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Introduction

The Open University — Wed, 08 Jun 2011 15:01:18 GMT

This unit is from our archive and it is an adapted extract from Managing Human Resources (B824) which is no longer in presentation. If you wish to study formally at The Open University, you may wish to explore the courses we offer in this curriculum area.

Strategy is based on the unique relationship between an organisation's distinctive resources and capabilities and its environment. This relationship is defined as ‘strategic fit’ and is seen as a dynamic relationship where the organisation does not merely respond to its environment but seeks to shape it.

Organisations do not exist in a vacuum: they rely on and reflect the political, economic and social contexts within which they operate. These will include:

a regulatory environment which constrains their activities
an economic environment which determines how business is conducted
a political environment which underpins the regulatory and economic environments
a social environment which values certain types of behaviour and condemns other types.

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Learning outcomes

The Open University — Wed, 08 Jun 2011 15:01:18 GMT

After studying this unit you should be able to:

explain the relationship between strategy and the ethical dimension of organisational purposes.

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1.1 The concept of 'social capital'

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Fukuyama (1995) examines the importance of civil society defined through institutions including businesses, churches, universities, and schools and uses the concept of ‘social capital’ to describe how people work together for common purposes in organisations. Fukuyama argues that shared values lead to trust, which is crucial for society and the economy to function. He quotes from the distinguished economist Kenneth Arrow with approval:

Now trust has a very important pragmatic value, if nothing else. Trust is an important lubricant of a social system. It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance on other people's word. Unfortunately this is not a commodity which can be bought very easily. If you have to buy it, you already have some doubts about what you've bought. Trust and similar values, loyalty or truth telling, are examples of what the economists would call ‘externalities’. They are goods, they are commodities; they have real, practical economic value; they increase the efficiency of the system, enable you to produce more goods of whatever values you hold in high esteem. But they are not commodities for which trade on the open market is technically possible or even meaningful.
(Arrow, 1974: 23)

According to Fukuyama, widespread distrust puts a kind of tax on economic activity. Fukuyama argues that trust is crucial to civil society which underpins the economic system. He examines different types of society based on family and kinship, voluntary associations and the State and links the extent of social capital to economic prosperity.

It can be argued that business depends upon government for infrastructure and that business cannot exist in isolation from the community. Even markets are regulated. Hosmer (1994) builds his arguments concerning ethical business on a number of propositions which hypothesise that companies operating in a competitive global economy depend on a wide range of stakeholders for co-operative activities, and that it is possible to build trust, commitment and effort on the part of all stakeholders by including ethical principles in the strategic decision making of companies where the interests and rights of all stakeholders are recognised. Hosmer claims that equitable acts will, over time, lead to trust; trust leads to commitment and commitment supports success. In other words, for an organisation to be successful in the long run it must be ethical.

Given these links between the organisation and its environment, can, and should, organisations provide an ethical framework for the conduct of business? An ethical framework is not necessarily easy to define, and there is a wide spread of possible ethical stances; thus Woodall and Winstanley (2001) suggest some 20 starting points, ranging from self-interest and freedom to fundamental rights for all to the need to take stakeholder interests into account and giving consideration to the process of decision making. There is a strong argument that the sole purpose of a private sector organisation is to make profits for shareholders and that their self-interest is the only consideration. This view, which emphasises the ends rather than the means of private sector organisations, is being questioned as corporate social responsibility has become much more of an issue and as ethical investments gain credibility as investors seek investments that will ‘do good (or at least no harm) and do well’. It is worthy of note that the 1997 Annual General Meeting of Shell was disrupted by shareholders who believed that Shell's activities in Nigeria were questionable and should be subject to ethical scrutiny. Multinationals are now beginning to see that environmental problems are not just the concern of governments but they themselves have a responsibility, and as a response have adopted ethics statements as part of their mission.

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1.2 The relationship between stakeholders and the organisation

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Public and voluntary sector organisations do not have the same shareholder obligations as those in the private sector. However, as the distinction between public and private sector organisations becomes blurred, there are concerns that the ethical role of public service organisations – defined as acting in the public interest through a public service ethos – is being undermined. As public service and non-profit organisations are increasingly expected to achieve targets and become more ‘businesslike’, there are worries that short cuts are being taken and dubious practices are emerging, particularly at the boundary between the public and private sectors.

An ethical approach would normally incorporate a range of stakeholders. Accounts of which groups and individuals may be considered to be stakeholders vary, but most would agree with Wood's categorisation of core stakeholders as:

(a) constituents on whose behalf the organization exists and operates, e.g., business owners or voluntary association members;

(b) employees who conduct the organization's affairs;

(c) customers who receive the goods or services the organization produces;

(d) suppliers who provide the input materials for the organization's activities; and

(e) government that guarantees an organization's rights and privileges, enforces its responsibilities, and regulates its behaviors through political processes.

In addition, some scholars are now adding the natural environment as a core organizational stakeholder.
Organizations have many other stakeholders, including local communities, competitors, media, financial analysts and markets, financial institutions, voluntary organizations, environmental and consumer protection groups, religious organizations, military groups, political parties or factions, etc.
(Wood, 1995: 529)

We noted above the ethical dimension to processes of decision making, or procedural justice, as it is sometimes called. Research evidence tends to suggest that employees’ perceptions of procedural justice have a stronger effect on attitudes toward the organisation than their perceptions of distributive justice, although both seem equally important as predictors of intention to leave the organisation. In other words, there is some evidence that employee attitudes towards their organisation depend more on the fairness of policies and processes than on their outcomes. But on the other hand, the perceived fairness of outcomes (particularly pay and promotion outcomes) is equally important as the fairness of processes when forming intentions to stay with or leave an organisation.

Apart from the purposes of organisations being subject to ethical scrutiny, there are also issues concerning how these purposes are to be achieved. Successful strategy is determined through implementation; that is, what an organisation seeks to achieve cannot be divorced from how it seeks to achieve its goals. If organisations are downsizing, de-layering or adopting short-term contracts, and at the same time expect loyalty from a committed workforce, we should not be too surprised to find low morale and demotivation. In other words, strategic fit is the link between the ‘what’ and the ‘how’. What Woodall and Winstanley argue for, and we would accept, is an ‘ethical literacy’ which recognises that the discussion of human resource issues must go beyond strategic fit and other aspects of the business case, and ‘needs to be refreshed by adopting a more human-centred perspective and by addressing the ethical dimension to HR policy and practice’ (2001: 53). The further argument is that this can best be done within a framework of SHRM, with its consideration of individuals in relation to overall organisational policy.

The focus here is how the organisation's strategy is linked to the treatment of individuals within it. A further issue is the relationship between the individual and the organisation and how that relationship is shaped by the organisation's culture. We are concerned with what the organisation can legitimately demand of the individual: with the rights and responsibilities of individuals towards the organisation. The relationship has to be two-way, or even three-way to include other stakeholders such as clients, customers or the public generally. Our concern is to examine the congruence between individual and organisational goals.

Organisations in both the public and private sectors have changed their configurations, their structures and the employer-employee relationship. Many organisations now have different kinds of employees on different kinds of contracts. Hutton (1995) has defined the 30:30:40 society, which consists of the disadvantaged; the marginalised and insecure; the privileged. Hutton argues that it is only the privileged 40 per cent who have some security in the job market. He argues that two-thirds of all new jobs offered to the unemployed are part-time or temporary. You may be familiar with the concept of the ‘shamrock’ organisation, which is concerned with the relationship between a strategic core and operating ‘leaves’ which may or may not be inside the organisation. This will have an effect on the relationship between the organisation and its employees. Will the same kind of commitment be generated among those on short-term contracts? What is the responsibility of the firm for the employment practices of sub-contractors? What kind of an association is the organisation?

Activity 1

Click on the 'View document' link below to open and complete a questionnaire which explores ethical issues in organisations.

Click 'View document' to open the questionnaire in a separate window.

View document

The issues explored in the above activity are concerned with the relationship between you and your organisation and the expectations that are generated. Regrettably, these are frequently in conflict. We illustrate some of the possible tensions by examining a MORI poll carried out on behalf of the Association of First Division Civil Servants, the trade union representing the interests of senior managers in the UK civil service, between July and September 1996. The poll was directed at those in the Crown Prosecution Service, which is the independent prosecuting body in criminal cases in England and Wales. 1,347 questionnaires were distributed and the response was 786 (58 per cent). The overwhelming number of respondents were lawyers, who reported that their dedication to public service and their professionalism were under threat. A certain level of cynicism was expressed about the way the organisation treated its staff. We report some of the findings in Table 1. Respondents were asked to state which characteristics they felt would ideally be displayed by those worthy of promotion, and which characteristics they felt those people who succeeded in the organisation actually possessed.

Table 1 Attributes which might apply to the kind of person who gets on in the Crown Prosecution Service

	Opinions of respondents (%)
Characteristic	Seen as ideal	Believed to be actual
Has high level of professional skills	99	18
Is open and frank	90	5
Is prepared to raise issues concerning professional principles	74	4
Is committed to the public service	72	19
Actively looks for promotion	13	73
Toes the line	1	92
Uses intimidation	1	43
Is secretive	0	57
Is dishonest	0	24

Source: adapted from MORI, 1996

The respondents offered a number of explanations for the level of disillusionment, including:

they had too much work to do
their legal expertise was not sufficiently recognised
too much time was spent on administration and not enough on legal work
career expectations were not fulfilled
they felt poorly informed
they did not believe that senior management responded to staff views or took them seriously
they believed that the service was being run down for political reasons.

Given these findings, how successful do you think the Crown Prosecution Service is likely to be in achieving its objectives?

The findings raise disturbing questions concerning employer-employee relations. What kind of employment contract is entered into? What kinds of organisations do we work for? One view is to see the organisation as a community through which relationships are played out and which has a common purpose. Another view sees the organisation at the centre of a web of contract relationships, buying in expertise when required. Clearly, different relationships will apply according to how those relationships are perceived and mirrored in terms of organisational goals and structures. Not only that, but the demands placed upon individuals by their organisations will have ethical implications.

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2 The ‘business sense’ of an ethical approach

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Sternberg (1995: 125) argues that treating employees ethically is not an optional extra but an essential ingredient in maximising long-term value:

Treating employees ethically simply means treating them with ordinary decency and distributive justice. The ethical business rewards contributions to the business objective, and is honest and fair to its staff; it avoids lying, cheating and stealing, coercion, physical violence and illegality. And crucially, since trust is so dependent upon expectations, the ethical business is extremely careful about the expectations it engenders.

Ethical business, according to this argument, is built on relationships. Ethical activity is concerned with human activity and so is business. From this perspective bad ethics is bad business – customers, suppliers and employees ultimately all leave. However, are there special moral rights accruing to employees in their own right? Sternberg argues not. She suggests that what constitutes ethical conduct in business depends on business's definitive purpose. Business is, for Sternberg, about maximising long-term owner value through selling goods and services. It may do other things, but this is its core activity and using business resources for non-business purposes constitutes theft, according to Sternberg. She argues (1995: 96) that:

An organisation which pursued moral goodness simply because it was good, would simply be not acting as a business.

Sternberg argues that moral principles are appropriate in so far as business presupposes a context where lying, cheating, stealing and so on are absent. Honesty and fairness, refraining from coercion and physical violence and respecting the law are its guiding principles, termed ‘ordinary decency’. Sternberg goes on to argue the virtues of distributive justice such that he or she who contributes most to owner value should be rewarded accordingly. This is not as straightforward as is assumed, since who owns performance is often unclear. Sternberg treats individuals basically as productive units in terms of what they contribute to long-term owner value. In other words, Sternberg's view of the ethical organisation is determined by the ends of the organisation. For her, ethics has a place as long as it contributes to long-term value. She does accept that individuals should only be measured on things that are within their control and not determined by external events (1995: 154):

Fairness demands that people should only be held accountable for those things that are under their control.

In contrast to Sternberg's approach, Miller (1996) takes the view that ethics is concerned with means rather than ends, with ‘how’ as much as ‘what’.

In the HR context, Miller describes a number of ‘deliverables’ to employees and these are ‘indivisible’. He also argues that for these employment conditions to be met the organisation must pursue a ‘good’ strategy. Intuitively, this does seem to make sense and is congruent with theories of motivation.

We do tend to compare ourselves with others who have similar jobs, backgrounds, education and so on. We also use the core elements of distributive justice, explicitly and implicitly, even where there are no absolute standards for making judgements. In discussing rewards, for example, we may use criteria of merit, effort, contribution and so on to judge ourselves against others. Miller argues that we can identify unethical employment practices from these perspectives.

Miller concludes by arguing that there must be a fit between the organisation's strategy and its HR strategy for it to be ethical. Individual and organisational goals need to be harmonised. This requires a two-way relationship between the individual and the organisation, expressed through a combination of rights, duties, obligations and loyalty. Rights at work might include:

the right to be treated fairly and honestly
the right to be treated as an individual, with roles recognised and adequate training provided

the right to be given feedback on performance at work and the opportunity to improve skills
the right to be paid a fair and equitable rate in relation to skills, the labour market and the financial position of the firm
no restrictions on rights as a citizen
the right to have health and safety protected
the right to a personal life outside work
the right to take part in activities which are of benefit to society
the rights to work, and to free association and to strike.

Some of these rights may be enshrined in law (health and safety), while others may have the status of aspirations (the right to adequate training). At the same time organisations may have certain duties towards their employees which correspond to rights outlined above and may include the duty to inform and consult workers, to accept criticism without holding a grudge, and so on.

However, the relationship cannot be all one way. In return for certain rights we would expect employees to fulfil certain duties, which might include:

the duty of loyalty
the duty to give ‘a fair day's work for a fair day's pay’
the duty to strike only as a measure of last resort
a duty to contribute to the best of their ability to the organisation's goals
a duty to work flexibly, using their skills to the full
a duty to accept personal responsibility for developing skills to increase their effectiveness.

Duties, rights and obligations are not givens. No doubt you will agree with some of those listed above but not others. Also, individuals will have other loyalties which may come into conflict with those to the organisation. For example, professionals may perceive their duty to be to their patient, client or student rather than to the organisation. They may also believe that they have professional duties to colleagues and to the profession as a whole rather than to the specific organisation that they happen to be working for. Conflicts of loyalties can cause real dilemmas.

The issue of employees' commitment to perform for the organisation is a key one, and it has a number of components:

the extent to which the individual has internalised the values of the organisation which, in turn, will depend on how congruent individual values are with organisational values
the extent to which organisational objectives reflect individual objectives
the extent of individuals' involvement and psychological immersion in their work
the extent to which individuals value the organisation as a place to spend their time.

We have outlined above two opposing views of ethics and strategic SHRM. The first view, associated with Sternberg, sees ethics as a means to an end. The second view, discussed by Miller, sees ethics and strategy as inseparable and based on the relationships between key stakeholders. This view accords with the concept of strategic fit: the ethical organisation consists of a mutual interrelationship between purposes and the implementation of those purposes. Means and ends are inextricably interwoven and exist in a dynamic tension.

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References

The Open University — Wed, 08 Jun 2011 15:01:18 GMT

Arrow, K. (1974) The Limits of Organisation, New York, Norton & Co.

Fukuyama, F. (1995) Trust: the Social Virtues and the Creation of Prosperity, London, Hamish Hamilton.

Hosmer, L.T. (1994) ‘Strategic planning as if ethics mattered’, Strategic Management Journal, 15, 17–34.

Hutton, W. (1995) The State We ‘re In, London, Vintage.

Miller, P. (1996) Strategy and the Ethical Management of Human Resources, Human Resource Management Journal, b(1), pp5–18.

MORI (1996) FDA (Crown Prosecution Service) Survey, research study conducted for Association of First Division Civil Servants, July-September.

Sternberg, E. (1995) Just Business: Business Ethics in Action, London, Warner Books.

Wood, DJ. (1995) ‘Stakeholders’ in Nicholson, N. (ed.) The Blackwell Encyclopedic Dictionary of Organizational Behavior, Oxford, Blackwell.

Woodall, J. and Winstanley, D. (2001) ‘The place of ethics in HRM’ in Storey, J. (ed.) Human Resource Management: A Critical Text, 2nd edition, London, Thomson Learning, 37–56.

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Acknowledgements

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