ETHICAL ISSUES IN HUMAN RESOURCE MANAGEMENT:

INTRODUCTION

HOSMER’S FRAMEWORK OF ETHICAL MANAGEMENT

In his highly regarded text, The Ethics of Management, argued that “an ethical principle is meaningless unless it
can be applied” and defines business rules as “a method of moral analysis that . . . would be in the interest of society
under all conditions and/or situations.” But also noted that moral standards “differ between peoples because the
goals, norms, beliefs, and values upon which they depend also differ, and those goals, norms, beliefs, and values in
turn differ because of variations in the religious and cultural traditions and the economic and social situations in
which the individuals are immersed.” clearly understood today’s global business environment that is characterized
by constant change, complexity, and uncertainty To resolve the conflicts that inevitably occur in making morally
responsible decisions, Hosmer (2008:9-15) posed a series of six steps to follow as a framework for evaluating those
decisions:

1) Recognize the Moral Impacts -- To recognize the moral impacts of a choice, four issues should be
addressed. First, what individuals or groups are going to be benefitted by the implementation of the
decision and what is the financial or personal benefit expected? Second, who will be harmed by the
implementation of the decision and what is the financial or personal nature of those harms? Third, who will
be able to more effectively exercise their rights as a result of the proposed action? Fourth, whose rights will
be denied as a result of the proposed action?

2) State the Moral Problem -- Defining and precisely articulating the moral problem clarifies the nature of
the decision so that it can be effectively communicated without overlooking any stakeholder’s interests.
Framing the moral problem as an extended question also acknowledges the concerns of others and validates
their interest in decisions to be made. Those concerns, specifically identified as costs, harms, or loss of the
rights of one party and benefits accruing to another, can then be carefully addressed in the analysis,
discussion, and ultimate conclusions drawn from the development of solutions. Hosmer (2008:9) noted
that people from differing backgrounds and cultures view the same issue through their individual lenses,
and may arrive at substantially different conclusions as to the nature of the moral problems involved
because of their culturally-based values and assumptions.

3) Determine the Economic Outcomes – Economic outcomes accrue as a net benefit over harms for a full
society within the context of an open and free market. The economic assumption is that benefits are
determinable in the preference expressed for goods and services, in utilizing the money, time and raw
materials of society to maximize societal wealth efficiently. The assumptions implicit in Hosmer’s
assessment are 1) all markets must be free; 2) all laws must be obeyed, and 3) all costs must be included in
determining economic benefits. Supporting this same position, Hausman and McPherson (1993:673) have
argued that virtually all economic choices have a moral outcome and that the morality of economic agents
influences their behaviors as well as economic outcomes.

4) Consider the Legal Requirements – Legal requirements in moral analysis balance the rights that are
empowered or exercised versus rights denied. These legal requirements seek to determine that which is
most equitable or evenhanded within the framework of a Veil of Ignorance (i.e., determining fairness and
the balance of rights vs. wrong if everyone considered the laws to adopt while ignorant of their own self-
interests). Hosmer acknowledged the difficulty of focusing on the self-interest of all of society but argued
that this Veil of Ignorance model is ideal for evaluating the efficacy of laws. Nesteruk (1999:306) has
noted that legal and moral issues are historically intertwined in the analysis of workplace issues.

5) Evaluate the Ethical Duties – In assessing ethical duties, moral analysis encompasses obligations owed by
members of society to others within that society, and often balances personal self-interests with the impacts
of actions on society. Ethical duties provide a set of rules that benefit society under multiple scenarios.
 Although there are many ethical perspectives which call out slightly different outcomes (Hosmer, 1995),
Hosmer proposed that the essence of morality can be summarized by six universal rules. Table One briefly
explains these six universal rules.

Ethical Explanation of Argument Summary of the Rule

Perspective

Personal We may each do as we wish and follow our

own self interests as long as we adopt a set of
Never take any action
Virtues which is not honest,
standards for “right,” “just,” and “fair”
treatment of others. We ought to do that open, and truthful which
which makes us proud of our actions and of you would not be proud
our lives. to see reported in
national newspapers and
network television.

Religious We also ought to live to show compassion Never take action that is
and kindness towards others. Both
Injunctions not kind and that does
reciprocity and compassion build a sense of
community. not build a sense of
community in working
together for a commonly
accepted goal.

Utilitarian We need to evaluate acts in terms of their Never take any action
societal impact. An act is” right” if it leads to
Benefits that does not result in
greater net social benefits than social harms.
greater good than harm
for society.

Universal Rules We need to eliminate the self-interest of a Never take any action
person who evaluates a given situation by
that others in the same
universalizing this decision process. Choices
should be based upon actions that others in a situation would not be
similar situation would be encouraged to free or even encouraged
take. to take.

Distributive We need rules that protect the poor and

uneducated who lack power or the position to
Never take any action in
Justice which the least among us
achieve their interests.
would be harmed.

Contributive We need to protect individuals from extremes Never take any action
of the constraints of the law and markets. No
Liberty that would interfere with
one should interfere with the rights of others
to seek to improve their legal abilities or their other’s rights for self-
marketable skills. improvement or self-
development.

6) Propose a Moral Solution – A proposed moral solution must specifically identify the stakeholders
affected; the moral issues to be considered; and the corresponding benefits, harms, and associated rights
impacted. Management practitioners (DePree, 2004) and scholars (Caldwell & Karri, 2005; Cameron,
2003) have noted that moral solutions must not only positively impact the welfare, growth, and wholeness
of all stakeholders but must also contribute to societal wealth creation.

Hosmer’s (2008) model provides a framework for evaluating a broad variety of business domains, including the key
issues of international human resource management. Following this model enables moral decision-makers to craft a
solution that is transparent in its articulation of impacts and that facilitates objective discussion of the tacit values,
beliefs, assumptions, and goals associated therewith. As Forsyth and colleagues (2008) have noted, ethical
perspectives vary significantly across cultures.

HIGH PERFORMANCE MANAGEMENT SYSTEMS

Human resource management (HRM) within an international context has grown exponentially within the past three
decades with the advent of the world-wide web and the world-wide increase in the availability of information
(Taylor, 2007). Competing within a global market has created major economic pressures on organizations, not only
because of the costs and competencies required to expand into new markets but as competing international firms
expand into one’s own existing markets (Hill, 2008). Sparrow and Brewster (2006) emphasized that being globally
successful includes being 1) competitive throughout the world; 2) responsive locally; 3) flexible, timely, and
adaptive to change; 4) efficient; and 5) capable of transferring knowledge and the ability to learn across globally
dispersed units.

Within this internationally competitive economic context, Pfeffer (1998) has argued that high performance/high trust
work systems can make a meaningful contribution. The “high performance work organization” is a business concept
coined by the U.S. Department of Labor (1993:1) to encourage American businesses to be creative, adaptive, and
effective in problem solving in response to an increasingly competitive global marketplace. Research on high
performance management systems have their roots in Peters and Waterman’s (1982) business classic, In Search of
Excellence, Walton’s (1985) discussion of high commitment management and Lawler’s (1986) description of high
involvement management.

As human resource efforts to improve organizations evolved from involving employees and quality improvement to
aligning systems with strategy, the focus on high performance management began to crystallize (Wood & Wall,
2007:1338-1339). Pfeffer (1994) identified sixteen factors in his early work on organizational excellence but
reduced that list to seven factors to produce high commitment and high trust management systems (Pfeffer, 1998).
Wood and Wall (2007) noted that authors and studies differ in identifying the required elements of high performance
systems and in the terminology used to test high performance management practices in business settings.

The seven specific management practices of high performance management systems that Pfeffer (1998) identified
include:

1) Employment Security – Providing employees a safe work environment addresses a crucial human need
for safety against possible threats (Noria, Groysberg, & Lee, 2008:81) and substantially increases the
likelihood that employees will be committed to the improvement of productivity without fearing that
they are working themselves out of a job (Locke, 1995). A company that commits to creating job
assurances for employees is also more likely to implement improved selection and hiring practices
“because the firm knows it cannot simply let people go quickly if it has overestimated its labor
demand” (Pfeffer, 1998:67). The management downsizing literature confirms that downsizing results
in minimal economic benefits while increasing organizational distrust and lowering morale (Marks,
1993 {See Pfeffer 176 for the cite]).

2) Selective Hiring of New Personnel –Collins (2001:41) discovered in his study of great organizations
that they “get the right people on the bus, the right people in the right seats, and the wrong people off
the bus.” Screening for cultural fit and employee attitude from among a broad pool of well-qualified
applicants is critical to hiring people who fit an organization’s needs (Pfeffer, 1998:74). Enterprise,
the fast growing car rental agency, emphasizes screening applicants based upon attributes that are
difficult to change through training, and hires its employees based upon basic ability and attitude rather
than on technical qualifications which are often easily acquired (O’Reilly, 1996).

3) Self-Managed Teams and Decentralized Decision-Making – Empowering employees is increasingly

important in a knowledge-, service-, and wisdom-based economy that requires employees to take
initiative and discretionary action in delivering customized service (Covey, 2004). Self-managed work
teams are “a critical component of virtually all high performance management systems” and results in
increased autonomy, job satisfaction, and productivity (Pfeffer, 1998: 74). Boonzaier and colleagues
 (2001:12) noted that increased autonomy and discretion substantially improve organizational outcomes
and build increased commitment which is the key to long-term wealth creation (Senge, 2006).

4) Comparatively High Compensation Contingent Upon Organization Performance – Reward systems

that contribute to corporate-wide performance and that focus on contributions that distinguish
companies from their competitors not only makes it possible to successfully compete for key
employees who make a critical difference but provide a foundation for meaningful employee
incentives that match the organization’s ability to share profits with those who contribute to financial
success (Boudreau & Ramstad, 2007). Compensation systems communicate to employees whether
they are truly valued or whether the organization is merely giving lip service to the importance of
employees while treating them as a commodity rather than as a valued asset (Pfeffer, 1998:80). Nucor
Steel is an outstanding example of a company that offers employees contingent pay, often paying
employees more in bonuses than they make in base salary each quarter (Marks, 2001: 112-113).

5) Training – Investing in employees as valued assets in a knowledge-based economy pays off in huge
dividends when that training is carefully planned and delivered – particularly in problem-solving and
in quality improvement (Pfeffer, 1998:85). Investments in both technical and non-technical training
have a positive impact on a firm’s success in developing knowledge and skills (Fey & Bjrokman,
2001:62). Improving the skills of employees in addressing customer needs and eliminating the causes
of customer complaints can result in improved long-term profitability and a strategic competitive
advantage that is difficult to duplicate (Pfeffer, 1998:300-301; Yagiela & Munson, 1997). Measuring
the return on investment from training is increasingly being recognized as a critical management
responsibility in a world where knowledge and information have exploded exponentially (Bersin,
2006).

6) Reduced Status Distinctions and Barriers – Factors such as dress, language, office arrangement, and
wage differentials are being relaxed in many high performance organizations to create a culture that
treats employees throughout the organization more equitably and to acknowledge the role of
employees as ‘owners and partners’ (Block, 1996). Affirming the importance of people as the source
of organization success includes incorporating language that treats all employees with dignity and
respect (Pfeffer, 1998:293-295). Providing access to organizational leaders and empowering
employees with the opportunity to add their voices in decentralized decision-making processes creates
a culture that is people-oriented and that models the virtues of leadership trustworthiness (Caldwell,
Karri, & Vollmar, 2006).

7) Sharing Information – Creating a transparent organization that shares key information with
employees not only sustains a high trust culture but enables employees to legitimately contribute to
organizational decision-making (Bandsuch, Pate & Thies, 2008). Training people to play a key role in
the organization requires that employees possess the critical information necessary for them to make
well-informed and intelligent decisions (Pfeffer, 1998:93-94).

ETHICAL MANAGEMENT IN INTERNATIONAL HRM

Integrating the Hosmer (2008) framework of ethical management with high performance work systems applies
within an international context, just as those concepts apply within businesses that primarily do business solely
within the United States or within any other single country. In this section we identify five important human
resource-related propositions about high performance systems that have critical moral implications for employees
and other stakeholders.

As corporations assess the need to expand into new markets to increase overall profits and to take advantage of
their competitive position, a set of problems occurs with regard to how those companies deal with employees.
Outsourcing of work resulting from expansion into new markets often results in a loss of jobs in the home country,
or the country of origin of the expanding corporation. The principle of insuring employment security that is
 recognized as essential to high performance work systems may be undermined as outsourcing and expansion
decisions result in the relocation of jobs and the elimination of positions at one location in favor of lower priced
work performed in another country. Block (1994) has noted that companies that strive to create high trust
relationships with their employees build that trust by being honest and transparent with employees regarding the
factors that create the need to downsize in one location and relocate to another. At the same time, the decision to
downsize has been found to be of minimal economic benefit in many organizational contexts, and several authors
(Pfeffer, 1998; Cameron, 1994) have noted that a reduction in force often results in a net loss in long-term wealth
creating capacity.

Organizations that downsize would do well to follow the example of New Zealand Post which demonstrated a
commitment to its departing employees by assisting these former employees to find new positions with other
organizations and providing employees with generous severance packages (Pfeffer, 1998b), rather than simply
leaving these employees to their own resources in attempting to become reemployed (Erakovic & Wilson, 2005).
By treating exiting employees as valued partners (Pfeffer, 1998b) and by avoiding a recurring cycle of incremental
reductions(Gilson, Hurd & Wagar, 2004), New Zealand Post became an example of creating a high performance
organizational culture despite the need to cut their organization by thirty percent. Companies that follow the
Universal Rules guideline of treating employees as valued ends rather than as a means to achieving corporate
profitability blend the tenets of high performance work systems with moral integrity (Pfeffer, 1998b). Casperz
(2006) found that that Malaysian companies that professed a dedication to high performance work systems but that
did not treat employees as valued ends actually destroyed trust and employee commitment. Consistent with this
thinking, we offer our first proposition:

P1: International organizations that treat employees as valued ends rather than simply as a means to
increased profitability will be more successful in increasing long-term profitability than
organizations that treat their employees simply as a means to achieving profitability.

The use of expatriates as management resources in countries into which a company seeks to expand its market has
been a universal practice of many companies who have entered into international expansion. Schuler and Tarique
(2007) note that international staffing, particularly in the placement of top management positions, has been one of
the critical issues of international human resource management over the past thirty years. Expatriate selection,
training, and retention has been a topic of extensive discussion in the international human resource management
literature because of the problems that frequently occur with the expatriate process, as well as the implicit moral and
ethical duties owed to these expatriates and their families (Dowling, et al. 2009:109-132). A problem that often
occurs is that companies will fail to invest in the training required to prepare expatriate managers and their families
for the cultural challenges that they will face in managing employees within their host country, as well as in making
the transition to an entirely new culture which requires substantial personal, social, and economic adjustments.
Studies of the expatriate problem note that human resource systems in many companies do not adequately prepare
managers for both their move to a new country or for their return to their home country after completing their
assignment.

As a result of this lack of careful preparation, thirty to fifty percent of expatriate assignments are considered to be a
failure and many expatriates leave their companies after returning from international assignments. As a result, the
intended benefits of an expatriate assignment are frequently unrealized (Dowling, et al., 2009:113). Schuler and
Tarique (2007) have noted that a major cause of the failure of expatriate assignments has been the patterned
philosophy of multinational corporations of expecting that employees will be responsible for their own careers,
rather than creating a partnership between the corporation and the expatriate employee. Ironically, this policy of
failing to adequately partner with high potential managerial talent serves to exacerbate the problems of leadership
that plague many multinational organizations and sub-optimize wealth creation efforts. This policy is neither
consistent with best practices of high performance work systems or consistent with the firm’s own economic self-
interest (Shaffer, et al. 2006). Consistent with this patterned behavior of many international corporations in their
approach to human resource management, we offer our second proposition.

P2: International organizations that fail to properly train expatriate candidates and their families for
international assignments and fail to prepare both the company and the expatriate for the return
from their assignment will see a higher percentage of expatriates leave the company and will be less
 profitable than companies that carefully train expatriates and their families and establish a well-
crafted career path for the expatriate upon her/his return.

Scholars of international human resource management have recognized the increasing importance of employee
involvement programs in positively impacting firm performance (Selvarajan, et al., 2007). Guthrie and colleagues
(2002) suggested that organizations seeking to differentiate their products and services – the differentiation strategy
often required in the service-, knowledge-, and wisdom-based environment of the global marketplace (Covey, 2004)
– have recognized the advantages of implementing high involvement empowerment systems. Bhatnagar (2006)
emphasized the importance of empowering employees and creating a learning culture in Indian organizations – a
concept considered vital to increasing employee commitment and wealth creation (Senge, 2006).

Shen (2006) noted that Chinese companies have recognized that modern Chinese employees have demanded to be
empowered and have begun to change the top-down management model that historically typified the Chinese
corporation. According to research compiled by Alexashin and Blenkinsopp (2005), Russian managers and
employees who have historically been high in power distance are becoming more interested in employee
involvement programs. Fey and Shekshnia (2008) have also suggested that employee empowerment is one of the
key “commandments” for doing business successfully in Russia. Katou and Bhudwar (2007) have found that
implementing best practices of human resource management, including employee involvement programs, positively
impacted the financial performance of Greek firms.

Sparrow and colleagues (1994) found that best practices in human resource management were beginning to
increasingly merge in multi-national corporations. DePree (2004:53-54) has argued that today’s organizations owe a
series of moral and ethical duties to employees which rise to the level of a “covenantal” obligation. This covenantal
approach to employee relations emphasizes the moral duty to treat individuals as valued ends rather than simply as a
means to achieve corporate objectives (Pava, 2003; Kouzes & Posner, 2007). Consistent with this research about the
international human resource management implications of high performance work systems, we offer our third
proposition.

P3: International organizations that create employee involvement programs and treat employees as
valued ends rather than simply as means to achieve increased profitability have employees that
demonstrate greater commitment and generate a higher level of profits than organizations that do
not create such employee relationships.

Knowledge sharing in organizations has been recognized as vitally important in international human resource
management systems as multinational enterprises attempt to bridge between the policies and practices of an
international company and the local values, practices, and cultures of a host country (Dowling, et al., 2009). Kasper
and colleagues (2008:64) noted that both formal and informal relationships need to be created between individuals
and groups to create an integrated new partnership that balances differences in perspective while constructing a
framework that successfully blends corporate objectives with local capabilities. Yaping and Song (2008) noted that
high performance work systems that incorporated information sharing in international settings saw increased extra
role behavior among organizational employees.

Fey and Shekshnia (2008) suggested that the key to balancing the conflicting values of the international corporation
and the local business environment is to “stand firm on big goals but be flexible on details” in creating successful
partnerships in Russia. Bhatnagar (2007) found that creating a learning culture that shared information and that
involved employees at all levels in policy-making and decisions increased employee commitment and made it easier
for international organizations to achieve strategic performance goals. Kontoghiorghes and colleagues (2005)
suggested that organizations that created a learning organization and shared information with employees enhanced
their ability to be innovative, to implement change, and to improve organizational performance. Sun and colleagues
(2007) found that high performance work systems were correlated with organizational citizenship behavior(OCB).
Organ and colleagues (2005) had noted that OCB, or extra role behaviors, were positively impacted by treating
employees justly and creating an atmosphere of trust within organizations. Primeaux and colleagues (2003) noted
that procedural and interactional justice elements were closely related with employee perceptions about the
trustworthiness of leaders. Consistent with the research of these scholars, we offer our fourth proposition about high
performance systems and knowledge sharing , we offer our fourth proposition.
 P4: International organizations that create human resource systems which share information with
employees and that treat employees justly are more profitable than organizations which do not
create such systems and that do not share information.

Experts on organizational training note that the transfer of training principles to employees is frequently a major
issue in the evaluation of training effectiveness -- noting that only about 10% of training content is actually applied
on the job (Fitzpatrick, 2001;Saks & Belcourt, 2006) . Continuing trends in international training and development
results from continuing pressure from many countries for localization of training and development .Training and
development literature that the field must address global, comparative and national level contents for training and
development (Dowling, et al., 2009:153). IBM recently announced the creation of its multi-million dollar Global
Citizen’s Portfolio, a suite of investments and programs to help employees enhance their skills and become
professionals and global leaders (Rossi, 2007:16). Ethical training has a significant and positive impact on
practitioners’ ethical decision-making across cultures (Rottig & Heischmidt, 2007:5). Training can be a source of
competitive advantage in numerous industries. Training is an investment in the organization’s staff, and in the
current business milieu, the ability to measure the impact of training helps to affirm its importance to organizations
(Pfeffer, 1998:88- 89). Training objectives have three major dimensions : 1) enhancing working relationships, 2)
tackling skill deficiencies, and 3) skills development (Chu Ng, Siu, 2004:878). Notwithstanding the acknowledged
value of training in implementing high performance work systems (Pfeffer, 1998), Dowling and colleagues note that
in many international organizations the development of effective training for employees is often given low priority
due to the many other problems associated with establishing a new enterprise in a host country. Consistent with this
research, we offer our final proposition.

P5: International organizations that create human resource systems which train employees
effectively, particularly in skills that will enable those organizations to create high performance work
systems, are more profitable than organizations which do not create such human resource systems
and that do not invest in employee training.