Ethics for Human Resources
Professionals
www.PaulFalconeHR.com
Paul@PaulFalconeHR.com
www.PaulFalconeHR.com
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Contents
Introduction to business ethics in the workplace:
employment history and ethics theory, the Sarbanes
Oxley Act, and corporate governance standards
Employment laws, company policies, codes of conduct,
and past practices: guidelines for ethical business
decision-making
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Contents (cont.)
Workplace audits and self-regulation; egregious misconduct
and summary offenses
Effective internal investigations
Ethical considerations in international companies, cultural
differences, and outsourcing and off-shoring
considerations
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Part I
Our History, our Laws, and our
Evolving Workplace
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Ethics: A Definition
 Ethics can be defined as a code of moral standards by
which people judge the actions and behaviors of
themselves and others.
 Business Ethics is the “application of a moral code of
conduct to the strategic and operational management
of a business” – www.applied-corporategovernance.com.
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Legal vs. Ethical
 Legal standard = compliance / avoidance of
wrongdoing that could run afoul of the law
 Ethical standard = building a moral
corporate culture that has integrity
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Ethics Programs
Workplace ethics programs generally fall into one of three
categories:
1. Codes and compliance programs (e.g., SOX, ISO) focus
on preventing unwanted behavior
2. Corporate identity and values programs focus on what
a company stands for and the good qualities the company
wants its employees to exhibit
3. Social outreach programs = +corporate social
responsibility”
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Legal Standards & Guidelines
 “Legal requirement” vs. “moral imperative”
 Can you demonstrate that your company had a legitimate,
non-discriminatory, non-retaliatory reason for the actions
that it took?
 Can you demonstrate business necessity (AKA a compelling
business reason) and job-relatedness?
 Standard: Did the employer have a good faith belief?
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Legal Guidelines (cont.)
 State laws have “concurrent authority” with federal laws –
whichever law is broader in terms of worker protections
prevails
 “Fair treatment” vs. “preferential treatment”
 “Acting outside the course and scope of your employment”
 “Affirmative obligation to disclose”
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Legal Guidelines (cont.)
 Disparate Treatment: intentional discrimination
 Disparate (Adverse) Impact: a policy, neutral on its
face and even-handedly applied, nevertheless has a
disproportionate adverse effect on a protected group
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A Brief History of Ethics
The study of ethics involves two basic questions:
1. What is the right thing to do?
2. Why should you do the right thing?
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Ethics History (cont.)
Ethicists have come up with three main approaches to how
people should conduct their lives:
1.
Develop character traits that allow you to live a good and
ethical life
2. Focus on your duties to yourself, others, and society in
general
3. Look to the consequences of your actions and how those
consequences affect you and others
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Ethics History (cont.)
 Meta-ethics attempt to describe the nature of good and bad and
right and wrong
 Descriptive ethics (AKA comparative ethics) study what
different people believe is right and good
 Normative ethics focus on what people should do to live a
moral life
 Virtue ethics focus on character education, which is the act of
training people to develop virtuous habits like truthfulness,
fairness, and integrity
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Ethics History (cont.)
 Aristotelian values include: generosity, temperance,
modesty, and greatness of soul. Virtues are states of
character, but they only become true character
through constant exercise.
 Immanuel Kant’s “categorical imperative” follows
one overarching commandment from which all duties
and obligations are derived. Kant’s “moral
universalism” posits that some actions are always
right or wrong.
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Ethics History (cont.)
 Thomas Hobbes’ 17th century “social contract
theory” states the individuals and groups willingly
trade some of their freedoms in exchange for a
government or society that can protect their individual
and collective interests
 Natural rights theorists accept John Locke’s
contention that all citizens have a natural right to life,
liberty, and the acquisition of property
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Ethics History (cont.)
 Consequential ethics state that people should act in
ways that result in the best consequences. Acts
themselves aren’t good or bad; they’re only deemed
good or bad by what happens because of them. Does
the end justify the means?
 Hedonism states the pleasure is the only thing that’s
inherently good.
 Utilitarianism is commonly defined as the greatest
good for the greatest number.
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Ethics History (cont.)
 Situational ethics, developed by Episcopal priest
Joseph Fletcher in the the 1960s, emphasizes the
overriding importance of agape, or absolute,
unchanging, and unconditional love for all people . . .
 Situational ethics come into play only when the
circumstances are so extreme that following
conventional moral principles would lead to a bad
outcome (i.e., the morality of any action is always
determined by the circumstances).
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A Short Overview of U.S.
Employment Law
 The “Job as Property Doctrine” – the right to work is
fundamental to American citizens that it shouldn’t be
taken away without workplace due process as accorded
under the 14th Amendment to the Constitution
 Standard: “Termination for Just Cause Only”
 “Workplace due process” typically comes in the form of
progressive discipline (i.e., documented corrective
action)
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Progressive Discipline
Before any worker loses her job, she has the right to:
1. Know the nature of the problem
2. Know what she needs to do in order to fix the
problem (i.e., company expectations)
3. Be given a reasonable amount of time in which to fix
the problem
4. Understand the consequences of inaction
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1930’s Employment-at-Will
 The Great Depression threatened the very existence of
capitalism, and Congress passed a series of laws that were
intended to keep companies in business at all costs
 The worker’s right to due process was replaced by the
employer’s right to terminate at whim
 From the 1930s to the 1970s, the United States witnessed its
greatest growth in unionization as a result because union
workers are not “at will” and are typically held to a “for
cause” standard under the collective bargaining agreement
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Benefits of Joining a Union
 #2 Reason: The right to collectively bargain for
wages and benefits and enjoy greater job security
 #1 Reason: “If you join our union and pay your
union dues, we won’t let companies terminate you at
whim. Our collective bargaining agreement will
guarantee that you’re accorded workplace due process
in the form of progressive discipline, and you’ll gain
control of your future back.”
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A California Court in 1980
Tameny vs. Arco Oil (June 2, 1980)
 15-year employee was fired for refusing to engage in
unlawful activities (“price fixing”) on employer’s behalf
 CA Supreme Court Justice Rose Byrd ruled, “We won’t
countenance firing a long-term employee, even if at
will, for reasons that violate public policy.”
 The public policy exception was born.
 Tort law became part of legal landscape in CA.
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Limitations on Employment at Will
Exceptions to employment-at-will include . . .
1. Employment contracts (including collective
bargaining agreements)
2. Statutory considerations (protected classes)
3. Public policy exceptions (WC, whistle blowing, and
engaging in concerted activities)
4. Implied contract exceptions / implied covenants of
good faith & fair dealing (handbooks, vesting)
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EAW vs. Discharge for Just Cause Only
 Defense Attorney’s strategy = “Employment-at-Will
Affirmative Defense” used at the hearing stage with
the goal of immediate dismissal of the case (“Summary
Judgment”)
 Plaintiff Attorney’s strategy = “Discharge for Just Cause
Only” standard used at the trial stage (if the case
“survives Summary Judgment”)
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Hearings vs. Trials
Lesson: It’s not one or the other, it’s both – Without a
crystal ball, you can’t know now what kind of spin a
plaintiff attorney will place on a case six – 12 months
from now and how a judge will lean.
Therefore, since you can’t know in advance if you’ll win a
summary judgment at the hearing stage (using the
EAW affirmative defense), you must always be
prepared to show that you have just cause at the trial
stage (via progressive discipline)!
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1930’s
 1935 – The Wagner Act (known as the National
Labor Relations Act - NLRA) – guarantees basic
rights of private sector employees to unionize, bargain,
and strike
 1938 – Fair Labor Standards Act (FLSA) – banned
oppressive child labor (under age 14), set minimum
wage (25 cents), required employers to pay overtime
and set maximum workweek to 44 hours
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1940’s and 1950’s
 1947 – Taft Hartley Act – protects employers from
unfair labor practices (i.e., unions refusing to bargain
with employers in good faith)
 1959 - Labor Management Reporting and
Disclosure Act (Landrum-Griffin Act) – provides
employers the right to sue unions
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1960’s
 1965 - Executive Order 11246 – prohibits federal contractors
from discriminating in employment decisions based on race,
color, religion, sex, or national origin; federal contractors must
develop an Affirmative Action Plan (AAP)
 1967 - Age Discrimination in Employment Act (ADEA) –
prohibits discrimination based on age (40 years or older) and
protects employees from a hostile work environment based on
age
 1968 - Fair Credit Reporting Act (FCRA) - protects individuals
by regulating the way businesses gather and use credit
information about them
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1960’s (cont.)
 1963 - Equal Pay Act (EPA) - protects men and
women who perform substantially equal work in the
same establishment from sex-based wage
discrimination
 1964 - Civil Rights Act-Title VII - prohibits
employment discrimination on the basis of sex, race,
color, religion, or national origin (includes
recruitment, hiring, wages, assignment, promotions,
benefits, discipline, discharge, and layoffs)
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1970’s
 1970 – Occupational Safety & Health Act (OSHA) - governs
occupational health and safety; ensures that employers provide
employees with an environment free from recognized hazards
 1972 - Vietnam Era Veteran’s Readjustment Assistance Act
(VEVRA) - provides equal opportunity and affirmative action for
Vietnam era veterans, special disabled veterans, and veterans
who served on active duty during a war (applies to employers
with Federal contracts or subcontracts of $25,000 or more).
 1973 - Rehabilitation Act - prohibits discrimination on the
basis of disability in programs conducted by Federal agencies,
contractors and/or programs
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1970’s (cont.)
 1974 - Employee Retirement Income Security Act (ERISA) -
protects the interests of employee benefit plan participants by setting
minimum standards for pension plans in private industry and rules on
the tax effects associated with employee benefit plans
 1978 - Uniformed Guidelines on Employment Selection
Procedures - provides standards for use of employment testing;
employers must demonstrate a selection process is valid in predicting
performance, and selection process cannot create adverse impact
 1978 -Pregnancy Discrimination Act (PDA) – prohibits
discrimination based on pregnancy; treat pregnancy as any other
temporary disability
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1980’s
 1985 - Consolidated Omnibus Budget Reconciliation Act (COBRA) provides workers who lose health benefits to continue group health benefits
(temporarily) in certain circumstances
 1986 – Immigration and Reform Act (IRCA) – prohibits discrimination
based on national origin or citizenship of applicants; companies may be
penalized for hiring illegal aliens
 1986 - Health Insurance Portability and Accountability Act (HIPAA) –
protects an individual’s personal health information (amended in 1996 improves portability and continuity of health insurance coverage)
 1989 – Whistleblower Act – protects federal whistleblowers who work for the
government and report agency misconduct; agency cannot retaliate against an
individual who reports misconduct
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1990’s
 1990 - Americans with Disabilities Act (ADA) – prohibits discrimination
based on disability in employment decisions
 1991 – Civil Rights Act – provides the right to trial by jury on discrimination
claims and introduced the possibility of emotional distress damages (i.e.,
punitive damages), while limiting the amount that a jury could award
 1993 – Family Medical Leave Act (FMLA) – provides job protection and
unpaid leave for certain circumstances
 1994 – Uniformed Services Employment and Reemployment Act
(USERRA) – provides job rights of individuals who leave employment to serve
in the uniformed services and prohibits employers from discriminating against
past and present members of the uniformed service (and applicants to the
uniformed services)
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2000’s
 2002 – Sarbanes Oxley (SOX) - ensures the reliability
of publicly reported financial information, company
noncompliance may result in negative consequences
and contains protection for corporate whistleblowers
 2008 - Genetic Information Nondiscrimination
Act (GINA) - prohibits the use of genetic information
in health insurance and employment decisions
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Protected Characteristics
 Federal Law (Title VII) = 5 protections
Race, color, religion, sex, and national origin
 California State Law = 17 protections
Five from Title VII + ancestry, physical disability, mental
disability, medical condition, marital status,
pregnancy, age, sexual orientation, gender identify,
gender expression, genetic information, and military &
veteran status
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Part II
The Sarbanes-Oxley Act of 2002 (SOX)
 The Code of Business Conduct / Code of Ethics /
Code of Conduct
 Conflicts of Interest
 SOX Controls and Compliance
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Corporate Governance
 Arthur Anderson’s conflict of interest prior to its fall:
Accounting and Auditing services offered to the same
clients (Enron)
 Should the offices of Chairman of the Board (COB)
and CEO be held jointly by the same person?
COB = board of directors activities
CEO = operational activities
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Corp Governance (cont.)
 Pros: A combined Chairman/CEO acts as a bridge
between the board and the operating company and can
provide critical leadership for strategic initiatives.

 A principal role of the Chairman is to propose the general
agenda for board meetings from among the many issues
facing a company on a day-to-day basis. As a result, a CEO
may be in the best position to develop this agenda in the
most efficient and effective manner.
 Cons: The board must maintain independent
oversight of management. Joining the roles of COB and
CEO could consequently impact board independence.
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Corp Governance (cont.)




Key Board Committees
Audit Committee
Social Responsibility Committee
Nominating and Personnel Committee
Shareholder Advisory Committee
Note: “Trustees” must be independent of the company’s
management
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“Defective Certification”
 Criminal prosecution for CEO and CFO of publicly
traded companies
 Penalties include:
$1 MM, up to 5 years in prison
$5 MM, up to 20 years in prison (if willful)
Lesson: SOX, AKA SARBOX, has teeth!!!
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Part III: Internal Investigation
Strategies
 Rule 1: It’s all about the record
 Rule 2: Practice trumps policy
 Rule 3: Always the Get the Accused Worker’s Side of
the Story Before Making a Final Decision
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Investigations (cont.)
 Rule 4: When the issue drives the outcome
 Rule 5: The importance of timeliness
 Rule 6: Removing employees from the workplace: a
necessary consideration in the investigation process
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Investigations (cont.)
 Rule 7: Sameness vs. Consistency
 Rule 8: Performance vs. Conduct
 Rule 9: Beware the Dreaded “Preemptive Strike”
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Investigations (cont.)
 Rule 10: Vet the record before recommending
termination
 For a list of key record review items, visit
www.PaulFalconeHR.com and look at the Blog page
under: “Ten Practical and Street-Smart Rules for
Conducting Internal Workplace Investigations”
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Part IV: Real Life Scenarios
You Make the Call . . .
Scenario 1: “Hey boss, can I talk to you for a few
minutes off the record?”
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Scenarios (cont.)
 Scenario 2: Two employees (peers) begin dating in
the workplace. Do they have an obligation to disclose
their new relationship?
 Scenario 3: Two employees (manager - subordinate)
begin dating in the workplace. Do they have an
obligation to disclose their new relationship?
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Scenarios (cont.)
 Scenario 4: Loner employee carries a little red book where
she takes notes about her coworkers. She tells that they if
they do anything to hurt her, she will turn over her
notebook to her attorney and sue them personally. Does
the company have any recourse toward this employee?
 Scenario 5: Loner employee from New Orleans creates
voodoo dolls of her coworkers and sets them prominently
on her desk. Can management intervene?
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Scenarios (cont.)
 Scenario 6: Assistant store manager reports to store
manager (husband and wife). Husband (AM) arrested
for drug possession. Does wife (store manager) have
an obligation to disclose her husband’s / assistant
manager’s arrest?
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Scenarios (cont.)
 Scenario 7: Retail store announces to its workers that
it’s expanding hours to include Sundays from 9:00 –
4:00. Employees suddenly “see religion.” Does the
company have any recourse to a team that refuses to
work Sunday hours for religious reasons?
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Scenarios (cont.)
 Scenario 8: Bank employee reports to work with a
new nose ring, ear gauge, and eyebrow pin. Does a
company have the right to insist that those
paraphernalia be removed when dealing with
customers? Can a company reassign someone with
body piercings and new tattoos to a back-office role
that avoids customer interaction? What if the
individual opts to sport a beard or wear a Burka for
religious reasons?
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Scenarios (cont.)
 Scenario 9: Two clerks insist on speaking Spanish
with one another throughout the day while filing
records; a third, English-only speaking records clerk
feels left out and is suspicious that they’re talking
about her and laughing about her right in front of her
face. Does the company have the right to insist on
English-only speaking rules?
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Scenarios (cont.)
 Scenario 10: An administrative assistant complaints
to HR that she’s been having an affair with her VP boss
for the past nine months. She claims that the
relationship was unwelcome but she felt threatened
and feared retaliation if she didn’t comply.
 The VP confirms that the affair has been ongoing but
insists the relationship was consensual. What options
do you have as an employer?
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Other Scenarios
What are some common ways that employees engage in unethical
behavior?
How do you effectively deal with people who constantly “fly just
below the radar” in terms of not violating a particular company
policy?
What types of performance or conduct infractions can typically
justify a “summary dismissal”?
How would you differentiate handling suicidal vs. homicidal
concerns?
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Part V: Executive Compensation
 “CEO pay rose from about $5MM a year in 1998 to $12MM a year
in 2010. The stocks of their companies have, on average, fallen by
a third.” (Money Magazine, February 2012, page 100).
 “Say on Pay” shareholder initiatives (non-binding vote)
 Balancing governance standards, investor concerns, and sound
business strategy
 Four core elements: (1) salary, (2) benefits, (3) bonus, and (4)
long-term incentives (LTI)
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Executive Comp Design
1. Appropriate Pay Mix
2. Performance Metrics
3. Adequate Controls (governance standards)
4. Investor Concerns
5. Sound Business Strategy
= Support Sustainable for Shareholder Value*
* “Shareholder Value” is measured by (1) stock price appreciation and (2) dividends.
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Organizational Slope
 The relationship of salaries paid to subordinates of a
key executive manager. Slope is a percentage
relationship showing a reasonable salary differential
between the key positions and its subordinates.
 For example, in a $1 billion organization, the slope
might look like this:
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Org Slope (cont.)
CEO (100% anchor)

Finance (70%)
Marketing
Engineering
Manufacturing
HR (40%)
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CEO-to-Average-Employee
 In 1965, the ratio of CEO total compensation to that of all
employees in the company was approximately 25 to 1.
 In 1990, that average CEO’s total compensation was about
100 times larger than the average compensation of all
employees in their company.
 Today that number is 273!
Source: Washington Post, June 26, 2013: “Congrats, CEOs! You’re Making 273 Times the Pay of the Average Worker” by Lydia
DePillis
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CEO Pay Trends
 Increase in average worker annual compensation from
1978 to 2011: 5.7%
 Increase in S&P 500 from 1978 to 2011: 349%
 Increase in CEO annual compensation from 1978 to
2011: 727%
Source: Washington Post, May 11, 2012: “Crazy Data Point of the Day: How Much CE O Pay vs. Worker Pay has Grown” by
Jena McGregor
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Are They Worth It?
2004 Executive Comp – Viacom Top Officers
Executive
Base
Bonus
Options
Redstone
$5 MM
$16.5 MM
$34 MM
Freston
$4.2 MM
$16 MM
$32 MM
Moonves
$5.7 MM
$14 MM
$32 MM
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Part VI: Ethical Considerations for
Global Companies
 Foreign Corrupt Practices Act of 1977 ($1 MM fine for
engaging in bribery)
 Outsourcing / “Off-Shoring”
 Human Rights
 Respecting Cultural Differences
 The “Global Citizen” Role & Responsibility
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Fair Trade
 Creates new opportunities for small producers
 Provides fair payments for products
 Protects workers’ rights and safety
 Promotes environment stewardship
 Respects cultural differences
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Sweat Shops
 Complaints about U.S. companies utilizing overseas
sweatshops hit a crescendo in the 1990s, when activists
publicized horrendous working conditions at factories
used by Nike, Mattel, and other companies.
 The Fair Labor Association (www.fairlabor.org) was
established to monitor and improve labor conditions in
developing countries.
 Low wages and obstacles to unionization remain.
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Part VII: Protecting the Environment
 The “environmental justice movement” aims to point out
how disadvantaged populations tend to bear the most
negative side effects of development and infrastructure
projects.
 The “Global Compact” (www.unglobalcompact.org) was
launched by the United Nations in 1998 to, among other
things, to promote responsible and sustainable
development in key areas including pollution, depletion on
non-renewable resources, and waste disposal.
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Part VIII: Other Areas of Ethical
Impact
 Corporate charity and philanthropy (PACs)
 Employee safety and health
 Treating competitors fairly
 Consumer marketing (sales) and public relations
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Part IX: Establishing a Company’s
Ethical Culture
 Identifying a Company’s Core Values
 A holistic approach: workforce, customers, stockholders,
competitors, and community
 Affirmative action plans and diversity & inclusion
initiatives
 The Golden Rule: What you want for yourself, give to
another
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Advantages of Ethical Workplaces
 Greater customer retention and loyalty
 Greater employee retention and satisfaction
 Higher internal morale, camaraderie, and teamwork
 Lower turnover, workers’ comp claims, intermittent
FMLA leaves, and lawsuits
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Ethical Workplaces (cont.)
CHALLENGE:
Research your company on www.Glassdoor.com to see
what people are saying!
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Reinforcing a Company’s Values
 Communicate the company’s values to employees in
regular communications (e.g., newsletters)
 Reward employees for outstanding ethical behavior
 Protect and reward employees who speak up against
unethical behavior
 Apply punishments fairly and consistently, without regard
to the offender’s performance or relationships
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Reinforcing Values (cont.)
 Be as transparent as possible
 Put others’ needs ahead of your own and expect them to
respond in kind
 Remember that the evolution of a society is measured by
how it treats the least among its members – how does your
company measure up?
 “Employer of Choice” initiatives
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New Trends in Corporate Recognition
 Forbes: “The World’s Most Ethical Companies”
 Inc.com: “The Green 50”
 Working Mother: “100 Best Companies for Working
Mothers”
 AARP: “Best Employers for Workers Over 50”
 Fortune: “World’s Most Admired Companies”
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Q & A: Questions and Actions
Paul Falcone
www.PaulFalconeHR.com
Paul@PaulFalconeHR.com
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