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Ethics for Human Resources Professionals www.PaulFalconeHR.com Paul@PaulFalconeHR.com 1www.PaulFalconeHR.com

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Contents Introduction to business ethics in the workplace: employment history and ethics theory, the Sarbanes Oxley Act, and corporate governance standards Employment laws, company policies, codes of conduct, and past practices: guidelines for ethical business decision-making 2www.PaulFalconeHR.com

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Contents (cont.) Workplace audits and self-regulation; egregious misconduct and summary offenses Effective internal investigations Ethical considerations in international companies, cultural differences, and outsourcing and off-shoring considerations 3www.PaulFalconeHR.com

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Part I Our History, our Laws, and our Evolving Workplace 4www.PaulFalconeHR.com

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Ethics: A Definition Ethics can be defined as a code of moral standards by which people judge the actions and behaviors of themselves and others. Business Ethics is the application of a moral code of conduct to the strategic and operational management of a business www.applied-corporate- governance.com. 5www.PaulFalconeHR.com

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Legal vs. Ethical Legal standard = compliance / avoidance of wrongdoing that could run afoul of the law Ethical standard = building a moral corporate culture that has integrity 6www.PaulFalconeHR.com

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Ethics Programs Workplace ethics programs generally fall into one of three categories: 1. Codes and compliance programs (e.g., SOX, ISO) focus on preventing unwanted behavior 2. Corporate identity and values programs focus on what a company stands for and the good qualities the company wants its employees to exhibit 3. Social outreach programs = +corporate social responsibility 7www.PaulFalconeHR.com

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Legal Standards & Guidelines Legal requirement vs. moral imperative Can you demonstrate that your company had a legitimate, non-discriminatory, non-retaliatory reason for the actions that it took? Can you demonstrate business necessity (AKA a compelling business reason) and job-relatedness? Standard: Did the employer have a good faith belief? 8www.PaulFalconeHR.com

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Legal Guidelines (cont.) State laws have concurrent authority with federal laws whichever law is broader in terms of worker protections prevails Fair treatment vs. preferential treatment Acting outside the course and scope of your employment Affirmative obligation to disclose 9www.PaulFalconeHR.com

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Legal Guidelines (cont.) Disparate Treatment: intentional discrimination Disparate (Adverse) Impact: a policy, neutral on its face and even-handedly applied, nevertheless has a disproportionate adverse effect on a protected group 10www.PaulFalconeHR.com

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A Brief History of Ethics The study of ethics involves two basic questions: 1. What is the right thing to do? 2. Why should you do the right thing? 11www.PaulFalconeHR.com

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Ethics History (cont.) Ethicists have come up with three main approaches to how people should conduct their lives: 1. Develop character traits that allow you to live a good and ethical life 2. Focus on your duties to yourself, others, and society in general 3. Look to the consequences of your actions and how those consequences affect you and others 12www.PaulFalconeHR.com

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Ethics History (cont.) Meta-ethics attempt to describe the nature of good and bad and right and wrong Descriptive ethics (AKA comparative ethics) study what different people believe is right and good Normative ethics focus on what people should do to live a moral life Virtue ethics focus on character education, which is the act of training people to develop virtuous habits like truthfulness, fairness, and integrity 13www.PaulFalconeHR.com

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Ethics History (cont.) Aristotelian values include: generosity, temperance, modesty, and greatness of soul. Virtues are states of character, but they only become true character through constant exercise. Immanuel Kants categorical imperative follows one overarching commandment from which all duties and obligations are derived. Kants moral universalism posits that some actions are always right or wrong. 14www.PaulFalconeHR.com

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Ethics History (cont.) Thomas Hobbes 17 th century social contract theory states the individuals and groups willingly trade some of their freedoms in exchange for a government or society that can protect their individual and collective interests Natural rights theorists accept John Lockes contention that all citizens have a natural right to life, liberty, and the acquisition of property 15www.PaulFalconeHR.com

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Ethics History (cont.) Consequential ethics state that people should act in ways that result in the best consequences. Acts themselves arent good or bad; theyre only deemed good or bad by what happens because of them. Does the end justify the means? Hedonism states the pleasure is the only thing thats inherently good. Utilitarianism is commonly defined as the greatest good for the greatest number. 16www.PaulFalconeHR.com

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Ethics History (cont.) Situational ethics, developed by Episcopal priest Joseph Fletcher in the the 1960s, emphasizes the overriding importance of agape, or absolute, unchanging, and unconditional love for all people... Situational ethics come into play only when the circumstances are so extreme that following conventional moral principles would lead to a bad outcome (i.e., the morality of any action is always determined by the circumstances). 17www.PaulFalconeHR.com

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A Short Overview of U.S. Employment Law The Job as Property Doctrine the right to work is fundamental to American citizens that it shouldnt be taken away without workplace due process as accorded under the 14 th Amendment to the Constitution Standard: Termination for Just Cause Only Workplace due process typically comes in the form of progressive discipline (i.e., documented corrective action) 18www.PaulFalconeHR.com

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Progressive Discipline Before any worker loses her job, she has the right to: 1. Know the nature of the problem 2. Know what she needs to do in order to fix the problem (i.e., company expectations) 3. Be given a reasonable amount of time in which to fix the problem 4. Understand the consequences of inaction 19www.PaulFalconeHR.com

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1930s Employment-at-Will The Great Depression threatened the very existence of capitalism, and Congress passed a series of laws that were intended to keep companies in business at all costs The workers right to due process was replaced by the employers right to terminate at whim From the 1930s to the 1970s, the United States witnessed its greatest growth in unionization as a result because union workers are not at will and are typically held to a for cause standard under the collective bargaining agreement 20www.PaulFalconeHR.com

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Benefits of Joining a Union #2 Reason : The right to collectively bargain for wages and benefits and enjoy greater job security #1 Reason : If you join our union and pay your union dues, we wont let companies terminate you at whim. Our collective bargaining agreement will guarantee that youre accorded workplace due process in the form of progressive discipline, and youll gain control of your future back. 21www.PaulFalconeHR.com

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A California Court in 1980 Tameny vs. Arco Oil (June 2, 1980) 15-year employee was fired for refusing to engage in unlawful activities (price fixing) on employers behalf CA Supreme Court Justice Rose Byrd ruled, We wont countenance firing a long-term employee, even if at will, for reasons that violate public policy. The public policy exception was born. Tort law became part of legal landscape in CA. 22www.PaulFalconeHR.com

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Limitations on Employment at Will Exceptions to employment-at-will include... 1. Employment contracts (including collective bargaining agreements) 2. Statutory considerations (protected classes) 3. Public policy exceptions (WC, whistle blowing, and engaging in concerted activities) 4. Implied contract exceptions / implied covenants of good faith & fair dealing (handbooks, vesting) 23www.PaulFalconeHR.com

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EAW vs. Discharge for Just Cause Only Defense Attorneys strategy = Employment-at-Will Affirmative Defense used at the hearing stage with the goal of immediate dismissal of the case (Summary Judgment) Plaintiff Attorneys strategy = Discharge for Just Cause Only standard used at the trial stage (if the case survives Summary Judgment) 24www.PaulFalconeHR.com

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Hearings vs. Trials Lesson: Its not one or the other, its both Without a crystal ball, you cant know now what kind of spin a plaintiff attorney will place on a case six 12 months from now and how a judge will lean. Therefore, since you cant know in advance if youll win a summary judgment at the hearing stage (using the EAW affirmative defense), you must always be prepared to show that you have just cause at the trial stage (via progressive discipline)! 25www.PaulFalconeHR.com

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1930s 1935 The Wagner Act (known as the National Labor Relations Act - NLRA) guarantees basic rights of private sector employees to unionize, bargain, and strike 1938 Fair Labor Standards Act (FLSA) banned oppressive child labor (under age 14), set minimum wage (25 cents), required employers to pay overtime and set maximum workweek to 44 hours 26www.PaulFalconeHR.com

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1940s and 1950s 1947 Taft Hartley Act protects employers from unfair labor practices (i.e., unions refusing to bargain with employers in good faith) 1959 - Labor Management Reporting and Disclosure Act (Landrum-Griffin Act) provides employers the right to sue unions 27www.PaulFalconeHR.com

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1960s 1965 - Executive Order 11246 prohibits federal contractors from discriminating in employment decisions based on race, color, religion, sex, or national origin; federal contractors must develop an Affirmative Action Plan (AAP) 1967 - Age Discrimination in Employment Act (ADEA) prohibits discrimination based on age (40 years or older) and protects employees from a hostile work environment based on age 1968 - Fair Credit Reporting Act (FCRA) - protects individuals by regulating the way businesses gather and use credit information about them 28www.PaulFalconeHR.com

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1960s (cont.) 1963 - Equal Pay Act (EPA) - protects men and women who perform substantially equal work in the same establishment from sex-based wage discrimination 1964 - Civil Rights Act-Title VII - prohibits employment discrimination on the basis of sex, race, color, religion, or national origin (includes recruitment, hiring, wages, assignment, promotions, benefits, discipline, discharge, and layoffs) 29www.PaulFalconeHR.com

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1970s 1970 Occupational Safety & Health Act (OSHA) - governs occupational health and safety; ensures that employers provide employees with an environment free from recognized hazards 1972 - Vietnam Era Veterans Readjustment Assistance Act (VEVRA) - provides equal opportunity and affirmative action for Vietnam era veterans, special disabled veterans, and veterans who served on active duty during a war (applies to employers with Federal contracts or subcontracts of $25,000 or more). 1973 - Rehabilitation Act - prohibits discrimination on the basis of disability in programs conducted by Federal agencies, contractors and/or programs 30www.PaulFalconeHR.com

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1970s (cont.) 1974 - Employee Retirement Income Security Act (ERISA) - protects the interests of employee benefit plan participants by setting minimum standards for pension plans in private industry and rules on the tax effects associated with employee benefit plans 1978 - Uniformed Guidelines on Employment Selection Procedures - provides standards for use of employment testing; employers must demonstrate a selection process is valid in predicting performance, and selection process cannot create adverse impact 1978 -Pregnancy Discrimination Act (PDA) prohibits discrimination based on pregnancy; treat pregnancy as any other temporary disability 31www.PaulFalconeHR.com

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1980s 1985 - Consolidated Omnibus Budget Reconciliation Act (COBRA) - provides workers who lose health benefits to continue group health benefits (temporarily) in certain circumstances 1986 Immigration and Reform Act (IRCA) prohibits discrimination based on national origin or citizenship of applicants; companies may be penalized for hiring illegal aliens 1986 - Health Insurance Portability and Accountability Act (HIPAA) protects an individuals personal health information (amended in 1996 - improves portability and continuity of health insurance coverage) 1989 Whistleblower Act protects federal whistleblowers who work for the government and report agency misconduct; agency cannot retaliate against an individual who reports misconduct 32www.PaulFalconeHR.com

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1990s 1990 - Americans with Disabilities Act (ADA) prohibits discrimination based on disability in employment decisions 1991 Civil Rights Act provides the right to trial by jury on discrimination claims and introduced the possibility of emotional distress damages (i.e., punitive damages), while limiting the amount that a jury could award 1993 Family Medical Leave Act (FMLA) provides job protection and unpaid leave for certain circumstances 1994 Uniformed Services Employment and Reemployment Act (USERRA) provides job rights of individuals who leave employment to serve in the uniformed services and prohibits employers from discriminating against past and present members of the uniformed service (and applicants to the uniformed services) 33www.PaulFalconeHR.com

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2000s 2002 Sarbanes Oxley (SOX) - ensures the reliability of publicly reported financial information, company noncompliance may result in negative consequences and contains protection for corporate whistleblowers 2008 - Genetic Information Nondiscrimination Act (GINA) - prohibits the use of genetic information in health insurance and employment decisions 34www.PaulFalconeHR.com

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Protected Characteristics Federal Law (Title VII) = 5 protections Race, color, religion, sex, and national origin California State Law = 17 protections Five from Title VII + ancestry, physical disability, mental disability, medical condition, marital status, pregnancy, age, sexual orientation, gender identify, gender expression, genetic information, and military & veteran status 35www.PaulFalconeHR.com

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Part II The Sarbanes-Oxley Act of 2002 (SOX) The Code of Business Conduct / Code of Ethics / Code of Conduct Conflicts of Interest SOX Controls and Compliance 36www.PaulFalconeHR.com

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Corporate Governance Arthur Andersons conflict of interest prior to its fall: Accounting and Auditing services offered to the same clients (Enron) Should the offices of Chairman of the Board (COB) and CEO be held jointly by the same person? COB = board of directors activities CEO = operational activities 37www.PaulFalconeHR.com

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Corp Governance (cont.) Pros: A combined Chairman/CEO acts as a bridge between the board and the operating company and can provide critical leadership for strategic initiatives. A principal role of the Chairman is to propose the general agenda for board meetings from among the many issues facing a company on a day-to-day basis. As a result, a CEO may be in the best position to develop this agenda in the most efficient and effective manner. Cons: The board must maintain independent oversight of management. Joining the roles of COB and CEO could consequently impact board independence. 38www.PaulFalconeHR.com

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Corp Governance (cont.) Key Board Committees Audit Committee Social Responsibility Committee Nominating and Personnel Committee Shareholder Advisory Committee Note: Trustees must be independent of the companys management 39www.PaulFalconeHR.com

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Defective Certification Criminal prosecution for CEO and CFO of publicly traded companies Penalties include: $1 MM, up to 5 years in prison $5 MM, up to 20 years in prison (if willful) Lesson: SOX, AKA SARBOX, has teeth!!! 40www.PaulFalconeHR.com

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Part III: Internal Investigation Strategies Rule 1: Its all about the record Rule 2: Practice trumps policy Rule 3: Always the Get the Accused Workers Side of the Story Before Making a Final Decision 41www.PaulFalconeHR.com

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Investigations (cont.) Rule 4: When the issue drives the outcome Rule 5: The importance of timeliness Rule 6: Removing employees from the workplace: a necessary consideration in the investigation process 42www.PaulFalconeHR.com

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Investigations (cont.) Rule 7: Sameness vs. Consistency Rule 8: Performance vs. Conduct Rule 9: Beware the Dreaded Preemptive Strike 43www.PaulFalconeHR.com

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Investigations (cont.) Rule 10: Vet the record before recommending termination For a list of key record review items, visit www.PaulFalconeHR.com and look at the Blog page under: Ten Practical and Street-Smart Rules for Conducting Internal Workplace Investigations www.PaulFalconeHR.com 44www.PaulFalconeHR.com

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Part IV: Real Life Scenarios You Make the Call... Scenario 1: Hey boss, can I talk to you for a few minutes off the record? 45www.PaulFalconeHR.com

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Scenarios (cont.) Scenario 2: Two employees (peers) begin dating in the workplace. Do they have an obligation to disclose their new relationship? Scenario 3: Two employees (manager - subordinate) begin dating in the workplace. Do they have an obligation to disclose their new relationship? 46www.PaulFalconeHR.com

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Scenarios (cont.) Scenario 4 Scenario 4: Loner employee carries a little red book where she takes notes about her coworkers. She tells that they if they do anything to hurt her, she will turn over her notebook to her attorney and sue them personally. Does the company have any recourse toward this employee? Scenario 5: Loner employee from New Orleans creates voodoo dolls of her coworkers and sets them prominently on her desk. Can management intervene? 47www.PaulFalconeHR.com

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Scenarios (cont.) Scenario 6: Assistant store manager reports to store manager (husband and wife). Husband (AM) arrested for drug possession. Does wife (store manager) have an obligation to disclose her husbands / assistant managers arrest? 48www.PaulFalconeHR.com

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Scenarios (cont.) Scenario 7: Retail store announces to its workers that its expanding hours to include Sundays from 9:00 4:00. Employees suddenly see religion. Does the company have any recourse to a team that refuses to work Sunday hours for religious reasons? 49www.PaulFalconeHR.com

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Scenarios (cont.) Scenario 8: Bank employee reports to work with a new nose ring, ear gauge, and eyebrow pin. Does a company have the right to insist that those paraphernalia be removed when dealing with customers? Can a company reassign someone with body piercings and new tattoos to a back-office role that avoids customer interaction? What if the individual opts to sport a beard or wear a Burka for religious reasons? 50www.PaulFalconeHR.com

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Scenarios (cont.) Scenario 9: Two clerks insist on speaking Spanish with one another throughout the day while filing records; a third, English-only speaking records clerk feels left out and is suspicious that theyre talking about her and laughing about her right in front of her face. Does the company have the right to insist on English-only speaking rules? 51www.PaulFalconeHR.com

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Scenarios (cont.) Scenario 10: An administrative assistant complaints to HR that shes been having an affair with her VP boss for the past nine months. She claims that the relationship was unwelcome but she felt threatened and feared retaliation if she didnt comply. The VP confirms that the affair has been ongoing but insists the relationship was consensual. What options do you have as an employer? 52www.PaulFalconeHR.com

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Other Scenarios What are some common ways that employees engage in unethical behavior? How do you effectively deal with people who constantly fly just below the radar in terms of not violating a particular company policy? What types of performance or conduct infractions can typically justify a summary dismissal? How would you differentiate handling suicidal vs. homicidal concerns? 53www.PaulFalconeHR.com

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Part V: Executive Compensation CEO pay rose from about $5MM a year in 1998 to $12MM a year in 2010. The stocks of their companies have, on average, fallen by a third. (Money Magazine, February 2012, page 100). Say on Pay shareholder initiatives (non-binding vote) Balancing governance standards, investor concerns, and sound business strategy Four core elements: (1) salary, (2) benefits, (3) bonus, and (4) long-term incentives (LTI) 54www.PaulFalconeHR.com

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Executive Comp Design 1. Appropriate Pay Mix 2. Performance Metrics 3. Adequate Controls (governance standards) 4. Investor Concerns 5. Sound Business Strategy = Support Sustainable for Shareholder Value* * Shareholder Value is measured by (1) stock price appreciation and (2) dividends. 55www.PaulFalconeHR.com

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Organizational Slope The relationship of salaries paid to subordinates of a key executive manager. Slope is a percentage relationship showing a reasonable salary differential between the key positions and its subordinates. For example, in a $1 billion organization, the slope might look like this: 56www.PaulFalconeHR.com

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Org Slope (cont.) CEO (100% anchor) Finance (70%) Marketing Engineering Manufacturing HR (40%) 57www.PaulFalconeHR.com

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CEO-to-Average-Employee In 1965, the ratio of CEO total compensation to that of all employees in the company was approximately 25 to 1. In 1990, that average CEOs total compensation was about 100 times larger than the average compensation of all employees in their company. Today that number is 273! Source: Washington Post, June 26, 2013: Congrats, CEOs! Youre Making 273 Times the Pay of the Average Worker by Lydia DePillis 58www.PaulFalconeHR.com

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CEO Pay Trends Increase in average worker annual compensation from 1978 to 2011: 5.7% Increase in S&P 500 from 1978 to 2011: 349% Increase in CEO annual compensation from 1978 to 2011: 727% Source: Washington Post, May 11, 2012: Crazy Data Point of the Day: How Much CE O Pay vs. Worker Pay has Grown by Jena McGregor 59www.PaulFalconeHR.com

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Are They Worth It? 2004 Executive Comp Viacom Top Officers 60 ExecutiveBaseBonusOptions Redstone$5 MM$16.5 MM$34 MM Freston$4.2 MM$16 MM$32 MM Moonves$5.7 MM$14 MM$32 MM www.PaulFalconeHR.com

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Part VI: Ethical Considerations for Global Companies Foreign Corrupt Practices Act of 1977 ($1 MM fine for engaging in bribery) Outsourcing / Off-Shoring Human Rights Respecting Cultural Differences The Global Citizen Role & Responsibility 61www.PaulFalconeHR.com

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Fair Trade Creates new opportunities for small producers Provides fair payments for products Protects workers rights and safety Promotes environment stewardship Respects cultural differences 62www.PaulFalconeHR.com

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Sweat Shops Complaints about U.S. companies utilizing overseas sweatshops hit a crescendo in the 1990s, when activists publicized horrendous working conditions at factories used by Nike, Mattel, and other companies. The Fair Labor Association (www.fairlabor.org) was established to monitor and improve labor conditions in developing countries.www.fairlabor.org Low wages and obstacles to unionization remain. 63www.PaulFalconeHR.com

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Part VII: Protecting the Environment The environmental justice movement aims to point out how disadvantaged populations tend to bear the most negative side effects of development and infrastructure projects. The Global Compact (www.unglobalcompact.org) was launched by the United Nations in 1998 to, among other things, to promote responsible and sustainable development in key areas including pollution, depletion on non-renewable resources, and waste disposal.www.unglobalcompact.org 64www.PaulFalconeHR.com

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Part VIII: Other Areas of Ethical Impact Corporate charity and philanthropy (PACs) Employee safety and health Treating competitors fairly Consumer marketing (sales) and public relations 65www.PaulFalconeHR.com

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Part IX: Establishing a Companys Ethical Culture Identifying a Companys Core Values A holistic approach: workforce, customers, stockholders, competitors, and community Affirmative action plans and diversity & inclusion initiatives The Golden Rule: What you want for yourself, give to another 66www.PaulFalconeHR.com

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Advantages of Ethical Workplaces Greater customer retention and loyalty Greater employee retention and satisfaction Higher internal morale, camaraderie, and teamwork Lower turnover, workers comp claims, intermittent FMLA leaves, and lawsuits 67www.PaulFalconeHR.com

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Ethical Workplaces (cont.) CHALLENGE: Research your company on www.Glassdoor.com to see what people are saying!www.Glassdoor.com www.PaulFalconeHR.com68

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Reinforcing a Companys Values Communicate the companys values to employees in regular communications (e.g., newsletters) Reward employees for outstanding ethical behavior Protect and reward employees who speak up against unethical behavior Apply punishments fairly and consistently, without regard to the offenders performance or relationships 69www.PaulFalconeHR.com

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Reinforcing Values (cont.) Be as transparent as possible Put others needs ahead of your own and expect them to respond in kind Remember that the evolution of a society is measured by how it treats the least among its members how does your company measure up? Employer of Choice initiatives 70www.PaulFalconeHR.com

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New Trends in Corporate Recognition Forbes: The Worlds Most Ethical Companies Inc.com: The Green 50 Working Mother: 100 Best Companies for Working Mothers AARP: Best Employers for Workers Over 50 Fortune: Worlds Most Admired Companies 71www.PaulFalconeHR.com

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Q & A: Questions and Actions Paul Falcone www.PaulFalconeHR.com Paul@PaulFalconeHR.com 72www.PaulFalconeHR.com