An Introduction to Ethics & Sustainability

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Get an overview of terminology and issues associated with ethics & sustainability.



Scope—The Ethics and Sustainability Discipline deals with organizational and personal values and their expression in business decision making and behavior. It emphasizes organizational codes of ethics, but also includes relevant legal requirements. This discipline also involves managing the societal impact of business decisions, philanthropy and the role of the human resource professional in improving the quality of life of employees, their families and the community at large. It includes matters that focus specifically on careers, communications, legal and regulatory issues, technology, metrics and outsourcing in the areas of ethics and sustainability, as well as effective practices and global issues.

Overview


Ethics and sustainability are two different but related areas of practice that are gaining in significance for the 21st-century HR professional. The ethics realm includes voluntarily adopted and mandated business codes of ethics, related legal and regulatory imperatives, corporate governance, whistleblower protections and ethics training. The sustainability field includes traditional corporate philanthropy and volunteerism, but also encompasses broader initiatives that leverage the intersection between business interests and societal good.

Ethics and Sustainability also have facets in common with other HR disciplines that are expressed uniquely in this context. These include effective practices, careers, communication, metrics and technology.

Ethics


Ethics is defined as rules of conduct or moral principles that guide individual or group behavior. The focus in business ethics is on awareness of organizational values, guidelines and codes, and behaving within those boundaries when faced with dilemmas in business or professional work.

HR professionals are in a strategic position to ensure that their organizations maintain cultures that demand ethical behavior. Many serve as the primary ethics resource in their organizations and are involved in formulating ethics policies. But others feel that they are charged merely with “cleaning up the messes.” See, Business Ethics Series Part I: Business Ethics Overview.

Codes of ethics


Many organizations have voluntarily adopted codes of ethics that describe their general value system, ethical principles and specific ethical rules. Codes of conduct may cover a variety of subjects such as:

•Compliance and laws.
•Confidential or proprietary information.
•Conflicts of interest.
•Use of company assets.
•Acceptance or providing of gifts, gratuities and entertainment.
In addition, some industries have developed their own ethical standards that participating companies subscribe to. For example, during the 1980s executives of major defense contractors created the Defense Industry Initiative on Business Ethics and Conduct, whose principles obligate signatories to:

•Adopt a written code of ethics and conduct.
•Provide employees orientation and training with respect to the code.
•Provide employees with a mechanism (such as a hotline or helpline) to surface concerns about ethics issues and report suspected wrongdoing regarding corporate compliance with procurement laws and regulations.
•Adopt procedures for voluntary disclosure of violations of federal procurement laws.
•Participate in best practices forums.
•Show the public its commitment to ethical business practices through the transparency of its activities and programs.
Publically traded companies subject to the Sarbanes-Oxley Act of 2002 (SOX) must have a code of ethics that is designed to deter wrongdoing, including a statement promoting financial integrity that clearly applies to senior financial officers. There is no prescribed format for a SOX-compliant code, but it should affirm the company’s commitment to:

•Honest and ethical conduct.
•Avoidance of conflicts of interest.
•Full, fair, accurate, timely and understandable financial disclosure in reports and documents.
•Compliance with applicable government laws, rules and regulations.
For common business code of ethics provisions and other resources, see, Business Ethics Series Part III: Business Ethics--Codes of Conduct/Ethics. For sample policies and codes of ethics, see, Corporate Ethics & Social Responsibility under Samples in the Templates and Tools section of SHRM Online.

Particular ethical challenges

When asked what were the most egregious types of ethical misconduct they had witnessed over the past 12 months, human resource professionals responded in a study that abusive or intimidating behavior by employees on the job tops the list. See, The Ethics Landscape in American Business Survey Report.

Legal and Regulatory Issues in Ethics

Corporate ethics historically has been a largely unregulated area, but that is changing. There are certain legal issues and exposures that organizations—particularly publically traded companies—need to be mindful of in developing and implementing their ethics policies and practices.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 (SOX) has many provisions that involve or touch on ethics-related policies and practices that HR professionals may administer or influence:

•Section 301: Requires companies to develop a complaint system and an anti-retaliation statement and to communicate these to employees. See, The Sarbanes-Oxley Act of 2002: New Federal Protection for Whistleblowers.
•Section 306: Requires companies to notify employees at least 30 days prior to a temporary suspension on stock trading—a blackout period. Section 306 also requires companies to provide executive officers and directors and the SEC with advance notice of a blackout period, during which officers and directors are prohibited from engaging in transactions involving securities acquired as a result of their employment. See, Sarbanes-Oxley Sample Blackout Notice.
•Section 402: Bans personal loans to executive officers or members of the board of directors. HR-administered programs that may run afoul of Section 402 include split-dollar life insurance policies, in which a company pays premiums for a policy insuring the life of an officer or executive; stock option exercises, which are company extensions of credit for broker-assisted, cashless exercises of stock options; and loans to cover home purchases or college tuition. See, Sarbanes-Oxley Alters Executive Compensation Climate.
•Section 404: Requires U.S. public companies and their independent auditors to show the Securities and Exchange Commission (SEC) that their financial numbers are accurate and that they have processes in place to ensure that accuracy. Because the single largest line item for most employers is people-related costs, including salary, benefits, incentives, training and the like, HR executives are squarely in the center of the SOX fray. How an organization arrives at its numbers is becoming nearly as important as the accuracy of the numbers. See, Demystifying Section 404.
•Section 406: Requires companies to have a code of ethics designed to deter wrongdoing, including a statement promoting financial integrity that clearly applies to senior financial officers.
•Section 802: Strengthens existing obstruction of justice sanctions against people who destroy, alter or falsify documents with the intent to impede or influence an investigation, even if the SOX charges have been settled. This section applies to both publicly traded and privately owned companies. See, Are You Clear?
•Section 806: Protects whistleblowers from retaliation if they speak out against unethical or wrongful actions that could have a negative effect on a company’s share value. It applies not only to employees at publicly held companies but also to any organization or individual that works for a publicly held company—including contractors, subcontractors and agents. See, Sarbanes-Oxley Whistleblower Claims: The Meaning of ‘Fraud Against Shareholders.’False Claims Act

The federal False Claims Act permits a person with knowledge of fraud against the United States Government, referred to as the “qui tam plaintiff,” to file a lawsuit on behalf of the Government against the person or business that committed the fraud (the defendant). If the action is successful, the qui tam plaintiff is rewarded with a percentage of the recovery.

Other laws, regulations and guidelines

Various other federal laws may be brought to bear on an organization with respect to unethical business practices. For example:

•The Foreign Corrupt Practices Act of 1977 (FCPA) prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business.
•Mail and wire fraud statutes, 18 U.S.C. § 1341, 1343.
•The Travel Act, 18 U.S.C. § 1952, provides for federal prosecution of violations of state commercial bribery statutes.
•Federal Sentencing Guidelines, particularly §8.B2.1 regarding the components of an effective compliance and ethics program.
Governance

Corporate governance is the system that allocates duties and authority among a company’s stockholders, board of directors and management. Recognized principles help guide the advancement of corporate governance as well as the ability of U.S. public corporations to compete in the global marketplace, create jobs and generate economic growth.

In today’s competitive business environment, stakeholders are more closely examining how companies are managed. Whether publicly traded, corporate, nonprofit or privately held, firms increasingly are under the scrutiny of their workforce, shareholders, various stakeholders, the community and the public at large. The trend is reflected in the growing number of rules, mandates and regulations regarding board governance.

Investigating and addressing reports of ethics and compliance misconduct involving top brass can be challenging, particularly when trying to balance fairness, consistency and the appropriate discipline while dealing with legal and public relations issues. See, Board of Directors Series Part II: Boards and Corporate Governance.

Corporate reputation can either rapidly generate or destroy shareholder value. Accordingly, reputational risk management is another aspect of corporate governance coming to the fore. For recommendations on how corporate boards can ensure companies develop a robust reputational risk-management process, see, How Boards of Directors Can Safeguard Corporate Reputation.

Against this background, Boards are seeking more input from HR, which raises the profession’s profile but also generates political and other risks. For a detailed discussion of the opportunities and possible pitfalls associated with this trend, see, HR and the Board.

Whistleblowing

Whistleblowing generally is defined as reporting an employer’s illegal acts. A variety of federal and state statutes prohibit an employer from retaliating against employees for whistleblowing under specified circumstances.

The Sarbanes-Oxley Act, for example, includes an anti-retaliation and whistleblower provision that prohibits a company, officer, employee, contractor, subcontractor or agent from discharging, demoting, suspending, threatening, harassing or otherwise discriminating in the terms and conditions of employment against an employee who:

[B]y any lawful acts provides information or assists in an investigation regarding conduct that the employee reasonably believes is fraudulent or a violation of a rule or regulation of the SEC when such information or assistance is provided to or the investigation is conducted by (1) a federal regulatory agency or law enforcement agency, (2) a member of Congress or a Committee, (3) a person with supervisory authority over the person or (4) a person who has authority to investigate, discover or terminate misconduct.

An employee who proves such retaliation is entitled to be made whole. The law further provides that:

No company or person may knowingly, with the intent to retaliate, take any action harmful to any person, including interference with lawful employment or livelihood of any person for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense.

Individuals who violate this provision are subject to a fine up to $250,000, imprisonment for up to 10 years, or both. Entities are subject to criminal penalties and fines up to $500,000. See, The Sarbanes-Oxley Act of 2002: New Federal Protection for Whistleblowers.

Under SOX, whistleblowers are protected if they seek out a supervisor, a person authorized to receive complaints within the company, a government agency or a member of Congress. They can reach out to any or all of these parties in any sequence they choose. Currently, SOX does not appear to protect a whistleblower who contacts the media.

Some whistleblower protections are limited to certain classes of workers. For example, a Colorado statute protects nurses and other health care workers against retaliation for disclosing patient-safety concerns. See, New Whistleblower Protection for Health Care Workers.

Training

Ethics training should be an ongoing process. Ethics training programs help employees and managers clarify their own ethical principles and practice self-discipline when confronted with ethical dilemmas. Training has little practical value if it exists only as a one-time event. Ethics training in conjunction with a code of ethics can serve as an organization’s guiding framework, especially when it is revisited frequently and employees and management view ethics as an enduring concern. Ethics training is available through various media, including Web-based training, CD-ROM training and live trainers.

The challenge lies in committing resources and putting forth the effort needed to make these programs truly effective. While an increasing number of employers are making the commitment to develop effective programs, these companies are still in the minority. That should begin to change as more and more companies come to understand the true value of these programs in helping to avoid costly investigations and fines. In the short run, that can be a hard sell.

Successful training may increase the number of reported ethical violations or incidents of noncompliance. Typically, the C-suite wants to know why. The answer is that an uptick in complaints actually indicates that the program is working. A good training program will raise awareness, but it won’t immediately change behaviors.

Experts recommend reviewing several training courses to find the best and most engaging programs. Training that does not engage and merely lectures on what ethics and compliance should cover will lose the interest of participants and won’t have the desired impact.

Measuring the true value of ethics and compliance training is challenging. Their overall effect, however, goes beyond limiting legal liabilities. They can help shape employee attitude and corporate culture. See, Interest in Ethics and Compliance Programs Grows and Supporting Ethical Employees.

Sustainability
Close on the heels of the maturing discipline of business ethics, the related areas of corporate social responsibility (CSR) and sustainability are emerging as business imperatives. See, CSR Leading More Corporate Agendas.

HR has a role and responsibilities in this field as well—from yesterday’s basic corporate philanthropy to today’s initiatives in ethics, diversity, financial transparency, employee relations, supply chain management, governance and community/employee engagement. See, Corporate Social Responsibility: HR’s Leadership Role. An HR framework for CSR might include:

•Identify and prioritize key issues based on core business drivers.
•Identify opportunities for measurement and evaluation.
•Recognize when, where and how to take action.
HR’s efforts to develop sustainable business practices such as equitable employment practices can have the positive effect of improving employee morale, increasing employee engagement and productivity, and improving retention by making the organization an employer of choice. Being an ethical, socially responsible company can attract investors, customers and top talent—and help ward off government regulators and environmental and labor activists. See, Social Responsibility and HR Strategy, Corporate Social Responsibility Pays Off.

While not limited to environmental issues, the field of business sustainability certainly includes them. “Going green” has become a business strategy requiring focused attention. Half of HR professionals surveyed say their organization has a formal or informal policy on environmental responsibility, and another 7 percent plan to adopt a policy in the next 12 months. See, SHRM Green Workplace Survey Brief. An organization’s actions in this area must be financially viable, employees must be aligned with the organization’s vision of being environmentally responsible, and the organization’s core values must reflect its respect for the environment and guide its decisions. See, Experts: Root ‘Green’ Efforts in Business Decisions, New Breed of Human Resource Leader and Greening Your Workplace Toolkit.

Volunteerism

Corporate-sponsored volunteerism is a well-established practice. For years, workers have served on boards, volunteered at children’s schools and lent support to many community-based projects, often with the support of their employers. But an increasing number of companies have begun structured volunteer programs—integrated into core business strategies—that offer more hands-on involvement over a more consistent period of time. And while these programs are designed to help the communities they serve, they’re now also being used to help employees develop greater understanding, sensitivity and leadership skills. See, Employer-Sponsored Volunteerism: Difficult To Measure, but Benefits ‘Priceless’.

Sponsorship of volunteer programs also is being recognized as a recruitment strategy. A survey found that nearly two-thirds of the 1,000 18- to 26-year-olds polled would prefer working for employers that allow them to contribute their talent to nonprofit organizations. See, Employer-Based Volunteerism Lures Gen Y Workers.

It’s not just younger generation employees who become engaged in volunteerism. Mobilizing retirees to support community problem-solving activities that assist the employer in achieving its community affairs and marketing goals can leverage its significant investments in recruiting, training, employee assistance programs, health care, retention programs and leadership development. A number of major employers have created corporate retiree volunteer programs to do just that. See, Corporate Retiree Volunteer Programs.

Despite their recognized benefits, employer-sponsored volunteer programs do pose challenges. It can be difficult to measure the extent of an employee’s leadership development or to know empirically what the organization has gained through service fellowships, for example. Other issues and possible sticking points include:

•Clarifying what volunteer programs are employer-sponsored and/or funded and what ones are not.
•Determining whether to support volunteerism during work hours.
•Scheduling volunteer time so as not to conflict with productivity or with other employees’ schedules.
•Limiting eligibility for volunteer time-off to employees who are performing satisfactorily or better.
•Educating managers as to their responsibilities with respect to approving and scheduling volunteer time.
See, Volunteerism Policy.

Other Facets of Ethics and Sustainability
Various other aspects of business ethics and sustainability—often with implications for the HR professional—are emerging and developing in organizations.

Effective practices in ethics and sustainability

Developing exemplary and effective practices in the ethics and sustainability fields may require particularly creative thinking and adaptations. For example:

•In the area of ethics and governance, going beyond the letter of the law may become the norm. Although Sarbanes-Oxley applies only to publicly traded companies, many private companies and some nonprofit boards have adopted its requirements as good business practices.
•Although sustainability is a hot topic for today’s business leaders, most companies don’t really take this into account when recruiting MBAs. Instead of pigeonholing sustainability as a cost center, organizations need to integrate it into all areas of the business by hiring top MBAs who also have an in-depth understanding of sustainability. See, Expert: Hire for Sustainability.Careers in ethics and sustainability

As more companies embrace ethics and sustainability as business imperatives, they are looking to human resource executives to play a major role in these initiatives. See, HR Becomes Key Player in Corporate Social Responsibility. Careers in these fields will find a new and dynamic frontier that covers varied subject areas—everything from environment, health and safety, to overseas bribery, privacy and securities fraud. There are also opportunities as consultants and vendors. See, What Is the HR Leader’s Role in Compliance and Ethics?
Global ethics and sustainability

As business expanded to the global arena, it generated the need for consistent ethics policies that transcend borders. A global ethics standard ensures that organizations do not limit themselves to the laws and regulations in the United States while operating overseas. In other words, legal behavior does not always supersede ethical behavior. See, Business Ethics Series Part IV: Business Ethics In the Global Arena and The Global HR Professional—Establishing an Ethically Effective Global Framework.

Ethics and sustainability metrics

HR professionals are likely to be responsible for producing metrics for the labor and employment dimensions of their organizations’ ethics and sustainability initiatives. The growing use of globally accepted guidelines for reporting on sustainability will probably increase organizations’ demand for more measures assessing the value of HR activities and spotlight HR management processes in sustainability initiatives.

The most common framework for sustainability reporting comes from the Global Reporting Initiative (GRI), a nonprofit based in the Netherlands. More than 1,000 organizations in 60 countries use the GRI guidelines to produce sustainability reports, and more organizations are beginning to use them. See, Future Focus: Rich, Green Perspective.

In the ethics area, measurement approaches are also emerging. For example, the Opus College of Business at the University of St. Thomas in Minneapolis has established the Self-Assessment and Improvement Process (SAIP), which enables organizations to appraise and enhance their performance on questions of corporate ethics, governance and social responsibility. The SAIP is a tool modeled on the appraisal method pioneered by the Malcolm Baldrige National Quality Program. See, $10 Million Gift Endows Business Ethics Appraisal Center.

Outsourcing in ethics and sustainability

Not all organizations will have the internal competencies to build their own ethics and sustainability programs, and will outsource some of these activities.

Ethics and sustainability technology issues

Various technologies create ethics and sustainability challenges in organizations, but technology also offers tools for maintaining ethical, sustainable businesses. Problems may include things such as ethical issues associated with electronic monitoring, for example. Solutions may include things such as ethics hotlines or online tools for anonymously reporting questionable conduct. See, Corporate Compasses: Working It Out.

Acknowledgement—This article was prepared for SHRM Online by Peter J. Eide, J.D., SPHR. He is a practicing attorney and principal HR consultant in the firm U.S. Human Resources and Ethics Services based in Columbia, Maryland. Previously he served as General Counsel to the Federal Labor Relations Authority’s Office in Washington, D.C., and with the labor law policy office of the U.S. Chamber of Commerce. He also serves as a member of SHRM’s Ethics Special Expertise Panel. In addition to relying on his own professional expertise and research, the author has incorporated existing SHRM Online content in developing this treatment.

Publication Note—This treatment was first published on August 1, 2008. SHRM staff will update it periodically as developments in the Ethics and Sustainability Discipline warrant. For the most recent developments see the Ethics and Sustainability Discipline Home Page, and articles archived under specific Ethics and Sustainability topics. Notify SHRM of broken links or concerns about the content by e-mailing content@shrm.org.