H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT

H&R Block Compliance and Ethics Policy Review and CSR Audit

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT Abstract This paper examines and defines the ethical and social responsibility standards of H&R

Block, a regional best-performing public company ranked on KC STAR 50. A summary of the formal rules and informal norms that exists is presented and the consequences associated with the violation of corporate policy and acting in an unethical manner. The H&R Block corporate policies are evaluated for congruency, consistency and completeness. The strengths and weaknesses of the policies outlined have also been determined. This paper includes the groups the company recognizes as stakeholders and a summary of the H&R Block CSR program. The social audit report focuses on how H&R block performs in regards to their relationship with the community (including its employees), the environment and society in general. Finally, H&R Blocks performance is evaluated in comparison to more general ethics/CSR standards that are suggested by experts and relevant professional groups (ie. The ISO 26000 standards).

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT

H&R Block Compliance and Ethics Policy Review and CSR Audit

Company Overview Since 1955, with more than 100,000 highly trained tax professionals, H&R Block has prepared 500 million tax returns and is currently one of the largest tax service providers in the world. Financial products which help support the tax business are also offered through the H&R Block Bank (H&R Block, 2011-2012). As defined by the company, its purpose is, is to be the most trusted, state-of-the-art tax preparation experience at a great price for everyone (Code of Business Ethics and Conduct, 2011). Their corporate values reflect who they are and the environment they want to maintain. Their company values which can be further defined consists of: Client Focus, Responsibility, Teamwork, Integrity and Respect. H&R Block is aware that it is the performance of their associates that directly impacts how their company is viewed (Code of Business Ethics and Conduct, 2011).

H&R Blocks Code of Business Ethics & Conduct The Code of Business Ethics & Conduct outlines how H&R Block conducts its business and serves clients in an ethical and legal manner. The code also sets forth what the company expects from its associates and what they can expect from the company. As a company representative, employees are accountable for and bound by the code, and must act within its spirit and letter as they conduct business on behalf of H&R Block (Code of Business Ethics and Conduct, 2011).

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT The purpose for development of a Code of Business Ethics and Conduct, as

believed by H&R Block, was to reinforce their commitment to ethical business conduct and to provide guidelines for their associates to employ that would result in a consistent, company-wide approach to business ethics issues (Code of Business Ethics and Conduct, 2011). This Code applies to all members of the team including all associates, officers, and members of the Board of Directors of H&R Block, Inc. and all of its subsidiary companies. It is the Audit Committee of the Board of Directors that is responsible for overseeing the ethics program. The company has a Chief Ethics Officer, whose job primarily consists of administering the program, investigating reported complaints and addressing concerns that arise regarding ethical behavior and decision making. All contingent workers as well as suppliers, vendors and business partners are expected to be familiar with the code and to practice it as it is written. H&R Block believes that adherence to the code by associates and partners at all levels will help preserve their reputation which is critical to the success of their business (Code of Business Ethics and Conduct, 2011). Some of the key elements highlighted in the code have been summarized below. Clients and Their Information-A commitment to maintain the trust of clients with their personal information and to maintain confidentiality. Gifts and Gratuities-Acceptance of gifts and gratuities could intend to or appear to improperly influence business judgment and thus acceptance of such should be avoided. Client Solicitation-Is prohibited by the Code and could also be a violation of state and federal laws restricting the use of clients information.

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT Associate Privacy-Associate information should not be disclosed and should be used only for legitimate business purposes.

Environment, Health & Safety-One of H&R Blocks highest priorities is protecting the health and safety of associates. There is also a commitment to protect the environment of the communities in which business is conducted thus compliance with all health and safety laws is required.

Equal Employment Opportunity-Environment is free from unlawful harassment and discrimination of legally protected characteristics.

Relations with Supervisors, Co-workers, and Subordinates-Direct reporting relationships between family members is prohibited as well as employment which may impact the terms and conditions of another family member. Managers must not engage in romantic relationships with their subordinates.

Conflicts of Interest-Free time must not conflict with company obligations. This includes volunteering, consulting or other outside employment. Outside activities must not compete with the Company or its interests. Personal, Financial or other business interests must not interfere with the Company. Political interests and contributions must take place during free time and must not utilize company resources.

Company Assets-Theft, misuse or intentional or negligent damage of Company property is not tolerated.

Intellectual Property, Trade Secrets and Confidential Information-Company Assets such as these, should not be shared with anyone during or after employment.

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT Inside Information-Not only to comply with Federal securities laws, but to avoid

even the appearance of noncompliance. Additional information on this topic can be found in the Companys Insider Trading Policy and the Companys Corporate Investor Relations Communication Policy. Antitrust-Compliance with the Federal law which prohibits agreements and communications between competitors that eliminate or discourage competition and prohibits other practices that unfairly eliminate competition. Government Transactions-The bribery of public officials is prohibited. Intellectual Property of Competitors or Other Third Parties-The intellectual property rights of our competitors and others is to be respected the same as the companys own intellectual property. (Code of Business Ethics and Conduct, 2011) In addition to the requirements specifically listed in the Code, there are other basic obligations that must be followed. These include following company policies, complying with the law, being honest, reporting violations, not retaliating, avoiding situations that reflect unfavorably on the employee themself or the company and conducting business in a professional manner (Code of Business Ethics and Conduct, 2011).

Reporting Violations Awareness of a violation of the code mandates reporting. There are several routes that can be utilized when reporting a violation including: reporting the violation directly to the manager or the next level manager, calling the H&R Block People Center or the RSM McGladrey Ethics Hotline, emailing the Ethics Team or by notifying the corporate

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT

secretary, a member of the legal team or the human resources department. There are some individuals who are specified in certain policies that can also be notified of violations or with other questions or concerns regarding corporate policy. Notification of violations can be made anonymously and retaliation will not be permitted or tolerated by the company as outlined in the Code. All reports are investigated in a timely fashion by the relevant manager, a member of another department within the company or by Audit Services if the violation regards accounting manners. When the Code or corporate policy is violated, discipline up to and including termination can occur (Code of Business Ethics and Conduct, 2011).

Evaluation of the Code The Code of Business Ethics and Conduct outlined above appears to be quite complete including specific guidelines for behavior in all areas. The bigger question here is how well the company does at actually implementing the Code and following up on it. Although both of these areas are addressed in the Code, it is important to make sure that the Code is not just serving as a public relations device which appears to show an ethical commitment by the company. The development of The Code of Business Ethics and Conduct is important; however the most crucial element is to ensure that it is properly embedded throughout the organization. H&R Block or more specifically, the Audit Committee of the Board of Directors should routinely assess their company to see that their code is being followed and is up to date (if this is not being conducted already). Their assessment should include interviews

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT

with senior managers, a review of documents and systems, surveys of employees and other stakeholders. The findings should then be presented to the board/senior management team. After reading The Code of Business Ethics and Conduct and researching some of the law suits involving H&R Block, the actions of H&R Block associates in several cases appeared to be in violation of some of the areas touched upon in the Code of Business Ethics and Conduct. However, without knowing all of the specific details it would be difficult to determine if the code was actually breached. For example, H&R Block was sued in 2006 after claims were made that the company did not disclose the high fees associated with a retirement savings account and instead encouraged them into the accounts which lost money over time. The company was additionally scrutinized after expanding its services many of which seemed to be directed at affluent customers (Bajaj, 2006). In 2006, California Attorney General Edmund G. "Jerry" Brown sued major tax preparers to stop marketing instant or same day refunds as refunds since they were actually loans which were associated with high fees. In January, he announced a $4.85 million settlement with tax giant H&R Block. Or consider the acquisition of fraud that was made when securities regulators accused H&R Block of selling individual investors Enron bonds without disclosing the risk associated with the purchase. Not to mention the higher than normal commissions that were paid out for the sales or the brokers comments indicating that the purchase was safe (Browning, 2004).

Corporate Social Responsibility Corporate social responsibility (CSR) is defined as the obligation companies have to develop and implement courses of action that aid in social issues that impact society

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT (Beresh-Bryant, 2011). Different areas of CSR include: the marketplace, the environment, the workplace, the community, the companys accountability, international relationships/practices and fiscal responsibility. Reporting on CSR efforts promotes

stakeholder dialogue with the company. The stakeholders of H&R Block were determined by researching the company and/or reviewing the Code of Business Ethics and Conduct and the groups and individuals referred to in it such as investors, employees, customers, vendors, suppliers, business partners, government and competitors. Examples of how H&R Block has addressed CSR has been summarized below. Marketplace H&R Block made the decision to discontinue advertising when the television show, SKINS, aired on MTV. This program focused on teens inappropriate behavior of which most parents try to discourage and shield their teens from. Not only were the cast members being paid for their performance but the show was also causing confusion as to what acceptable behavior is. H&R Block pulled all advertising out of respect for our youth and their families as opposed to the profits that could have been received from the advertisements (Beresh-Bryant, 2011). Workplace H&R Block believes that every associate can and does make a difference. They are dedicated to building a diverse company and envision the future as an even more diverse and richer workplace than today. H&R Block tries to create an atmosphere of inclusion, where diverse interest group members feel respected, empowered and rewarded for providing quality products and services (H&R Block, 2011-2012). Community

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT

10

H&R Block founders, Henry and Richard Bloch, established a philantropic tradtion which continues on today through several different programs. H&R Block Dollars & Sense is a program that teaches high school students the basics about personal finances and money management. Scholarships and grants are offered to students and schools each year to help increase financial fitness amongst high school students. Parents can also get support from the program when discussing money and finances with their teens (H&R Block, 2011-2012). H&R Block's Strength in Numbers volunteer program was developed with the belief that by working together we can make a difference in our community and the organizations within it. Volunteers within the company focus on areas such as youth development, health and human services, community revitalization, arts and culture, and literacy (H&R Block, 2011-2012). The H & R Block Foundation provides grants to nonprofit organizations in Kansas City. Additional money aids associate and board community involvement activities (H&R Block, 2011-2012). The R.A. Bloch Cancer Foundation develops and provides support to projects that help people diagnosed with cancer. Cancer survivors serve as a source of information and provide support and guidance to other patients diagnosed with cancer. A hotline is available for use by cancer patients seeking to benefit from these services. The National Cancer Survivors Day Rally was initially started by the Bloch Cancer Foundation and is now held in over 700 communities in the U.S. and 15 countries worldwide. In addition, Cancer Survivors Parks are also constructed and maintained by the R.A. Bloch Cancer Foundation (H&R Block, 2011-2012).

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT Accountability The H&R Block Promise means satisfaction is guaranteed, the maximum refund

11

entitled to will be received, H&R Block will pay penalties and interest if a mistake is made and they will be there for assistance if audited by the IRS. The Maximum Refund Guarantee guarantees the customer that if the maximum refund entitled is not received, the tax preparation service is free. The Satisfaction Guarantee is a guarantee that is offered to customers that payment will only be collected after satisfaction is granted. Additional guarantees are offered for users of the H&R Block software program and for online product users (H&R Block, 2011-2012). International Relationships H&R Block has more than 12,000 offices in the United States and more than 1,300 in Australia and Canada. Special H&R Block tax schools help provide the necessary skills needed to apply for a position at H&R Block.

Evaluation of Company Standards Compared to Professional Recommendation H&R Blocks performance is satisfactory when compared to that recommended by experts and relevant professional groups (ie. ISO 26000 standards). The ISO 26000 Standards include these seven core subjects: Human Rights, Labor Practices, Organizational Governance, The Environment, Fair Operating Practices, Consumer Issues and Community Involvement and Development. One of the largest weaknesses in the H&R Block program seems to be communication. Researching the company revealed a lot of voids in some areas. While this does not mean that the company does not address each of

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT the core subjects, it does indicate that the information is not disseminated and easily

12

accessible to the public. There was also not a specific list of all of the stakeholders that the company recognized and what information was communicated to them or encouraged from them. Other areas that H&R Block appeared to be deficient in were their actions regarding environment and the revelation of consumer issues. There was no mention of information regarding customer feedback and the company response to that feedback. Again, it is difficult to determine everything that is being done by the company but just not being communicated to the public via the internet. Overall, H&R Block seems to have a very complete set of ethics/CSR standards and at least mentioned or touched upon all of the areas contained in the ISO 26000 standards.

References: Code of Business Ethics and Conduct. (2011, September 29). Retrieved March 27, 2012, from H&R Block Official Site: www.hrblock.com/.../investor/gov_guide/code_of_ethics.pdf

H&R BLOCK CODE OF BUSINESS ETHICS AND CONDUCT Bajaj, V. (2006, March 15). US: Spitzer Sues H&R Block, Saying Account Fees Were Deceptive. Retrieved March 27, 2012, from CorpWatch: http://www.corpwatch.org/article.php?id=13401 Beresh-Bryant, C. (2011, 25 January). Corporate Social Responsibility-It's More Than Saving the Planet. Retrieved March 29, 2012, from HR Cafe: http://thehrcafe.wordpress.com/tag/hr-block/ Browning, L. (2004, November 9). H & R Block Is Accused of Fraud in Bond Sales. Retrieved 28 March, 2012, from The New York Times: http://www.nytimes.com/2004/11/09/business/09block.html?_r=1 Conway, B. (2009, March 2). US: Instant tax 'refunds' come under fire. Retrieved March 28, 2012, from Corpwatch: http://www.corpwatch.org/article.php?id=15317 H&R Block. (2011-2012). Careers. Retrieved March 29, 2012, from H&R Block: http://www.hrblock.com/company/diversity/index.html

13

H&R Block. (2011-2012). Community Involvement. Retrieved March 28, 2012, from H&R Block: http://www.hrblock.com/company/community_involvement/index.html H&R Block. (2011-2012). Our Guarantees. Retrieved March 28, 2012, from H&R Block: http://www.hrblock.com/why-hr-block/our-guarantees.html H&R Block. (2011-2012). Why H&R Block? Retrieved March 30, 2012, from H&R Block: http://www.hrblock.com/why-hr-block/index.html