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Ethics for Human Resources Professionals

UCLA Extension859.50 Management 1.2 CEU

Winter QuarterSaturday, March 8 and 15, 2014

Reg# Z6749CA

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Instructor . . .

Paul Falcone www.PaulFalconeHR.com Paul@PaulFalconeHR.com

(310) 691-3838

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Course Overview: Day 1

 9 – 10:30 AM  Introduction to business ethics in the workplace: employment history and ethics theory, the Sarbanes Oxley Act, and corporate governance standards

10:45 – Noon  Employment laws, company policies, codes of conduct, and past practices: guidelines for ethical business decision-making

Noon – 1:00     Lunch1:00 – 2:30  Guest Speaker: Richard Falcone, Esq. Managing

Partner, Littler Mendelson—Employer liability and employment defense for “managerial bad acts”

2:45 – 4:00  Guest Speaker: Simon Manoucherian, Esq. AGC, Grifols BioScience. Ethics in practice: discrimination, retaliation, and employee privacy concerns

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Course Overview: Day 2

9 – 10:30 AM  Workplace audits and self-regulation; egregious misconduct and summary offenses

10:45 – Noon  Effective internal investigations and “You Make the Call” game of real-life scenarios

Noon – 1:00    Lunch1:00 – 2:30  Ethical considerations in international

companies, cultural differences, and outsourcing and off-shoring considerations

2:45 – 4:00  Guest Speaker: Gerald Alcantar, Adjunct Professor, LMU. Affirmative action plans and diversity & inclusion initiatives

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Class Introductions

• Self-Intros & “Elevator Pitches”

• Please share your business card (or create one now) to share with Paul

• Remember, you’re all on an interview today!

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A Real-Life Conundrum . . .

• What is Workplace Ethics all about?

• What types of questionable scenarios have you seen yourself in the workplace or at school?

• What is the value of this course, and why is it mandatory as part of UCLA Extension’s professional designation in human resource management?

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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-corporate-governance.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 behavior2. 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 attempts 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 his job, he has the right to :

1. Know the nature of the problem2. Know what he 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

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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 it 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

• Plaintiff Attorney’s strategy = “Discharge for Just Cause Only” standard used at the trial stage

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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 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

• Pregnancy Discrimination Act (PDA) – prohibits discrimination based on pregnancy; treat pregnancy as any other temporary disability

 

 

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1980’s• 1989 – Whistleblower Act – protects federal whistleblowers who work for

the government and report agency misconduct; agency cannot retaliate against an individual who reports misconduct

 • 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)

 • 1985 - Consolidated Omnibus Budget Reconciliation Act (COBRA) -

provides workers who lose health benefits to continue group health benefits (temporarily) in certain circumstances

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1990’s• 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)

 • 1993 – Family Medical Leave Act (FMLA) – provides job protection and unpaid

leave for certain circumstances • 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

 • 1990 - Americans with Disabilities Act (ADA) – prohibits discrimination based

on disability in employment decisions

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2000’s

• 2008 - Genetic Information Nondiscrimination Act (GINA) - prohibits the use of genetic information in health insurance and employment decisions

 • 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

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Protected Characteristics

• Federal Law (Title VII) = 5 Race, color, religion, sex, and national origin• State Law = 17Five 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 activitiesCEO = 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

Video: Avoiding Litigation Landmines

• The “ethics” of the plaintiff bar and “professional plaintiff” employees

• Typical plaintiff attorney strategies and tactics to win a case, even if only a “nuisance claim”

• Practical remedies for employers

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Part IV: 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 V: 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 – 4. 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 are removed when dealing with customers? Can a company reassign someone with body piercings and new tattoos to a back-office role that avoids customer interface? 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 VI: 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 Mix2. 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

EngineeringManufacturing

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 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 VII: 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 VIII: 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 IX: 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 X: Establishing a Company’s Ethical Culture• Identifying a Company’s Core Values • A holistic approach: workforce, customers,

stockholders, competitors, and community • Beingness trumps Doingness: rewarding

ethical behavior • 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

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 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

Paul Falconewww.PaulFalconeHR.com

(310) 691-3838 Paul@PaulFalconeHR.com