The question is simple: what does good
business mean? The complexities of business and our human/social world make this into a very interesting study.
To a practicing manager, this stuff is critically important, especially, if they don’t get it! Many don’t, obviously.
During this nation’s past, business ethics have wrought some of the most heated debates. (One could argue that our
Civil War was in a large part due to business ethics.) No doubt free markets and Capitalism has benefited our nation.
However, the cost has been great. Consider cigarette manufacturers, nicotine and their advertising—not to mention
the false and misleading testimony of several leading executives before congress; the Ford Motor Company and the
Pinto, Bronco, and Explorer; General Motors and its fuel tanks in its pick up trucks, Al Dunlap and Sunbeam’s sales
and accounting scandal and Sunbeam’s subsequent bankruptcy; the collapse of Continental Illinois Bank and its
acquisition of problem loans from small banks with depositors’ savings; the Savings and Loan debacle in general;
Japanese bureaucrats and Lockheed’s bribery transgressions; and Johns Manville and its handling of asbestos. (The
readers will kindly note that this is all old news! No; the latest batch of troubled executives did not invent this stuff,
although the dollar amounts are much larger.) What about the monopoly charges brought against Microsoft—not to
mention its movement into windows with a product remarkably similar to Apple’s operating system; Sears and its
auto repairs problems; Kathy Lee, Nike, and the international labor issues; Wall Street and ValueJet’s skimping on
costs involved in airline safety; General Electric and its river pollution problems; GE and Westinghouse’s antitrust
action in turbines; Wal-Mart’s aggressive growth strategy and the loss of small town businesses; Wal-Mart and its
legal practices; and Wal-Mart and its “Buy America Program.” Now here comes Enron, Arthur Andersen, Global
Crossing, Tyco, Martha Stewart, Disney (remember its privacy practices and Guest safety issues), Adelphia, Rite
Aid, the dot com bubble, Xerox and its large restatement of earnings, ditto Lucent, and Waste Management. There
is a point here. This isn’t necessarily new, but there does seem to be more problems and they are bigger. These
issues can be big news, but they can also permeate an organization. This is where a “good” Human Resource
manager gets involved!
There is a fundamental reality that seems to have escaped our notice: ethical issues are important, and ethical
violations are not all that uncommon. Think about your own encounters with rude sales people, telephone service
sales solicitations, product defects, and other day-to-day encounters. Much of this does not make it to the nightly
news, but ethical transgressions are pretty common. Think about your work life. Does your manager respect you
and your co-workers? Who gets blamed when problems arise? Are you surprised when important decisions are
announced? Are you involved in discussions about important problems, opportunities and questions? Ethics do not
necessarily involve the big transgression all of the time. They can be the result of hidden forces that many times we
don’t even see. They are so common that we take them for granted, almost. We take action and don’t even think
that there is an ethical point to consider.
Ethical issues are often invisible. There is general consensus about the fact that managers should not violate laws.
After the summer of 2002, it should be pretty clear that it makes no sense to knowingly break the law. Obviously,
the executives at Arthur Andersen were foolish to shred those documents and the chief accountants at MCI
WorldCom were wrong to book current period expenses as capitalized assets. Certainly, Enron’s income
recognition problems and off-balance sheet “Special Purpose Entities” were clearly inappropriate—as were their
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loans and dealings outside the United States? Actually, the answer is no. In all cases, the managers involved can
make a case that they thought their actions were within current standards. (WorldCom appears to be the exception
to this rule. Although I did catch a recent interview with their former CEO, and sure enough, he thought that they
had not done anything wrong. It looks like he will have nothing much to do over the next 25 years, so he can
rethink things a bit more carefully.) These people didn’t “knowingly” cross the line. (People can rationalize away
transgressions with wondrous ease.) The fundamental mistake by the above executives was getting to close to a line
that isn’t clearly visible and that moves over time. IBM’s servicing of its tabulating equipment located in Germany
during World War II may be such a case. This is a big risk for all of us with regard to environmental issues. Those
arguing for scientific proof that there is an ozone problem may get it!
Let us recap: 1) ethical violations are not new but their size and frequency seem to have both escalated, 2) ethical
violations can be big and small, and 3) ethical violations can occur, apparently, without the actor even knowing that
it happened as standards may be unclear and because standards change. There is more: ethical issues are
complicated. So what do you do?
Turning back to the Lockheed case, the U.S. managers who were involved did not personally gain from their actions.
They did it for the good of others. Their company’s sales were below budget; jobs back home were on the line.
These well-intending managers just got sucked in as they were only following local custom. Nike contends that it
isn’t abusing its workers in Viet Nam by paying them on $.23 per hour. They are in line with local minimum wages.
All other footwear manufacturers pay similar wages. Besides, no one forced those people to come to work; they did
it voluntarily. (Enough about Nike for now; we will get up close and personal on this one later in the course.) Still,
Lockheed suffered mightily when the news got out, and Nike’s sales took a big hit when the news of their practice
broke. Both sets of managers were doing what they thought best to serve employees and shareholders. Andersen
warned the Enron board that Enron’s accounting practices might lead to earnings restatements; they did their job.
Moral issues are complex. Thinking through whose interest are involved and what consequences your actions might
have on them—the shareholders, employees, customers, Guests, and public is not easy. You might think that your
decisions and actions are appropriate, as many at Arthur Andersen and Enron did, and presumably still do, but the
final call isn’t any individuals to make. Ethics is a societal issue and it can and does often become a legal and
criminal one!
The negative effects of ethical violations can be enormous. Someone usually gets hurt economically, but don’t
overlook the physical and psychological impacts. Enron’s bankruptcy has had enormous adverse affect upon its
employees and its many investors, the actions of executives within Johns Manville led to the death of many of its
hourly workers, and Pacific Gas polluted the ground water and injured its neighbors. This is so obvious that it need
not be carefully considered here. What is interesting is how the ethical violation injures the actor and others
associated with him or her. In other words, ethical violations are like playing with hand grenades or worse. (Dirty
bomb is probably a better metaphor, as people get hurt when it goes off and its effects last a long time.)
How the ethical violation hurts the transgressor is easy to see. First, penalties are often felt immediately. You are
presumed guilty and the penalties come before the sentencing. Arthur Andersen was virtually out of business as
customers and employees started to bolt long before the judge rules that only one executive’s actions could be
grounds for finding guilt. Disney’s park attendance has been off ever since revelations surfaced about it preventing
emergency care people onto the park facilities to help injured Guests.
The second consequence of ethical transgressions on the transgressor is that others get hurt. Again, Arthur Andersen
makes the point. After a prolonged deliberation, it came down to one person’s action that led to the jury finding in
favor of the government, and thousands of good people lost their jobs. No doubt that there were others within
Andersen who contributed to shaping that person’s behavior. That is not the point. If you make an ethical violation,
you most likely will hurt others who are associated with you.
Ethical violations result in an economic death penalty. One of the good things about markets is that one can learn
from their failures. If your business is a bust, try again. We can raise new capital, change the delivery system and a
new business is formed. Not so if you commit an ethical transgression. Al Dunlap most likely won’t get another
chance to be CEO. Andy Fastow’s days are over as a Chief Financial Officer now that he has pled guilty and will
apparently be spending a long time in prison.
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Ethical violations will be pursued, even if the actor is found guilty on a lesser charge. Think about Al Capone. We
got him for tax evasion, not murder. Arthur Andersen was found guilty, barely, for destroying documents, not for its
high risk accounting treatments and lax oversight. If you are accused of an ethical violation, the power flush is on.
Does Martha Stewart’s name come to mind?
The cost of ethical violations for both the manager can be quite large. Al Dunlap’s family celebrated his problems
after the Sunbeam story broke. His own son chuckled about his plight. One can almost take pity on him. However,
given his escape with many millions from Scott Paper, it is hard to feel sorry for even him. He is not blessed with
the sort of life that Aristotle would admire: flourishing in a social situation. His management practices were not
good. He did not analyze and adapt; he did not invest and create; he did not create value generating enterprises. He
lived off of the capital of the past, destroying economic resources as he extracted value for himself and the few at
the expense of the many. Returning to the general point about the enormous personal cost of ethical violations,
consider the tragic death/suicide of one executive at Enron. Despite the financial gains of selling stock before the
public got the news about problems, Jeff Skilling will be facing enormous legal bills for years to come.
The final loser in all of the moral mess of the age is no doubt society. We can think of it as social pollution. These
transgressors will cause enormous loss for future generations. Economic systems work best when they are
supported by the rule of law and customs and practices based upon reciprocity. Contracts must be enforced, but we
cannot do business if everything has to be solved through litigation. Good reputations create value. Transactions
cost due to negative opportunistic behavior—the market failure problem weigh heavily on a society as productive
resources are devoted to defensive purposes. Ethical violations result in new laws and new regulations. Ultimately
the result is more constraints.
Well, we should be headed for a very exciting time together this Fall. I expect that you will live up to the excellent
academic tradition of CGU. Have your readings done before class, take an active roll in class discussions, and treat
one another civilly (including me). It is an honor to work with you. I have lots to learn and look forward to sharing
this experience with you. I have chosen some pretty heavy stuff for our class. It will be a challenge
Grades:
We will use the following percentages: 50% for class participation and 50% for your final paper. Final papers must
be submitted by October 25th via e-mail. They should be five to ten pages long and should be written so that the
student’s mastery of the course material is clearly visible.
Readings:
Marvin T. Brown, Corporate Integrity: Rethinking Organizational Ethics and Leadership, Cambridge University Press, 2005
Joseph Badaracco, Leading Quietly, Harvard Business School Press, 2002
Cases and readings: www.study.net
Schedule:
Session I
Course Introduction
Corporate Integrity 1
Case: AT&T Consumer
Products
Session V
Leading Quietly 7 & 8
Corporate Integrity 5
Case: Pathways to
Independence: Marriott
Session II
Leading Quietly 1 & 2
Corporate Integrity 2
Case: IKEA’s Global Sourcing
Challenge: Indian Rugs and Child
Labor (A)
Session VI
Leading Quietly 9
Corporate Integrity 6
Sharon Watkins
Case: The Case of the Willful Whistle
Blower
Session III
Leading Quietly 3 & 4
Corporate Integrity 3
Case: Michelle Levene (A)
Session IV
Leading Quietly 5 & 6
Corporate Integrity 4
Case: Timberland: Commerce
and Justice
Session VII
Corporate Integrity 7
Human Side of Management
Managing The Crisis You Tried to Prevent
Case: Accounting Fraud at WorldCom
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