Ethics for Human Resources Professionals www.PaulFalconeHR.com
[email protected] 1www.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 2www.PaulFalconeHR.com
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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 3www.PaulFalconeHR.com
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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 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? 8www.PaulFalconeHR.com
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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 9www.PaulFalconeHR.com
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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 10www.PaulFalconeHR.com
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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? 11www.PaulFalconeHR.com
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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 12www.PaulFalconeHR.com
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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 13www.PaulFalconeHR.com
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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 Kants categorical imperative follows one
overarching commandment from which all duties and obligations are
derived. Kants moral universalism posits that some actions are
always right or wrong. 14www.PaulFalconeHR.com
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Ethics History (cont.) Thomas Hobbes 17 th 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 Lockes contention that all citizens
have a natural right to life, liberty, and the acquisition of
property 15www.PaulFalconeHR.com
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Ethics History (cont.) Consequential ethics state that people
should act in ways that result in the best consequences. Acts
themselves arent good or bad; theyre 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 thats inherently
good. Utilitarianism is commonly defined as the greatest good for
the greatest number. 16www.PaulFalconeHR.com
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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). 17www.PaulFalconeHR.com
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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 shouldnt be taken away without workplace due process as accorded
under the 14 th 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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1930s 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
workers right to due process was replaced by the employers 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 wont let companies terminate you at whim. Our collective
bargaining agreement will guarantee that youre accorded workplace
due process in the form of progressive discipline, and youll gain
control of your future back. 21www.PaulFalconeHR.com
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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 employers behalf CA Supreme Court
Justice Rose Byrd ruled, We wont 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. 22www.PaulFalconeHR.com
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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) 23www.PaulFalconeHR.com
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EAW vs. Discharge for Just Cause Only Defense Attorneys
strategy = Employment-at-Will Affirmative Defense used at the
hearing stage with the goal of immediate dismissal of the case
(Summary Judgment) Plaintiff Attorneys strategy = Discharge for
Just Cause Only standard used at the trial stage (if the case
survives Summary Judgment) 24www.PaulFalconeHR.com
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Hearings vs. Trials Lesson: Its not one or the other, its both
Without a crystal ball, you cant 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 cant know in advance if
youll 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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1930s 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 26www.PaulFalconeHR.com
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1940s and 1950s 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 27www.PaulFalconeHR.com
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1960s 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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1960s (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) 29www.PaulFalconeHR.com
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1970s 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 Veterans 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 30www.PaulFalconeHR.com
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1970s (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 31www.PaulFalconeHR.com
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1980s 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 individuals
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 32www.PaulFalconeHR.com
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1990s 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) 33www.PaulFalconeHR.com
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2000s 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 35www.PaulFalconeHR.com
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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 36www.PaulFalconeHR.com
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Corporate Governance Arthur Andersons 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 companys management 39www.PaulFalconeHR.com
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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!!! 40www.PaulFalconeHR.com
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Part III: Internal Investigation Strategies Rule 1: Its all
about the record Rule 2: Practice trumps policy Rule 3: Always the
Get the Accused Workers Side of the Story Before Making a Final
Decision 41www.PaulFalconeHR.com
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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 42www.PaulFalconeHR.com
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Investigations (cont.) Rule 7: Sameness vs. Consistency Rule 8:
Performance vs. Conduct Rule 9: Beware the Dreaded Preemptive
Strike 43www.PaulFalconeHR.com
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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 www.PaulFalconeHR.com 44www.PaulFalconeHR.com
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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 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 husbands / assistant managers arrest?
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Scenarios (cont.) Scenario 7: Retail store announces to its
workers that its 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? 50www.PaulFalconeHR.com
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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 theyre 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? 51www.PaulFalconeHR.com
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Scenarios (cont.) Scenario 10: An administrative assistant
complaints to HR that shes 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
didnt comply. The VP confirms that the affair has been ongoing but
insists the relationship was consensual. What options do you have
as an employer? 52www.PaulFalconeHR.com
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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. 55www.PaulFalconeHR.com
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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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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 CEOs 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!
Youre Making 273 Times the Pay of the Average Worker by Lydia
DePillis 58www.PaulFalconeHR.com
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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 60
ExecutiveBaseBonusOptions Redstone$5 MM$16.5 MM$34 MM Freston$4.2
MM$16 MM$32 MM Moonves$5.7 MM$14 MM$32 MM
www.PaulFalconeHR.com
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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 62www.PaulFalconeHR.com
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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.www.fairlabor.org Low wages and obstacles to
unionization remain. 63www.PaulFalconeHR.com
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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.www.unglobalcompact.org
64www.PaulFalconeHR.com
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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 Companys Ethical Culture Identifying a
Companys 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 66www.PaulFalconeHR.com
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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!www.Glassdoor.com
www.PaulFalconeHR.com68
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Reinforcing a Companys Values Communicate the companys 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 offenders
performance or relationships 69www.PaulFalconeHR.com
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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 70www.PaulFalconeHR.com
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New Trends in Corporate Recognition Forbes: The Worlds Most
Ethical Companies Inc.com: The Green 50 Working Mother: 100 Best
Companies for Working Mothers AARP: Best Employers for Workers Over
50 Fortune: Worlds Most Admired Companies
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Q & A: Questions and Actions Paul Falcone
www.PaulFalconeHR.com [email protected]
72www.PaulFalconeHR.com