Significance of Equity Justice and Fair Dealing

Significance of Equity Justice and Fair Dealing

Instructions/Descriptions

Significance of Equity Justice and Fair Dealing

Chapter 8: The ethical dimension of HRM

LEARNING OUTCOMES

On completing this chapter you should be able to define these key concepts. You should also understand:

• The meaning of ethics
• The nature of ethical decisions and judgements
• The ethical concepts of deontology, utilitarianism, stakeholder theory and discourse theory
• The significance of the concepts of equity, justice and fair dealing
• HRM ethical guidelines
• How to resolve ethical dilemmas
• The ethical role of HR

Introduction

The theme of this chapter is the importance of recognizing that there is an ethical dimension to human resource management. As Boxall et al (2007: 5) pointed out: ‘While HRM does need to support commercial outcomes (often called “the business case”), it also exists to serve organizational needs for social legitimacy.’ This means exercising social responsibility, ie being concerned for the interests (well-being) of employees and acting ethically with regard to the needs of people in the organization and the community.

To grasp this ethical dimension it is necessary to understand the nature and principles of ethics, the ethical role of HR and the ethical guidelines they can use. It is also necessary to know about approaches to resolving ethical dilemmas.

The meaning and concerns of ethics

Ethics is defined by the Compact Oxford Dictionary as being ‘related to morals, treating of moral questions’, and ethical is defined as ‘relating to morality’. Morality is defined as ‘having moral qualities or endowments’ and moral is defined as ‘of or pertaining to the distinction between right and wrong’. Petrick and Quinn (1997: 42) wrote that ethics ‘is the study of individual and collective moral awareness, judgement, character and conduct’. Hamlin et al (2001: 98) noted that ethics is concerned with rules or principles that help us to distinguish right and wrong.

Ethics and morality are sometimes treated as being synonymous, although Beauchamp and Bowie (1983: 1–2) suggested that they are different: ‘Whereas morality is a social institution with a history and code of learnable rules, ethical theory refers to the philosophical study of the nature of ethical principles, decisions and problems.’ Clearly, ethics is concerned with matters of right and wrong and therefore involves moral judgements. Even if ethics and morality are not the same, the two are closely linked. As Clegg et al (2007: 111) put it: ‘We understand ethics as the social organizing of morality.’ Simplistically, ethics could be described as being about behaviour while morality is about beliefs.

Ethics is concerned with making decisions and judgements about what is the right course of action to take. It can be described in terms of a framework that sets out different approaches and can be extended to embrace particular concepts that affect and guide ethical behaviour, namely equity, justice and fair dealing. These approaches and concepts are discussed below.

The nature of ethical decisions and judgements

As defined by Jones (1991: 367), an ethical decision is one that is morally acceptable to the larger community. He also noted that: ‘A moral issue is present where a person’s actions, when freely performed, may harm or benefit others. In other words, the action or decision must have consequences for others and must involve choice, or volition, on the part of the actor or decision maker’ (ibid: 367).

Winstanley and Woodall (2000a: 8–9) observed that:

Ethics is not about taking statements of morality at face value; it is a critical and challenging tool. There are no universally agreed ethical frameworks… Different situations require ethical insight and flexibility to enable us to encapsulate the grounds upon which competing claims can be made. Decisions are judgements usually involving choices between alternatives, but rarely is the choice between right and wrong… Moral disagreement and judgements are concerned with attitudes and feelings, not facts.

Clegg et al (2007: 112) emphasized that: ‘Ethical decisions emerge out of dilemmas that cannot be managed in advance through rules.’ People have to make choices. Foucault (1997: 284) asked: ‘What is ethics, if not the practice of freedom?’

Ethical frameworks

The ethical concepts of deontology, utilitarianism, stakeholder theory and discourse theory, as described below, provide frameworks that can be used to evaluate HRM policies and practices.

Deontological theory

Deontological (from the Greek for ‘what is right’) theory maintains that some actions are right or wrong irrespective of their consequences. It is associated with Kant’s notion of the categorical imperative, which contains two main propositions: a) that one should follow the principle that what is right for one person is right for everyone, and thus you must do to others as you would be done by; and b) in the words of Rawls (1973: 183): ‘We must treat persons solely as ends and not in any way as means.’

Utilitarianism

Utilitarianism is the belief that the highest principle of morality is to maximize happiness, the overall balance of pleasure against pain. Actions are justified when they result in the greatest good to the greatest number. As Sandel (2010: 33) explained, utilitarianism says that ‘the morality of an action depends solely on the consequences it brings about; the right thing to do will be whatever brings about the best state of affairs.’ In other words, actions should be judged in terms of their results. This can be interpreted as supporting the dubious principle that the end justifies the means – torture is all right as long as it prevents terrorism (NB even if this argument were accepted, the effectiveness of torture as a means of preventing terrorism is highly questionable). Utilitarianism has been criticized first because it fails to respect individual rights and second because, as Michael Sandel explained, it implies that all moral judgements can be translated into a single currency of value, but there is no such thing as a ‘util’.

Stakeholder theory

In accordance with the ideas of Freeman (1984), stakeholder theory states that the organization should be managed on behalf of its stakeholders: its owners, employees, customers, suppliers and local communities. As Legge (1998: 22) described it, management must act in the interests of the stakeholders as their agent, and also act in the interests of the organization to ensure the survival of the firm, safeguarding the long-term stakes of each group.

Discourse ethics

Foucault (1972) defined discourse as the taken-for-granted ways that people are collectively able to make sense of experience. Discourse ethics, as explained by Winstanley and Woodall (2000a: 14), suggests that ‘the role of ethicists is not to provide solutions to ethical problems, but rather to provide a practical process and procedure which is both rational and consensus enhancing, through which issues can be debated and discourse can take place’.

Equity theory

Equity theory, as formulated by Adams (1965), is concerned with the perceptions people have about how they are being treated as compared with others. To be dealt with equitably is to be treated fairly in comparison with another group of people (a reference group) or a relevant other person. Equity involves feelings and perceptions and it is always a comparative process. It is not synonymous with equality, which means treating everyone the same and would be inequitable if they deserve to be treated differently.

Justice

Justice is the process of treating people in a way that is inherently fair, right and proper. The concept of ‘justice as fairness’ proposed by Rawls (1973: 348) states that ‘natural duties and obligations arise only in virtue of ethical principles’. These principles were expressed by Rawls as follows:

First: every person is to have the equal right to the most extensive basic liberty comparable with a similar liberty for others.

Second: social and economic inequalities are to be arranged so that they are both (a) reasonably expected to be to everyone’s advantage, and (b) attached to positions and offices open to all. (ibid: 60)

There are four types of justice: procedural justice, distributive justice, social justice and natural justice.

Procedural justice

Procedural justice (Adams, 1965; Leventhal, 1980) involves treating people in ways that are fair, consistent, transparent and properly consider their views and needs. In organizations, it is concerned with fair process and the perceptions employees have about the fairness with which company procedures in such areas as performance appraisal, promotion and discipline are being operated. The five factors that affect perceptions of procedural justice, as identified by Tyler and Bies (1990), are:

• Adequate consideration of an employee’s viewpoint.
• Suppression of personal bias towards an employee.
• Applying criteria consistently across employees.
• Providing early feedback to employees about the outcome of decisions.
• Providing employees with an adequate explanation of decisions made.

Distributive justice

Distributive justice (Adams, 1965; Leventhal, 1980) means ensuring that people are rewarded equitably in comparison with others in the organization and in accordance with their contribution, and that they receive what was promised to them (management ‘delivers the deal’).

Social justice

Social justice is based on the concepts of human rights and equality. Rawls (1973: 3–4) rejected the principle of utilitarianism when he asserted that in society: ‘Each person possesses an inviolability founded on justice that even the welfare of society as a whole cannot override. For this reason justice denies that the loss of freedom for some is made right by a greater good shared by others.’ In organizations, social justice means relating to employees generally in ways that recognize their natural rights to be treated justly, equitably and with respect.

Natural justice

According to the principles of natural justice employees should know the standards they are expected to achieve and the rules to which they are expected to conform. They should be given a clear indication of where they are failing or what rules have been broken and, except in cases of gross misconduct, they should be given a chance to improve before disciplinary action is taken.

HRM ethical guidelines

The guidelines set out below relate to how employees are treated in general and to the major HRM activities of organization development, recruitment and selection, learning and development, performance management, reward management and employee relations. They also relate to employment practices concerning the work environment, employee well-being, equal opportunities, managing diversity, handling disciplinary matters and grievances, job security and redundancy.

General guidelines

• Recognize that the strategic goals of the organization should embrace the rights and needs of employees as well as those of the business.
• Recognize that employees are entitled to be treated as full human beings with personal needs, hopes and anxieties.
• Do not treat employees simply as means to an end or mere factors of production.
• Relate to employees generally in ways that recognize their natural rights to be treated justly, equitably and with respect.

Organization development (OD)

• Agree in advance with clients and individuals the goals, content and risks of an OD programme.
• Make explicit any values or assumptions used in the programme.
• Obtain the maximum involvement of all concerned in the programme so that they understand the processes involved and how they can benefit from them.
• Work with clients to plan and implement change to the benefit of all stakeholders.
• Enable individuals to continue with their development on completing the programme.
• Protect confidentiality.

Recruitment and selection

• Treat candidates with consideration – applications should be acknowledged, candidates should be kept informed without undue delay of decisions made about their application, and they should not be kept waiting for the interview.
• Avoid intrusive or hectoring questioning in interviews.
• Do not put candidates under undue stress in interviews.
• Do not criticize any aspect of the candidate’s personality or experience.
• Use relevant selection criteria based on a proper analysis of job requirements.
• Give candidates reasonable opportunity to present their case and to ask questions.
• Avoid jumping to conclusions about candidates on inadequate evidence or as a result of prejudice.
• Give accurate and complete information to candidates about the job, prospects, security and terms and conditions of employment.
• Only use properly validated tests administered by trained testers.
• Do not use discriminating or biased tests.
• Monitor tests for impact and unintended bias.
• Ensure that candidates are not unfairly disadvantaged by testing processes.
• Give candidates feedback on test results unless there are compelling reasons why feedback should not be given.
• Ensure that selection decisions are free of discrimination or bias on the grounds of sex, sexual orientation, race, age or disability.
• Give unsuccessful candidates the reason for the decision if they request it.

Learning and development

• Respect individual rights for dignity, self-esteem, privacy and autonomy.
• Recognize that it is necessary and legitimate to provide individuals with learning opportunities that enable them to gain the knowledge and skills required to perform well in their jobs and develop their potential. But note that individuals should still be allowed autonomy to choose the extent to which they pursue learning and development programmes beyond this basic requirement.
• Accept that while the organization has the right to conduct learning and development activities that enhance performance, individuals also have the right to be provided with opportunities to develop their own knowledge, skills and employability.
• Ensure that people taking part in learning events feel ‘psychologically safe’ in accordance with the view expressed by Schein (1993: 91) that: ‘To make people feel safe in learning, they must have a motive, a sense of direction, and the opportunity to try out new things without the fear of punishment.’
• Avoid manipulating people to accept imposed organizational values.

Performance management

Performance management ethical principles have been defined by Winstanley and Stuart-Smith (1996) as follows:

• Respect for the individual – people should be treated as ‘ends in themselves’ and not merely as ‘means to other ends’.
• Mutual respect – the parties involved in performance management should respect each other’s needs and preoccupations.
• Procedural fairness – the procedures incorporated in performance management should be operated fairly in accordance with the principles of procedural justice.
• Transparency – people affected by decisions emerging from performance management processes should have the opportunity to scrutinize the basis upon which decisions were made.

Reward management

• Generally apply the principles of procedural and distributive justice.
• Ensure that reward policies and practices are fair, equitable and transparent and that they are applied consistently.
• Reward people according to their contribution.
• Ensure that people know in general the basis upon which rewards are provided and in particular how their own reward package is determined.
• Maintain reasonable and defensible pay differentials.
• Ensure that equal pay is provided for work of equal value.
• Base decisions about performance pay or bonuses on fair and equitable criteria.
• Avoid bonus schemes that encourage undesirable behaviour.
• Do not pay less than the living wage (in the UK in July 2013 it was £7.45 per hour outside London compared with £6.19 for the statutory minimum wage).

Employee relations

• Deliver the deal.
• Be open to employees’ input and responsive to justifiable questions and concerns about employment policies and practices.
• Provide genuine opportunities and channels for employees to express their views and influence decisions on matters that affect them.
• Negotiate in good faith.
• Recognize that the interests of management and employees do not necessarily coincide and develop and implement employee relations policies accordingly.

Employment practices

• Create a healthy, safe and fulfilling work environment.
• Promote the well-being of employees by improving the quality of working life provided for them, enhancing work–life balance and developing family-friendly policies.
• Take particular care to minimize the stress to which employees may be subjected.
• Provide equal opportunities for all with regard to recruitment and selection, learning and development, talent management, career progression and promotion.
• Manage diversity by recognizing the differences between people and ensuring that everyone feels valued and that the talents of all employees will be properly utilized.
• Handle disciplinary matters according to the principles of natural justice.
• Recognize that people may have legitimate grievances and respond to them promptly, fully and sympathetically.
• Preserve job security as far as possible and take alternative action to avoid compulsory redundancies.
• If compulsory redundancy is unavoidable, do whatever is possible to alleviate the distress by, for example, helping people to find work.
• Do not allow whistle-blowers who expose wrongdoing to be penalized.

Ethical dilemmas

‘Ethics will be enacted in situations of ambiguity where dilemmas and problems will be dealt with without the comfort of consensus or certitude’ (Clegg et al, 2007: 109). Bauman, quoted in Bauman and Tester (2001: 44), commented that: ‘Morality concerns choice first of all – it is the predicament human beings encounter when they must make a selection amongst various possibilities.’ And Derrida (1992) observed that ethical responsibility can exceed rational calculation.

Resolving ethical dilemmas

As Adam Smith (1759) wrote in The Theory of Modern Sentiments (quoted by Harrison, 2009: 246): ‘When ethically perplexed, the question we should always ask is: would a disinterested observer, in full possession of the relevant facts, approve or disapprove of our actions?’ This guidance is just as compelling and relevant today.

Woodall and Winstanley (2000: 285) suggested that ‘being ethical is not so much about finding one universal principle to govern all action, but more about knowing how to recognize and mediate between often unacknowledged differences of view’. By definition, an ethical dilemma is one that will be difficult to resolve. There may be all sorts of issues surrounding the situation, some of which will be unclear or contentious. The extent to which people react or behave rationally may be limited by their capacity to understand the complexities of the situation they are in and affected by their emotional reactions to it (the concept of bounded rationality). As Harrison (2009: 331) explained:

Some of the factors that militate against a purely ‘rational’ approach include confused, excessive, incomplete or unreliable data, incompetent processing or communicating of information, pressures of time, human emotions, and differences in individuals’ cognitive processes, mental maps and reasoning capacity.

Faced with factors such as these the process of ethical dilemma resolution can be hard going.

There is no ‘one right way’ to deal with an ethical issue, but an approach based on systematic questioning, analysis and diagnosis to get at the facts and establish the issues involved is more likely to produce a reasonably satisfactory outcome than one relying purely on ‘gut feeling’. The following checklist – used judiciously and selectively according to the circumstances – can provide a basis for such questioning and analysis.

Checklist – dealing with ethical issues

• What are the known facts about the situation and is it possible that there are facts or circumstances that have not come to light, and if so what can be done to uncover them?
• In disciplinary or conduct cases, to what extent does the conduct contravene the organization’s code of ethical conduct (if one exists) or any other relevant organizational policy guidelines and rules?
• In disciplinary cases, are there any mitigating circumstances?
• Have different versions or interpretations of the facts and circumstances been offered and, if so, what steps can be taken to obtain the true and full picture?
• Do the facts as established and confirmed justify the proposed action?
• Is the proposed action in line with both the letter and the spirit of the law?
• Is the proposed action and any investigations leading to it consistent with the principles of natural, procedural or distributive justice?
• Will the proposed action benefit the organization and if so how?
• Is there any risk of the proposed action doing harm to the organization’s reputation for fair dealing?
• Will the proposed action be harmful to the individual affected or to employees generally in any way and if so how?

The ethical role of HR

Legge (1998: 20–21) commented that: ‘In very general terms I would suggest that the experience of HRM is more likely (but not necessarily) to be viewed positively if its underlying principles are ethical.’ HR professionals have a special responsibility for guarding and promoting core values in the organization on how people should be managed and treated. They need to take action to achieve fair dealing. This means treating people according to the principles of procedural, distributive, social and natural justice, and seeing that decisions or policies that affect them are transparent in the sense that they are known, understood, clear and applied consistently.

Kochan (2007: 600) suggested that: ‘HR derives its social legitimacy from its ability to serve as an effective steward of a social contract in employment relationships capable of balancing and integrating the interests and needs of employers, employees and the society in which these relationships are embedded.’ But he also noted that most HR professionals have ‘lost any semblance of credibility as stewards of the social contract because most HR professionals have lost their ability to seriously challenge or offer an independent perspective on the policies and practices of the firm’ (ibid: 604). And, Parkes and Davis (2013: 2427) pointed out the risk that the HR role can become ‘rather passive, favouring communicating standards rather than actively promoting ethical behaviour’.

To overcome this problem and thus fulfil an ethical role Winstanley and Woodall (2000b: 7) remarked that: ‘HR professionals have to raise awareness of ethical issues, promote ethical behaviour, disseminate ethical practices widely among line managers, communicate codes of ethical conduct, ensure people learn about what constitutes ethical behaviours, manage compliance and monitor arrangements.’

There are three approaches that HR can adopt. The first is to ensure that HR policies and the actions taken to implement them meet acceptable ethical standards. HR can press for the production of a value statement that sets out how the organization intends to treat its employees. Value statements may be set out under such headings as care and consideration for people, belief that people should be treated justly and equitably and belief that the views of employees about matters that concern them should be listened to.

This requires advocacy skills to persuade management to adopt and act on these policies and the courage and determination to make out the ethical case even when management favours a conflicting business case. But value statements are meaningless until the values are put into practice; the ethical role of HR involves helping to ensure that this takes place.

Second, HR practitioners can act as role models, leading by example and living and breathing good ethical behaviour. As a respondent to the survey conducted by Parkes and Davis (2013: 2426) commented: ‘If HR does not act ethically, how can it expect employees to do so?’

The third approach, and the hardest, is to challenge unethical behaviour on the part of management. Such behaviour can take many forms, including management tolerance for exploitation and bullying; the lack of a whistle-blowing policy, which provides routes for reporting malpractice and performance management criteria that emphasize organizational gain over all else. The latter was the case at the Royal Bank of Scotland (RBS) before the financial crisis, where the performance management concentrated on target achievement, ignoring behaviour. The courage to challenge is less likely to be forthcoming in organizations where the culture is one of command and control – and obedience is expected to whatever is dictated by management (features of the pre-crash RBS culture). Power, politics and culture shape norms of behaviour and, as Herb Kelleher (the CEO of Southwest Airlines) put it, culture is ‘what people do when no one is looking’ (reported by Lee, 1994). One respondent to the Parkes and Davis survey (2013: 2425) commented: ‘It can be difficult on a personal level to be speaking out – HR do not have the power’. Another said: ‘Speaking out can be career suicide’. It is too easy in these circumstances for HR to be mere bystanders. Neil Roden, former head of HR at RBS, explained HR’s position in relation to the financial debacle at the bank as follows: ‘I’m not absolving myself totally… (but) I can’t see what HR could have done… I wasn’t running the bank… the CEO makes the decisions, not me. HR is a support function, no more, no less important than sales or IT.’

An HR director who is a member of an executive board can question decisions from an ethical viewpoint but if the comments are not heeded then the director will either have to accept the decision or resign. It is important to challenge – and the courage to do so is listed by the CIPD as one of the qualities required by an HR professional. But it is difficult and there may be limits to what HR can do. If HR professionals cannot do anything about the way their organization does things they either have to carry on and do whatever they can in other less confrontational ways, or they must leave.

Key learning points: The ethical dimension of HRM

Ethics and morality defined

Ethics is defined by the Compact Oxford Dictionary as being ‘related to morals, treating of moral questions’, and ethical is defined as ‘relating to morality’. Morality is defined as ‘having moral qualities or endowments’ and moral is defined as ‘of or pertaining to the distinction between right and wrong’. Simplistically, ethics could be described as being about behaviour while morality is about beliefs.

Ethics is concerned with making ethical decisions and judgements. It can be described in terms of an ethical framework that sets out different approaches and can be extended to embrace particular concepts that affect and guide ethical behaviour, namely equity, justice and fair dealing. An ethical decision is one that is morally acceptable to the larger community.

Ethical concepts

The ethical concepts of deontology, utilitarianism, stakeholder theory and discourse theory provide frameworks that can be used to evaluate HRM policies and practices.

An important role for HR professionals is to do whatever they can to embed the consistent application of ethical values in the organization so that they can become values in use rather than simply professed values in a code of practice or values statement.

Ethical guidelines

Ethical guidelines set out how employees are treated in general, and to the major HRM activities of organization development, recruitment and selection, learning and development, performance management, reward management, employee relations, and employment practices concerning the work environment, employee well-being, equal opportunities, managing diversity, handling disciplinary matters and grievances, job security and redundancy.

Handling ethical dilemmas

There is no ‘one right way’ to deal with an ethical dilemma but an approach based on systematic questioning, analysis and diagnosis to get at the facts and establish the issues involved is more likely to produce a reasonably satisfactory outcome than one relying purely on ‘gut feeling’. An ethical dilemma is one that will be difficult to resolve. There may be all sorts of issues surrounding the situation, some of which will be unclear or contentious.

The role of HR

HR professionals have a special responsibility for guarding and promoting core values in the organization on how people should be managed and treated generally. They are particularly concerned with values relating to just and fair treatment. They can act as role models and challenge unethical practices. But challenging can be difficult.

Chapter 9: Corporate social responsibility

LEARNING OUTCOMES

On completing this chapter you should be able to define these key concepts. You should also understand:

• The meaning of corporate social responsibility (CSR)
• CSR activities
• CSR strategy
• Developing a CSR strategy
• The rationale for CSR

Introduction

The notion that businesses should act in a socially responsible way by practising ‘corporate social responsibility’ (CSR) has been around for some time. J M Keynes wrote in 1923 that: ‘The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society.’ The aim of this chapter is to explore what CSR means as a concept and a strategy. The rationale for CSR is also considered – the arguments in favour are overwhelming, but reference is made also to powerful opposing views.

HR professionals, because of the ethical dimension of their function (as described in Chapter 8), have an important role to play in furthering CSR. CSR was justified by the CIPD (2009: 1) as a relevant and important HR activity because:

CSR needs to be embedded in an organization’s culture to make a change to actions and attitudes, and the support of the top team is critical to success. HR already works at communicating and implementing ideas, policies, cultural and behavioural change across organizations. Its role in influencing attitudes and links with line managers and the top team means it is ideally placed to do the same with CSR.

HR professionals need to marshal the arguments in favour of CSR, as set out in this chapter, to overcome any overt or covert resistance. They must be able to advise on CSR strategies and how they can be implemented. This is not an easy task and suggestions on the approaches that can be adopted are made in the concluding section of the chapter.

Corporate social responsibility defined

Corporate social responsibility (CSR) is exercised by organizations when they conduct their business in an ethical way, taking account of the social, environmental and economic impact of how they operate, and going beyond compliance. Wood (1991: 695) stated that: ‘The basic idea of corporate social responsibility is that business and society are interwoven rather than distinct entities; therefore, society has certain expectations for appropriate business behaviour and outcomes.’ As Baron (2001: 11) noted, CSR involves ‘providing to others benefits beyond those generated by economic transactions with the firm or required by law’.

McWilliams et al (2006: 1) stated that CSR refers to the actions taken by businesses ‘that further some social good beyond the interests of the firm and that which is required by law’. CSR has also been described by Husted and Salazar (2006: 76) as being concerned with ‘the impact of business behaviour on society’ and by Porter and Kramer (2006: 83) as a process of integrating business and society. The latter argued that to advance CSR: ‘We must root it in a broad understanding of the interrelationship between a corporation and society while at the same time anchoring it in the strategies and activities of specific companies.’

CSR is concerned generally with how companies function and this includes how they manage their people. The CIPD (2003: 5) emphasized that ‘the way a company treats its employees will contribute directly to the picture of a company that is willing to accept its wider responsibilities’.

CSR policy may be expressed in a value statement that sets out the organization’s core values under such headings as:

• care and consideration for people;
• competence;
• competitiveness;
• customer service;
• innovation;
• performance;
• quality;
• teamwork.

But espoused values are pointless unless they become values in use and this needs concerted action by management working with employees and supported by HR.

Strategic CSR defined

Strategic CSR is about deciding initially the degree to which the firm should be involved in social issues and then creating a corporate social agenda – considering what social issues to focus on and to what extent. As Porter and Kramer (2006: 85) observed: ‘It is through strategic CSR that the company will make the greatest social impact and reap the greatest business benefits.’ They also observed that strategy is always about choice – organizations that ‘make the right choices and build focused, proactive and integrated social initiatives in concert with their core strategies will increasingly distance themselves from the pack’ (ibid: 91).

CSR strategy needs to be integrated with the business strategy but it is also closely associated with HR strategy. This is because it is concerned with socially responsible behaviour both outside and within the firm – with society generally and with the internal community. In the latter case this means creating a working environment where personal and employment rights are upheld and HR policies and practices provide for the fair and ethical treatment of employees.

CSR activities

CSR activities as listed by McWilliams et al (2006) include incorporating social characteristics or features into products and manufacturing processes, adopting progressive HRM practices, achieving higher levels of environmental performance through recycling and pollution abatement, and advancing the goals of community organizations. The information set out below was obtained by Business in the Community research.

Source review

The CSR activities of 120 leading British companies – Business in the Community (2007)

• Community – skills and education, employability and social exclusion were frequently identified as key risks and opportunities. Other major activities were support for local community initiatives and being a responsible and safe neighbour.
• Environment – most companies reported climate change and resource-use as key issues for their business: 85 per cent of them managed their impacts through an environmental management system.
• Marketplace – the issues most frequently mentioned by companies were research and development, procurement and supply chain, responsible selling, responsible marketing and product safety. There was a rising focus on fair treatment of customers, providing appropriate product information and labelling, and on the impacts of products on customer health.
• Workplace – this was the strongest management performing area as most companies have established employment management frameworks that can cater for workplace issues as they emerge. Companies recognized the crucial role of employees to achieve responsible business practices. Emphasis was placed on internal communications and training in order to raise awareness and understanding of why CSR is relevant to them and valuable for the business. More attention was paid to health and well-being issues as well as the traditional safety agenda. More work was done on diversity, both to ensure the business attracts a diverse workforce and to communicate the business case for diversity internally.

Business in the Community also reported a growing emphasis on responsible business as a source of competitive advantage as firms move beyond minimizing risk to creating opportunities. A survey conducted by Industrial Relations Services (Egan, 2006) found that:

• most employers believe that employment practices designed to ensure the fair and ethical treatment of staff can boost recruitment and retention;
• relatively few employers are strongly convinced of a positive link to business performance or productivity;
• the issue of ethics in employment is often viewed as part of a broader social responsibility package;
• policies on ethical employment most commonly cover HR practice in the areas of recruitment, diversity, redundancy/dismissal proceedings and employee involvement.

The rationale for CSR

Stakeholder theory, as first propounded by Freeman (1984), suggests that managers must satisfy a variety of constituents (eg workers, customers, suppliers, local community organizations) who can influence firm outcomes. According to this view, it is not sufficient for managers to focus exclusively on the needs of shareholders or the owners of the business. Stakeholder theory implies that it can be beneficial for the firm to engage in certain CSR activities that non-financial stakeholders perceive to be important.

The rationale for CSR, as defined by Hillman and Keim (2001), is based on two propositions. First, there is a moral imperative for businesses to ‘do the right thing’ without regard to how such decisions affect firm performance (the social issues argument); second, firms can achieve competitive advantage by tying CSR activities to primary stakeholders (the stakeholders argument). Their research in 500 firms implied that investing in stakeholder management may be complementary to shareholder value creation and could indeed provide a basis for competitive advantage as important resources and capabilities are created that differentiate a firm from its competitors. However, participating in social issues beyond the direct stakeholders may adversely affect a firm’s ability to create shareholder wealth. Strong arguments for CSR were made by Porter and Kramer (2006).

Source review

Arguments supporting CSR – Porter and Kramer (2006)

1. The moral appeal – the argument that companies have a duty to be good citizens. The US business association Business for Social Responsibility (2007) asks its members ‘to achieve commercial success in ways that honour ethical values and respect people, communities and the natural environment’.
2. Sustainability – an emphasis on environmental and community stewardship. This involves meeting the needs of the present without compromising the ability of future generations to meet their own needs.
3. Licence to operate – every company needs tacit or explicit permission from government, communities and other stakeholders to do business.
4. Reputation – CSR initiatives can be justified because they improve a company’s image, strengthen its brand, enliven morale and even raise the value of its stock.

Moran and Ghoshal (1996: 45) contended that ‘what is good for society does not necessarily have to be bad for the firm, and what is good for the firm does not necessarily have to come at a cost to society. Value creation, rather than value appropriation, lies at the heart of effective firm strategies.’

The opposing view

The opposing view is that businesses are there to make a profit, not to exercise social responsibility. The marketing expert Theodore Levitt (1958: 41), in an article in the Harvard Business Review on the dangers of social responsibility, posed the questions: ‘Are top executives being taken in by pretty words and soft ideas? Are they letting the country in for a nightmare return to feudalism by forgetting that they must be businessmen first, last and almost always?’ He did write that CSR can be used as ‘a way of maximizing the lifetime of capitalism by taking the wind out of its critics’ sails’ (ibid: 43). But, writing as an unrestructured capitalist, he suggested that: ‘The essence of free enterprise is to go after profit in any way that is consistent with its own survival as an economic system’ (ibid: 44).

The Chicago monetarist Milton Friedman (1962: 133–34) questioned the ability of business managers to pursue the social interest. He asked:

If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals decide what the social interest is? Can they decide how great a burden they are justified in placing on themselves or their stockholders to serve that social interest?

In 1970 Friedman argued that the social responsibility of business is to maximize profits within the bounds of the law. He maintained that the mere existence of CSR was an agency problem within the firm in that it was a misuse of the resources entrusted to managers by owners, which could be better used on value-added internal projects or returned to the shareholders.

These outspoken views may no longer be supported so openly but they still exist and are still acted on. There is much evidence that CSR is not on the agenda – for example, UK banks that made money by selling worthless investments or insurance policies and then failed to respond adequately to complaints. And, less egregiously, a glance at the ‘Your Problems’ column in the Observer reveals plenty of instances of businesses indulging in antisocial behaviour. It is necessary, therefore, to have a convincing case for the benefits of CSR.

Benefits of CSR

Benefits from CSR listed by the CIPD (2003: 4) include, ‘offering distinctive positioning in the market place, protecting reputation, building credibility and trust with customers and employees, redefining corporate purpose or mission and securing the company’s licence to operate’.

Much research has been conducted into the relationship between CSR and firm performance. For example, Russo and Fouts (1997) found that there was a positive relationship between environmental performance and financial performance. Hillman and Keim (2001) established that if the socially responsible activity were directly related to primary stakeholders, then investments may benefit not only stakeholders but also result in increased shareholder wealth. However, participation in social issues beyond the direct stakeholders may adversely affect a firm’s ability to create such wealth.

The basis for developing a CSR strategy

The basis for developing a CSR strategy is provided by the following competency framework of the CSR Academy (2006), which is made up of six characteristics:

1. Understanding society – understanding how business operates in the broader context and knowing the social and environmental impact that the business has on society.
2. Building capacity – building the capacity of others to help manage the business effectively. For example, suppliers understand the business’s approach to the environment and employees can apply social and environmental concerns in their day-to-day roles.
3. Questioning business as usual – individuals continually questioning the business in relation to a more sustainable future and being open to improving the quality of life and the environment.
4. Stakeholder relations – understanding who the key stakeholders are and the risks and opportunities they present. Working with them through consultation and taking their views into account.
5. Strategic view – ensuring that social and environmental views are included in the business strategy so that they are integral to the way the business operates.
6. Harnessing diversity – respecting that people are different, which is reflected in fair and transparent business practices.

Developing and implementing a CSR strategy

To develop and implement a CSR strategy based on these principles it is necessary to:

• understand the business and social environment in which the firm operates;
• understand the business and HR strategies and how the CSR strategy should be aligned to them;
• know who the stakeholders are (including top management) and find out their views on and expectations of CSR;
• produce and deliver persuasive arguments in favour of CSR: if all else fails suggest that there is room for enlightened self-interest that involves doing well by doing good;
• identify the areas in which CSR activities might take place by reference to their relevance in the business context of the organization and an evaluation of their significance to stakeholders;
• prioritize as necessary on the basis of an assessment of the relevance and significance of CSR to the organization and its stakeholders and the practicalities of introducing the activity or practice;
• draw up the strategy and make the business case for it to top management and the stakeholders;
• obtain approval for the CSR strategy from top management and key stakeholders;
• communicate information on the whys and wherefores of the strategy, comprehensively and regularly;
• provide training to employees on the skills they need in implementing the CSR strategy;
• measure and evaluate the effectiveness of CSR.

Key learning points: Corporate social responsibility

The meaning of CSR

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CSR activities include incorporating social characteristics or features into products and manufacturing processes, adopting progressive HRM practices, achieving higher levels of environmental performance through recycling and pollution abatement, and advancing the goals of community organizations.

The rationale for CSR

There are two arguments for CSR (Hillman and Keim, 2001): first, there is a moral imperative for businesses to ‘do the right thing’ without regard to how such decisions affect firm performance (the social issues argument); second, firms can achieve competitive advantage by tying CSR activities to primary stakeholders (the stakeholders argument).

Developing a CSR strategy

• Identify the areas in which CSR activities might take place by reference to their relevance in the business context of the organization and an evaluation of their significance to stakeholders.
• Prioritize as necessary on the basis of an assessment of the relevance and significance of CSR to the organization and its stakeholders and the practicalities of introducing the activity or practice.
• Draw up the strategy and make the case for it to top management and the stakeholders to obtain their approval.
• Communicate information on the strategy, comprehensively and regularly.
• Provide training to employees on the skills they need to use in implementing the CSR strategy.

Significance of Equity Justice and Fair Dealing

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