Unit 4 - Managing to be ethical: debunking five business ethics myths

Managing to be ethical: debunking five business ethics myths

Myth 1: it’s easy to be ethical

A 2002 newspaper article was entitled, ‘Corporate ethics is simple: If something stinks, don’t do it.’ The article went on to suggest ‘the smell test’ or ‘If you don’t want to tell your mom what you’re really doing…. Or read about it in the press, don’t do it.’ The obvious suggestion is that being ethical in business is easy if one wants to be ethical. A further implication is that if it’s easy, it doesn’t need to be managed. But that suggestion disregards the complexity surrounding ethical decision-making, especially in the context of business organizations.

Ethical decisions are complex

First, ethical decisions aren’t simple. They’re complex by definition. As they have for centuries, philosophers argue about the best approaches to making the right ethical decision. Students of business ethics are taught to apply multiple normative frameworks to tough dilemmas where values conflict. These include consequentialist frameworks that consider the benefits and harms to society of a potential decision or action, deontological frameworks that emphasize the application of ethical principles such as justice and rights, and virtue ethics with its emphasis on the integrity of the moral actor, among other approaches. But, in the most challenging ethical dilemma situations, the solutions provided by these approaches conflict with each other, and the decision maker is left with little clear guidance.

Moral awareness is required

Second, the notion that ‘it’s easy to be ethical’ assumes that individuals automatically know that they are facing an ethical dilemma and that they should simply choose to do the right thing.

Researchers have begun to study this phenomenon, and they refer to it as moral awareness, ethical recognition, or ethical sensitivity. The idea is that moral judgement processes are not initiated unless the decision-maker recognizes the ethical nature of an issue. So, recognition of an issue as an ‘ethical’ issue triggers the moral judgement process, and understanding this initial step is key to understanding ethical decision-making more generally.

T.M. Jones proposed that the moral intensity of an issue influences moral issue recognition, and this relationship has been supported in research. Two dimensions of moral intensity – magnitude of consequences and social consensus – have been found in multiple studies to influence moral awareness. An individual is more likely to identify an issue as an ethical issue to the extent that a particular decision or action is expected to produce harmful consequences and to the extent that relevant others in the social context view the issue as ethically problematic.

Ethical decision-making is a complex, multi-stage process

Moral awareness represents just the first stage in a complex, multiple-stage decision-making process that moves from moral awareness to moral judgement (deciding that a specific action is morally justifiable), to moral motivation (the commitment or intention to take the moral action), and finally to moral character (persistence or follow-through to take the action despite challenges).

The second stage, moral judgment, has been studies within and outside the management literature. Kohlberg found that people develop from childhood to adulthood through a sequential and hierarchical series of cognitive stages that characterize the way they think about ethical dilemmas. Moral reasoning processes become more complex and sophisticated with development. Higher stages rely upon cognitive operations that are not available to individuals at lower stages, and higher stages are thought to be ‘morally better’ because they are consistent with philosophical theories of justice and rights.

At the lowest levels, termed ‘preconventional’, individuals decide what is right based upon punishment avoidance (at stage 1) and getting a fair deal for oneself in exchange relationships (at stage 2). Next, the conventional level of cognitive moral development includes stages 3 and 4. At stage 3, the individual is concerned with conforming to the expectations of significant others, and at stage 4 the perspective broadens to include society’s rules and laws as a key influence in deciding what’s right. Finally, at the highest ‘principled’ level, stage 5, individuals’ ethical decisions are guided by principles of justice and rights.

Perhaps most important for our purposes is the fact that most adults in industrialized societies are at the ‘conventional’ level of cognitive moral development, and less than twenty per cent of adults ever reach the ‘principled’ level where thinking is more autonomous and principle-based. In practical terms, this means that most adults are looking outside themselves for guidance in ethical dilemma situations, either to significant others in the relevant environment (e.g., peers, leaders) or to society’s rules and laws. It also means that most people need to be led when it comes to ethics.

The organizational context creates additional pressures and complexity

Moral judgment focuses on deciding what’s right – not necessarily doing what is right. Even when people make the right decision, they may find it difficult to follow through and do what is right because of pressures from the work environment.

It may seem curious that people often worry about whether others will think of them as too ethical. But all of us recognize that ‘snitches’ rarely fit in, on the playground or in life, and whistleblowers are frequently ostracized or worse. The reasons for their ostracism are not fully understood, but they may have to do with humans’ social nature and the importance of social group maintenance. Research suggests that people who take principled stands, such as those who are willing to report a peer for unethical behaviour, are seen as highly ethical while, at the same time, they are thought to be highly unlikable.
 

Myth 2: unethical behaviour in business is simply the result of ‘bad apples’

A recent headline was ‘How to Spot Bad Apples in the Corporate Bushel.’14 The bad-apple theory is pervasive in the media and has been around a long time. In the 1980s, during a segment of the McNeil Lehrer Report on PBS television, the host was interviewing guests about insider trading scandals. The CEO of a major investment firm and a business school dean agreed that the problems with insider trading resulted from bad apples. They said that educational institutions and businesses could do little except to find and discarded those bad apples after the fact. So, the first reaction to ethical problems in organizations is generally to look for a culprit who can be punished and removed. The idea is that if we rid the organization of one or more bad apples, all will be well because the organization will have been cleansed of the perpetrator.

Certainly there are bad actors who will hurt others or feather their own nests at others’ expense – and they do need to be identified and removed. But, as suggested above, most people are the product of the context they find themselves in. They tend to ‘look up and look around,’ and they do what others around them do or expect them to do. They look outside themselves for guidance when thinking about what is right. What that means is that most unethical behaviour in business is supported by the context in which it occurs – either through direct reinforcement or unethical behaviour or through, benign neglect.

The bottom line here is that most people, including most adults, are followers when it comes to ethics. When asked or told to do something unethical, most will do so. This means that they must be led toward ethical behaviour or be left to flounder. Bad behaviour doesn’t always result from flawed individuals. Instead, it may result from a system that encourages or supports flawed behaviour.

Myth 3: ethics can be managed through formal ethics codes and programs

Research suggests that formal ethics and legal compliance programs can have a positive impact. For example, the Ethics Resource Center’s National Business Ethics Survey19 revealed that in organizations with all four program elements (standards, training, advice lines, and reporting systems) there was a greater likelihood (78 per cent) that employees would report observed mis-conduct to management. The likelihood of reporting declined with fewer program elements. Only half as many people in organizations with no formal program said that they would report misconduct to management.

Yet, creating a formal program, by itself, does not guarantee effective ethics management. Recall that For example, the National Business Ethics Survey reports that when executives and supervisors emphasize ethics, keep promises, and model ethical conduct, misconduct is much lower than when employees perceive that the ‘ethics walk’ is not consistent with the ‘ethics talk’. In another study formal program characteristics were found to be relatively unimportant compared with more informal cultural characteristics such as messages from leadership at both the executive and supervisory levels. In addition, perceived ethics program follow-through was found to be essential. Organizations demonstrate follow-through by working hard to detect rule violators, by following up on ethical concerns raised by employees, and by demonstrating consistency between ethics and compliance policies and actual organizational practices. Further, the perception that ethics is actually talked about in day-to-day organizational activities and incorporated into decision-making was found to be important.

So, for formal systems to influence behaviour, they must be part of a larger, coordinated cultural system that supports ethical conduct every day. Ethical culture provides informal systems, along with formal systems, to support ethical conduct.

Myth 4: ethical leadership is mostly about leader integrity

The mythology of ethical leadership focuses attention narrowly on individual character and qualities such as integrity, honesty, and fairness.

In most large organizations, employees have few face-to-face interactions with senior executives. So, most of what they know about a leader is gleaned from afar. In order to develop a reputation for ethical leadership, an executive must be perceived as both a ‘moral person’ and a ‘moral manager’.

Being perceived as a ‘moral person’ is related to good character. It depends upon employee perceptions of the leader’s traits, behaviors, and decision-making processes. Ethical leaders are thought to be honest and trustworthy. They show concern for people and are open to employee input. Ethical leaders build relationships that are characterized by trust, respect and support for their employees. In terms of decision-making, ethical leaders are seen as fair. They take into account the ethical impact of their decisions, both short term and long term, on multiple stakeholders. They also make decisions based upon ethical values and decision rules, such as the golden rule.

But being perceived as a ‘moral person’ is not enough. Being a ‘moral person’ tells followers what the leader will do. It doesn’t tell them what the leader expects them to do. Therefore, a reputation for ethical leadership also depends upon being perceived as a ‘moral manager,’ one who leads others on the ethical dimension, lets them know what is expected, and holds them accountable. Moral managers set ethical standards, communicate ethics messages, role model ethical conduct, and use rewards and punishments to guide ethical behavior in the organization.

Combining the ‘moral person’ and ‘moral manager’ dimensions creates a two-by-two matrix (see Figure 20.1) a leader who is strong on both dimensions is perceived to be an ethical leader. People knew what they could expect from him, and they knew what he expected of them from an ethics perspective.  

 Myth 5: people are less ethical than they used to be

According to a poll released by the PR Newswire in Summer 2002, sixty-eight per cent of those surveyed believe that senior corporate executives are less honest and trustworthy today than they were a decade ago. But unethical conduct has been with us as long as human beings have been on the earth, and business ethics scandals are as old as business itself. The Taimud, a 1500-year-old text, includes about 2 million words and 613 direct commandments designed to guide Jewish conduct and culture. More than one hundred of these concern business and economics. Why? Because ‘transacting business, more than any other human activity, tests our moral mettle and reveals our character’ and because ‘working, money, and commerce offer … the best opportunities to do good deeds such as … providing employment and building prosperity for our communities and the world.’

Alan Greenspan said it well on July 16, 2002: ‘It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed [have] grown so enormously.’ So, unethical behaviour is nothing new, and people are probably not less ethical than they used to be. But the environment has become quite complex and is rapidly changing, providing all sorts of ethical challenges and opportunities to express greed.

If ethical misconduct is an ongoing concern, then organizations must respond with lasting solutions that embed support for ethics into their cultures rather than short-term solutions that can easily be undone or dismissed as fads.

 What executives can do: guidelines for effective ethics management

First: understand the existing ethical culture

Leaders are responsible for transmitting culture in their organizations, and the ethical dimension of organizational culture is no exception. According to Schein, the most powerful mechanisms for embedding and reinforcing culture are;

·         what leaders pay attention to, measure, and control;

·         leader reactions to critical incidents and organizational crises; deliberate role modelling, teaching, and coaching by leaders;

·         criteria for allocation of rewards and status;

·         criteria for recruitment, selection, promotion, retirement, and excommunication.

If leaders wish to create a strong ethical culture, the first step is to understand the current state: What are the key cultural messages being sent about ethics? It’s a rare executive who really understands the ethical culture in an organization. And the higher you go in the organization, the rosier the perception of the ethical culture is likely to be. Why? Because information often gets stuck at lower organizational levels, and executives are often insulated from ‘bad news,’ especially if employees perceive that the organization ‘shoots the messenger.’ Executives need anonymous surveys, focus groups, and reporting lines, and people need to believe that the senior leaders really want to know, if they are to report honestly on the current state of the ethical culture.

Second: communicate the importance of ethical standards

Employees need clear and consistent messages that ethics is essential to the business model, not just a poster or a website. Most businesses send countless messages about competition and financial performance, and these easily drown out other messages. In order to compete with this constant drumbeat about the short-term bottom line, the messages about ethical conduct must be just as strong or stronger and as frequent. Simply telling people to do the right thing, is not enough. They must be prepared for the types of issues that arise in their particular business and position, and they must know what to do when ethics and the bottom line appear to the in conflict. Executives should tie ethics to the long-term success of the business by providing examples from their own experience or the experiences of other successful employees.

Make sure that messages coming from executive and supervisory leaders are clear and consistent. Train employees to recognize the kinds of ethical issues that are likely to arise in their work.

Third: focus on the reward system

The reward system may be the single most important way to deliver a message about what behaviors are expected. B.F. Skinner knew what he was talking about. People do what’s rewarded, and they avoid doing what’s punished. Let’s look at the positive side first – can we really reward ethical behaviour? In the short term, we probably cannot. For the most part, ethical behavior is simply expected, and people don’t expect or want to be rewarded for doing their jobs the right way. But in the longer term, ethical behavior can be rewarded by promoting and compensating people who are not only good at what they do, but who have also developed a reputation with customers, peers, subordinates, and managers as being of the highest integrity

Perhaps even more important than rewarding ethical conduct is taking care not to reward unethical conduct.

And what about discipline? Unethical conduct should be disciplined swiftly and fairly when it occurs at any level in the organization. The higher the level of the person disciplined, the stronger the message that management takes ethics seriously.
 Fourth: promote ethical leadership throughout the firm

Recall that being a ‘moral person’ who is characterized by integrity and fairness, treats people well, and makes ethical decisions is important. But those elements deal only with the ‘ethical’ part of ethical leadership. To be ethical leaders, executives have to think about the ‘leadership’ part of the term. Providing ethical ‘leadership’ means making ethical values visible – communicating about not just the bottom-line goals (the ends) but also the acceptable and unacceptable means of getting there (the means). Being an ethical leader also means asking very publicly how important decisions will affect multiple stakeholders – shareholders, employees, customers, society – and making transparent the struggles about how to balance competing interests. It means using the reward system to clearly communicate what is expected and what is accepted. That means rewarding ethical conduct and disciplining unethical conduct, even if the rule violator is a senior person or a top producer. Find a way to let employees know that the unethical conduct was taken seriously and the employee disciplined.

Ethical cultures and ethical leaders go hand in hand. Building an ethical culture can’t be delegated.

Senior executives are extremely important. They set the tone at the top and oversee the ethical culture. But from an everyday implementation perspective, front-line supervisors are equally important because of their daily interactions with their direct reports. An ethical culture ultimately depends upon how supervisors treat employees, customers, and other stakeholders, and how they make decisions

 

Unit 4 - core stakeholders

Accounts of which groups and individuals may be considered to be stakeholders vary, but most would agree with Wood’s (1995) 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 behaviours through political processes.

Organizations have many other stakeholders, including:

·         local communities

·         competitors

·         media

·         financial analysts

·         markets

·         financial institutions

·         voluntary organizations

·         environmental and consumer protection groups

·         religious organizations

·         military groups

·         political parties or factions.

 (Wood, 1995, p. 529)

Unit 4 - CSR

The CSR of organisations is a hot topic in business and management. The argument is that organisations at all levels should think beyond their internal organisation and profit-driven activities. Instead they should think longer term about all the stakeholders their business affects, how the business can be made more sustainable for the future and how it can ensure that it has less impact on the environment. In other words, running the organisation in a way that balances the need to make profit with the impact that it has on the society in which it operates and on the people whom it employs directly and indirectly.

If you were responsible for implementing SHRM in an ethical way, you would want people to feel safe, be proud of working for the organisation, align themselves closely with company values, have the opportunity to develop and grow and have the flexibility, for example, to participate in a work volunteering scheme..

Unit 4 - Ethical Issues

Feedback

Ethical issues at work often relate to trust, integrity and conflict of interest:

1. Trust. Maybe you or someone you know has access to confidential information that others would be interested in. Deciding not to betray confidence is an example of an ethical decision.
2. Integrity. Sometimes at work we are asked to do things that conflict with our beliefs. Asking ‘Can I live with myself if I do that?’ might be an ethical question.
3. Conflict of interest. If a client asked you to do something that appeared to be against the interests of another client or your own firm and you were not prepared to do so, your response would be an ethical one.

A number of other accounts challenge the simple economic determinist view of managerial choice. Institutional theorists reject the assumptions of rational actors seeking to optimise financial outcomes that lie at the heart of many economic theories of the firm. They suggest that structures, rules and processes in organisations arise not out of the rationally calculated actions of self-interested individuals, but because certain practices come to be taken for granted. They suggest that individuals in organisations, when faced with choices, seek guidance from the experience of others in comparable situations and refer to socially relevant standards of legitimacy.

Within this perspective, organisations are understood to exist in socially constructed communities of similar and related organisations. Such communities include related groups such as suppliers, customers, regulatory agencies and unions as well as organisations producing a similar product or service. Within this framework, the constraints on managerial decision making and action are less economic (although this is not disregarded) than social.

First, managers are seen to make decisions in an environment of uncertainty about outcomes. It is not always possible to tell which activities will be economically advantageous. This acts as powerful encouragement to mimic the decisions of other organisations in the same social community.

Second, organisations come under both formal and informal pressure from other organisations on which they are dependent as well as from social expectations in society at large.

Third, professional networks that span organisations (for example, the accounting profession or management associations) act as mechanisms for the diffusion of organisational norms.

The very complex and sometimes contradictory nature of the different economic, social and institutional forces faced by organisations may, paradoxically, provide increased scope for managerial choice. Also, importantly, the need for social legitimacy may be seen as a pressure on organisations to behave in ethically defensible ways that go beyond a minimal conformity to the law.

Unit 3 - Three challenges: Leader energy; Role performance;

Challenge 1: leadership energy

We find that despite the exhortations, in practice many managers are often resistant to employee engagement programs. This can be for two underlying reasons – first, some inherent uncertainty about the implications for the leader role and second, due to the perceived additional work required by the leader. It can be argued from afar that engagement would in fact lighten the leader’s role, but the perception is real and is a barrier to be overcome. We have found that those leaders who feel overburdened tend to judge that an ‘engagement’ programme will be an added cost to them personally. Our research also suggests that unless these interpretations are faced at the outset, it is difficult to embed and sustain a major engagement initiative in any organization.

Leaders are reporting their energy levels are at a rate that is lower than where they are most productive. These leaders say they have no time to get the most critical elements of their core work jobs done, and this is the key factor they report as negatively affecting their personal energy levels at work. Given that engagement implies activity ‘above and beyond’ (a common expression used for engagement), the problem is that these leaders are working at suboptimal energy levels and cannot even engage themselves properly because they are too busy just trying to cope with their personal workloads; still less do they feel that they have time or inclination to engage others.

If leader energy is falling and/or suboptimal, the overall outcome is negative for bottom-line productivity and firm performance because leader energy predicts employee energy, and high energy cultures predict organizational outcomes (stock price growth, survival).

The measurement process uses a 0 to 10 scale, where 0 = no energy, 8 = high energy, and 10 = too much energy.2 Thus, energy is an optimization versus a maximization scale. A point can be reached where people are exerting so much energy they cannot find time to replenish themselves fast enough. An employee can have too much stimulus at work, and this can result in burnout. However, the definition of ‘too much’ differs from person to person, and it is important when measuring energy to ask more than one question. The measurement process used in the above-mentioned studies produces a variety of scores: energy overall, most productive energy level, and the gap between where one is most productive and where one is today.

 Challenge 2: role-based performance to define engagement

Five different categories of work behaviour can be defined via the roles that employers set up at work and reward within organizations. Short descriptions of each and an overall model follow:

1.            Core job holder role (what is in the job description);

2.            Entrepreneur or innovator role (improving process, coming up with new ideas, participating in others’ innovations);

3.            Team member role (participating in teams, working with others in different jobs);

4.            Career role (learning, engaging in activities to improve your skills and knowledge);

5.            Organizational member role (citizenship role or doing things that are good for the company).

(Welbourne et al. 1998)

When the role-based approach to work is combined with a resource-based view of the firm, a link between role-based behaviour and firm performance can be derived. The resource-based view of the firm states that firms ‘win’ when they create long-term competitive advantage from resources that are valuable, rare, inimitable, and for which substitutes do not exist (Barney 1991,1995).

However, it is what people are doing at work specifically (or what roles they are engaged in) that drives results. If the role-based model of performance is applied, long-term competitive advantage does not come with people simply doing their core jobs. If employees are only doing core jobs (for which job descriptions are easily available), the competition can hire people, train them to do those same jobs, and do this in a location where wages and other costs are much lower.

But, if employees engage in behaviours above and beyond the core job ,then true competitive advantage from people materializes. When employees have firm-specific knowledge and use that information to develop new ideas, to improve the organization, to assist new team members, and to continue to escalate their careers, then the synergy that comes from all of these above and beyond behaviours starts to drive long-term competitive advantage, which then affects firm performance.

It makes sense that ‘emotional commitment’, ‘above and beyond’ behaviours, or ‘discretionary’ efforts (all terms found in the work on employee engagement) are desirable. A clear understanding of what these words mean is essential for anyone who expects to improve engagement and improve performance through their employees’ efforts. Also, the link between extra role (entrepreneur, team, career, and organizational member) and core-job role performance needs to be clearly understood because if employees cannot find enough time to do the core job role, then the odds on engaging in any non-core roles are very low.

Thus, the lesson learned from all of this discussion of energy and research is that engagement programmes need to start at the top. Start with leader energy and leader role-based performance. Leaders themselves need to have time to go ‘above and beyond’ so that they exemplify what employee engagement can be by being engaged leaders. Only when leaders have the time they need will they be able to help the managers and employees who report to them reach their own optimal energy levels, balance their work in core and non-core job roles and engage in the behaviours that will drive the organization’s strategy.

 

Unit 3 - Employee Engagement - 29 country comparison, including causes of disengagement

Ageing  work force

Disengaged younger generation

•        Pressures at work

•        Retention and management challenges

Levels of engagement of younger workforce

Causes of disengagement:

•        Economic pressures have hit the aspirations of younger generation

•        1/3 forced to accept a job they were unhappy with or go through a different career path because of the economy

•        Frequently feel stressed at work

•        Unhappy with work/life balance

Unit 3 - Downsizing

Downsizing can severely affect the morale, commitment and performance of remaining employees.

These effects have been captured under the term ‘survivor syndrome’ and include:

•        decreased motivation

•        low morale

•        reduced loyalty

•        increased stress

•        scepticism towards management initiatives.

Moreover, remaining workers may be asked to do work they are not trained to do and to take on additional workload.

Unit 3 - cooperative movement

The principles of the cooperative movement can be summarised as follows (ICA, 2010).

1st principle: voluntary and open membership.

Cooperatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

 

2nd principle: democratic member control.

Members actively participate in setting policies and making decisions on the basis of ‘one member one vote’; therefore all members have equal voice in decision-making. Their participation in decision-making can either be direct (decisions are discussed and taken by all members in general meetings), or indirect through elected representatives, as is more often the case in large cooperatives.

3rd principle: member economic participation.

Cooperatives are built on the belief that strength comes from pooling resources to engage in mutual self-help; there is an underlying expectation that at least a portion of capital should be owned collectively by all members, and that all members should contribute. Cooperative members usually receive limited compensation, if any, on the capital they subscribed; and decisions regarding the distribution of surplus (e.g. towards the development of the cooperative, compensation of members, or supporting community activities) are taken democratically.

4th principle: autonomy and independence.

Cooperatives are autonomous, self-help organisations controlled by members. If they raise funds from external sources, they do so on terms that ensure democratic control by members and maintain the cooperative’s autonomy. Cooperatives are also in principle free of intervention from governments or other sources so that ultimately the members are able to control their own destiny.

5th principle: education, training and information.

Education is deemed central to democratic participation and according to this principle, cooperatives should aim to contribute towards the education and training of their members, as well as towards awareness-building about the nature and benefits of cooperation among the general public.

6th principle: cooperation among cooperatives.

Cooperatives are encouraged to work together through local, national, regional and international networks to strengthen the cooperative movement. For example, in Britain, Radical Routes is a network of cooperatives that aims to support the development of cooperatives, and has a financial arm that makes loans to small cooperatives.

7th principle: concern for community.

This principle suggests that the values of mutual help, solidarity and equality underpinning the cooperative movement should extend to cooperatives’ contributions to society at large. Through this principle, the ICA encourages cooperatives to ‘work for the sustainable development of their communities through policies, programmes, funding approved by their members.’

Unit 3 - Distinctions between employee involvement and employee participation

Employee involvement (EI)	Employee participation (EP)
Individual voice	Collective voice through elected spokespersons and representatives
Task focused	Wider focus including issues such as redundancies, opening hours of stores, etc.
Control remains in management hands	Shared influence
Aims to stimulate individual employee contributions and problem solving	Aims to harness collective employee inputs and agreement
Management inspired and controlled	Government or workforce inspired
Management structures flatter, but hierarchies undisturbed	Management hierarchy chain broken
Employees often passive recipients	Employee representatives highly involved
Tends to be task based	Decision making at higher organisational levels
Assumes common interest between employer and employees	Plurality of interests recognised and resources for their resolution provided
Aims to concentrate strategic influence among management	Aims to distribute strategic influence beyond management

Unit 3 - Collective bargaining

Collective bargaining

There is little doubt that the balance of power in collective bargaining in recent years, has swung in the favour of management. Managers have a choice as to what approach they take to employee involvement, but frequently that choice will depend on the nature of the product and labour markets in which they operate, as well as company history, culture, and structure, and whether their workforce is unionised.

Data from the Workplace Employment Relations Survey (Kersley et al., 2006) show that where collective bargaining does occur, traditional topics still dominate the bargaining agenda: pay, hours, holidays, pensions, disciplinary and grievance procedures and performance appraisal schemes. A small minority of firms also bargain over the core ‘HR bundle’ of training, HR planning, recruitment and selection

There are three elements:

·         Bargaining levels

·         units and agents of bargaining

·         Scope of bargaining.

There are different levels at which bargaining takes place. Bargaining may involve many employers (multi-employer bargaining), be at company level or at the level of the establishment if there are different sites where the company is located. The bargaining unit refers to the group of employees covered by a particular agreement. For example, there may be one agreement for skilled workers, clerical workers, or supervisors. The bargaining agent refers to the employee representative body which is conducting the bargaining on the employees’ behalf.

Where only one union is recognised by the employer there will be a single bargaining agent within each unit. In multi-union organisations there will be many different bargaining agents. The scope of collective bargaining refers to the subject matter of the collective agreement. This will vary between different organisations. While pay rates are common items covered by negotiation, others include hours of work, staffing levels, physical working conditions, new technology and redundancy. Trade unions aim to extend the scope of collective bargaining, while management may wish to limit it, depending on its approach to managing the employment relationship.

A further trend has been to move away from industry-level bargaining to agreements made at the level of the employer: in other words, agreements have become decentralised, away from the industry or national level. Of particular importance is the renewed ability of employers to focus bargaining on operational issues concerning cost. Pay policies are now much more closely tailored to organisational performance and the achievement of business objectives. Therefore, while business decisions over production, marketing and budgets have been decentralised, it is likely that pay negotiations and setting pay levels will stay at the level of the business unit.

In sum, there are a number of identifiable trends:

•       Limited continuation of multi-employer bargaining and an increase in decentralised bargaining.

•       Simplifying bargaining through single-table bargaining, bringing the issues under discussion closer to operational arrangements. Single-table bargaining occurs where all issues to be negotiated take place within a single forum, limiting multi-union involvement.

•        New style collective agreements. These are also known as ‘no strike’ or ‘single union’ agreements and emerged in the 1980s. Sole bargaining rights are granted to one trade union, strikes are banned, manual and non-manual employees have single status so all terms and conditions except pay are common to all staff, a works council or other comprehensive communication system is established and traditional demarcation between jobs is abolished.

 

Figure 14.1 Movements in management style in employee relations (Source Storey and Sisson, 1993, p. 10)

The diagram shows how both individualism and collectivism take different forms and the combination of both results in different ‘ideal-typical’ approaches to managing the employment relationship.

Individualism can take three different forms:

•        employee development – where employees are viewed as a valuable resource, to be trained and developed accordingly, and can move around on an internal labour market

•        paternalism – where a welfare-based approach is designed to win the loyalty of employees

•        cost minimisation – where employees have commodity status and are bought in from the labour market when they are required.

Collectivism can also take three different forms:

•        none – at its lowest point, no unionism is allowed, and employees are actively discouraged from forming consultative groups

•        adversarial – bargaining takes place but bargaining positions are polarised and compromise is commonplace

•        cooperative – this relationship implies a partnership between management and unions where joint, formal and informal approaches are taken to resolve problems.

Combining these two dimensions in a matrix results in a set of different identifiable ‘management styles’. Characteristics of the different ideal types can be summarised as follows:

•      Traditional: A fire-fighting approach. Employee relations not important until there is trouble. Low pay. Hostility to trade unions. Authoritarian. Typical in smaller, owner-managed businesses.

•        Paternalist and modern paternalist: Unions regarded as unnecessary because of employers coverage of the same issues. High pay. Concentration on encouraging employee to identify with business objectives. Modern paternalists also formally consult with the workforce.

•        Sophisticated consultative: Union participation encouraged through recognition. Problem-solving, informal approach to employee relations. Emphasis on two-way communications.

•        Bargained constitutional: Similar to sophisticated consultative, but emphasis on formal agreements to regulate relationship between two powerful protagonists.

•        Sophisticated human relations: Similar to paternalist approaches, but instead of focusing on employee welfare, a conscious effort is made to invest in and develop the human resource, and promote internal labour markets.

Unit 3 - Employment relations

The unitary view supposes that employee and employer interests are entirely compatible. It assumes that management has sole authority over the employment relationship and that the workforce is loyal to management’s goals alone. It perceives conflict as undesirable, irrational, and the result of poor communication. Trade unions are seen as an intrusion on the management prerogative.

The pluralist view assumes that the organisation is composed of different groups of individuals who have legitimate, competing interests and so some form of conflict is inevitable. Trade unions are regarded as a legitimate form of representation, and management has to reconcile these conflicts in its decision making.

A ‘neo-unitary’ perspective has recently emerged. Here, the commitment of employees cannot be assumed, as with traditional unitarism, but must be secured by employers, through the use of contemporary human resource management techniques.