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The Ethics Squeeze

When business and ethics collide, HR is often caught in the middle. Here's how some HR professionals have responded.

HR Magazine, March 2006

Bruce was still in his first month at a new job when he discovered that his employer was hiring illegal immigrants. "Holy cow," he remembers telling his wife. "I've gotten into a mess!"

Bruce is one of several members of the Society for Human Resource Management (SHRM) who responded to our invitation to tell HR Magazine about ethical dilemmas they've encountered in the workplace. To protect their privacy, we have used fictitious names and omitted specific company information.

These stories should serve as a wake-up call for corporate America. Respondents told us of companies whose senior management lied to employees, customers and stockholders alike; they shared stories of executives who condoned and even ordered illegal activities; and they described organizations with hostile work environments and blatantly discriminatory hiring practices.

An underlying theme in all these accounts is a management culture that fostered ethical malfeasance or at the very least allowed it to happen even when the organization espoused a code of ethics.

And in every case, the buck stopped at HR's door.

The Cost of Doing Business

When Bruce was recruited for the HR director position at his former employer, he was initially excited. The job offered a substantial salary increase, a car allowance, a very generous bonus plan and the possibility of a future promotion something not available at his previous company.

He did, however, have one qualm: He had heard rumors that the large Midwestern firm hired undocumented immigrant workers. When Bruce asked about these rumors, his interviewer admitted there had been a problem in the past, but assured him "they had cleared that situation up and I should not be concerned."

Soon after he began the new job, however, Bruce received a disquieting report from the company's new 401(k) provider: Several Social Security numbers didn't match the names of the employees who had provided them.

Bruce began an investigation, but his boss quickly ordered him to stop, explaining that they couldn't afford to terminate those employees "because that would leave the company shorthanded." When Bruce expressed his concern about this deliberate violation of federal immigration laws, the company's leadership was unworried.

"They reasoned that the INS [Immigration and Naturalization Service] had bigger fish to fry," says Bruce, and that, if they were caught, the fine was "an acceptable business expense," since the company was making huge profits.

Walking a Tightrope

Other companies also take chances on getting away with illegal behavior, says Lauren, who served as HR director at just such an organization. "They didn't think they'd be caught," she says of the company she left seven years ago. In fact, she was told by the organization's legal counsel that it was her duty to "make sure we don't get caught."

As HR director, Lauren had fiduciary responsibility for the company's defined contribution retirement plan. After the small nonprofit hired a new president, Lauren was instructed to enroll him in the plan immediately and to waive the mandatory one-year waiting period in effect for new employees. She also was ordered to keep quiet about employees who were wrongly classified as exempt an effort to avoid paying them overtime. When she protested that these actions were illegal and would expose her and the company to liability, an attorney acting for the firm informed her that "you will do what you're told."

But Lauren viewed her duties as an HR professional as "the antithesis of just doing what you are told." She enjoyed using her analytical skills. With a master's degree in business communications and PHR certification, she had served as president of her local HR organization and had become a "go-to person" for other HR professionals. She also taught HR at the university level.

"I believe HR is the conscience of an organization," says Lauren, so she was "rocked to my core" by the behavior of senior management at the company. "Where does my loyalty lie," she asked herself, "to my company or to my personal and professional ethics? I always felt I walked a tightrope in HR between 'crazy management ideas' and being an advocate for employees."

Following her conscience, Lauren resigned and began a search for a new job.

My Way or the Highway

The attitude of many employers, says one HR manager, is "my way or the highway."

However, "HR people always think they can make things better," says another, and everyone with whom we spoke made valiant efforts to educate senior managers about their ethical and legal obligations.

Often those efforts were for naught. For instance, when Gretchen, a part-time HR director at a research and development firm, pointed out to her company that it needed an employee handbook and properly documented policies, she was told they were unnecessary because "we run like a family. Our strategy is to have fun and make money."

In fact, says Gretchen, "They had no strategy and no policies."

When you've done all you can to make things better, say the HR professionals interviewed for this story, you have to be prepared to walk away. And the cost financially, professionally and emotionally can be high.

"I knew," says Bruce, "that [if the company got in trouble] the buck was going to stop on my desk." He also knew that his company's owners were "not the kind of folks you like to make enemies of." He believed there was a real danger that they would retaliate against him if he persisted in questioning their illegal activities.

What's more, Bruce's company was privately owned by a very powerful and influential family in his community, thus the chances that their excesses would be "splashed all over the front page of the newspaper" were slim, he says.

Bruce opted to take a position at a new company with a $15,000 pay cut. He also gave up a large bonus ($25,000 to $35,000) scheduled to be paid out at the end of the year.

"The loss of $15,000 in annual income has been very difficult," says Bruce, "trying to raise a family and help kids through college." (Two of his five children are in college now.) Nevertheless, he says, he would make the same decision again. He and his wife believe it's their responsibility to "set examples of appropriate behavior" for their children.

Professionally, too, Bruce believes that "HR is held to a higher standard" because it is privy to so much confidential information. "I simply could not have lived with myself, knowing what I knew and not taking action."

Taking the High Road

Alan, who resigned a position as head of HR for one of the U.S. branches of a foreign firm, says "HR is out there alone in many ways" when it comes to upholding ethical standards.

Alan had been hired to set up a new HR department and create policies for a company, but it soon became clear, he says, that a strong HR influence was unwelcome. After he warned that the company's practices for hiring employees and transferring them from overseas offices could be violating U.S. immigration laws, the firm's attorney told Alan to keep such comments under wraps by addressing them to him. "By directing your comments to me," the attorney told him, "the information will be privileged and not subject to discovery."

"My wife and I discussed the situation for months," Alan says, before he decided to resign and go into business for himself.

Alan's resignation letter listed the duties he had been hired to perform and noted that "[my boss] has made it clear that I will no longer have a voice in these matters. It is not possible for me to continue to work in a situation where my advice has little value and my responsibilities have been reduced to the point where my function could easily be done by someone with a fraction of my experience. I have no choice but to resign."

When One Door Shuts, another Opens

Megan found herself fighting to uphold her moral and ethical standards very early in her HR career. Megan was in her mid-20s when she was hired as an HR generalist by a small, privately held technology company in Silicon Valley.

After some months, the company ran into financial difficulties and eventually reached a point where Megan realized it was not going to be able to make its next payroll. The CEO, however, "was in denial," she says. He expected a transfusion of venture capital "to walk in the door any minute and save the firm."

He directed Megan to offer a job to a salesman who would, she knew, be giving up a good job in another state to move there. Megan explained why it was not a good idea to hire new staff at that time, and the CEO appeared to accept her reasoning. A few days later, however, she arrived at work to find the salesman sitting in her office. The CEO had hired him without telling her.

"The CEO asked me to lie by not revealing the company's financial problems to the man," she says, "and to go ahead and process his paperwork." When Megan refused, her boss became violent. "He started yelling and swearing at me," she says, and eventually had to be restrained by two senior managers. "I had visions of smoke coming out of his ears."

Two days later, the entire staff was laid off, the company went into bankruptcy and the CEO was fired. The company president called Megan at home to ask her to help him with the work of winding up the company's affairs. "I respect what you did," he told her.

"Standing up for what's right paid off in the end," she says.

Later, Megan was hired by the company that bought her old firm. She worked there as an HR manager for two years.

"It was a good learning experience," Megan says of her time at the first company. "HR people often have to do painful things, things that just break your heart, but you have to know where that line is," she says, between doing something painful such as firing someone you like and doing something unethical or illegal. (Another HR manager describes this ethical dividing line as "the hill I will die on.")

Today, Megan works at a job she loves” I give it a lot, and it gives me a lot” and she and her husband are on track with their plans to retire at age 45. Undoubtedly her positive attitude has served her well. "I've found that when one door shuts, another door opens," she says.

A Bad Dream

Beth spent two years in an atmosphere of increasingly blatant sexual harassment and racial discrimination that flourished because the CEO "turned his head and ignored it," she says. She was young26 years old and, as a result, "worried about my future in HR."

Her boss routinely made sexually explicit comments to her and other female staff; one employee filed a charge with the Equal Employment Opportunity Commission (EEOC). The boss also had an affair with Beth's assistant they were actually caught in the act in his office by another employee and tried to force Beth to give the woman a raise.

During this difficult time, Beth discussed her problems with the man she was dating, who later became her husband. "Aren't you an HR manager?" he asked her after one discussion. "Aren't you responsible for the compliance and the ethics of your organization? Well, are you doing your job?" he persisted.

"He made it real," says Beth. "It was hard feedback, but it was what I needed to hear.

"'No,' I thought. 'I guess I'm not doing my job. This is what I'm responsible for, and I'm not being effective.' " Beth resigned and found a position at a public company. "I'll never work for a private company again," she has decided.

Seven years later, Beth says it's hard to believe it really happened. "It all seems like a bad dream."

'Out There on a Limb Alone'

HR is particularly vulnerable when the top brass is the offender, as Renata's story demonstrates.

After Renata, vice president of HR for a financial institution, received an allegation of sexual harassment and creating a hostile environment, she launched an investigation that "led straight to the top” directly to the CEO's door.

"I was out there on a limb alone," she says. Feeling that her job was in peril, Renata took the matter to the corporation's legal counsel and then filed a complaint with the EEOC. Two other employees filed complaints at the same time, and Renata agreed to go to mediation.

During this period, Renata was subjected to repeated attempts to force her out of the company. Personnel forms were altered after she signed off on them, she says. In some cases, numbers and other information were altered; in others, her signature was obliterated. Renata believes these were attempts to make it appear she was not following established procedures.

Even more disturbing, Renata received typed interoffice messages that read, "Someone's watching you," and frequent telephone hang-ups. "One day," she says, "I went out to the parking lot and discovered that one of my tires was flattened." In light of the other events, she believes the flat was no accident.

The situation became so difficult that she resigned during the mediation process and sought psychological counseling. The job literally "made me sick," she says. Renata also required major surgery, and her doctor advised her to "get away from the situation."

Eventually, Renata was able to recoup her medical and legal expenses from the employer. She says her employee assistance provider and the local SHRM chapter were "very supportive" as she put her life back together after this traumatic experience.

"I held on to my integrity," says Renata, but she hasn't been able to find a new HR position at her level. Today, she works as executive director of a small nonprofit. She also teaches HR and consulting as an adjunct professor in a graduate program.

'Don't Go into HR'

Renata would like to get back into HR. However, some HR professionals have been burned so thoroughly by their experiences that they question their choice of profession.

Gretchen is one such person. She was terminated from her job two days before we spoke with her. "I refused to give out confidential employee information," she says.

She admits that there were signs of potential problems at the initial job interview. The chief financial officer, to whom she reported, "asked tons of illegal questions," Gretchen says, such as "Do you plan to have more children? Would child care issues keep you from getting to work?"

Gretchen didn't confront the CFO about the questions at the time because she needed the job. In retrospect, she believes she wouldn't have been hired if she had spoken up about his inappropriate questions.

Later, when Gretchen explained to the CEO that the company's misclassified employees and lack of written policies exposed it to liability, "he screamed at me and called me a liar." Gretchen says she "sat down and searched the SHRM web site for an article on liability and printed it out for him." She got no response.

At the same time, Gretchen was working on a salary survey. When she presented her findings to the CEO, he claimed the information wasn't accurate.

The final straw came when Gretchen informed the CEO that company morale was extremely low. An employee survey revealed that more than 50 percent of the staff was unhappy; several employees had voiced their concerns privately in her office. "He wanted me to tell him the names of the complainers," she says of her boss. She refused, suspecting that he would retaliate against those workers.

"I can't work for corporate America again," Gretchen has decided, "and I'm not sure I want to stay in HR." Like many with whom we spoke, Gretchen's experience caused her to do some serious soul-searching.

"If you asked me my advice to new college grads," she says, "I'd say don't go into HR."

Problem Child

When HR professionals take a strong stand, they often place their careers in jeopardy and risk being labeled troublemakers.

That's what happened to Andrea, who was fired from her job as an HR generalist after she reported a physical assault. Andrea says that her boss's wife, who also served as the executive administrator to the CEO, "grabbed me by the hair and pulled me down the hall." Andrea filed suit against the company and is currently awaiting settlement.

She found a new job, but soon ran into problems there as well. Andrea was terminated from that position when she objected to the president's order to fire an employee after he developed a brain tumor that lowered his production level a situation clearly subject to the Americans with Disabilities Act. "They didn't want to run the company in compliance with federal law," she says.

Andrea, who has a bachelor's degree in business and a master's in HR, took a job as a waitress. She is trying to start her own business, and she continues to interview for HR positions, so far without success. "I'm seen as a problem child," she says.

'Don't Hire [Fill in the Blank]'

More than 40 years after the passage of the Civil Rights Act of 1964 and the formation of the EEOC, discrimination is far from eradicated in the American workplace. Some HR managers report being told not to hire blacks, Hispanics, Asians, females in short, to avoid hiring minorities.

"Don't hire blacks they don't understand software," the CEO of a software development firm told Terrence, the company's HR director, in 1998. When the CEO walked through the company's front office one day and spotted a black female receptionist at the desk, he stormed into Terrence's office. "Get that n----- off of my front desk!" he shouted.

This CEO was also known to have an "internal harem" of women to whom he doled out cash from a drawer in his desk. "God knows what they had to do for it," Terrence says. When he spotted the CEO coming out of his office one day with a young woman, both with their clothes in "disarray," he knew it was time to move on.

"It was a great place to work," Terrence says, "except for that wacko in the corner office."

Another such Neanderthal boss was the man Stephen reported to for two years. "When I first joined the company, I thought I could win him over," Stephen says. "But we were losing government contracts because of our lack of diversity."

And several employees quit after complaining of harassment by a company vice president. "The parent company just paid the fines and let things go on," says Stephen, who was asked to lie, destroy employee documentation and condone illegal hiring practices.

When several unhappy employees filed lawsuits and the EEOC began an investigation of the company, he realized he would have to leave. Stephen served as a witness for the plaintiffs in two of the lawsuits after his departure.

Lessons Learned

Disturbingly, the examples of wrongdoing cited by these HR managers were not isolated actions; in most cases, they were part of a pattern of ethical misconduct by the companies. Even more disturbing for the profession, some highly qualified HR managers have come to question their decision to go into HR; others, like Lauren, have left the field, either by choice or by default.

Because Lauren lives in a very small community, job opportunities are scarce. She did eventually find another HR position 75 miles from her home, but the grueling commute became too difficult and she left that job. In addition, says Lauren, she realized that "they hired me because they could pay me $38,000 in an area where the going rate was $90,000." She feels she lost out on other job openings because, like Andrea, "I was thought of as a problem" after she explained her reasons for leaving her previous employer.

Today, Lauren works part time as a secretary. "I didn't sell out my integrity, and I can hold my head up," she says. But there's a trade-off: "I basically decided to give up my career. My husband and I adjusted our lifestyle downward," she says. "I'm pretty sure my HR days are over."

Even now, with the benefit of hindsight, she doesn't see a different course she could have taken. "I have racked my brain for seven years, and I just don't see what else I could have done," she says.

The message for HR is clear: You can't simply check your scruples at the door. When your personal and professional reputation is at stake, you may have to move on. And be prepared for some tough times.

The bright spot in these stories is the courage and high standards exhibited by these HR professionals, often at great personal sacrifice. They modeled the ethical behavior companies say they expect of themselves and their employees.

"In the end," says Alexander, former HR director and chief of security for a small defense contractor, "you've got to be able to look at yourself in the mirror and know you've done the right thing."

Ann Pomeroy is senior writer for HR Magazine .

High Stakes

Ethics sometimes fall by the wayside when companies are struggling to stay afloat.

"We bet the company on this contract," says Alexander of a five-year, $2.5 billion contract his company signed with a large government agency. As director of HR and chief of security for the small defense contractor, Alexander says, "I had two plans in my drawer the day before we signed the contract: close down the company or get the contract."

Because the stakes were so high, the company had brought in a highly touted senior program manager to help win the contract. This manager, who insisted on being addressed as "doctor," hung framed diplomas on his wall that appeared to come from a prestigious university.

While reviewing the man's personnel file, however, Alexander discovered some discrepancies. An investigation revealed that, far from having a Ph.D., the manager had earned only a bachelor's degree.

Alexander reported his findings to the company's division president and suggested ways to handle the situation. When it became clear that the company was so afraid of losing the contract that it would do nothing to rock the boat, Alexander and his boss resigned on the same day.

"Today," he says, "I'd go to the press and call the appropriate federal agency to report it. I'd be on CNN." At the time, thoughthe mid-1980s"there were not the same legal protections as today." 

Alexander, who has been in HR since 1968, says he took a big pay cut at his next job. Today, he's in business for himself as a compensation consultant.

Rising Fraud Spells Trouble for HR

In the post-Enron, Sarbanes-Oxley era, illegal and unethical corporate activity continues to occur at a dismaying pace. The number of companies reporting fraud has increased from 37 percent to 45 percent since 2003; more than one-third (34 percent) of these crimes were discovered by accident, according to the Global Economic Crime Survey 2005 by PricewaterhouseCoopers.

And investments in ethics programs don't seem to be reaping the rewards expected. In fact, Patricia Harned, president of the Ethics Resource Center, says the 2005 Business Ethics Survey, the center's latest analysis of ethics in the for-profit, nonprofit and governmental sectors of the workplace, found that many companies "have invested significant resources in ethics and compliance programs, but we are not seeing much change in the direct impact that these programs are having."

All too often, HR is left to bear the brunt of enforcing ethical and legal issuesa task that sometimes ends in resignations. In a survey conducted at the end of 2005 by SHRM, 16 percent of respondents claimed they had quit a job as an HR professional for ethical reasons.

The top five reasons for resigning: lying by management, violations of Title VII, falsifying records or reports, violating employees' privacy, and fraudulent conduct by employees.

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