SHRM Learning System 2015 - Workplace

HR in tile Global Context
Diversity & Inclusion

Risk Management
) Corporate Social Responsibility
Employment Law & Regulations (U.S. Only)
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) FOR SHRM~CP/SHRM-SCP
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SOCIETY FOR !-lU/'AN~

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Acknowledgments
SHRM acknowledges the contributions of its volunteer leaders and staff members who have served as
subject matter experts for the SHRM Learning System for SHRJYI-CP/SHRM-SCP.
Subject matter experts

Brad Boyson, CHRP, HRBP, HRMP, SPHR, Margaret AndreeffMatejkovic, Esq.
GPHR Matejkovic Law LLC
Executive Director, SHRM MEA Richfield, Ohio, U.S.
Dubal, United Arab Emirates
Tom O'Connor, JD, GPHR, HRMP
Todd Brodie, Ph.D., FCIPD, CHRP, SPHR, HR Consultant
GPHR,HRMP Andover, Massachusetts, U.S.
Global HR and Leadership Development
Consultant Nina E. Woodard, SPHR, GPHR
Orlando, Florida, U.S. President and Chief'N' Sights Officer
Nina E. Woodard & Associates
Paul Chiames, SPHR Oceanside, California, U.S.
Chief Human Resources Officer
Stanford Linear Accelerator Center (SLAC Alejandro Zeballos, GPHR, PMP
National Accelerator Laboratory) Americas Training Lead, Accenture
Palo Alto, California, U.S. Santiago, Chile
Legal compliance
Elizabeth Owens Bille, Esq., SPHR Christine V. Walters, MAS, JD, SPHR
I Vice President and Associate General Counsel, Independent Consultant
Society for Human Resource Management FiveL Company
f Alexandria, Virginia, U.S. Westminster, Maryland, U.S.
The SHRM Learning System for SHRM-CP/SHRM-SCP is printed on 30% post-consumer waste
recycled paper.
Contents
introduction to Workplace Domain ........................................................................................ 1
Functional Area #1 0: HR in the Global Context.. ................................................................2
Introductioi1 ........................................................................................................................... ... 4

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Functional Area Overview ................................................................................................... 5
Section 1: The Global Context ................................................................................................ 7

Globalization in the 21st Century ........................................................................................ 8
Defining Globalization ....................................................................................................... 10
) Forces Shaping Globalization ............................................................................................ 11
) Defining the Global Organization ...................................................................................... 22
Defining the Role of Global HR ........................................................................................ 24
Section 2: Creating a Global Strategy .................................................................................. 28

The Strategic Attraction of Globalization .......................................................................... 29
Strategic Approaches to Globalization .............................................................................. 32
Sourcing and Shoring ........................................................................................................ .49
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HR's Role in Globalization ................................................................................................ 57
Section 3: Becoming a Multicultural Organization ............................................................ 64

J Developing a Global Mindset ............................................................................................ 65
J Types of Cultures ............................................................................................................... 71
Cultural Layers ................................................................................................................... 73
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Cultural Dimensions .......................................................................................................... 75
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Cross-Cultural Challenges for HR ..................................................................................... 82
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Section 4: Managing Global Assignments .......................................................................... 90
Strategic·Role of Global·Assignm~nts.-.. :............................. :......~-..... ::~: ... ~: .... ~ ............. ~... 91
Types of Assignments ........................................................................................................ 92
Managing Allegiances ....................................................................................................... 94
Global Assignment Guidelines .......................................................................................... 95
The Global Assignment Process ........................................................................................ 98
WORKPLACE
Section 5: Navigating the Global Legal Environment ..................................................... ! 07

World Legal Systems ....................................................................................................... I 08
Types of Legal Systems ................................................................................................... 109
Key Concepts of Law ....................................................................................................... ll2
Levels of Law .................................................................................................................. 114
An Example: The European Union .................................................................................. ll7
Implications for HR Professionals ................................................................................... 120
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Introduction .......................................................................................................................... 126

Functional Area Overview ............................................................................................... 127
Section 1: Defining Diversity and Inclusion ...................................................................... 128

Overview: KeyTerms ...................................................................................................... 129
Diversity and Globalization ............................................................................................. 133
The Benefits and Costs of Diversity ............................................................................... .136
The Four Layers ofDiversity ........................................................................................... 139
Section 2: Developing a D&I Strategy .............................................................................. 145

Why a D&I Strategy ........................................................................................................ 146
The D&I Strategic Process ............................................................................................... 148
Section 3: HR's Role in the D&I Strategic Process ......................................................... 165

Aspects of Organizational Change .................................................................................. 166
Individual Attitudes and Behaviors ................................................................................. 166
Managerial Skills and Practices ....................................................................................... 170
Organizational Values and Policies ................................................................................. 173
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lntroduction .......................................................................................................................... 184

Section 1: Establishing the Context ofRisk ...................................................................... .188

Focusing Risk Management.. ........................................................................................... 189
Defining Risk ................................................................................................................... 190
ISO Principles, Framework, and Process ......................................................................... 197
Establishing the Context of Risk Management. ............................................................... 200
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) Section 2: Identifying and Analyzing Risk ....................................................................... .209

) Risk Assessment Phase .................................................................................................... 21 0
) Identifying Risks .............................................................................................................. 21 0
) Analyzing Risks ............................................................................................................... 214
Evaluating Risks .............................................................................................................. 218
Key Risk Indicators .......................................................................................................... 220
) Risk Register .................................................................................................................... 222
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Sectioii 3: Managing Risks .................................................................................................. 226
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Responses to Upside and Downside Risks ...................................................................... 227
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Implementing the Risk Management Plan ....................................................................... 232
Emergency Preparedness and Business Continuity ......................................................... 235
Section 4: Evaluating Risk Management ........................................................................... 245

Providing Oversight ......................................................................................................... 246
Evaluating Effectiveness of Risk Management Policies and Processes .......................... 246
Evaluating Compliance .............................................................................................. :..... 249
) Promoting Continuous Improvement. .............................................................................. 250
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................................................. 254
Introduction .......................................................................................................................... 256

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Section 1: The Broadening CSR Landscape ...................................................................... 258
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Is Sustainability the New CSR? ....................................................................................... 259
Broadening Definitions .................................................................................................... 260
Forces Shaping Today's CSR .......................................................................................... 278
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) Section 2: Creating a CSR Strategy .................................................. ................................ 283

) CSR Strategy .................................................................................................................... 284
Frameworks, Guidelines and Examples ........................................................................... 284
) The CsR Strategic PI'ocess : .......................................... :......~...... :........~ .... ,... ,.................~29 i
Section 3: Compliance and Ethics ...................................................................................... 302

The Three Pillars of Sustainability .................................................................................. 303
Ethical and Compliance Challenges ................................................................................ 306
Philanthropy and Volunteerism ....................................................................................... 316
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WORKPLACE
Section 4: Governance ......................................................................................................... 324

Codes of Conduct and Compliance Programs ................................................................ .325
Creating a Code of Conduct... .......................................................................................... 326
Implementing a Compliance Program ............................................................................. 331
................................... 338
Introduction .......................................................................................................................... 340

Functional Ar~a Overview ............................................................................................... 340
Section 1: HR and the Legislative and Regulatory Environment ................................... 341

Sources of the Law ........................................................................................................... 342
The Rule-Making Process ................................................................................................ 343
Monitoring the Legislative and Regulatory Environment ............................................... 345
Section 2: Organizational Compliance ............................................................................... 348

The Impact of the Law ..................................................................................................... 349
Compliance Checklists and HR Audits ............................................................................ 349
Legal Services and Risk Mitigation .......................................... ., ..................................... 351
HR Involvement in the Litigation Process ....................................................................... 3 54
Additional Aspects of a Compliant Workplace ............................................................... 356
Section 3: U.S. Laws and Regulations ............................................................................... .361

Laws, Regulations, and Case Law ................................................................................... 362
Equal Employment Opportunity/Antidiscrimination and
Workplace Harassment Laws .................................................................................... 362
The Concept of Equal Employment Opportunity ............................................................ 363
Title VII of the Civil Rights Act of 1964, Amendments, and Cases ............................... 365
Age Discrimination in Employment Act of 1967 and Amendments ... ., .......................... 375
Americans with Disabilities Act of 1990 and the ADA Amendments Act of 2008 ........ 378
Workplace Harassment .................................................................................................... 386
(:o111pen_sati_on La,s.,_., ................. ,.............. , ...............•.............••..................................... 393_
Fair Labor Standards Act, Amendments, and Case Law .. ., ................................. ., .......... 393
Employee Retirement Income Security Act .. ., .................. ., ...................... .,., ................. .411
Ledbetter v. Goodyear Tire & Rubber Co. and Lilly Ledbetter Fair Pay Act ........... ., ... .413
Leave and Benefits Laws .......... ., ................................................................................ ., .. .414
Consolidated Omnibus Budget Reconciliation Act and Amendments ........................... .415
Family and Medical Leave Act and Amendments .......................................................... .418
WORKPLACE
) Uniformed Services Employment and Reemployment Rights Act and

Amendments ............................................................................................................. .422
Patient Protection and Affordable Care Act, Amendment, and Case Law ..................... .424
Job Safety and Health Laws ............................................................................................. 427
Employee Relations Laws ............................................................................................... .435
National Labor Relations Act and Amendments ............................................................ .436
NLRB v. Weingarten ....................................................................................................... .438
) Lechmere, Inc. v. NLRB .................................................................................................. .440
! Miscellaneous Protection Laws ...................................................................................... .441
Fair Credit Reporting Act and Fair and Accurate Credit Transactions Act... ................. .441
Immigration Reform and Control Act. ............................................................................ .444
Employee Polygraph Protection Act.. ............................................................................. .445
Worker Adjustment and Retraining Notification Act.. ................................................... .44 7
Genetic Information Nondiscrimination Act .................................................................. .449
EEOC Complaint Process ............................................................................................... .450
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Section 4: Employee Records Management ..................................................................... .458
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Complexities and Criticality of Records Managemen\.. ................................................. .459
HR Technology Implications ......................................................................................... ..460
Record-Keeping Legal Compliance ................................................................................. 462
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........................................................................................................................................... 483
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) Introduction to Workplace Domain
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) This domain in the SHRM Learning System® for SHRM-CP/SHRM-SCP
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) includes five Functional Areas: "HR in the Global Context," "Diversity and
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'I Inclusion, "Risk Management," "Corporate Social Responsibility," and "U.S.
{I) Employment Law and Regulations."
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) Throughout the module, brief scenarios describe how the behavioral
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) competencies listed in the SHRM Body of Competency and KnowledgeT" apply
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.) to the Functional Area under discussion. The scenarios are titled, for example,
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( ) "Leadership and Navigation Competency in Action" and are identified by the
competency icons described in the HR Competencies module.
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) Progress check questions are included at the end of each section to help you
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) monitor your learning. These will be most useful if you check your written
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) responses against the recommended answers and the content of the section.
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,J While this module includes legal content, it should not be construed as legal
) advice or as pertaining to specific factual situations. No general statement of
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() law, no matter how seemingly simple, can be applied to any particular factual
/) situation without a full, careful, and confidential analysis of all relevant facts,
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the employer's policies and practices, and the applicable laws of the
) jurisdiction(s) in which the employer operates.
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.· The content in this domain !JCCounls f~r 15% ofthe SHRM-CP exam and 10%
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HR in the Global Context focuses on organizational growth and workforce-related
issues and impacts, viewed from domestic, multinational, transnational, and
global perspectives. HR demonstrates value by understanding how global PEST
factors influence business decisions, and by applying this knowledge to day-to-day
HR activities, policy creation, and business solutjon recommendations .
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) Responsibility Statements: Sample Application of Competencies:
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) Key responsibilities for all HR • Communication-The ability to effectively
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I • Recognizing and responding to global ensure that a global perspective is considered
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issues that influence domestic
) business practices. • Global and Cultural Effectiveness-The
I ability to value and consider all parties'
• Maintaining up-to-date knowledge of
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PEST, HR, and legal trends in global perspectives and backgrounds.
) • Consultation-The ability to provide guidance
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) on global matters to internal and external
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organizational stakeholders.
global trends and best practices.
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) • Balancing the organizational desire Knowledge Topics:
I for standardization with localization
) • Creating a global organizational culture
I through a "glocalized" approach to • Cross-border HR management techniques
) decision-making.
I • Cultural models (e.g., Hall, Hofstede, Schein,
• Building cross-cultural relationships
? ) and partnerships with global •
Trompenaars)
Global discrimination prevention practices
I stakeholders. • Global legal systems (e.g., different nations'
? • Implementing and conducting audits approaches to government-mandated,
,! of global HR practices. government-provided, and voluntary benefits,
) extra-territoriality of laws and legislation)
Key responsibilities for advanced HR • Global mindset techniques (e.g.,
professionals include: communication barrier removal, cultural
• Developing and implementing a awareness training and assimilation,
comprehensive strategy to address understanding PEST factors)
) issues affecting business, people, • Global trends in benefits, compensation,
and the workforce on a global basis. diversity and inclusion, employment laws,
• Consulting on and developing ethics and sustainability, labor markets, labor
strategies to define global relations, safety and security, staffing
) competencies. management
• Managing international assignments (e.g.,
• Consulting on labor and economic
approaches and trends, effective performance,
trends, cultural implications, and the
compensation adjustments, employee
legal environment for business
repatriation)
decisions and risks.
• Moving work (e.g., co-sourcing, near-shoring,
offshoring, on-shoring)
• Taxation approaches
• Totalization agreements
•- Visa and work permit considerationS-
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Introduction
If the financial crisis of 2008 to 2009 has taught us anything, it is just how
interconnected today' s world is. Some historians and economists have claimed that
the world was in fact more "global" during the early 20th century, citing its greater
freedom of migration and more limited legal oversight of commerce. But our era's
version of globalization is unprecedented in at least three key dimensions:
• Speed-and constancy-of communication. Just a few hundred years ago,

nations settled their balance of trade accounts by sailing gold- and silver-laden
ships across oceans-a journey of weeks or months. Today, high-frequency
money market traders transact that same journey in nanoseconds. Business
communication isn't only instantaneous-it's also nonstop and round-the-
clock. "Banking hours" no longer exist. Mobile phone and tablet in hand,
today's global employee works from anywhere, at any time.
• Degree---and breadth--of impact. The clment era may also be considered

more "global" as measured by the degree to which a local event can have
global impact. It is a world in which:
$ The collapse of a single American investment bank can trigger a
worldwide, multiyear recession.
• A tsunami in Japan can disrupt multi-industry global supply chains and
cause governments worldwide to reconsider their commitment to nuclear
power.
• A political crisis in Eastem Europe can affect energy supplies worldwide-
in tum shaping global political responses to the crisis.
• Omnidirectionality of operations. 20th-century outsourcing and offshoring

_strategies initiated_the first wave ofcontemporary_globaliza_tillU~But they _
operated almost entirely in one direction: Industries in developed countries
established offshore operations in emerging nations, largely to access cheaper
labor and natural resources. Today, that multinational may have its home base
in a developing or emerging nation, and its offshore operations-which, again,
may now be anywhere in the world-are selected to better access their
customer base.
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! WORKPLACE HR in the Global Context
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a Or consider the change in global assignments. The term "multinational" is now as
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) likely to apply to the assignee as to the organization sending him or her abroad. He
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or she may be born and raised in one country and is now leaving a position in a
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) second country to go on assignment in a third, sent by an organization based in a
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) As a result of all these changes, whether I-lK practitioners are physically located in
'l the American Midwest, the factories of Chengdu, one of the Mercosur countries of
South America, or the DIFC ofDubai, they are working in a global marketplace.
The reality is that, today, HR is truly a profession without borders.
Every organization today-whether it knows it or not-is competing globally. That

does not mean, however, that every organization has developed a global strategy,
nor that it has a truly global HR function in place. That, then, is the goal of this
Functional Area: to provide the foundational knowledge needed to develop,
implement, and support a global HR strategy-one that helps the larger
organization to define and achieve its particular global vision and to become tmly
global. Each section of this Functional Area is a step toward that goal.
Functional Area Overview

In line with the SHRM Body of Competency and Knowledge, this Functional Area
covers the following topics:
• Section 1, "The Global Context":

• What globalization is
• Understanding the global forces-political, economic, social, technological,
environmental, and legal-that have shaped and driven globalization
• What a global organization is
• Understanding the role HR must play in helping an organization maximize
the~enefitsand minimizethe costs ofglobalization and becomea glQbal
organization
• Section 2, "Creating a Global Strategy":

• Understanding the key types of global strategies an organization can adopt
• Understanding HR's role in making that strategy succeed
• Key considerations in developing and implementing an HR global strategy
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WORKPLACE HR in the Global Context
• Section 3, "Becoming a Multicultural Organization":

• Understanding the benefits-and necessity--of becoming a multicultural
organization to function effectively in a global marketplace
• Defining the global mindset
" Understanding the challenges of becoming a multicultural organization
• The nature and effects of culture: cultural dimensions and layers
• HR's role in establishing a global mindset across an organization
• Section 4, "Managing Global Assignments":

• The imp01tance of basing global assignments on strategic, rather than
tactical, objectives
• Understanding the types of assignees and assignee allegiances and how that
can affect their success
• General guidelines for planning and managing global assignments
• How to successfully manage the global assignment process
• Section 5, "Navigating the Global Legal Environment":

• Understanding the major types of national, regional, and international legal
systems and their critical differences
• Understanding the various levels and jurisdictions in which they operate
• Understanding supranational legal entities (e.g., the European Union)
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Section 1:
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The Global Context
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) HR responsibilities related to this section include:
• Recognizing and responding to global issues that influence domestic business practices.
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• Maintaining up-to-date knowledge of PEST, HR, and legal trends in global terms.
• Developing expert knowledge of global trends and best practices.
This section is designed to increase your knowledge of:

• Creating a global organizational culture.
) • Global mind set techniques (e.g., communication barrier removal, cultural awareness
) training and assimilation, understanding PEST factors).
• Global trends in benefits, compensation, diversity and inclusion, employment laws,
ethics and sustainability, labor markets, labor relations, safety and security, staffing
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Globalization in the 21st Century

As Figure 1 on the next page suggests, there are several possible dates to
consider as a starting point of modem globalization. Considered as a purely
economic phenomenon-an expansion of international trade-one can begin at
the 1944 Breton Woods agreement, the first fully negotiated multilateral trade
accord and so perhaps the start of modern global commerce.
Butlhe roots of 21st-century globalization-what Thomas L. Friedman calls

"Globalization 3.0"--can better be seen in the 1980s and 1990s, when political,
social, economic, technological, and environmental events all converged. The
end of the 20th century was marked by the fall of the Berlin Wall, the rise of the
personal computer and the Internet, and the removal of trade barriers.
What really began then, and what is distinctive about globalization today, is an
ever-accelerating and broadening interconnectedness. Consider the fact that even
rural villages in developing countries can participate in real time in the global
exchange ofinfonnation, or that residents of those same villages are almost
certainly directly and personally experiencing the economic effects of a global
recession.
Figure I is not intended as a definitive list of events but is meant to suggest the
range-and interconnection-of political, economic, social, technological, and
environmental forces that have shaped the evolution of globalization. Taken
together, they sketch the broad outlines of the accelerating interconnectedness
of our current world economy.
In a world with Google Maps and Google Translator, with regional free trade
zones and economic common markets allowing migration at will, the
characteristics that once defined "global" have themselves changed. Whatever
-its past maybe, globalization today is a highlytlynamic concept, Its
characteristics change in response to its environment, and the perceptions of its
nature are heavily influenced by individual perspectives.
It is the range of those individual perspectives that defines the key paradox of
globalization today-and the critical challenge globalization poses for HR
professionals.
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I 1944 Breton Woods Agreement: World's first fully negotiated multilateral
,l trade accord.
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!. 1978 Market reforms instituted in China: Shift from centrally planned to
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I market-based economy, marking China's entry as a major global
economy.
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I) 1984 Introduction of Apple Macintosh: Turning point in the
) popularization of the PC (and in the merging of work life and personal
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) 1989 Fall of Berlin Wall: Symbolically marks the shift to Western open-
\ ) market economies over Eastern controlled economies as the
I dominant global economic philosophy.
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1990 First web page posted on Internet: Marks the start of today's
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hyperconnected global community.
i: 1994 Ratification of NAFT A: North American Free Trade Agreement
\ becomes part of a wave of trade agreements encouraging and
simplifying global commerce.
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1996 Smartphones: First smartphone introduced by Nokia.
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1997 Kyoto Protocol: United Nations Framework Convention on Climate
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Change agreement to reduce greenhouse gases-unsuccessful, but
marks a recognition by emerging and developed economies of a
global environmental problem.
I 2000 First GRI Guidelines (G1) released: Current version, Global
I) Reporting Initiative G4, is the globally accepted standard for
corporate sustainability reporting.
\ 2002 Euro: Euro replaces most EU member currencies.
2004 Tech companies: Facebook's formation, Google's IPO, and Apple's

introduction of the iPhone.
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2008 Recession: Global recession begins.
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) 2009 First BRIC Summit: Association of emerging economies (Brazil,
Russia, India, China); became BRIGS in 201{)with the entry of South
Africa.
2012 Global shift in FDI: Foreign direct investment flows into developing
economies exceed flows to developed countries for first time.
Figure 1: Globalization Timeline
© 2015 SHRM 9
Despite the depth and breadth of globalization forces at work, the vast
majority of employees today still work within 500 kilometers of their
birthplace, and many HR practitioners do not directly oversee tasks or caJTY
out duties that can be seen as truly international. For all its reach,
globalization may remain out of sight for these workers, and the HR
professional may need to expend considerable effmi and imagination to be
truly practicing global HR.
That same paradox operates on a generational level. There is an entire

generation entering the workforce-the Millennials-who may think no more
about globalization than a fish thinks about the water in which it swims. They
have never really known a world in which instantaneous global
communication did not exist. And that virtual connection, in tum, helps make
actual global travel much less daunting to them (other than the economic
challenge it poses in a post-global-recession world)-a fact discussed later in
the section on global assignments. At the same time, there is a generation of
older workers today who may still perceive the world as discrete islands of us-
versus-them politics, culture, and economics. Managing a multigenerational
workforce can thus be at least as challenging for global HR as managing a
multicultural one. And, as you'll see shortly (and like everything else about
globalization), the two are interconnected as well.
Defining Globalization
As mentioned earlier, Thomas L. Friedman views globalization in terms of the
extent and accelerating speed of integration, defining it as:
The inevitable integration of markets, nation-states and technologies to a

degree never witnessed before-in a way that is enabling individuals,
corporations and nation-states to reach around the world farther, faster,
deeper and cheaper than ever before and in a way that is enabling the world
to re_a_ch into individll_<JIJ>, cQrp0ratign§ an(j nation~_states farther, faster,and
deeper, cheaper than ever before. - - ---- - - ·
Mariangela Battista, writing in Going Global, makes a similar point more

succinctly when she defines globalization today as " ... a web of
interconnectedness that did not exist previously, or at least not to the extent that it
does now."
10 © 2015 SHRM
Mmtin Wolf, in Why Globalization Works, views globalization purely in

economic tenus, defining it as the "integration of economic activities, across
borders, through markets." Jagdish Bhagwati, in In Defense of Globalization,
elaborates: Globalization is the "integration of national economies into the
international economy through trade, foreign direct investment, capital flows,
migration, and spread of technology."
But globalization must be understood as more than an economic phenomenon. It

may start with trade in goods and services, but it eventually becomes trade in
knowledge, beliefs, and values. Even the International Monetary Fund
acknowledges that globalization is more than an international exchange of goods
and services, defining it as:
The increasing integration of economies around the world, particularly

through trade and financial flows. The term sometimes also refers to the
movement of people (labor) and knowledge (technology) across
international borders. There are also broader cultural, political and
environmental dimensions of globalization.
One final definition focuses on another critical aspect of globalization-that it

changes the way we see our world. Steger quotes Roland Robertson, who
describes globalization as "a compression of the world and the intensification of
the consciousness of the world as a whole."
Forces Shaping Globalization

Consider these facts about the microblog/social network platform Twitter:
• When Twitter went online in 2006, more than 98% of its users selected English
as their primary language. As of December 2013, only 51% selected English.
• 78% of Twitter's 232 million active users (as of January 2014) now live outside
the United States.
• Until 20 ll, zero percent of Twitter users selected Arabic as their primary
language. In the aftermath of that year's Arab Spring, the niiinbefhas risen to
3.17%.
• On November 7, 2013, its first day ofNYSE trading, Twitter ended with a
market capitalization of $24.46 billion.
Taken together, these points suggest not only the ways in which social, political,
technological, and economic forces are interconnected but the increasing speed
© 2015 SHRM 11
with which they are promoting-and are promoted by-globalization. It becomes

almost impossible to categorize a story such as Twitter's as technological or
economic or political or social. In a globalized world, all those forces are
interconnected.
Or consider an event that, initially, would be labeled as environmental: the

2011 Japan emthquake and tsunami. On March 11, 2011, at 2:46p.m. local
time, a 9.0 magnitude earthquake occurred 231 miles northeast of Tokyo,
Japan. Among the results:
• The earthquake created a tsunami whose 100-foot waves killed thousands,
caused roughly 25 trillion yen ($300 billion) in damage, and damaged
several of Japan's 54 nuclear reactors, causing radiation leaks and
dismantling a major portion of Japan's energy production infrastmcture.
• Production was suspended for companies including Sony, Toshiba,
GlaxoSmithKline, Nestle, Toyota, Nissan, Honda, Nippon Steel, and
Sumitomo Rubber Industries, resulting in worldwide disruption of the
supply chain, paJticularly for the automobile and electronics industries.
• Nations worldwide began reevaluating their investments in nuclear energy,
in many cases halting, at least temporarily, proposed and initiated facility
construction and upgrades.
This environmental event had global effects that were political, technological,
social, and economic--disrupting global supply chains and national energy
policies. The Japan tsunami also demonstrated yet again that: in a globalized
world, no event is purely local anymore.
Before examining three particular sets of global forces that are shaping
globalization today, it may help to provide three precepts for better
understanding them (or any other global forces).
Th ree-P-recepts.of--Giobal Force Interconnectedness
I. While the various forces shaping globalization can be labeled as

technological or economic or political or social, these factors are in reality
interconnected and can be fully understood only in light of such
connections. Consider global warming as an example. It is an
environmental phenomenon, but it is shaped by economic forces and
political actions (or inaction) and by legal and technological responses.
12 © 2015 SHRM
2. While the effects of a given globalization force are global, their impact may
be uniquely felt by different cultures, industries, and organizations. To
consider global warming again: It differently affects developing vs.
developed countries, nonsustainable (oil, coal) vs. sustainable (wind, solar)
industries, etc.
3. It is important for HR to distinguish between large-scale forces and trends

and more immediate events and "trendy" phenomena. All may be important
and/or have a critical impact, but they need to be understood and interpreted
differently. Global wanning is different than, say, HutTicane Katrina or the
Japanese tsunami. Likewise, the impact of social networks is different than
the sudden popularity of Linked in over Facebook.
An HR professional's goal in considering any aspect of globalization is to

strive to understand:
• Which globalization events, forces, and trends are significant for a given
organization and for HR responsibilities within that organization.
• The unique ways in which each significant global force, event, or trend is
affecting:
~ The parent organization's home office and its various subsidiary or host
countries.
• Its industry and competitive landscape.
• The organization's overall goals and strategies.
• The role HR must play if the parent organization is to maximize the
benefits and minimize the costs of that force, event, or trend.
With all that in mind, we will examine three forces shaping globalization today:
• The shift from developed to emerging economies
)
• A global recession and global warming
. • .. Hyperconne-etivity
)
)
Shift from Developed to Emerging Economies
In 2000, Friedman described a globalization system in which the United States
was "the sole and dominant superpower" with "all other nations subordinate to it
} to one degree or another." By 2007, Friedman saw the global economic playing
) field as level. Parag Khanna, in "Waving Goodbye to Hegemony," repmted a
)
© 2015 SHRM 13
new geopolitical reality dominated by three powers: the United States, the
European Union (EU), and China. Fareed Zakaria spoke in The Post-American
World about the "rise of the rest" to desclibe the rapid growth of non-Western
emerging markets. In "The New Global Context" in the Global HR Practitioner
Handbook, Attila Freska and Lisbeth Claus highlighted a shift in the global
balance of economic performance from Western Europe and North America
toward Central and South Asia, Africa, and South America.
A leading indicator of that continuing shift, and a major feature of globalization,

has been the rapid rise in foreign direct investment (FDI), the investment of
foreign assets into domestic structures, equipment, and organizations. In 2012,
according to the United Nations Conference on Trade and Development
(UNCTAD), FDI inflow into developing economies exceeded flows to
developed economies for the first time. That trend continued in 2013, with FDI
inflows to developing economies reaching a record $778 billion-54% of total
FDI.
There were also notable new developments:
• FDI outflows from emerging economies also reached record levels, as

transnational corporations based in developing countries acquired affiliates
of developed-country corporations operating in their regions. Emerging
economy investments accounted for 39% of global FDI outflows, up from
only 12% in the eariy 2000s.
• The poorest countries became much less dependent on extractive industry

investment; 90% of new projects were in the manufacturing and service
industries.
• 2011 marked_the firstposH·ecession yearofFDiirlCreas~s, but that growth

was not evenly distlibuted. The "fDi Report 2014,"theannl1al review of
greenfield (new operations built from the ground up) FDI by fDi
Intelligence, noted that the greatest FDI growth was in mid-size emerging
economies, such as Nicaragua, Myanmar, Vietnam, Iraq, Jordan, Columbia,
Peru, and Mozambique. By contrast, China and the U.S., the top countries in
the world for FDI, saw slight decreases.
14 © 2015 SHRM
The Diaspora
Emerging economies also received another type of record income in 2013
according to the World Banlc $414 billion in global remittances-
monies sent back home by migrants working in foreign countries. Such
remittances accounted for more than 10% ofGDP in 24 countries in 201 L
There are 215 million first-generation migrants working in foreign
countries-more than 3% of the world's population--and their numbers
have increased by over 40% since the 1990s. It is sometimes referred to as
a diaspora-a mass migration of a group from its homeland to multiple
destinations-although here one consisting of communities ofvoluntmy
emigrants bonded by their common heritage. They suggest the complexity
of the emerging/developed economy relationship, and they may well be
part of the multicultural workforce an HR professional must come to
understand.
Demographic Dichotomy
Another key component of the shift from developed to emerging economies
is a parallel demographic shift--what Brad Boyson, in The Global HR
Practitioner Handbook, describes as a "demographic dichotomy." Basically,
the workforce in emerging economies is becoming disproportionately young,
while the workforce in developed economies is rapidly aging. A study by
ratings agency Moody's notes that, while there arc currently three "super-
aged" countries (Germany, ltaly, and Japan) in which more than one in five
of the population is 65 or older, there will be 13 such countries by 2020--
most of them in Europe. By 2030 they, in turn, will be joined by the U.S.,
the U.K., Hong Kong, Korea, and New Zealand. (It is worth noting that the
delay in the U.S. joining that group is due in part to relatively robust
immigration, which brings in a younger demographic.) Moody's views the
net result as a slowdown in global economic growth.
Boyson compares the current phenomenon in emerging economies to the

"demographic dividend" experienced in the West when the highly educated
baby boom generation entered the workforce in the 1970s and 1980s. That
generation represents a demographic bulge that is now preparing to leave the
workforce, creating a corresponding "demographic deficit" of experienced,
highly trained workers in developed countries.
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© 2015 SHRM 15
The net effect can be seen graphically, in Figure 2, in which the McKinsey
Global Institute analyzed global economies by three variables: .
• Potential for workforce growth (as measured by median age of
workforce)
• Quality of workforce (as measured by average education level attained)
• Productivity of workforce (as measured by per capita GDP)
70 countries fall into eight labor-market clusters, distinctly

positioned by age and education.
Education Index, 2010 (weighted by working-age population)
Education attainment levels weighted by years of schooling.
Young
15
Young
Middle-Income _._.
A
Advanced
..
~ Aging
"07 ·· Advanced
12
9
~
~andCEE
CD- ~~~~:m
Russia
China
6
India
3
0~-----------------------------------------
14 15 20 25 30 35 40 45
Median age, 2010 {weighted by total population)
Years
0 Size of cirde represents total size of the labor force of the cluster in 2010.
Source: "The World at Work," McKinsey Global institute
Figure 2: Workforce Clusters by Age, Education, and Income
The results segment the world's economies into eight clusters. Toward the right
side of the chart are economies with relatively high median age, education level,
and income; to the left are developing countries, with lower age, education, and
IUCQIJ}e.
Longer life spans, increased standards of Jiving, and lower population growth
rates worldwide all exacerbate the effects of this basic dichotomy. ln
developed countries, the problem is further intensified by the skyrocketing
costs of higher education, as the Millennia! generation enters the workforce
either unable to afford needed education or so burdened by student Joan debt
that basic life decisions like home purchases or marriage are being delayed
16 © 2015 SHRM
\
I
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)
~
(which, of course, has its own economic effect). The above-cited McKinsey
'l study projects that, by 2020, "aging advanced" economies will experience an
( 11% supply-vs.-demand gap for workers with advanced (college and
. 1
I graduate) degrees. The extent ofthe problem is illustrated in Figure 3.
(
)
·~
Percentage increase in consumer prices since the first quarter of 1978
.
1,500%
/ Tultlon and F~es: 1,225%
s 1,200%
) ;
900%
Medical Care: 634%
J
,__~----::""" Shelter: 370%
600%
) ~-_,...,
)
300% -==-- Consumer Price Index: 279%
.~~ Food:257%
) 0%
1978 1980 1985 1990 1995 2000 2005 2010
)
Bloomberg Visual Data
)
)I
Source: Bloomberg News
)
) Figure 3: Skyrocketing Education Costs
,)
)
The SHRM 2014 "Future Insights" repoti lists a key challenge for HR: "The
)
need for skilled and educated workers is rising around the world. This trend is
J
influencing everything from benefits strategies and employer branding to
J immigration policies and global relocation of operations." The demographic
,)
) dichotomy, and attendant educational challenges, are at the heart of this
)
challenge.
.)
) Reverse Innovation
) A final aspect of the growth of emerging economies is worth mentioning.
) Reverse fiiiiovation, a tetfu coined andpopularized by Vijay Govindarajan
) and Chris Trimble in their book of that name, refers to innovations created for
) or by emerging-economy markets and then imported to developed-economy
) markets. That is, it reverses the traditional pattem of innovation, in which
) products and processes are developed in rich countries and sold afterwards in
) poor countries.
.)
)
)
)
© 2015 SHRM 17
new way to evaluate the relative costs and success of competing treatments.
Pharmaceutical firms are now building HRQOL and compliance testing into the
drug development process, and government agencies such as Britain's National
Institute for Health and Care Excellence (NICE), or the U.S.'s Patient-Centered
Outcomes Research Institute (PCOR!) are establishing criteria and improving
methodologies.
Another notable example was discussed in the previous topic. Sustainability-

the concept that an organization should be benefiting society and the
environment as well as shareholders-;;ould only really take hold as a global
movement when its concerns could be translated into a "triple bottom line."
That is, a globally accepted, consistent, and measureable set of criteria-as well
as an established format for reporting and evaluating results-was necessary.
As noted above, such standardized measures of an organization's treatment of
stakeholders and the environment have been established. The result has
radically altered definitions of corporate accountability and the role it plays in
core corporate strategy worldwide. This is examined in detail in the "Corporate
'.--
Social Responsibility" Functional Area in this Workplace module.
'.
Defining the Global Organization

The new global enterprise may be a corporation, a governmental agency, a
nongovernmental organization, a nonprofit, an association, or an educational
institution. It may be large or small, multinational in structure or simply engaged
. \
in international trade-a large Swiss phannaceutical company with subsidiaries
'
around the world or a Chinese firm with a few hundred employees that creates
online gaming applications used by companies located around the world. .J
The SHRM 2014 "Future Insights" report lists as a global HR top I 0 trend:
)
Globalization is no longer a driver and a challenge just for large multinational
_ corQorati_Q_ns(Mf\JC:s 1 it novv affects companies of all sizes. As the rise of ··_)
''born global" small- and medium-sized companies conffnues, the ne.ed will -----
become mor.e acut.e for compet.ent global HR practitioners with the
J
)
commensurate global mindset, cross-cultural sawy, r.emote team and talent
manag.ement, and intercultural communications skills to manag.e the /, l
challenge of having both brick-and-mortar and virtual operations across ' )
multiple countries. The MNCs are no longer the only group involved with
managing a workforce and transactions across borders; small nonprofits and
private organizations are also d.ealing with this challenge, but they may need J
a different set of best practices and t.echnologies to optimiz.e their compliance.
.)
-~·
22 © 2015 SHRM
)
I \
1
In Going Global, editor Kyle Lundby defines the successful global organization
as one that can "effectively leverage and capitalize upon [its] global footprint" by
incorporating four structural/strategic components:
• Physical dispersion-the organization operates in multiple countries
• Diversity of thought, people, and culture that is actively leveraged by a
strategic objective
• Physically dispersed and diverse but unified through a clear single
organizational identity
• Global for a reason; self-aware of their global reach and leveraging
geographic and cultural diversity to achieve success as they have defined it
As enterprises have become global, they have also learned that globally integrated
organizations can often be more innovative. A global workforce contributes
distinctive perspectives and processes to the entire learning organization.
Microsoft Research, for example, operates research centers in China, Egypt,
Germany, India, Israel, the United Kingdom, and the U.S. Although this decision
may have been made for many reasons, Microsoft's research centers contribute to
the organization's character and increase its global competitiveness.
A global organization is, ultimately, one whose every process, action, and
decision is fitmly rooted in a carefully conceived global strategy. Section 2 in
this Functional Area examines the range of global strategies available and the
different forms such a global organization can take, but it's worth establishing
here the basic set of choices to be made. Any global strategy must find its own
ideal balance between a pair of contrasting concerns:
~ Global integration (GI) emphasizes consistency of approach,

standardization of processes, and a common corporate culture across global
operations. Decisions are made from a global perspective so that the
organization's bran_d.~md image are consistent and uniform.
• Local responsiveness (LR) emphasizes adapting to the needs of local

markets and allows subsidiaries to develop unique products, structures, and
systems. Company functions, processes, and activities are modified to ret1ect
local conditions-including markets and cultural, legal, and sociopolitical
situations.
\
© 2015 SHRM 23
5. What is the key globalization strategic decision that every global organization must make?
( ) a. Whether to focus on sustainability or hyperconnectivity
( ) b. Finding a proper balance between global integration and local responsiveness
( ) c. How best to leverage reverse innovation
( ) d. How to manage an intergenerational workforce
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l
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26 © 2015 SHRM
)
)
Progress Check Answers

1. a (p. 10)
2. d(p. 13)
3. b(p.15)
4. c (p. 17)
5. b (p. 23)
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)
)
© 2015 SHRM 27
I
)
Section 2:
Creating a Global Strategy
HR responsibilities related to this section include:

• Balancing the organizational desire for standardization with localization through a
"glocalized" approach to decision-making.
• Developing and implementing a comprehensive strategy to address issues affecting
business, people, and the workforce on a global basis.

• Global trends in benefits, compensation, diversity and inclusion, employment laws,
ethics and sustainability, labor markets, labor relations, safety and security, staffing
management.
• Moving work (e.g., co-sourcing, near-shoring, offshoring, on-shoring)
•
The Strategic Attraction of Globalization

Even in ideal circumstances, pursuing business expansion across borders
involves considerable financial and strategic risks and investment and
deployment of resources. Such costs and risks help explain why formulating a
globalization strategy is a critical precursor to global expansion. They also
suggest that an organization must have compelling reasons for global expansion.
Understanding those reasons can help explain an organization's subsequent
strategic decisions aboul how to globalize.
These reasons tend to fall into categories of "pushes" and "pulls." Organizations
have been pushed toward globalization in reaction to changes in the business
environment. They have been pulled toward change through the promise of
achieving greater organizational value through globalization. Some of the
factors described below embody both push and pull motivations.
"Push" Factors
In some cases, organizations have been driven into globalization by competitive
factors in their industries, such as:
• A need for new markets. Having exhausted market oppmtunities in their

home countries, some companies began looking overseas for new
consumers and oppmtunities for growth. In 2008, Samsung represented a
very small percentage of the mobile phone market. To grow, they had to
penetrate Western markets and compete aggressively with Apple. Starting in
)
2011, Samsung invested heavily in marketing and R&D and began a
) collaboration with Google. The result was a rapid gain in world market
'
. J share. By the end of2013, Samsung's global market share had grown above
) 32%-leading all competitors and more than doubling Apple's 15.5% share.
)
Ironically, Samsung's profits have fallen in 2014, due in part to new
)
competition fro!J1Jess-expensiv~ smartphones from Chinese competitors
looking to expand their own markets.
• Increased cost pressures and competition. Increased costs of operation

and labor and intensifying competition made it difficult for many companies
) to operate at a viable profit level. Globalization became a way to cut costs
) and maintain profitability. It should be noted that the form such cost cutting
takes is shifting, though. Earlier cost cutting through offshoring (pursuing
© 2015 SHRM 29
less-expensive labor costs in developing countries) is being offset by higher

transportation costs, rising wages in developing countries, increased
automation, and, in some cases, the costs of negative publicity. A newer
pattern is the establishment of offshore operations in order to move
production closer to new offshore markets. That is, the principle remains the
same, but specific motivators are changing.
e Shortfalls in natural resources and talent supply. As raw materials

became scarcer in developed economies, il became more economical for
enterprises to move operations closer to new sources of these materials.
Globalization may also be driven by the need for specific skills not available
locally. For example, a decrease in the number of trained programmers and
systems analysts led companies in developed markets to look toward
developing countries as labor sources.
• Government policies. Some enterprises have been motivated to expand

across borders because of domestic government regulation or policies. For
example, the 1990s saw a significant number of mergers and acquisitions of
U.S. phannaceutical companies by European finns seeking to balance the
price limitations imposed under European single-payer health-care systems.
As controls on pricing grew in the U.S., phannaceutical companies turned
their attention to developing economies. These regions have become major
areas of revenue growth for phanna.
More recently, a number ofU.S.-based companies have sought to avoid higher

U.S. corporate taxation rates by acquiring foreign-based competitors and then
moving their headquarters to their acquisition's home base. Examples of such
"tax inversions," or "expatriations," include Pfizer's attempt to acquire
London-based AstraZeneca, Chiquita Brands International's merger with
Fyffes PLC ofireland, and Medtronic's planned merger with Ireland-based
rival Covidien. (Ireland's corporate tax rate is 12%, compared with a U.S. rate
of35%.) Even American icon Burger King is consideJ:tng a tax inversion
merger with the Canadian Tim Hortons coffee and donut chain. In each case,
the pmiicipants have offered non-tax-related rationales for the mergers, but the
tax savings are clearly a key motivating factor for each.
It should be noted that such moves can result in a public relations backlash.
American toolmaker Stanley abandoned a similar move for that reason. And
30 © 2015 SHRM
U.S. lawmakers may place restrictions on such mergers, as they did in 2004,
when they closed the loophole allowing corporations to avoid taxes by
nominally moving their legal base to out-of-the-way locales such as Bermuda.
• Trade agreements. Trade agreements increase competition for domestic firms

as foreign competitors enter the market. Local firms are compelled, in order to
survive even domestically, to expand globally.
• Globalized supply chain. Enterprises may be drawn abroad by partners in

their supply chain. For example, consider a small company that manufactures
components used in electronic goods produced by a large international
corporation. The corporation may begin its own globalization strategy,
establishing new production and market headqumters in a different country.
The smaller company may find that, to satisfy its corporate customer's quality
and delivery expectations, it must go global itself and establish production
facilities closer to the corporation's new centers. The same dynamic works in
reverse as well: A company may decide that it is more feasible to move
production facilities closer to its suppliers in foreign markets.
"Pull" Factors
At the same time that organizations have been pushed into globalization, there
have been simultaneous attractions to globalization that support organizations'
aspirations. These include:
• Greater strategic control. Some enterprises have found that they can exert
more control over their businesses by developing a multinational presence.
They may have relied previously on simply expmting goods or services,
using local distributors or franchises. Now they realize that they can control
factors like brand image better by opening subsidiaries in host countries.
They may also be able to consolidate their business sector, absorbing
competitors and protecting profitability.
• Government policies that promote outward foreign investment. China,

for example, has promoted outward foreign investment in various ways,
' including a single corporate tax (to avoid double taxation), special financing
,)
I terms, and funds to insulate investors from risk. The "fDi Report 2014"
j
I tracked location motives for 2,898 FDI projects worldwide. Roughly 20% of
I
I investors were motivated by regulations and business climate, making it the
)
I
I
I
i
}
! © 2015 SHRM 31
y
I
)
third most important motive--behind domestic market growth potential and

proximity to markets and customers (that is, the key attract or of business is
still business).
• Trade agreements. Trade agreements can also pull firms to go global,

opening markets and promoting workforce mobility. They may lower the
risk of expansion by requiring treaty parties to recognize intellectual
property rights treaties.
Strategic Approaches to Globalization

An enterprise may "go global" or internationalize in different ways-through,
for example:
• Creating a new entity-either by purchasing an already existing operation
(a turnkey operation), building a new operation from the ground up (a
greenfield operation), or by repurposing an existing disused facility (a
brownfield operation).
• Acquiring a subsidiary that will be wholly owned and operated through
merger and acquisition.
• Entering into an alliance or partnership.
• Outsourcing all or specified tasks to a supplier or performer in the new
market.
• Offshoring an existing capability to the new location.
The attractiveness of each globalization strategy depends on many factors,

including:
• The enterprise's core strategic goals.
• Its capabilities and resources, both economic and organizational.
• The distances (physical, cultural, legal, sociopolitical) that the enterprise
will have to bridge.
Respcmses to givenglooalization pl.lshesor pulls maybe more tactical than

strategic-a move to lower taxes or reduce production costs-or they may speak
to larger strategic considerations. But no organization can long succeed with only
a succession of tactical reactions to whatever pushes and pulls may come along.
A comprehensive business strategy, enabling coordinated responses and proactive
measures, is needed for success. So it is with globalization.
32 © 2015 SHRM
Global HR must understand an organization's globalization strategy and

orientation and how these characteristics influence global HR activities and then
develop and implement appropriate HR strategies. We'll now look at the range of
strategic options available to organizations that wish to (or find they must)
compete in the global market.
A small, eight-year-old Canadian winter clothing manufacturer gained

international attention after supplying socially conscious sportswear to the
Canadian national team at the 2010 Winter Olympics. They were then
approached by several international groups wanting them to set up a
Consultation manufacturing office in their country. Eager to capitalize on their post-
Competency Olympic business momentum. the manufacturer decided to expand
in Action
operations into three foreign markets-Russia, China. and South Korea-
within a 12- to 18-month period.
The organization's employees had no business experience outside of
Canada prior to this planned international expansion. Nevertheless. three
senior employees from the head office were selected to relocate and
become general managers for the greenfield operations. The head of HR.
however, who had previously worked as a global mobility specialist. had
serious concerns about their ']ump-and-backfill" strategy, involving
employees with no international experience.
Calling on her previous experience as a global relocation specialist, the head
of HR suggested and described to the senior management team other
options that other organizations had successfully employed in similar
circumstances, including joint ventures and strategic partnerships. Though
she personally had no international work experience, the head of HR was
able to provide timely and relative information to the decision makers.
Global Integration (GI) vs Local Responsiveness (LR)

Organizations that choose to compete beyond their national borders develop
strategies to meet the needs of their customers and expand their growth
opportunities. As explained in Section 1, these needs are commonly
expressed as drives toward globalintegratiori arid/or local responsiveness.
These organizations also demonstrate characteristic orientations toward the
headquarters-subsidiary (or home-host) relationship.
• A global integration strategy allows organizations to take advantage of

economies of scale and standardization of processes to achieve greater
efficiency, which can lower costs of operation, create greater pricing
(
© 2015 SHRM 33
l
flexibility, and increase profit. For example, standardization of

technology across global markets rewards companies that are successful
in maintaining control and consistent quality levels.
• A local responsiveness strategy can make organizations more flexible

and agile--equipped to identify and capitalize quickly on local market
opportunities, correct misalignments of products and services with
customers' desires and habits, and adjust to local regulations and
business practices. In an industry heavily influenced by cultural factors,
such as clothing or food, global participants must be skilled in adapting
their offerings to cultural preferences in their markets.
While many factors lead to an organization's strategic decisions, the choice

of whether to emphasize global integration or local responsiveness is
generally determined by a mix of four drivers, as shown in Figure 4.
Market • Homogeneity of customer needs

• Availability of global distribution networks
• Opportunities for shared marketing
Cost • Economies of scale
• Transportation costs
• R&D costs
• Transferrable technology advantages
Governmental • Trade policies
• Technical standards and requirements
• Regulatory climates
Competitive • Extent and methods of globalization by industry
competitors
Source: Total Global Strategy: Managing for Worldwide Competitive Advantage, George Yip
· Fig/ire 4.~ Four DrTvers of Globalization Strategy
Achieving Global Integration

The attraction of global integration is growing as borders become more
permeable and the concept of a global consumer becomes more real.
34 © 2015 SHRM
In The Global Challenge, Paul Evans, Vladimir Pucik, and lngmar Bjorkman
offer the following advantages:
• Achieving economies of scale by centralizing critical activities or tightly
networking specialized centers around the world
• Integrating value chain activities, from R&D through delivery logistics
• Ability to serve globally integrated customers
• Global branding, which increases the efficiency of advertising and
merchandising resources
) • Sharing organizational capabilities and knowledge
) • Better quality assurance through shared standards and processes
) • Leveraging global assets for local competition
I
I Organizations achieve global integration in different ways-through:
) • People. This focus on alignment helps to ensure that decisions made

) locally reflect the global perspective. Assignees, employees who work
l outside their home countries, have traditionally played a significant role
) in carrying the message and focus from headquarters into the
) organization's global locations.
)
• Processes. Standardized processes, suppmted by technology that enables

) communication and transparency, support organizational control over
) strategic patts of the value chain.
)
• Performance. Performance targets and rewards are defined from a

global perspective. This creates greater control over organizational
i activity and also helps avoid potential conflicts between individual
J performance objectives--for example, sales targets in one region that
) will damage efforts in other regions.
• Culture. Shared visions and values prepare members ofthe organization

to make everyday decisions in a manner that is consistent with a global
identity.
I
)
Among the companies that have followed this path are Apple, Volkswagen,
)
IKEA, McDonalds, Gillette, Heine ken, Toshiba, and Procter & Gamble. In
some cases, standardization means that literally the same products are sold
© 2015 SHRM 35
I
worldwide (Gillette) or that there are consistent, universal process standards

(McDonalds). For others, the global focus is on "owning" certain key
strategic functions, such as R&D and product development (Samsung).
The Swedish furniture retailer IKEA, for example, pursues a very strict
global integration strategy. Products are standardized (although
manufactured by global suppliers) as are work processes related to
manufacturing, logistics, and customer service. IKEA also promotes a
standard culture through its hiring and onboardmg practices .
., Global HRpractices in an orgiu1ization pursuing a Gl strategy focus on

building and communicating, throughoutthc organization, a common culture
and developing HR practices to manage international assignments (fi·om
developing a globally literate talent pool to implementing appropriate
appraisal and compctisation systems).
Achieving Local Responsiveness

There are industries where there is little value in standardization of processes
or economies of scale, especially in comparison with the value generated by
stronger local ties. Cement companies-Lafarge, for example-rely heavily
on local country resources and production. Similarly, in regulated industries
such as petroleum exploration and marketing, the advantages of local
responsiveness are very significant. A company that is perceived as local
may have more access to decision makers and influence on policy and
regulations. However, an abrupt change in the local political structure can
have a strong impact on the locally responsive organization.
Under an LR strategy, the local parts of the global enterprise may be

connected under central management, but the rationale for local decisions
and actions is defined by needs, rules, and opportunities of their own
markets. This type of global firm essentially behaves like a domestic firm,
with its emphasis on local customers, local products, local partners, and local
labor sources.
36 © 2015 SHRM
Evans, Pucik, and Bjorkman describe the following strengths oflocal

responsiveness:
• The ability to respond to local customer needs (for example, the
tailoring of a global fast-food menu to reflect local tastes) or the
demands of local distribution (for example, temperature sensitivity, unit
sizes, packaging)
• Efficiency gained from using local substitutes (For example, Nestle
varies the grain type used in its infant cereal products by region: wheat
in Europe, maize and sorghum in Latin America, and soy in Asia.)
• The ability to remain compliant with local laws and regulations (for
example, hours of operation, marketing strategies)
Developing local management is key to achieving local responsiveness.

Local managers are not autonomous, but they are allowed to make decisions
for local operations and they are responsible for their decisions. These
managers support the localization effort in different ways:
• They understand local customer needs and business practices.
• They provide a more familiar and trusted connection with local
governments, business networks, and media.
• They understand how to attract and retain a quality workforce.
) ::. • ••••• •. . . ••• • • •• _. • • • • •• ":' •••• • • • • •• <• •
)
•.. Global· HR in an organization pursuing an LR strategy fdcuses otl promoting
)
)
cultural awareness and examining its own practices for sigris of cultural bias,
ensuring alignri1cnt of local HR practices with a global HR strategy, and
developing the entire taleill pool, both local employees and internal
)
.assignees.
)
)
I
) There are strong arguments for both global integration and localization, as
shown in Figure 5 on the next page.
I However, the often-expressed warning to "think globally, act locally" reflects

) a belief that the best course is to strike a balance between these alternatives
that fits each organization at each point in its life. The examples that follow
show that doing so isn't always easy.
© 2015 SHRM 37
·'
Global integration • Emphasis: consistency of • Achieve economies of scale by

(GI) approach, standardization centralizing critical activities or tightly
of processes, and a networking specialized global centers.
common corporate culture • Integrate value chain activities, from
across global operations. R&D through delivery logistics.
• Decisions are made from a • Serve globally integrated customers.
global perspective so that • Global branding, making advertising
the company's brand and and merchandising more efficient.
image are consistent and • Shared organizational capabilities and
uniform but not necessarily knowledge.
identical.
• Better quality assurance through
shared standards and processes.
• Leveraging global assets for local
competition.
Local • Emphasis: adapt to needs • Better respond to local customer

responsiveness of local markets and allow needs or specialized local distribution
(LR) subsidiaries to develop demands.
unique products, • Gain efficiencies from using local
structures, and systems. substitute products and components,
• Company functions, local workforce, local networks.
processes, and activities • Better able to remain compliant with
are modified to reflect local local laws and regulations (e.g., hours
conditions (e.g., markets, of operation, marketing strategies).
cultures, legal and
sociopolitical situations).
Source: The Global Challenge, Evans, Pucik, and Bjorkman
Figure 5: Global Integration vs. Local Responsiveness
Global Integration versus Local Responsiveness: Exampies

Success in global competition can depend on how well enterprises manage these
pulls toward integration and responsiveness. Often getting the right global-local
mix is a gradual, trial-and-error process, even for large multinational corporations
with considerable global resources to leverage.
• In The Global Challenge, Evans, Pucik, and Bjorkman recount how the
American company eBay repeatedly stumbled in its attempts to enter Asian
markets-in part because of its reliance on its home-country business practices
and weak response to local tactics. In its greenfield entty into Japan in 2000,
eBay applied the same business structure that it used in the U.S., and it failed in
the face of strong local competition. eBay's strategy in China was more local-
a partial acquisition of a Chinese consumer-to-consumer trading site, EachNet.
38 © 2015 SHRM
)
~ WORKPLACE HR in the Global Context
'~
·~
~
It failed within four years, due to practices that made it difficult to compete with
agile local stati-ups, such as Taobao, that were able to develop processes more
l in tune with the culture of Chinese consumers.
~
)
That's where the Global Challenge story leaves off. In 2011, eBay reentered
~ China with a new strategy. Rather than compete directly with Taobao, it aimed
~
;
to fill an unmet local need that its global capabilities could uniquely address:
empowering small, local Chinese sellers to serve new global customers via
)
l cBay's international trading network. eBay also gave its Asian subsidiaries
( greater autonomy in strategic development and entered into local strategic
)
alliances to better respond to local market needs. eBay is now focusing on
~ developing mobile-phone-based transactions (the "digital wallet") in Asia, Latin

America, and Russia, capitalizing on the tendency in developing countries to
~ rely on mobile phones as a primary tool for both Intemet access and financial
~
transactions.
I
I' • In Redefining Global Strategy, Pankaj Ghemawat traces the history of Coca-
l Cola as a global enterprise, illustrating the pulls of both global integration and
·~ local responsiveness. The company began as a purely domestic organization,

but, as its international business grew, it sought to establish bottling plants
~
outside the United States. In the 1980s, in an effort to increase growth in
international markets, the company began an aggressive process of
I standardization and thereafter became globally integrated.
)
'
) In 2000, forced back from standardization by a number of factors (including

) government regulations and a rebellion by local bottlers over price increases),
)
the company began its "think local, act local" period, granting more decision-
) making authority to regional leaders. However, the local responsiveness
strategy resulted in a weakening of the global brand and reduced
competitiveness.
lt1 the .«nd, J:he corporationrealiz.edit would have to-maintain a global identity
but compete based on local conditions. Coca-Cola, like many food and
beverage businesses, began to improve sales and profitability by reflecting local
preferences in their products. It grew its India market by switching to smaller,
more affordable bottle sizes and refocusing on local brands acquired by
)
purchasing a local company. Coca-Cola is succeeding through a mixed global-
)
local strategy.
\ )
© 2015 SHRM 39
}
Global-Local Models
As the preceding examples suggest, global integration and local responsiveness
strategies are rarely a matter of simple either-or choices. Analysts have found
different ways of describing and organizing the range of strategic choices
available within that basic GI-LR continuum. Three are described here:
• Upstream and downstream strategies
• Identity alignment and process alignment
• The GI-LR n1aU'ix
Upstream and Downstream Strategies

The GI and LR strategies can be achieved in different ways and are not mutually
exclusive. Some organizations use both. Briscoe, Schuler, and Tarique use an
upstream/downstream metaphor to describe different ways to apply these
strategies:
• "Upstream" decisions are made at the headquarters level of an organization.

These decisions apply to strategy and coordination and focus on
standardization of processes and integration of resources. For global HR, they
include strategies for workforce alignment, organizational development, and
sharing of knowledge and experience.
• "Downstream" decisions are made at the local level. These decisions aim at
adapting strategic goals and plans to local realities-in other words, local
responsiveness. For global HR, downstream decisions may involve
agreements with local workforce groups, adjusting standard policies on
working conditions to local cultural practices (for example, holidays and
break times), and adjustments based on local legal requirements.
Identity Alignment and Process Alignment

In Going Global, Kyle Lundby and Jeffrey Jolton distinguish between identity
alignment fthe e*tent-to -which diversiW is embl'aced in management of people,
products/services, and branding) and process alignment (the extent to which
underlying operations such as IT, finance, or HR integrate across locations).
An organization that favors identity diversity will embrace differences among

locations, adjusting its product and service offerings and even brand identity to
accommodate local cultures. This can be accomplished even by organizations with
a very strong brand identity. Consider global fast-food purveyors: Taco Bell serves
40 © 2015 SHRM
its Indian customers potato tacos and spicy paneer-filled burritos; McDonalds
offers a Teriyaki McBurger in Japan andaLe P'tit Moutarde burger with mustard
sauce in France; in China, KFC serves bamboo shoots and lotus root with their
chicken instead of cole slaw and features a breakfast of congee with fried cmllers.
The opposite identity alignment strategy is to implement consistent approaches

across all cultures. Beyond the economies of consistency, such an approach may
benefit smaller organizations or those with less well-established brands. While a
McDonalds needn't worry that localized offerings will dilute its brand, a newer
organization may not feel it has that luxury.
The risk of identity diversity is a diffusion of identity and lack of cohesion in

approach. Global fast- food chains, for example, may present localized menu
options, but they also usually offer their standard items to maintain and leverage a
core identity. The risks of identity consistency are the opportunity cost of missed
local innovations and the possibility of failing to appeal to local preferences or
meet local needs.
Process alignment concerns the extent of integration. Is a single technology

platfonn used in all locales? Are the same business perforn1ance metrics applied?
Are there unified HR systems in place? Lundby and Jolton note that businesses
built through acquisitions, for instance, often have separate business processes;
each (acquired) business unit operates independently, retaining many of its
original business practices. Businesses built more organically are more likely to
have integrated processes, as the various units all grow from a common platform.
A key point of the identity/process distinction is that a given organization can have
a diverse identity alignment but an integrated process alignment, or vice versa. For
instance, no matter how localized the offerings on the menu at a McDonalds are,
the underlying processes that deliver them are highly integrated.
The GI-LR Matrix: Strategic Options

A number of scholars have contributed to a conceptual grid, shown in Figure 6,
that describes the strategic orientations of multinational enterprises (MNEs). Like
the concepts of identity alignment and process alignment, the matrix describes
ways in which an organization can combine GI and LR elements into a single
globalization strategy.
)
)
}
}
© 2015 SHRM 41
The grid has two axes, global integration (vertical) and local responsiveness
(horizontal), that form a matrix containing four strategic options for MNEs:
intemational, multidomestic, global, and transnational. Each strategy has a
·characteristic organizational philosophy about how headquarters and the various
local subsidiaries relate to one another and where and how local activities are
controlled. Each of these structures is discussed below.
Global transnational
I
N .l:ltrong links between Strong links betv/l!ll{l
1-JQarul subsidiaries HQ and subsldia!il!ll
T and among
E subsidiaries
G
R
A
T loternational Multi domestic
I
Weak links between Weak links between
0
·. ~(:t"~d.dependent HQ and autonomol.ls
N · ~~sldia!'les subsidiaries ·
Low High
LOCAL RESPONSIVENESS
Multiple sources, including Briscoe, Schuler, Tarique: Bartlett and Ghoshal
Figure 6: Structures for Globalization
International strategy. Briscoe, Schuler, and Tarique identify international

organizations as low in global integration-in that there is little pressure to
increase efficiency-and also low in local responsiveness-in that there is
little advantage in tailoring products or services to individual foreign
markets.
In Managing Across Borders, Bartlett and Ghoshal describe the intemational

enterprise as a "coordinated federation." Foreign divisions in host countries
are seen as "appendages" to the home country. These divisions represent
significant assets and are indispensable to local production, sales, and
distribution in their regions or countries. Strategy, research and development,
42 © 2015 SHRM
management, and characteristic management culture, however, derive from

the home country.
Many of the first MNEs were internationals. Examples include the trading
companies that shuttled finished goods and raw materials between Europe
and the rest of the world. In the 19th century, German chemical companies
exported raw ingredients for pharmaceuticals to be compounded into
medicines in the importing countries.
Today the international strategy suits organizations with strong global brand
identity or very specialized products or services who enjoy weak local
competition. One source offers the example of a German firm that
manufactures robotics for specialized industrial purposes around the world.
Another example would be the American-based defense contractor Raytheon,
which, for security reasons, must maintain clear lines of separation among its
various international subsidiaries.
Headquarters HRinvolvemcJ1tin the foreign operations of ail international .·

organization may be limited, focusing primarily on serVices related to
assignees working in subsidiaries. These services could include relocation,
. compensation, and benefits (Briscoe, Schul.er and Tarique) .
. ':.,·:
Multidomestic strategy. Briscoe, Schuler, and Tarique identify multidomestics

as organizations with subsidiaries in multiple countries that operate with a fair
degree of independence from each other and from headquarters, which remains
in the home country. The activities conducted in the subsidiaries can be
significant and varied, ranging from R&D to operations and sales.
Bartlett and Ghoshal (who prefer the term "multinational corporation," or

"MNC") describe multidomestics as "decentralized federations," managed as a
"portfolio of independent businesses." Such organizations essentially mirror the
home-country enterprise in foreign locales. Many MNCs are staffed by host-
country nationals, but key managers will come from headquarters and key
decisions will be made at headquarters as well. A great deal of institutional
knowledge is developed, but it tends to be stored on a local level.
© 2015 SHRM 43
Multi domestics are considered low in Gl because the organization's strategy

does not focus on increasing efficiency through integration; they are high in LR
in that they recognize the need to adapt offerings to the needs and preferences of
ditTerent markets. Although headquarters may exert considerable control,
subsidiaries are seen and managed as separate markets, and their leaders have
decision-making power to adapt corporate strategy and processes to local needs
and oppmtunities.
In a 2006 article in Foreign Affairs, Sam Palmisano, former chairman and CEO
of IBM, attributes the birth of the first multidomestics to the disruption of
international trade, first by World War I and then by protectionist tariffs and
other regulations. Some corporations responded by establishing production
facilities in guest countries, thus avoiding protectionist barriers and enabling
local market penetration and, in some industries, capitalizing on cheaper
production costs.
Palmisano offered as examples of multidomestics the American car

manufacturers Ford and General Motors and the Japanese electronics
corporations, including Sony. The Anglo-Dutch consumer goods finn Unilever
operates as a multi domestic, with subsidiaries on every continent and ·country-
or region-specific brands .
.. .... ~__~··
· According to Briscoe, Schuler, ami Tarique; HR involvement in a

multidomestic·include.s:
• Providing services. to a large number of international assignees,
.. o .Training th.osc who.will be involved in intc.rnation~Lbusiness, i!lcl\lding
- .. ,,.
assignees allcllocal nationals, in lcgaiatid cultural issues..
• Coordinating HR activities in subsidiaries to make. sure that practices are ·
consistent with the culture and policies of the country in which the
headquarters is located and accommodate the subsidiaries' local ctiiiHre
and values.
Global strategy. Briscoe, Schuler, and Tarique use the tern1 "global" to
describe a strategy that is high in Gl but low on the LR scale. The
headquarters (which may or may not be in the originating country) maintains a
44 © 2015 SHRM
strong relationship with each subsidiary, integrating operations to take

advantage of conditions in subsidiary markets, such as inexpensive labor or
materials, and standardizing its products or services. Because of this,
subsidiaries have less freedom to adapt to local markets. Bartlett and Ghoshal
use a "hub and spoke" analogy for the relationship between headquarters and
subsidiaries: The centralized hub makes key strategic decisions and exerts
tight but simple controls on subsidiaries. This strategy is suited to firms
selling standardized technology and facing strong competition, such as
telecommunications firms or aircraft manufacturers.
The organization strives to create a global rather than national identity-

although dominant national cultures can continue to color enterprise attitudes
and activities. Talent may flow in both directions (between headquarters and
subsidiaries). International assignments may be required for promotion, and
the assignment of third-country nationals (employees who are citizens of a
country other than where they work or where the headquarters is located) is
common.
)
)
Briscoe, Schiller, andTarique note. that, as with other procc.<lses, HR

responsibilities in an organization pursuing a global strategy arc c.entralized, .
)
The challenge is to develop standardized global policies that support the
) ·... org1inizatitiri's cultUre and values while allowing local HR t() resolve ·
) contlicts~-to sct.Jor cxmnple,appropriate dress codes and idcntilyellcctive
) performance appraisal tools. ApriOrity for HR is becoming educated about
) HR practices in all the organization's geographical regions, so that policies·
)
appmprialc to the locale can be developed from headquarters.
)
)
··• Because of the importance ofa globalidcntity in this Nganization, HRmust
.make sure that new employees arc soCialized h\lq the organi~ation's culture · ·
· and key employees are trained in skills needed in international assignments,
such as language and cultural awareness and sensitivity. They must also
decide how and whe1"e HR activities will be located throughout the
)
. · organization~ what will be. done locally and on a global basis and. where these ·
)
. giobal activities will be located. Although policies may be globalized, specific · ·
)
HR activities maybe located ouiside headquarters.
)
© 2015 SHRM 45
Transnational organizational structure. Bartlett and Ghoshal describe the

transnational corporation (TNC) as resulting from simultaneous pressures to
standardize and localize. The TNC locates its value chain activities wherever
it is most advantageous. In this sense, the organization is highly integrated.
The nature ofTNCs' industries includes strong local competition, which
requires that subsidiaries have the autonomy to adapt to local cultures and .to
respond quickly to opportunities and competitive threats. The result is
glocalization-an organization with a strong global image but an equally
strong local identity. This is reflected in the transnational structure's high
ranking in both GI and LR.
McFarlin and Sweeney offer the example of Procter & Gamble's Vidal
Sassoon division, which uses the same fragrance in its hair products globally.
In Japan, where consumers prefer subtle scents, less fragrance is used. In
Em-ope, where consumers prefer more intense scents, more fragrance is used.
Briscoe, Schuler, and Tarique offer the example ofCapgemini, Europe's

largest IT software and services firm. The company is highly decentralized.
Headquartered in France, it operates in more than 40 countries. Subsidiaries
are intentionally kept small, so they remain agile and responsive to customer
needs. At the same time, Capgemini makes sure that innovation and best
practices are shared throughout the entire organization by means of electronic
communications, such as internal bulletin boards, and networking of
personnel, through, for example, global project teams.
Through global integration of knowledge and experience, the TNC

maximizes the value of assets and creativity in individual locales. Each locale
contributes a piece of the total "value picture," but the picture makes the
most sense when all pieces are present and properly related to each other.
The dire¢tion of tire flow of talentand ideas is no longer from parent or home
country out to subsidiaries. Talent and personnel now move between
subsidiaries or from subsidiaries to the parent. R&D may now be distributed
over divisions or located in a country other than the home or headquarters
country. Products or services may be assembled from components produced
by various divisions working in a highly coordinated fashion to achieve
economy and quality without regard to political or corporate boundaries. A
46 © 2015 SHRM
TNC requires both a globally literate talent pool that can manage global
resources effectively and a local workforce that understands and can work
with their market.
French cosmetics giant L'Oreal uniquely exemplifies this principle. Hae-Jung

Hong and Yves Doz, writing in the Harvard Business Review, note that L'Oreal
has built a portfolio of national brands marketed internationally (e.g., America's
Maybelline, Britain's The Body Shop, Italy's Giorgio Armani). These and,
especially, its own L'Oreal Paris brand, benefit from global scale and scope but
must be highly responsive to local cultures. As L'Oreal has expanded
successfully into emerging markets in Asia-Pacific, Africa, and the Middle East,
it has atTived at its own TNC solution. Despite its tradition of French upper
management, L'Oreal now actively recruits top managers with multicultural
backgrounds, especially into its new product development teams. Hong and Doz
note, for example, that the hair-care products team in Latin America is led by a
Lebanese-Spanish-American and a French-lrish-Cambodian. All such managers
first work on global products in Paris, New York, Singapore, or Rio. The result
is cross-fertilization of ideas combined with a core global perspective.
l
According to Briscoe, Schnier, and Tnrique, HR challenges in a TNC
include:
Mana~ingboth the b'encllts imd disadvantages of diversity. Cultural
distances must be overcome to achieve a group identity and create
synergy.
• Making sure that technology and processes facilitate the exchange of
··. knowledge throughmit the organization rather than h1bibit it
• Developing global HR policies by inviting and incorporating input from
.· subsidiaries on local HR needs and praciic~s:
Summary of the four strategic options. These four strategies, summarized in

Figure 7, will be implemented in different ways and will require the use of
different formal and informal organizations to facilitate the required levels of
integration and autonomy.
© 2015 SHRM 47
I
International A firm exports a product or service to foreign countries.

The company may open production facilities or service
centers, but the product/service, processes, and strategy
are developed in the home country.
Multidomestic The organization is a decentralized portfolio of
subsidiaries. Goals and strategies are developed locally
because of competitive demands. Knowledge is shared on
a iocai rather than global level.
Global The firm views the world as a single, global market and
offers global products that have little or no national
variation or that have been designed with customizable
elements. Strategy, ideas, and processes emanate from
headquarters.
Transnational The firm locates its value chain activities in the most
advantageous geographic locations. Subsidiaries are
allowed to adapt global products and services to local
markets. Best practices and knowledge are shared
throughout the organization.
Figure 7: Globalization Strategies
Perlmutter's Headquarters Orientations

Closely related to the four globalization strategies are the states of mind, or
orientations, of the leaders of the multinational organizations faced with
selecting globalization strategies. These orientations can influence an
organization's culture and the structure of relationships between headquarters
and subsidiaties as well as approaches to staffing and leadership development.
Long before the current wave of globalization, in the late 1960s, Howard V.
Perlmutter characterized MNEs (multinational enterprises) as having one of
four orientations:
• Ethnocentric. Headquarters maintains tight control over subsidimies,

who are expected to follow the strategic pattern, values, policies, and
practices expressed by headquarters. There is "one best way." The term
"ethnocentric" here refers to the fact that management will usually share a
common ethnic background, different from the ethnic make-up of
subsidiaries.
48 © 2015 SHRM
• Polycentric. Subsidiaries are allowed a large measure of independence as

long as they are profitable. They may plot their own paths based on the
business and cultural contexts of their countries. There are "many best ways."
• Regiocentric. This orientation is related to polycentrism. Subsidiaries arc

grouped into regions (such as Europe, North America, or Asia-Pacific).
Communication and coordination are high within the region but not as high
between the region and headquarters.
• Geocentric. Subsidiaries are neither satellites taking orders nor independent

bodies setting their own course. Headquarters and subsidiaries are
participants in a network, each contributing its unique expertise. There is
essentially "a team way," transcending national borders.
Nancy Adler, in International Dimensions of Organizational Behavior, associates

these orientations with specific types of business globalization strategies:
• Ethnocentrism is common in international strategies, which tend to be
headquarters-focused.
• Polycentrism is characteristic ofMNEs pursuing multi domestic strategies, a
"confederation" style.
• Regiocentrism is typical of global organizations, which have a bias toward the
home country:
• Geocentrism is characteristic of transnational organizations, networks of highly
integrated equals.
Sourcing and Shoring

Offshoring, outsourcing, and their variants (e.g., reshoring, cosourcing, open
sourcing) are ail ways of expanding resources and achieving strategic goals by
pursuing opportunities across borders.
While the terms "offshoring" <!nd "outsourcing" are sometimes used inter-
changeably and are certainly related, they are very different. Both involve an
organization's decision to relocate key activities, such as manufacturing or
customer service. Offshoring concerns the "where" of such decisions-a
)
decision to locate certain operations on foreign soil. Outsourcing concerns the
)
"who"-a decision to hand over certain operations to an outside organization.
)
Each is discussed here.
)
© 2015 SHRM 49
Offshoring
Offshoring occurs when a company relocates processes or production to an
international location by means of subsidiaries or third-party affiliates. For
example, a United Kingdom financial services company could open a facility
in Thailand to perform back-office banking transactions for its operations in
its home country. Or a Chinese automobile parts manufacturer could purchase
a Detroit pmts manufacturer to become a supplier to American car makers,
while !eaming about technology and the U.S. market in preparation for the
eventual export of Chinese cars into that market.
In Managing the Global Workforce, Paula Caligiuri, David Lepak, and Jaime
Bonache propose four reasons why enterprises pursue offshoring:
• Cost savings. Labor may be significantly less expensive, or the cost of

transporting materials to the work site or other operating costs may be
lower. This has been a key motivator since the first waves of offshoring
activity in the 1980s, as corporations in developed nations sought to
benefit from lower-wage labor available in developing countries.
• Access to talent. As developing countries have increased investment in

education and training, they are becoming sources of scientific and
technological expertise and innovation.
• Round-the-clock shifts. Having offshore shifts operating 24 hours a day

can improve efficiency and reduce costs of operations (by as much as 30%
to 44%, according to the McKinsey Global Institute). It can also enable
enterprises to deliver 24-hour customer service, such as call center access.
• Follow the sun. By taking advantage of time zone differences, work can
proceed on a given project without inteJTuption. As one group's workday
ends, the project is handed off to an offshore group in another time zone.
This can decrease design and development time, allowing products to
come to market sooner.
The motivations for offshoring-and, consequently, where it is taking place

and which firms are adopting it as a global strategy-are changing as a result
of the globalization forces described in Section I, principally the shift from
developed to developing countries.
50 © 2015 SHRM
First, the cost-saving dynamic is changing. Wages in India and China have
risen 10% to 20% a year for the past decade, while manufacturing wages in
~ Europe and America have remained stagnant. While countries such as

Vietnam, Indonesia, and the Philippines have kept wages low, they lack
China's efficiencies, scale, and supply chain-which incurs its own costs.
i
Meanwhile, the costs of shipping goods back by sea have risen sharply, and the
weeks spent in transit add further costs and impair customer service. Robotics
)
and other automation innovations have reduced labor's share of total
I production costs.
~
)
Finally, government financial incentives, ranging from direct cash payments to
corporate tax holidays to low-interest loans, can also affect the cost dynamic.
Such incentives-offered by countries, states, regions, and municipalities
around the globe-have increased as governments have grappled with the
effects of the recession. Such incentives must be balanced, however, with the
local availability of the skilled workforce and the business infrastructure
)
needed to successfully carry outthe intended operations.
)
)
In short, calculating the cost savings of offshoring has become more complex.
On the other hand, rising wages in developing countries-as well as a growing

workforce of highly skilled and educated engineers and technical workers---are
)
creating a new middle class, making these locations more attractive markets for
)
goods and services sold by firms based in developed nations. The result is a
new emphasis on another benetH ot ottShonng: locating design and production
facilities closer to emerging markets.
A final element in the new dynamic is the political fallout of the recession in
developed countries-a backlash against companies that have shifted badly
needed home-country jobs to low-wage developing nations. Particularly in
industries that may have ..sought government assistancetD survive the recession,
offshoring can produce a negative, unpatriotic image that can mean lost sales.
The end result of all these forces is that the flow of offshoringjobs is now
going in both directions or, rather, in many directions at once. When The
Economist published a 2013 special report on offshoring and outsourcing, it
titled the lead story "Here, There and Evetywhere."
© 2015 SHRM 51
Some of the following examples were provided by that report:

= Increasing numbers of the iPhones manufactured for Apple by offshore
Asian electronics finns are built for and sold directly to the Asian
market.
o Foxconn, the Taiwanese finn that manufactures electronics for Apple,
Tesla, and other global brands, has sites in several emerging economies,
I •
including China, Vietnam, Turkey, and Mexico, and has announced
plans to build large LCD displays in the U.S.
Kraft Foods has plants employing thousands in China, where it makes
processed food products adapted to suit Chinese consumers.
Lenovo, the Chinese computer company that bought IBM's ThinkPad
line in 2005 and now may be the world's largest maker of computers,
opened its first U.S. plant in in Raleigh, North Carolina, in 2013.
• General Electric has rcshored (that is, transfened a previously offshored
function back to its original onshore location) production of its
refrigerators, washing machines, and heaters from China back to
Kentucky and is likewise reshoring and expanding its IT work to a new
center in Michigan.
• A 2012 survey by the Boston Consulting Group of 106 U.S.-based
manufacturing companies with sales greater than $1 billion reported
that 37% are planning or actively considering reshming production to
the U.S. from their plants in China.
Whatever the current global climate may be, any organization considering
offshoring needs a clear sense of what it hopes to accomplish, what it needs
from the offshoring relationship, and what risks the relationship entails. Besides
those discussed above, other risks include:
• High turnover rates.
o Problems in quality control.
• Tec~ical degrees-that do notreliably indicateactuaL1eclmical skills.
• Language issues. (These may be difficult to overcome.)
• Intellectual property loss.
• Impaired productivity due to political instability.
• Loss of reputation from the unethical behavior or practices of local
management.
52 © 2015SHRM
)
Because of these risks-and because so many of the factors for choosing one
location over another relate to workforce and talent issues--HR plays a critical
role by performing due diligence to support the decision to offshore. Figure 8
highlights key areas for global HR research during the due diligence period.
(
l Cost and quality

•
•
Wage structure relative to other
options
Tax structures
Risk levels
•
•
•
Political and labor unrest
Natural disasters
Personal and property security,
• Real estate intellectual property rights
• Infrastructure (examples include • Economic stability, including
telecommunications networks, fluctuations in currency exchange
transportation, energy) value
• Regulatory stability
Sociopolitical environment
• Government receptivity, amount of Talent pool
regulation • Size of labor force with required skills
• Ethical environment of political and • Size of offshore sector and share of
business communities exports
• Quality of life
• Availability of vendors for specific
• Accessibility
services, such as IT
Figure 8: HR Due Diligence for Offshoring
Outsourcing
Outsourcing occurs when a company contracts with a third-party vendor for the
)
supply of products, services, or component parts. Work can be outsourced to
)
another domestic finn or it can be sent across borders ("otTshore outsourcing").
)
As with offshoring, outsourcing enables an organization to take advantage of

globalcompetitiveness=for example, in cheaper labor or access to raw
materials or end users. More frequently now, outsourcing is a way of accessing
special skills and knowledge that can raise the quality level of a company's
)
products or services or enhance its ability to respond quickly to customer
)
demands. However, enterprises generally do not outsource their core
J competencies, the essential activities that create the enterprise's characteristic
value. In fact, outsourcing may be a way for an enterprise to focus more
strongly on its core competencies. Here again, though, changing forces of
© 2015 SHRM 53
I
.

,1
' globalization are influencing the equation. The Economist 2013 special report
I notes that "some activities that used to be considered peripheral to a company's
profits, such as data management, are now seen as essential, so they are less
likely to be entrusted to a third-party supplier thousands of miles away."
The advantage of outsourcing lies in a company's ability to acquire value

without a long-term investment in assets. Figure 9 lists reasons to outsource.
• Reduce and control costs. • Accelerate process improvements.

• Improve focus on core strategic • Manage difficult situations and
competencies by transferring deadlines.
important but non-core • Share financial risk.
competencies.
• Satisfy government reporting
• Gain access to world-class talent. requirements.
• Free internal resources. • Access technology.
• Add resources not available • Obtain critical mass.
internally.
Figure 9: Reasons to Outsource
It is not necessary to outsource an entire function or process. In a cosourcing

arrangement, an enterprise outsources only one part of a function, often
collocating it at the organization's workplace. For example, it may retain the
more strategic aspects of compensation but outsource those activities that are
data-intensive. (The term insourcing refers to transferring a previously
outsourced function back in-house.)
Briscoe, Schuler, and Tarique describe the internal challenges of outsourcing

forHR:
• Clearprocesses and par~metersn1ust be defint!d and efficient
communication channels established between the company and the
provider. The company must organize itself to manage the arrangement,
integrate the provider as needed into internal processes, and monitor the
terms of the relationship.
• Global assignees may be needed to negotiate, implement, monitor, and
support outsourcing relationships. HR will need to manage compensation,
travel, and training for these employees.
54 © 2015 SHRM
• If outsourcing involves technology transfer, intellectual property rights

and confidentiality must be secured.
• For specialized processes, training of the outsourced workforce may be
required.
• If outsourcing results in workforce reductions, the company must manage
the economic, legal, social, and organizational costs.
. . . .
.· Global HR may be involved inoutsourci~g directly-b; contracth1gout H~

processes or subprm;esses-c{)r indirectly-·for example, by p.roviding training
and decision support tMis to help the organization's managers supervise the
outsourcing process, Because of its role in developing and monitoring
relationships with external stakeholders and supporting the organization's ·
corporate social responsibility program, global HR may also evaluate vendors'
perfommnce on such issues as labor conditions and environmental practices ..
Due diligence in selecting outsourcing partners is important. Local instabilities

and obstacles that prevent the contractor from perfmming as promised can
jeopardize the company's own performance. In addition, contractors (and
subcontractors) can be a source of liability to a company when they violate the
company's own ethical code or international, local, or extraten·itorial laws.
(Extraterritorial Jaws extend certain legal requirements of a home country to the
activities of its citizens traveling or working abroad and of its entities-such as
corporations-c{)perating in host countries.)
A recent example is a 2014 announcement by Samsung Electronics that it had

suspended relations with an outsourced Chinese manufacturer of cell phone
components in response to allegations that they had illegally hired underage
workers (14- and 15-year-olds). The disclosure was especially embarrassing to
Samsung in that the practice had not been uncovered by its own audit, and its
just-released Global Sustainability Report had highlighted the absence of such
practices within its supply chain. The importance of supply chain management
in sustainability efforts is discussed fmther in the "Corporate Social
Responsibility" Functional Area in this Workplace module.
© 2015 SHRM 55
A sound vendor selection and management program:

• Defines characteristics needed to deliver the desired perfmmance.
• Confirms the contractor's ability to perform and history of ethical
behavior.
• Communicates expectations, both in terms of performance and ethical
conduct, to prospective contractors.
• Audits for compliance with the terms of the agreement throughout the
contracting period.
A key issue is whether the partner is to provide these services across various
global operations or is to focus on one location. Regardless of the geographic
scope, the vendor selection process must be organized and systematic. For
business, legal, and ethical reasons, the selection of a vendor cannot be based
on favor, private relationships, or special circumstances.
Vendors are more likely to be measured by a variety of criteria. A checklist of

criteria that could form the basis for evaluating a vendor proposal is provided
in Figure I 0.
0 Proven record of 0 Flexible contract terms

performance 0 Value-added capabilities
0 Scope of resources 0 Commitment to quality
0 Ability to meet 0 Qualifications of project team
specifications
0 Locations
0 Price
0 Recent references and
0 Schedule testimonials
0 Response times and 0 Technology
performance clauses
0 Minimal risk of legal liability
Figure 10: Checklistlor Evalllatihg Outsourcing Proposals
Finally, even the best vendor needs careful management, support, and
guidance. Outsourcing does not mean a total hands-off approach. It is the
company's responsibility to manage and direct the vendor through the
duration of the project. Without this type of dual responsibility, outsourcing
has a reduced chance of achieving its goals.
56 © 2015 SHRM
HR's Role in Globalization

The above discussion of globalization strategies and offshoring and outsourcing
practices noted specific ways in which HR can support their evaluation and
implementation. There are, however, critical HR abilities, tasks, and skills that
apply across strategic positions; it is mastering these that will enable the
creation and successful implementation of a truly global HR function.
HR Globai Abilities
Globalization has made the role of HR even more critical and even more complex.
In developing and implementing global strategies, global HR must constantly
balance standardization of policies influenced by the organization's values and
global strategy with the need to localize these policies through programs and
practices that reflect organizational and national cultures and local laws.
In the Global HR Practitioner Handbook, Attila Freska and Lisbeth Claus

list challenges of globalization for HRM:
• Global organizations require managers who think globally, who look for
oppottunities around the world and develop solutions to organizational
challenges that take advantage of organizations' global identities. This
requires greater investment in training and development. Freska and Claus
point to SABMiller, a South African brewer, and Johnson & Johnson as firms
that invest in grooming employees for intemational assignments. Evan, Pucik,
and Bjorkman note that Unilever promotes global perspectives at the
management level by allocating one managerial position in each operation to
an employee from another country. Earlier in this section, we discussed
L'Oreal's grooming of multinational managers to lead their new product
development teams.
• Organizations must integrate crossccultural sensitivity and adaptability into

their processes and management styles. IKEA has become skilled at balancing
standardized "upstream" design and manufactming processes with localized
"downstream" distribution processes.
o Organizations must become adept at managing threats, which may come from
more and new sources. Global business brings increased risk of corrupt
practices and the need to comply with extraterritorial laws targeting bribery.
© 2015SHRM 57
Management must make sure that critical, technology-dependent processes

can continue at necessary levels after risk events. Employers face a more
challenging "duty of care" toward their dispersed and mobile workforce.
• Global organizations must find ways to receive the benefits of technology and
virtualization without giving up the personal relationships that encourage
innovation and coordination.
HR Global Tasks
Faced with different workforces, different legal systems, and different societies,
global HR must define the role of human capital throughout the organization~
what it can contribute and what the business requires. That involves both
strategic and tactical tasks.
To illustrate the role of HR in global organizations, imagine a fictional high-

level meeting of key HR professionals working for one of Malaysia's leading
multinationals, an investment and management company and leading resort
developer with over 20,000 employees around the world. The meeting has been
called by HR to develop HR's contribution to an upcoming round of
organization-wide strategic planning meetings.
This meeting of HR practitioners at the Malaysian headquarters may include:
• Native Malaysian HR managers at headquarters who are responsible for

developing policies and monitoring their application at subsidiary locations
around the world~at, for example, casinos in the United Kingdom. They
are also responsible for recmiting and preparing home-country employees
for foreign assignments.
• An HR professional from Greece employed by a subsidiary, a large cmise

operator, but working on assignment at the head(p.iartersfor development
putposes. Even though they are working for the same employer, she and her
Malaysian counterparts must work hard to reconcile their different
perspectives and practices.
• Staff from an HR office from a local textile manufacturing fi1m. These

professionals are directly involved in hiring non-Malaysians to work in their
58 © 2015 SHRM
plants and offices. In addition, they are responsible for developing a

management class that can understand and cooperate and compete with
foreign investors, clients, and competitors.
• A Malaysian-bom HR manager and a U.S. counterpart, both working at a

newly acquired U.S. bioengineering firm.
Within this complex organization, HR must be able to define how exactly the
organization as a whole can achieve its maximum value.
From a strategic perspective, HR must be able to balance the priorities of

I headquarters and subsidiaries. They must understand and appreciate their
!
J disparate businesses and identify critical success factors related to talent, which
) will vary considerably from Malaysian plant workers to European hospitality
) employees to highly trained scientists in a competitive talent environment. How
) should they distribute their resources?
)
) From a tactical perspective, the group must find a way to focus their
separate disciplines and professional backgrounds to develop programs that
can deliver measurable success and that can work in different cultural and
sociopolitical contexts. Because of the globalization of trade and the mobility
of workforces across borders, these HR professionals are increasingly
) involved in issues like visas, different taxation and pension schemes,
workforce quotas, and different workforce relations laws and practices. Some
are focused on developing a talent pool of potential global assignees~
) employees who can be sent on temporary or long-term assignments across
) borders. Some are struggling with hiring local employees with the right
) qualifications in tight employment markets. Others find that they are
) spending a significant amount of time dealing with cultural issues-blending
) the organizational culture of the Malaysian MNE with its new foreign
) acquisition or trying to help local managers who are faced with a suddenly
) diverse workforce due to an influx of third-country nationals.
)
) HR Global Skills
)
These varied tasks require a truly global HR professional to possess the unique
)
skill set described in Figure 11.
)
)
© 2015 SHRM 59
Develop a strategic view of Understand how the entire organization creates value, participate in
the organization. organizational strategy development, and develop an HR global
strategy.
Determine ways to benefit from globalization.
Understand the external context in which the firm operates.
Constantly scan the environment to identify global and local trends
and identify new skills and tools that the organization will require.
Identify and take steps to mitigate or manage potential risks.
Develop a global Provide training that improves cultural awareness and adaptability.
organizational culture. Develop processes to promote communication and the capturing
and sharing of knowledge and experiences.
Secure and grow a safe Ensure a supply of leaders who are globally competent.
and robust talent supply Monitor the workforce potential in developing countries.
chain.
Select employees who can best assist in meeting the organization's
goals.
Be aware of demographic trends that affect talent supply.
Develop a strong employer brand.
Use and adapt HR Use technology to increase the efficiency of HR programs and
technology. integration with the organization's information systems.
Move HR technology from domestic to global operations, keeping in
mind different input requirements, attitudes toward and regulation of
employee data and privacy, differing technology platforms, and
cultural issues.
Develop meaningful Take a systematic and disciplined approach to measuring and
metrics. operationalizing strategic goals.
Align human capital to achieve strategic goals.
Demonstrate the value HR brings to the global enterprise.
Develop policies and Provide for the health, safety, and security of employees.
practices to manage risks. Protect the physical assets of the organization.
Protect the intellectual property of the company, such as
copyrighted material or patented devices or processes.
Protect intangible assets such as:
• Relationships with internal and external stakeholders (including
employees, customers, communities, governments,
institutions).
• Reputation of the company.
Monitor breaches of compliance:
• Financial (violations of law related to corporate governance).
• Ethical (environmental or consumer safety regulations).
• Employment-related (discrimination laws, requirements to
inform
Figure 11: Skills Needed for Global HR
60 © 2015 SHRM
Progress Check
Directions: Choose the best answer to each question.
1. What is a good example of a "pull factor" attracting organizations toward globalization?

( ) a. Globalized supply chain
( ) b. Government policies that promote outward foreign investment
( ) c. Shortfalls in natural resources and talent supply
( ) d. Increased cost pressures and competition
2. The choice of whether to emphasize global integration or local responsiveness is generally

determined by a mix of four types of drivers. What driver type is being examined when
considering the availability of global distribution networks?
( ) a. Market drivers
( ) b. Cost drivers
( ) c. Governmental drivers
( ) d. Competitive dlivers
3. What globalization strategy is most likely to benefit a small organization whose brand is not
well-established?
( ) a. Identity alignment
( ) b. Identity diversity
( ) c. Process alignment
( ) d. Process diversity
4. What tenn describes the globalization strategy of a firm that is a decentralized portfolio of
subsidiaries that develop their own goals and strategies?
( ) a. International
( ) b. Multidomestic
( ) c. Global
( ) d. Transnational
5. What term describes the globalization strategy of a firm that exports its products or services
to foreign countries while developing processes and strategy in the home country?
( ) a. International
( ) b. Multi domestic
( ) c. Global
( ) d. Transnational
© 2015 SHRM 61
6. What term did Perlmutter use to describe a multinational enterprise whose subsidiaries are
not satellites or independent bodies but instead participate with headquarters as a network?
( ) a. Ethnocentric
( ) b. Polycentric
( ) c. Regiocentric
( ) d. Geocentric
7. What has been the key effect of globalization on the practice of offshoring?
( ) a. It has almost eliminated offshoring, by creating new problems such as quality
control, high turnover, and intellectual property loss.
( ) b. It has imposed new legal restrictions, so that most offshoring is now done by
emerging nation-based companies, who offshore production to developed nations.
( ) c. It has changed the cost-saving dynamic, so that almost all offshoring is done by
firn1s based in developed nations, who offshore production to emerging nations.
( ) d. It has changed incentives, so that much offshoring is now done to be ncar new
markets rather than to save on labor, transportation, or materials costs.
8. What key global HR skill is demonstrated by a global HR professional who provides training
that improves her organization's cultural awareness and adaptability?
( ) a. Developing a strategic view of the organization
( ) b. Developing meaningful metrics
( ) c. Developing a global organizational culture
( ) d. Developing risk management policies and practices
62 © 2015 SHRM

1. b(p.31)
2. a (p. 34)
3. a (p. 40)
4. b (p. 43)
5. a (p. 42)
6. d (p. 49)
7. d (p. 51)
8. c (p. 60)
j
)
)
)
)
)
)
. )
I )
. )
i )
. )
I )
. )
)
. )
. )
© 2015 SHRM 63
Section 3:
Becoming a Multicultural Organization

• Building cross-cultural relationships and partnerships with global stakeholders.

• Cross-border HR management techniques.
• Cultural models (e.g., Hall, Hofstede, Schein, Trompenaars).
• Global discrimination prevention practices.
I • Global mindset techniques (e.g., communication barrier removal, cultural awareness

training and assimilation, understanding PEST factors).
II
Developing a Global Mindset

With the decision to expand globally comes the opportunity to benefit from
becoming a multicultural organization. The diversity of perspectives and
experiences available to such an organization can greatly expand its innovation
I and problem-solving capabilities. It can, however, also create very real
I challenges-miscommunication, conflict, and culture clash-that can delay or

derail projects and impede effective decision making.
l'
Global HR professionals are uniquely positioned to help a global organization
maximize the benefits and minimize the costs of having a multicultural
workforce and operating across a variety of cultures. To be effective within the
organization and in all the societies in which the organization operates,
however, global HR professionals must understand the complexity of culture
and the potential effects of cultural forces. In short, HR professionals must
1 acquire, and promote throughout the organization, a global mindset.
)
)
)
Defining a Globai Mindset
A global mindset is aligned with the SHRM Global and Cultural Effectiveness
) behavioral competency, described as "the ability to value and to consider the
) perspectives and backgrounds of all parties in global business."
) Having a global mindset requires imagination--being able to see the view from
) inside another person's culture and using that awareness to create solutions and
bridges. It also requires self-awareness-recognizing the ways in which one's own
cultural background has shaped one's perspective and recognizing that one's culture
is just one among many.
Brad Boyson, writing in the Global HR Practitioner Handbook, notes a central

paradox of the global mindset in describing a global HR practitioner as someone
who, "by way of accumulating significantly more diversity ofexperiences, will
) actually begin to perceive the general patterns of commonality first and foremost"
and who will "no longer discriminate based upon citizenship, even if the jurisdiction
in which they work does." That is, cultural differences are not ignored-that would
deny the value these differences can bring to an organization. Rather, cultural
differences are understood and appreciated to a point where underlying similarities
.1 are revealed-the point at which real collaboration can happen.
© 2015 SHRM 65
In the same text, Lisbeth Claus makes a similar point. She sees a global
mindset as the ability to simultaneously follow both the golden rule (treat
others as you yourself would like to be treated) and the "global rule" (treat
those from other cultures as they would like to be treated) by recognizing and
respecting cultural differences. That, in turn, requires understanding one's
own culture and recognizing its biases and unique viewpoints.
Biscoe, Schuler and Tarique likewise distinguish a global perspective fl·om a

"cosmopolitan" view or other single-minded "superiority complex." A global
mindset strives to understand, appreciate, and respect differences, not make
judgments or propose a convergence of human perspectives.
Dean McFarlin and Paul Sweeney prefer the term "synergistic

multiculturalism"-viewing the world from an international perspective that
reflects consideration of other cultures, other viewpoints, and other ways of
doing things. Organizations that practice synergistic multiculturalism use
culhlral differences to their advantage.
The "Diversity and Inclusion" Functional Area in this Workplace module

accompanies its brief discussion of global mindset with detailed
explanations of two closely related concepts, both of which are highly
valuable for global organizations:
• Intercultural wisdom, also called cultural intelligence, is the capacity

to recognize, interpret, and behaviorally adapt to multicultural situations
and contexts.
• Emotional intelligence (EI) is the quality of being sensitive to and

understanding of one's own and others' emotions and the ability to
manage one's own emotions and impulses.
An organization's mindset indicates how its employees think about the world
and how this view affects their actions. Stephen Rhinesmith has identified
seven ways in which people with global mindsets approach the world.
• They drive for the bigger, broader picture. They look for context and
strive to understand the full set of issues. They scan the horizon to learn
66 © 2015 SHRM
more about markets, products, technologies, and competitors. Paul

Evans, Vladimir Pucik, and Jngmar Bjorkman note that leaders with a
global mindset have broader business skills and knowledge of global
structures, strategies, and trends.
J
j)
• They accept life as a balance of contradictions. Global managers
know how complex life is. They accept uncertainty and understand
how to use conflict management as opposed to one-sided resolution
·~ through imposition or acceptance. They are not frustrated by the
standardization versus localization dichotomy.
.)
(
• They trust the process to solve problems. They look to process
~ rather than organizational structure to solve problems. Process

includes the systems, procedures, and norms of the organization that
\
l
enable people to respond quickly.
)
\ • They value multicultural teamwork. Teamwork and
~
interdependence are fundamental tenets of the global mindset. People
with such a mindset are sensitive to cultural contexts and differences.
I
They are good communicators.
~I
( • They view change as opportunity. Global minds are comfortable
) with change, unpredictability, and ambiguity. They are confident that
I
) they can create order out of seeming chaos.
I
)
'
• They are open to new ideas and continual learning. They are
always looking to improve themselves, others, and the company. They
are accepting of other's views and are open to new ideas and
.l approaches.
)
)
• They are inclusive, not exclusive. Excluding people, ideas, cultures,
and viewpoints is contradictory to the world view of the global
mindset. Organizations that exclude rather than include are more
) likely to be ethnocentric or even parochial in their mindset.
')
) Evans, Pucik, and Jean-Louis Barsoux have created the comparison of a global
and a traditional or domestic mindset shown in Figure 12.
© 2015 SHRM 67
Knowledge Functional expertise Broad and multiple

perspectives
Conceptual ability Prioritization Duality-balance between
contradictions
Flexibility Structure Process
Sensitivity Individual responsibility Teamwork and diversity
Judgment Predictabiiity/continuity Change as opportunity
Learning Trained against surprises Open to what is new
Figure 12: Global and Traditional Mindsets
Benefits of a Global Mindset

A global mindset can allow an organization to identify and take advantage of
a global opportunity that might be mismanaged or missed entirely by an
organization that does not possess this critical component. Specifically, the
presence of a global mindset brings a number of key operational benefits to
the organization, including:
• An early mover advantage.
• Greater sophistication and more critical analysis regarding tradeoffs
between local adaptation and global standardization.
• Smoother coordination of complementary functional activities distributed
across borders.
• Faster rollout of new product concepts and technologies.
• More rapid and efficient sharing of best practices across operational
units.
• A lower failure rate of international assignments.
Additionally, a global mindset makes the organization:

• More proactive with respect to benchmarking and learning from product
and process innovations that take place outside its domestic borders.
e More alert to the entry of nontraditional (e.g., foreign) competitors into
its local market.
• More open to the concept and fact of diversity within the organization.
This will create benefits of its own.
68 © 2015 SHRM
Briscoe, Schuler, and Tarique point out that a global mindset produces a
number of important benefits for the individuals within the organization,
including the ability to better manage:
• Global competitiveness, complexity, contradiction, and conflict.
• Organizational adaptability.
• Multicultural teams.
• Uncertainty and chaos.
• Personal and organizational global learning.
• Work and communication across multiple cultures.
Acquiring a Global Mindset

A global mindset is not quickly acquired. It cannot be learned in a single
course or seminar. It is the product of continued understanding, experience,
reflection, and evaluation. A global mindset is made up of attitudes and a
world view, and some individuals may be reluctant or take longer to change
~
their views.
l Boyson is more succinct about how a global mindset is acquired, describing

it as "the byproduct of global experiences." In a world of constant global
Internet connection, he warns against relying on virtual experience as a
l
j
J
passport to global understanding. In-person, day-to-day interactions with
multiple cultures, experiencing firsthand their real differences and
similarities, is the one sure route to a global mindset.
That being said, there are ways to prepare for such experiences and ways in
which a company can help its employees develop a global m indset. Companies
can hire people who already possess a global mindset or put in place a
1
j
development program to assist in developing a global mindset among existing
employees.
\
To develop a global mindset, or to really achieve any change in behavior,
three elements must be in place:
• Appropriate kJ10wledge, skills, and understanding
• Desire and motivation on the part of the employee to change
• Support from systems and management
© 2015 SHRM 69
Once these requirements are in place, employees can increase their global
business knowledge and enhance development of a global mindset in
different ways. Figure 13 lists steps to take to develop and promote a more
global mindset.
Ii Study and understand your

own culture and how it
relates to others.
0 Take courses in world history, culture,
economics/ politics, or international affairs.
0 Become aware of stereotypes that people have
about your culture and that you have about
i 0
theirs.
Travel globally to gain firsthand foreign
~
experiences.
0 Learn a foreign language.
! 0 Join an international organization or a global

professional organization (e.g., The Conference
~
Board).
0 Volunteer for global task forces.
..•i 0 Create opportunities to personally interact with
' those from other cultures (e.g., host an exchange
student).
Study and understand 0 Read books on global business for a larger

global business trends and picture of business models.
i forces. 0 Read periodicals with a global focus (e.g., The
I Economist, The New York Times Global Edition,
Bloomberg Businessweek).
I 0 Stay current with international business and
I 0
current events.
Select a global organization or competitor and
I 0
compare that organization to your own.
Learn about global legal and social frameworks
i impacting business and industry practices.
I
0 Create opportunities to personally interact with
global customers, colleagues, and collaborators.
~ Promote a global mindset 0 Recruit staff with cross-cultural and language
i within your organization. skills.

0 Provide opportunities for cross-cultural learning
and language building.
0 Promote cross-border mentoring
0 Emphasize long-term relationship building as
well as short-term task accomplishment.
Figure 13: Checklist for Developing and Promoting a Global Mindset
70 © 2015 SHRM
A UAE-based five-star hospitality and leisure company expanding into China

has selected three cities for its first hotel resorts: Beijing, Shanghai, and
Hong Kong. The Arab company needs to on board, train, and induct
approximately 200 Chinese nationals in the brand's unique guest experience
Communi· and service values. English, the common workplace language, is the second
cation
Competency
language for most of the targeted recruits.
in Action As a first step, nine key senior positions (three per property) are recruited
from similarly branded Asian hospitality chains. All are assigned to work in
the organization's UAE operations for a six-month period prior to being
reassigned back to China. Crucially, the head of HR, who has worked in Asia
previously, convinces the UAE leadership team that each Chinese city
targeted has its own local culture and dialect. Accordingly, when selecting
the nine key persons, each set of three are also selected from the city that
they will be reassigned back to.
Effective communication takes more than just language skills. By hiring and
placing key executives in their home cities, the UAE company acquires
cultural acumen, not just language skills. For example, the senior managers
not only understood the importance of feng shui but can apply local
customizations of feng shui in their respective Chinese cities.
Types of Cultures
A global mindset, then, is one that can accept and appreciate different cultures.
But what, exactly, do we mean by "culture"?
Definition of Culture
Culture is a set of beliefs, attitudes, values, and behaviors shared by members
of a large group and passed down from one generation to the next.
A "large group" isn't always a nation. Most nations consist of regions,

provinces, districts, or states, each with its own cultural identity. Even the
outside observer can distinguish the culture of Tuscany from that of Sicily,
though theirresidents all share in the Italian culture. Likewise, a Texan
embraces a very different set of traditions than someone from New Jersey,
though they both share American cultural values. Parallel sets of shared and
contrasting values apply to citizens of China's Sichuan and Hunan provinces or
Canada's Quebec and Yukon provinces. Nor is culture always a matter of
geography. Subcultures may be defined by ethnicity, geographic region, race,
religion, or class.
© 2015 SHRM 71
Organized religions ce1tainly fit the definition of culture. Likewise, the citizen
who joins a nation's armed services soon embraces yet another set of cultural
values, beliefs, and traditions. Even business enterprises come to have their own
shared culture as well. "Corporate culture" can be a meaningful term-consider
the very different corporate cultures of IBM in the 1980s and Apple today.
In fact, we each function within a complex cultural matrix, belonging

simultaneously to several types of culture. We are born into some cultmes;
others we acquire along the way. Each culture, in turn, has multiple dimensions
and layers-all affecting how we communicate and interact with others. The
challenge is to be self-aware of how our various assumptions and beliefs are
shaped by the many cultures to which we belong.
Geert Hofstede, a pioneer in intercultural business communication, defines

culture as the "software of the mind"-mental programs that predispose us to
patterns ofthinking, feeling, and acting. If that is so, then, like most computers,
we simultaneously run multiple software programs in order to carry out our
daily tasks. And-not to stretch the analogy too far-sometimes all that
software mnning simultaneously can creates conflicts and overloads.
How Types of Culture Affect an Organization

To illustrate types of cultures and their potential etTects, consider the following
example.
While visiting a local sales office in South Africa, a senior HR manager

from a large Canadian multinational manufacturer of heavy equipment
meets with the manager of a small, local company in South Africa to
whom the Canadian company outsources its local IT functions. Of the
globalization strategies discussed in the previous section, the Canadian
firm favors a global strategy, selling essentially similar products through
regional distributors. The HR manager hopes to learn more about this
community inwhich the firm operates.
There could be a lot to learn for both individuals. Each of them holds
membership in different types of cultures.
• National cultures. The distance between Canada and South Africa

is not merely geographical. With their different national cultures
comes a host of differences in assumptions, outlook, and rules that
can challenge communication and comprehension.
72 © 2015 SHRM
• Subcultures. There can be significant distances between

subcultures within the same national culture. Would it make a
difference if the Canadian came from Quebec, Ontario, or the
Northwest Territories? Or if the South African was of English or
Dutch descent or a member of the Zulu or Pedi ethnic groups?
• Organizational/corporate cultures. The HR professional

represents a large company, with a long history and well-
developed written and unspoken rules and rituals. The IT
company is a young, small start-up with few procedures and a
more ad hoc approach to projects.
• Industry cultures. These two individuals represent different

industrial cultures. The manufacturing culture emphasizes
operational efficiency and cost control and has a complex
sales and distribution chain. The technology company, creating
customized business solutions, values knowledge and
customer focus.
f • Professional or functional. Culture can also vary by functions

;l within an organization. Consider a software company's product
development group and its finance group. The risk-taking and
rule-breaking behavior prized in the development culture would
probably doom the company if it dominated the subculture of
the finance group. Because of his training and daily work, the
)
HR manager takes a holistic and people-oriented approach to
! problem solving. Coming from a highly technological discipline,
the South African takes a different approach to problems, even
>
using different terminology.
)
While their cultures may differ significantly, these two individuals may actually
share similar personality traits that can help them gain a deeper awareness of
each other's cultural perspectives more quickly. Culture does not extinguish
personality, and it is impottant to distinguish which behaviors are driven by
culture and which by individual personal characteristics.
)
)
Cultural Layers
The process of identifYing culture and developing a strategy to bridge cultural
) distances is complex, partly because each culture has multiple layers. Beneath a
culture's explicit characteristics (such as language, dress, or manner), which are
relatively easy to appreciate, there are implicit characteristics (such as world
views and cognitive habits), which take time and experience to discover and
understand.
© 2015 SHRM 73
Some have compared that process of understanding culture to viewing an

iceberg. We see only the visible tip of that culture-its language, food, style of
dress, and architecture-or, a bit deeper down, its lifestyle and behaviors. Hidden
below are the beliefs and values that are its foundation. Another image is culture
as an onion, with outer layers that must be peeled away to reach a culture's core
universal truths.
Schein's Model
The sociologist Edgar Schein sought to define culture's multiple layers and
their interrelationship. He was studying organizational cultures, but his model
applies equally well to national, regional, or other types of culture. It is
important to recognize that the outer layers derive from the innermost layers
and can be fully understood only in that context.
As shown in Figure 14, Schein defines three separate layers:
Implicit Culture
Figure 14: Layers of Culture
• Artifacts and prodncts. These include a culture's obvious differences, such as

its food, dress, architecture, humor, and music. For example, Texas may elicit
images of cowboy hats and boots, barbeque, and country music, while Tuscany
conjures images of cathedrals, pasta, and wine. A corporate culture may favor
suits and ties or hoodies and jeans, beige cubicles or an "open office."
• Norms and values. Less immediately obvious are a culture's shared and
stated sense of acceptable behaviors-what is right and wrong. These may
74 © 2015 SHRM
be a country's rules and regulations or a company's mission statement and

code of conduct.
• Basic assumptions. These are the culture's core beliefs about how the
world is and ought to be. They may be unspoken, and members may not
) even be consciously aware of them. Even cultures with similar norms and
values may have significantly different basic assumptions. Terms such as
"success," freedom" or "doing good" may carry very different meanings for
each culture, and failure to perceive such differences is often at the root of
\ ) cross-cultural miscommunication and conflicts.
)
) ..
'·-:.,: ;.·.· ... ' ... ,; ..·'·· .. .: ...... ··.. :·-:··-·. -·· ·.
) As Figure 14 suggests, cross-cultural communication depends on negotiating . · ·

)
an outer. shell of explicit cultur!ll artiliu:ts and products (such as costume or
food) so that one cl!n apprccilltc an imter core of conscious values {what one .·
·aspires to) and norms (what's usually.done)and eventually rcl!ch an
understanding of basic beliefs that unconsciously shape the culture's feelings,
· perceptions, thoughts. and actions. One cannot assume that simply being
comfm"table with the explicit culturcr-what is usually taught as cross-cultural
business etiquette-conveys complete culturalundersiandirig.
)
Cultural Dimensions
Like an individual's personality, a culture's belief system is multidimensional.
) Analysts have sought to map those dimensions. National cultural models and
theories--such as those originally developed by anthropologists and
sociologists and applied to communication and management situations by
Edward T. Hall, Geert Hofstede, Fons Trompenaars and Charles Hampden-
Turner, and others--can help the global HR professional understand an
organization's cultures and subcultures.
)
The various models and theories have identified characteristics that differ
) among cultures, usually on a continuum. They reflect aspects as diverse as an
} individual's thought process or relationship to time, the environment. or power.
Much of the research has been conducted with large companies, such as IBM
(by Geeti Hofstede) and Shell (by Fons Trompenaars).
I )
© 2015 SHRM 75
lt should be noted that these models were created at a time when it was
easier to identify a given nation within a given model; the forces of.
globalization have since then caused some blt~rring ()f lines; However,
despite this, and despite some conceptual overl!lp among them, the various
cultl.lral dimension descriptions provide valuable perspeetiyes on cultural
differences today.
Hall's Theory of High- and Low-Context Cultures

Edward T. Hall developed the concept of high- and low-context cultures. Hall
believed that a culture's identity as high or low context lay in the answer to the
question "How much context or unspoken background does someone need to
have to understand a statement or behavior?" Or, more simply, in a low-context
culture, what you say is what you mean, while in a high-context culture, what
you say is not necessarily what you mean.
High-context cultures require a great deal of background. They are characterized

by complex, usually long-standing networks of relationships, which are as
important as work and often blur the line between business and social lives.
Since members share a rich history of common experience, the way they interact
and interpret events is often not apparent to outsiders. There are rules-
sometimes exceedingly complex rules-but they are implicit, and the rules are
often applied flexibly. Countries with high-context cultures include China, Japan,
and France. Most Latin American countries also have high-context cultures.
Low-context cui lures package necessary background in the communication

itself. In a low-context culture, relationships tend to have less history. Because
individuals know each other less well and don't share a common database of
experience, communication must be very explicit. Examples of low-context
countries are the United States, the United Kingdom, and Canada.
Another way to consider the difference:

• In a low-context culture, the applicable principle is: "It's not personal. It's
just business."
• In a high-context culture, the applicable principle is: "No business until I gel
to know you personally."
76 © 2015 SHRM
.Following are some situatioi1s in which ditTerenl levels ofcontext create the
•potential for misunderstanding: . .. . .
• Negotiations~A high-context culture, such as Japan, tmiy appear to be ·
agreeing btit may not reidly have fully accepted the terms.
· • . 360-degree perfonnancc reviews ~A manager from a low~contcxt •
··.·:.,. -··< cultu~c(c.!hlhc U.S.) may misunderstand comments from highccontext
evaluators: :
• Tmining meetings-High-context· culture members frequently will not
as~ questions or ehailenge the authority ofthc it~structor.... ·.
Hofstede's Dimensions of Culture

Geert Hofstede's dimensions of culture derive initially from his research during the
1970s into cultural differences at IBM subsidiaries in 64 countries. They have been
subsequently researched in additional countries and in other occupations and
industries. (Hofstede originally defined four dimensions. He added a fifth~-long
term/shOit-tenn-later and over time revised, refined, and renamed it, even adding
a sixth variant. Its kt~y elements are captured here.)
Not all dimensions may be of the same importance in all cultures. Each offers a pair
of contrasting values, but in reality each pair provides a continuum; rarely does a
given culture exist entirely at one extreme or another.
Hofstede's dimensions are illustrated in Figure 15 on the following pages. The

figure illustrates the effect of Hofstede's dimensions on the practice of global HR;
the HR examples illustrate the effect of culture on the manager and the person being
managed.
Trompenaars's and Hampden-Turner's Dilemmas

Fons Trompenaars and Charles Hampden-Turner based their work on interviews
with Shell managers around the world. Building on the work of Talcott Parsons,
Edward Hall, and Clyde Kluckhohn and Frank Strodtbeck, Trompenaars and
Hampden-Turner presented in Riding the Waves of Culture seven "dilemmas" or
alternatives that illustrate the essential tensions between cultures.
These cultural dimensions arc described in Figure 16, stmting on page 80.
II
© 2015 SHRM 77
}i
Cross-Cultural Challenges for HR

The first challenge for global HR is to better understand each of the members
and stakeholders of their own multicultural organization and to foster the cross-
cultural communication that can help their organization succeed. The study of
cultural theory-the examination of cultural types, layers, and dimensions--can
help meet that challenge, by providing a lens through which the HR professional
can view his or her own multicultural experiences.
The cross-cultural challenge for HR can also be seen in terms of their

organization's global strategy. As explained in Section 2, any organization
seeking to expand globally must find its optimum balance between global
integration and local responsiveness. Achieving that balance requires
simultaneous understanding of the organization's home culture and of the
cultures in which the organization hopes to operate. Put another way, the cross-
cultural challenge for global HR is to maintain the integrity of the organization's
core values and mission while crafting a strategy that reflects the realities on the
ground.
Challenges of Culture
Nancy Adler (in International Dimensions of Organizational Behavior) and
other analysts list four challenges of culture for global organizations. Each can
prevent cross-cultural communication from succeeding.
)
• Ethnocentrism and parochialism. Nancy Adler characterizes ')
ethnocentrism as "our way is the best way and we are reaily not interested in
other ways of reaching a goal." Parochialism goes even further, asserting
that "there is only one way to solve a problem or reach a goal." While both
are limited world views, it is possible to alter ethnocentric views with time,
experience, and training. Parochialism is such a rigid mindset that it may not
easily be malleable.
J
.)
• Cultural stereotypes. While certain words are used to describe cultural .)
value dimensions and characteristics, these words should not be judgmental )
or contain negative connotations. A particular culture's approach to time can .l
be described without degenerating into judgmental phrases such as "lazy" or •1 J
"undependable." It is also valuable to remember that cultural descriptive 1 1
l)
. ,I•
)
82 © 2015 SHRM
. tem1s characterize group behaviors but not all individuals within a group
necessarily conform to these norms.
• Cultural determinism. "The culture made me do it." This perspective

basically absolves individuals of any responsibility for their actions. Global
HR professionals will often hear from managers in other countries that
something cannot be done because of the local culture. This may call for
further discussion about the supposed obstacles. In some cases they may not
exist, and in others the obstacles may not really be cultural resistance to the
practice but to how the practice is being implemented.
• Cultural relativism. This view holds that because cultures vary so widely
and greatly, everything is relative. There are no absolutes; everything varies
based on the situation and the cultural perspective. In fact, while cultural
differences are often considerable, global HR can refer to a reasonable set of
absolutes based on honesty, decency, and personal integrity that should
pertain across cultures.
Cultural disconnects withitnm organization must be addressed io avoid

creating "malicious compliance.'; That ~;an ticcur when headquarters .
. . dc\•elops standardized programs that fail to recognize fi)cal differences and ..
. im~oscs them on their foreign subsidiaries. Local managers know the
programs will not succeed in their standardized fonn but agree to imt>lement .·
·them and then watch them achieve the inevitable rcsults:~fnilure and
increased resistance to future programs .
.. ,_-.
Dilemma Reconciliation
Trompenaars notes that, while the roots of the word "dilemma" suggest "either/or"
propositions-as in "we will be standardized" or "we will be localized"-solutions
are not always mutually exclusive. Sometimes you can have both: a degree of
standardization (perhaps in core ptinciples, global strategy, unit objectives, and
\ knowledge related to work processes) and a degree of localization (how the tactics
r and work activities will be implemented locally). This process of charting a course
through cultural differences is referred to as dilemma reconciliation.
© 2015 SHRM 83
)
)
Trompenaars describes the dilemma reconciliation process as having four steps:

• Recognize (create awareness of cultural diversity)
• Respect (appreciate the value of diversity)
• Reconcile (resolve differences and find a common path)
• Realize and root (implement and reward actions to reconcile differences)
The journey to reconciliation can be circuitous in a global organization. Sometimes

the resolution that "us" and "them" agree on is closer to one position than the other;
other times a true compromise will be reached. With each reconciiiation, the
organization moves forward along the path of integration into a shared identity.
While its members are resolving their personal dilemmas, the organization as a
whole is learning how to communicate.
Creating Cultural Synergy

Adler describes the choices available to global organizations in dealing with
multiculturalism:
• Dominate (parochialism).
• Avoid (by ignoring the conf1ict).
• Accommodate (by ceding to local cultures).
• Compromise (by making both cultures give up something).
• Create a new alternative (through cultural synergy).
In a synergistic solution, managers consider to what degree an organizational

conflict is cultural in nature and identify the assumptions that may be contributing
to the dilemma. New alternatives are then crafted by leveraging points of cultural
similarities. Feedback from both cultures is collected to check and adjust the
so.lution as needed.
The path to cultural synergy begins with managers who have a global mindset.
They appreciate that everyone-including themselves-has a culture that shapes
their perceptions and values. Global managers then seek to understand more fully
their own cultures and, with the same depth, the other culh1res in which they
interact. Differences and similarities are identified and appreciated. (Recall the
earlier-cited comment by Brad Boyson that a globalmindset enables one to
"perceive the general patterns of commonality first and foremost.")
Lisbeth Claus, in "The Cultural Context" in the Global HR Practitioner Handbook,

recommends that global HR professionals should be aware of the stereotypes tbat
84 © 2015 SHRM
others have about them and that they have about others. They should also strive to
understand a country's institutional framework: the organizational, industry, and
professional practices followed there and the culture's major social institutions.
And, as Boyson emphasizes, an indispensable part of developing a global mindset
is practice and exposure-traveling, working in other cultures, and pmticipating in
multicultural teams.
Cultural differences should not be a barrier to a globalization strategy but a factor

that will contribute to global standards and facilitate alignment of local practices
with these standards. For example, staffing policies can be developed to ensure that
managers share the same cultural assumptions as the workforce. Performance
appraisal systems can be chosen to reflect the needs of different cultures. The
organization can also invest in identifying and developing high-potential employees
who can become truly multicultural. Cultural awareness programs can be
implemented across the global organization. However, managing cultural
differences will require global HR professionals who are literate in cultural theory
and differences and who understand what to do when faced with a cultural dilemma
that threatens a global strategy.
In "Cross-Cultural Organizational Behavior," Michele Gelfand, Miriam Erez,

and Zeynep Aycan discuss the importance of distinguishing between genuine
cultural differences and cross-cultural constants. For example:
• Workers across cultures strive for feelings of self-efficacy, achievement, and
competence. But whether feedback is more effective delivered individually
or to the group varies depending on whether the culture is collectivist or
individualistic. That cultural difference also affects the extent to which group
success translates into feelings of personal achievement.
• Empowerment has resulted in lower performance and lower job satisfaction
! in high power distance cultures. However, empowering projects were carried
J out successfully in these cultures by associating them with cultural values
) (Islamic values in India, family and community values in Mexico) and using
f authority figures as role models.
• The impottance of equity and fairness in the individlJal-organization contract
) exists across many cultures, but their criteria for equity can differ. For
example, Koreans are more likely than Americans to weigh seniority,
education, and family size in judging pay fairness.
© 2015 SHRM 85
Similar examples of universal values versus culturally specific interpretations

were found in areas such as organizational commitments, negotiation and
dispute resolution, and teamwork attitudes. In short, finding the underlying
universal principles and understanding the hows and whys of each culture's
specific applications can help create cultural synergy.
86 © 2015 SHRM
Progress Check
I. What would be the preference of someone possessing a global mindset?

( ) a. Process rather than structure
( ) b. Individual responsibility rather than teamwork
( ) c. Prioritization rather than balancing contradictions
( ) d. Predictability rather than opportunities presented by change
2. What is a key organizational benefit of being staffed by people who possess a global mindset?
( ) a. Able to efficiently maintain more-complex organizational hierarchies
( ) b. Less need to initiate expensive foreign assignments
( ) c. More rapid and efficient sharing of best practices across operational units
( ) d. Greater ability to attract foreign investors
3. What is one effective way to promote a global mindset within an organization?

( ) a. Recruit staff familiar with the organization's home culture.
( ) b. Emphasize long-te1m relationship building as well as short-term task accomplishment.
( ) c. Ensure that staff fi·om different cultures work only with customers from their own
)
culture.
.
.!
( ) d. Institute policies to reduce the need for international assignments .
) 4. What is the term for a set of beliefs, attitudes, values, and behaviors shared by members of a
) large group and passed down from one generation to the next?
)
( ) a. Global mindset
y
( ) b. Culture
)
( ) c. Assimilation
)
( ) d. Globalization
5. What is meant by the notion that we each function within a complex cultural matrix?
( ) a. We each belong to a culture that must coexist with multiple smTOunding cultures.
) ( ) b. We each belong to only one culture, but that single culture has many dimensions.
) ( ) c. Even those of us without culture must function alongside others from multiple
cultures.
( ) d. We each belong to several different types of cultures, each of which has multiple
dimensions and layers.
© 2015 SHRM 87
6. What cultural layer is exemplified by the pasta dishes that are unique to Italy?
( ) a. Nonns and values
( ) b. Basic assumptions
( ) c. Artifacts and products
( ) d. Implicit culture
7. How would Hofstede label a culture that is nurturing, empathetic, and oriented toward
quality of life and that strives for consensus?
( ) a. High feminine
( ) b. High uncertainty avoidance
( ) c. High individualism
( ) d. High power distance
8. How would Trompenaars and Hampden-Tumer label a culture in which individuals express
their emotions freely?
( ) a. Particular
( ) b. Synchronic
( ) c. Affective
( ) d. External
9. What challenge to effective cross-cultural communication is faced by an organization that

believes that their way is the best way and who lack interest in other ways of reaching a goal?
( ) a. Cultural stereotyping
( . ) b. Cultural determinism
( ) c. Cultural relativism
( ) d. Cultural ethnocentrism
88 © 2015 SHRM

l. a (p. 67)
·~ 2. c (p. 68)
3. b (p. 69)
4. b (p. 71)
j 5. d (p. 72)
6. c (p. 74)
J
7. a (p. 79)
8. c (p. 80)
9. d (p. 82)
© 2015 SHRM 89
Section 4:
Managing Global Assignments

• Developing and implementing a comprehensive strategy to address issues affecting
business, people, and the workforce on a global basis.
• Consulting on and developing strategies to define global competencies.

• Managing international assignments (e.g., approaches and trends, effective performance,
compensation adjustments, employee repatriation).
• Taxation approaches.
• Totalization agreements.
• Visa and work permit considerations.
Strategic Role of Globai·Assignments

According to a survey of CEOs and HR senior managers by the workforce
solutions provider Right Management, 42% of global assignments are deemed a
failure-an enormous loss of oppmtunity and invested resources.
Some of those failures are certainly due to missteps during the assignment
process: flawed candidate selection criteria, poor training and preparation for the
assignment, inadequate support during the assignn1ent, or a
repatriation/redeployment process that didn't allow the assignee or the
organization to fully benefit from the global experience. Each of those critical
process steps is examined in this section.
But too many global assignments are denied success before they even begin
because they are made for the wrong reasons. Section 2 discussed the importance
of having a globalization strategy rather than approaching global expansion from
a purely tactical perspective. The same logic applies to global assignments.
According to Stroh, Black, Mendenhall, and Gregersen, organizations approach
global assignments from either a strategic-systematic or tactical-reactive
perspective, as shown in Figure 17.
Approach global assignments as long-term Approach global assignments as short-term

investments. expenses.
Develop future executives with essential Focus on a quick-fix approach to a short-term
global perspectives and experiences to problem in a foreign operation.
formulate and implement competitive
strategies.
Increase the effectiveness of critical Randomly and haphazardly perform some
coordination and control functions between functions of assignments and focus attention as
and among the home office and foreign problems arise.
operations.
l
Effectively disseminate information, Fail to systematically integrate .the worldwide
)
technology, and values throughout the organization in terms of values, technology,
worldwide organization. products, and brand.
)
Figure 17: Approaches to Global Assignments
)
)
As the figure implies, approaching global assignments tactically or reactively rather
than strategically means that, at the least, the organization foregoes the benefits of
talent development and retention, building of cross-cultural fluency in its future
© 2015 SHRM 91
leaders, and growth in institutional knowledge and knowledge sharing. A purely

tactical approach may also lead to a higher rate of failure in global assignments.
To a significant degree, the nature of an organization's business strategy

determines its approach to global assignments. Organizations that have, in
Christopher Bartlett and Sumantra Ghoshal's terminology, a more multidomestic
or international strategy may:
• Choose average and good performers as assignees.
• Send their assignees to another country to manage a project or get a
particular job done.
In contrast, organizations with a global strategy (Bartlett and Ghoshal 's

transnational enterprise):
• Use a wide variety of global assignment types.
• Choose high-potential managers and top executives as assignees.
• View assignments as leadership, career, and organizational development
opportunities.
• Make assignments for many reasons other than situational project
management or remedial intervention to fix a problem.
Organizations that are entering the global marketplace for the first time may
find it helpfiJl to establish a staffing policy, such as staffing locally wherever
possible and promoting from within the organization, before making assignee
decisions or staffing a new operation. The presence of a core staffing policy can
simplify the local staffing and global assignment decision-making process.
Types of Assignments
Not so very long ago, any mention of global assignments would have conjured
up a single, well-defined image: the "expat." An expatriate, or ex pat, was an
employee from an organization's home country assigned to relocate to an
international jutisdiction for an extended petiod of time, generally two or more
years. The organization was an MNE, its home country was almost certainly a
developed nation, and the assignment was their idea, not the expat's (who, in
accepting the assignment, may well have expected considerable "perks" for his
or her troubles). By the traditional definition, a European citizen assigned to
work in another EU country would be considered an expat, while someone who
had self-selected to live and relocate in another country would not.
92 © 2015 SHRM
That notion of an expat has since lost its original meaning due to the degree and
proliferation of globalization itself. The term "expatriate" is derived from the
Latin "ex" (meaning "out") and "patria" ("homeland"). But in today's globalized
marketplace, a Mexican employee of a Japanese multinational organization, who
was previously based in the Netherlands, may now be assigned (or may request
assignment) to the organization's Canadian subsidiary. (Recall the example in
Section 2 of L'Oreal's Latin America hair-care products team, led by a
Lebanese-Spanish-American and a French-Irish-Cambodian, each of whom had
first had long-tetm assignments in Paris, New York, Singapore, or Rio.)
Accordingly, an employee who is being reassigned to an international

jurisdiction is now generally referred to as an international assignee, or IA
(while "expat" now generally refers to anyone who is not a citizen of the country
in which they reside and doesn't intend to become a permanent resident).
)
';
Another key aspect of the traditional image of the ex pat has changed-the sense
) of isolation. The Internet, smartphones, tablets, Skype, Twitter, and related
)
communications platforms and technologies have radically altered the
)
international assignment experience. Contact with colleagues, family, and
')
friends while abroad can now be constant and instantaneous. Maintaining a clear
)
picture of how the world's events look and are being interpreted back home is
now easy. That doesn't eliminate the "foreignness" of the international
)
assignment (or shouldn't-if overused or misused, virtual connections can create
)
a cocoon that separates the assignee from the host culture), but it can change the
) comfort level. This is especially true for younger generations of workers who,
)
tablet and smattphone in hand, feel "at home" (and, equally, "at office")
I
wherever they go.
)'
)
The changing shape of globalization has likewise meant a move away from the
)
traditional, long-term expatriate assignment toward newer, more flexible uses of
)
global talent. Briscoe, Schuler, and Tarique identify a dizzying an·ay of
intemational employee situations. Not all are strategic (some may not even be
wise), but they reflect the full range of real-world possibilities. These include:
• Globalists, who spend their entire careers in intemational assignments, moving
)
from one locale to another.
J
• Local hires, who are hired locally in subsidiary countries (and are also known
r
as HCs, host-country nationals).
© 2015 SHRM 93
• Short-term assignees, who are on assignment for less than a year but more than
a few weeks, often without moving the family.
• International assignees, who are traditional expatriates on full relocation
assignments lasting from one to tlu·ee years.
e Just-in-time expatriates, who are ad hoc or contract workers hired for a single
assignment.
Two mining industry firms, one japanese and one American, arc entering
into a first-time joint venture (JV), based on the Japanese firm's desire to
learn and import the fracking gas extraction process and the U.S. firm's
desire to develop additional markets for its fracking technologies.
Global ;;~nd
Cultural Although based in the U,S, the JV executive team and senior management
Effective- are largely Japanese nationals. Thus the JV involves two very different
ness workplace cultures: a Japanese white-collar "salary man" culture and an
Comoetencv
-- .- .. American entrepreneurial frontier mindset. The challenge for the head of HR
in Action
is to ensure that the transfer of knowledge is not fatally inhibited by these
cultural differences. She knows that truly developing intercultural wisdom in a \
relatively short time is extremely difficult. Her solution is an intensive cultural
immersion program for the respective JV project leads, with a personal
dimension added: living with a host family.
Before the JV becomes operational, a JV lead from each company is sent to
his or her counterpart's home office to live with that lead's family for a three-
month workplace immersion. Accordingly, JV leads are selected as one
would select candidates for a long-term international assignment. As part of
the program, each lead also develops, with HR, a one-day cultural
awareness workshop to be used to induct all new JV staff. Lastly, a second
lead from each partner organization will participate in a follow-up six-week
intensive cultural immersion once the first two JV leads return. This reduces
the risk for both organizations of becoming overly dependent upon any one
key person and creates a pipeline of succession.
Managing Aliegiances
Just as organizations use global assignments for a wide variety of business
reasons, the individuals who accept or seek out these positions also do so for a
variety of personal, career, and other reasons. Regardless of an employee's
reason for accepting an assignment, these situations add another dimension to
the individual's experience and another category of responsibilities. They
inevitably create some tension and conflict between the individual's allegiance
to the home-country/headquarters location and to the local operation and
94 © 2015 SHRM
situation in the host country. The degree of tension can be affected by a variety
of factors, including the length of the assignment, the assignee's country of
origin and age, and the number and types of previous assignments. To use
language developed by Black, Gregersen, and Mendenhall, allegiances can
range from a "homebound" refusal to assimilate into the local culture to a "go
native" full embrace of local culture and work modes.
Understanding the level and type of allegiance of a potential assignee may help
the organization:
• Identify and recruit the individual who will be most successful in a
pmticular type of global assignment
• Acquaint the assignee with the ways their allegiance may be challenged and
the stresses they may encounter.
• Anticipate repatriation and support any unique needs the assignee may have.
Global Assignment Guidelines

As orgm1izations plan for and manage global assignments, there are several
things they can do to ensure that the assignment will be successful for both the
individual and the organization.
View assignments as a process, not an activity.

• Consider assignments within the broader context of the organization's
overall business strategy and leadership development activities.
• Make sure that the assignment process is clearly aligned with other
organizational initiatives.
Recognize and consider all dimensions of the assignment experience.
I • Consider family, logistical, legal, cultural, organizational, and other issues

in addition to the immediate concerns of the employee.
l • Identify potential risks to the assignee and the organization-for example,
health or security risks associated with specific assignments.
• Make sure that all criteria (not just a candidate's functional competence and
communication skills) m·e considered during the selection process.
Conduct thorough and professional assessments of candidates.

• Confi1m that the selection process is based on the correct criteria.
• Involve the right people in the selection process.
• Plan ahead and allow adequate time for selection.
© 2015 SHRM 95
I
)
Establish and maintain realistic expectations.

• Avoid turning the selection process into a selling or marketing campaign.
• Communicate both the benefits and the challenges of the assignment.
• Encourage the candidate to talk to repatriated assignees.
Provide training.
• Provide cross-cultural training for the whole family.
• Provide language training; it is usually an essential requirement.
Provide appropriate health and safety support.

• Make sure that assignees receive necessary vaccinations.
• Make plans for in-country security, health-care coverage, and emergency
evacuation if needed.
• Establish a communication system that allows the organization to locate
assignees at all times and confitm their status. Assignees should also have
the means for emergency contact.
Provide well-planned, ongoing training and support.

• Anticipate potential assignee challenges and prepare contingency plans.
• Make sure that the assignee doesn't feel abandoned during the assignment.
Plan, prepare for, and support repatriation with the same care as
expatriation.
• Develop plans to ensure retention of the repatriate; repatriates who leave
represent a loss of the organization's investment in the development of that
employee.
• Recognize that the greatest contribution to both the organization and the
employee may occur when the employee returns home.
Address problems quickly, thoroughly, and responsively.

• Recognize that problems will occur.
• Look for the reason a problem.occurred after responding to it.
What Managers Should Know

According to Michael Schell and Charlene Solomon, managers making global
assignments need to be prepared to answer candidate questions and engage
effectively in the selection process. Figure 18 lists their preparation guidelines.
96 © 2015 SHRM
Managers should know as much as possible about:

• The country or countries to which they • The process of cross-cultural adjustment
are sending assignees. to anticipate the feelings the assignee
• Essential developmental assignments may experience.
and experiences. • Cultural dimensions and the effect these
• The specific job function and assignment dimensions have on the way different
objectives and what effects the cultures look at life.
assignment location will have on these • Potential problem areas associated with
factors. the assignment.
Figure 18: Schell and Solomon's Management Knowledge Guidelines
Figure 19 provides a checklist for effective intemational assignment

management. Key concepts are discussed in this section.
0 Use additional selection criteria (beyond 0 Create policies, counseling, and

fluency in the host language and technical management systems that span the
skills). Evaluate assignment candidates as process from pre-departure planning
well on key traits such as flexibility and through on-site management to completion
adaptability. and repatriation.
0 Make cultural adaptability training for 0 During the international assignment,
assignee and spouse part of the selection develop and implement ongoing programs
process. that foster and retain intercultural
0 Mandate cross-cultural training for assignees competencies and global knowledge
and their families to reduce the risk of failed management practices.
assignments, to manage expectations, and 0 Begin post-assignment debriefing before
to facilitate adjustment and performance. the assignee returns from the assignment
0 Ensure that the international assignment and immediately upon return. lise
policy is clear and specific. debriefing information to establish a
0 Begin repatriation planning and succession database of relevant learning.
management before the assignee leaves the 0 Link social responsibility and ethics.
home country and continue it at least one full Develop programs that foster ethical
year before the end of the assignment. conduct and support of the local
0 Maintain a point of contact for assignees community. Tie ethical values directly to
while on assignment. accountability in practice.
0 Provide repatriation integration training for 0 Complywith applicable labor standards,
the assignee and family. laws, and regulations that affect the
0 Use experientially derived pre- and on-arrival business in different parts of the world,
international assignment orientation including national and extraterritorial laws.
programs for all inbound employees who are
visiting headquarters as well as for all
outbound employees visiting international
operations.
Figure 19: Checklist for Effective Assignment Management
© 2015 SHRM 97
The Global Assignment Process

Most organizations follow a similar, sequential, multistep process in selecting,
preparing, deploying, managing, and repatriating assignees, at least for
assignments that are strategic or are intended to last several months or years.
While the process appears chronological and straightforward, there are a number
ofbusiness, strategic, cultural, financial, and other contextual factors that
influence each stage. The stages of the process are shown in Figure 20 and
di$cussed in detail be]ow.
····------···-----··--· · -
i
istage1:
'-.
Repatriation /
A !Assessment
selection
and
eassign-
ment 1• • • • • •
:.
. --· ., .. ------·- -----·

:Stage 5: . Stage 2:
, Completing the ; Management and
i assignment ; assignee decision
Stage 4: 'Stage 3:
! On assignment +----:. Pre-departure
, preparation
Figure 20: Global Assignment Process
Stage 1: Assessment and Selection

The assessment and selection of assignees is not only the first step in the assignment
management process; it also represents one of the most important detetminants of
success. A primary purpose of the assessment and selection process is to ensure that
the organization has the right people in the right places at the right times.
There are four key aspects to assessment and selection:

• Develop the selection criteria.
• Involve the right people.
• Choose the best selection methods and tools.
• Complete the assessment/make a recommendation.
98 © 2015 SHRM
·~
\ WORKPLACE HR in the Global Context
~
i Figure 21 lists the key activities involved in each aspect.
1. Develop the selection • Develop specific selection criteria for the assignment.
criteria. • Create a assignee talent pool.
2. Involve the right • Identify and contact candidates from the pool.
people. • Involve the candidates' spouses, significant others, and
family members, as appropriate and legally permissible.
J '!' Contact and schedule home- and host-country managers
to participate in the assessment.
. }, • Coordinate vendors and consultants who will be involved in
I
3. Choose the best Develop multiple data-gathering instruments .
selection methods • Conduct interviews and ensure that surveys are
and tools.
I 4. Complete the • Analyze data .
\ assessment/make a • Schedule subsequent rounds of interviews and
I \
recommendation.
•
assessment sessions, as required.
Make the final recommendation and selection .
) Figure 21: Global Assignee Assessment and Selection

,J
)
Stage 2: Management and Assignee Decision
Once the candidate has been selected, the organization has the information it
) needs to engage in due diligence regarding the costs, benefits, logistics, and
) other aspects of the global assignment. Likewise, the candidate must evaluate
) the assigrunent offer to be sure he or she is making a sound career and personal
decision. Activities occuning at this point include:
• Analysis of the costs and benefits of the assignment. Global assignments,

)
)
like other major organizational investments, must produce specific and
quantifiable benefits to justify their funding and execution. Detailed analysis
)
of the return on investment in assignments is a growing trend and an
)
increasing concern in global organizations.
)
• Preparation ofthe assignment plan. The global assignment plan guides
the assignment process and clarifies both the organization's and the
)
assignee's expectations of the assignment situation. The global letter of
y
assignment is a key document that evolves from the assignment plan.
)
© 2015 SHRM 99
Typically, the letter of assignment is a memorandum of understanding

(MoU) stipulating the business aspects of the assignment as well as
compensation, benefits, and local work rules. Depending on regulations in
the host country, other legal requirements may need to be satisfied by the
letter of assignment.
• Candidate acceptance or rejection of the assignment offer. Just as the

organization follows a process in assessing the potential costs and benefits
of the global assignment, the candidate should also be given access to
people and information needed to make a sound personal and career
decision. Aspects the candidate should consider include:
• Longcterm career advantages.
@ Adequate financial incentives.
• Opportunities for growth and learning.
~ Family suppmt and opportunities to balance inten11ption of children's
education and spouse's career.
• Desirability of the location.
Stage 3: Pre-Departure Preparation

By the completion of this stage, the assignee and his or her family should have
the practical knowledge and day-to-day survival skills they will need during the
first months in the host country.
Because of the complexity of global assignments, organizations often use

specialized third-patty vendors to coordinate and manage key aspects of the
deployment process. Organizations that don't use the services of third-party
vendors should create a pre-departure checklist to anticipate and address all the
key issues to be resolved before the assignee leaves the home country. Four
aspects of pre-departure preparation~visas/work permits, taxation
considerations, security briefings, and cross-cultural counseling--deserve
special mention.
• Visas and work permits. Different countries have different visa and work
permit (employment authorization) regulations and requirements. Shoit-
term assignments may be easier to atTange than periods over 90 days. An
individual cannot enter most countries to look for a job; the job must
already exist and the work authorization is usually contingent on the
100 © 2015 SHRM

-~
~ WORKPLACE HR in the Global Context
; employer's ability to demonstrate that comparable skills do not exist in the

local workforce.
Time is a critical factor in two senses-first, the organization must plan for
how long it will take to obtain the necessary documents; second, the
organization must be aware of any time restrictions (expiration dates) on the
visa and/or permit. All these considerations are in the hands of the embassy
f.
I or consulate office of the host country. Ensuring that there is compliance
) with all requirements is up to the organization.
)
·~I) • Taxation considerations. Organizations generally take one of four

approaches to handling taxes for their international assignees. These are
l
described in Figure 22.
? I
I
)
I
)
I
I
I Laissez-faire The employee is responsible for any May discourage candidates for high-
) taxes incurred. tax-country assignments.
I
)
Ad hoc Each expatriate employee As an organization's international
I)
negotiates his or her own tax program grows, the negotiation
approach with the company. process can become cumbersome.
Tax protection The organization calculates the Inequities among assignees to
assignee's hypothetical tax had he different countries can become
)
or she remained at home, compares problematic.
) it with actual taxes paid abroad, and
reimburses any disparity. (The
assignee keeps any difference from
) assignment in a low-tax country.)
J
Tax The organization ensures that the While ensuring equity among
)
equalization assignee's tax situation is neither assignees, this approach requires
I better nor worse than it would have more administrative resources than
been at home. A hypothetical home- the other methods.
)
country tax is withheld; the employer
) pays or reimburses foreign taxes.
Figure 22: Assignee Tax Approaches

)
I o Security briefings. Briefings of this type are a requirement, especially for
) international assignments in a volatile part of the world. There are two
important aspects of a security briefing: (1) personal and family safety abroad
© 2015 SHRM 101

and (2) business aspects of security, including physical and intangible threats
to the organization's employees, assets, and intellectual property.
• Cross-cultural counseling. Conducted both before and during the global

assignment, cross-cultural counseling can increase the likelihood of the
assignment's success. Components of a comprehensive cross-cultural
counseling and preparation process include:
~ ,A.._ preliminary situation and needs t~ssessment.
• A country overview and information on everyday life.
• A business overview.
• Personal cultural awareness activities.
• Discussion of family and international relocation issues.
• Country-specific case studies.
• A customized and detailed support and settling-in program.
Stage 4: On Assignment
Assignee adaptation to the new location may take a year or more and often
includes several distinct phases: honeymoon, culture shock, adjustment, and
mastery.
• Honeymoon. Everything is new and exciting, and everyone is pleased that

they made the decision to come abroad. Usually, there is ample support from
home and host countries during the early stages of the assignment.
• Culture shock. Novelty and enjoyment tum, in varying degrees, to

disillusionment and dissatisfaction, as the challenges ofliving and working
abroad become clear. Support structures recede, and the assignee and family
must increasingly fend for themselves.
• Adjustment. Working and living in the host country gets easier and more
familiar. Assignees are unlocking the code, learning the norms and pattems
of host-country behavior and how to get things done. This does not occur
naturally but takes interest and motivation.
• Mastery. After several years of adjustment and continual learning, the

mastery stage is entered. Oberg termed this the "biculturalism" stage.
Assignees are able to participate fully and comfortably in the host culture.
102 © 2015 SHRM

Most assignees actually experience this adjustment process twice: once going
abroad to their initial assignment and then when they return home or go to
another country. Reverse culture shock can be just as challenging and unsettling
as the initial cultural adjustment.
Figure 23 lists ideas for HR support during an assignment that can ease the
adjustment process.
0 Assist assignees in obtaining a host- 0 Collect compensation and tax

country tax ID number. data that is needed for home-
I 0 Assist assignees in obtaining a driver's country reports.
license. 0 Coordinate emergency leaves
0 Coordinate assistance with bank and visits to the home country.
accounts and credit cards in the host 0 Communicate regularly wiih ihe
country. assignee's home-country
)
0 Perform host-country orientation. mentor{s).
0 Review and approve host housing leases 0 Begin active repatriation efforts at
) and issue security deposits. least six months before the
assignment ends.
0 Update allowances and deductions as
conditions change in the host country. 0 Process visa and work permit
renewals and extensions.
0 Process and track required tax payments.
Figure 23: Checklist for HR Support During an International Assignment

)
}
) Stage 5: Completing the Assignment
While completing the assignment may be one of the most important aspects of the
/ assignment process, it is frequently overlooked. There are two aspects to
completion: repatriation and redeployment.
) Repatriation involves reintegrating employee back into the home country after an
) international assignment. lt includes adjustment to the new job and readjustment to
the home culture and conditions (including any potential reverse culture shock).
) Redeployment does not always involve repatriation. An assignee's next

J assignment can be back in the home country, in a different global location, or in a
new location or new position in the current host country.
© 2015 SHRM 103

Repatriated employees have a critical role to play in global organizations. Their

international experiences enable them to contribute invaluable knowledge to the
organization's globalmindset and understanding of the world market as well as
serve as role models and potential mentors for future assignees.
If not repatriated effectively, assignees may go through an adjustment cycle that is

very similar to the one they experienced upon their initial arrival in the host
country Organizations may make the process more difficult by failing to provide:
• Adequate notice that the assignment is ending.
• A clear repatriation plan.
~ Assurance that the skills and experience the assignee acquired during the
assignment will be used effectively in his or her new assignment.
• Repatriation suppmi services (which may range from mentoring and
cmmseling to logistical support and compensation and benefit adjustments).
104 © 2015 SHRM

Progress Check
1. What is a key aspect of implementing a strategic-systematic approach to global assignments?

( ) a. Focus on a quick-fix approach to a short-term problem in a foreign operation.
( ) b. Approach global assignments as short-term expenses.
( ) c. Develop future executi-ves with essential global perspectivljs anU experiences.
( ) d. Perform coordination and control functions between the home office and foreign
operations only as problems arise.
2. How has the traditional role and definition of an "expat" changed?

( ) a. Assignments today are made only from the home office to a foreign subsidiary.
( ) b. Technology has eliminated much of the sense of isolation in a foreign country.
( ) c. The average time frame for assignments has now lengthened.
( ) d. Growing travel expenses and lower labor costs abroad have nearly eliminated
foreign assignments.
3. What is one critical step in the candidate selection process?

( ) a. To ensure that the selection process stays focused on the actual job assignment,
interview only the candidates themselves.
( ) b. To assure a consistent assessment, use only one data-gathering instrument.
( ) c. In the interest of objectivity, keep home- and host-country managers out of the
selection process.
( ) d. To ensure a broad selection of qualified candidates, create and maintain a
potential global assignee talent pool.
4. What term describes the approach to handling assignee taxes in which the employee is
!
responsible for any taxes incurred?
( ) a. Laissez-faire
)
( ) b. Ad hoc
)
( ) c. Tax protection
)
( ) d. Tax equalization
)
) 5. Which stage of assignee adjustment occurs as the assignee becomes fully aware ofthe
) challenges of working and living abroad?
( ) a. Honeymoon
( ) b. Culture shock
( ) c. Adjustment
( ) d. Mastery
)
© 2015 SHRM 105

)
)

1. c (p. 91)
2. b (p. 93)
3. d (p. 99)
4. a (p. 101)
5. b (p. 102)
106 © 2015 SHRM

Section 5:
Navigating the Global legal Environment

• Implementing and conducting audits of global HR practices.

• Global legal systems (e.g., different nations' approaches to government-mandated,
government-provided, and voluntary benefits, extra-territoriality of laws and legislation).
• Visa and work permit considerations.
)
World Legal Systems

1ust as global HR professionals must leam to interact effectively with a multitude
of cultures, they must also learn to work within a complex framework of different
legal systems. As Section 3 discussed, there are multiple types of cultures and
multiple dimensions and layers to any given culture; likewise, there is a complex
matrix of legal stmctures that apply within and across the countries and regions in
which an organization operates. Global organizations face the challenge of
creating policies and practices that comply with these multiple legal systems.
Consider, for example, a global organization with headquarters in Brazil and

oftlces or facilities in Mexico, Costa Rica, Germany, China, the U.S., and the
Philippines. Such an organization must create and enforce policies and procedures
that comply with:
• Brazilian laws about corporate governance, taxation, and working conditions.
• German laws regarding works councils (local plant- or finn-based worker
representative organizations that meet with management to apply and
customize national labor agreements to local conditions).
• German practices related to two-tiered boards of directors. (Some firms have a
separate executive board for day-to-day operations and a supervisory board
elected by shareholders and employees.)
• Regulations of China's state-controlled All-China Federation ofTrqde Unions
(ACFTU-China's nationalized workers' organization and the world's largest
trade union).
• Regulations of the Philippine Overseas Employment Administration
(established to promote, protect, and monitor the foreign employment of
Filipino workers).
• Each host country's legal requirements regarding taxes, immigration, business
operations, cmporate governance, data protection, labor and employment,
import/expmt rules, ethics/anti bribery rules, and workforce relations.
• Any extratenitoriallaws extending home-country requirements to citizens
traveling abroad and entities operating in host countries.
• Any trade agreements involving these countries.
As another example ofthe complexity of the legal matrix, global organizations

located in the European Union, whose member states have harmonized their legal
systems to some degree, must be mindful of any differences that might exist
108 © 2015 SHRM

between the European Union and its individual member states. Likewise, an
organization operating within the U.S. must be mindful of the legal requirements
of the various states in which it operates.
And, like every other aspect of globalization, the legal landscape is constantly
redefining itself. Sometimes a wave of legislative change may sweep across
several countries, often in response to global changes, as with recent
environmental regulations, technology-related privacy laws, or laws regarding
same-sex man·iage. Other legal changes may be country-specific, such as the
United States Supreme Court's rulings that assign rights of personhood to
corporations.
This section will examine the various dimensions and layers of that legal matrix.
It is not intended to make you expert in all the laws that will affect your work. In
fact, we strongly recommend the use of expert legal advice, both in specific
disciplines, such as taxation, and in the laws of specific countries. We do aim at
helping you to understand the principles followed by major legal systems in the
world and how their goals may touch on strategic global HR management.
Types of legal Systems

To continue the analogy with culture, recall the discussion of cultural layers in
Section 3, which described the innennost layer as containing a culture's core
beliefs, values, and principles. Likewise, at the heart of any legal system is a set
of core beliefs about what constitutes right and wrong. To comply with-and
anticipate the requirements of-a system of laws, it helps to have a basic
understanding of the core beliefs and values on which it is based.
To that end, we begin with descriptions of the three major types of world legal
systems:
• Civil law (based on written codes)
• Common law (based on judicial decisions over time)
I • Religious law (based on religious beliefs and codes)
As with the discussion of culture, these must be viewed with a critical caveat in
mind: In the real world oflegal systems, the types defined here often appear in
mixed forms.
I
© 2015 SHRM 109
(

\.
Civil Law i I
Civil law is a system based on legislation: wdtten codes (laws, rules, or

regulations) approved by legislative bodies. The law is applied deductively in I I
each case, starting from the abstract rule that has been stated in the nation's
civil law code. Each judicial action is bound by the letter of the law-the laws '\
are not affected by judicial decisions.
For example, the EU Working Time Directive says that all employees in the
European Union are entitled to four weeks' annual leave. If an employee or
group of employees believes that their lights have been violated, the matter may '
be brought before a legal court, which will make a decision by applying the
specific language ofthe directive to this patticular case.
The civil law concept is probably the most prevalent form of law in the world. It
is found throughout Europe and in much of Asia, Africa, and Latin America.
'.
Common Law
.. •
Common law is based on legal precedent: each case is considered in terms of

how it relates to judicial decisions that have already been made. Common law
evolves through judicial decisions over time. Some common laws have been
codified, as in the Uniform Commercial Code in the United States, which is
applied to commercial transactions.
For example, employee relations in the United States is covered under at-will
employment, a uniquely American doctrine derived from U.S. common law.
Imagine that an employer tenninates an employee so that the employer can hire a
relative. The employee sues for damages or reinstatement. The lawyers for both
sides put f01th the facts of the case, identify all relevant previous at-will
employment decisions, extract from those decisions the key legal principles, and
then articulate how those principles apply to the present case. Then the judge (or
jmy) analyzes the facts and applies the legal principles derived from previous
cases to decide the complaint. In this way, common law is created by judges,
while civil law is created by legislators.
Because legal precedents are not always considered binding and because legal
positions evolve over time through a series of cases in which analyses may differ,
common law can change gradually--at-will employment provides a perfect
example of such change over time.
110 © 2015 SHRM

Common law forms the basis of legal systems in the United Kingdom and
countries historically linked to it: Canada, the United States, India and Pakistan,
Australia and New Zealand, Guyana, Kenya and Uganda, and Malaysia. As stated
earlier, many nations have codified their bodies of common law, and some
systems embody principles of both civil and common law, such as the Canadian
province of Quebec, South Africa, and Argentina. In the U.S., the state of
Louisiana combines civil law and common law, reflecting its unique mix of
French, Spanish, and English historic influences.
Religious law
Religious law is based on religious beliefs and conventions: a mixture of written
codes and interpretations by religious scholars. Sharia law, the body of Islamic
religious law, for example, draws from the Qur'an, traditions derived from the
actions or sayings of the prophet Mohammed, and scholarly interpretations of
these sources.
Most world religions have their own bodies of Jaws and legal processes.
Besides Sharia, there are Catholic canon law, the Jewish Halakha (which
includes biblical, Talmudic, and rabbinical laws), Hindu law (which is one of
the many threads in Indian law), and others.
HR professionals must be aware of the relationship between civil and religious

) laws in the countries in which their organizations operate. In some cases,
) religious law may aftect employees' work lives. For example, global employers
) may implement policies accommodating religious obligations, such as prayer
) time during the workday, scheduling to accommodate fasting, or compliant
investment programs for retirement funds. ln other instances, religious law can
be a parallel institution to civil law.
) Sharia law, for example, affects a broad spectrum of behaviors:

) • Religious behavior (defining beliefs and ritual obligations and punishments)
• Commercial transactions and contracts (forbidding, for example, the
) charging or paying of interest on loans or excessive profit taking)
) • Manners and morals
) Sharia also defines the penalties for those behaviors, often incorporating the
principle of retributive "eye-for-an-eye" justice. It affects Muslims living in a
© 2015 SHRM 111

country in which Sharia is recognized as well as observant Muslims living

outside their home countries. It generally is not applied to non-Muslim
minorities in a country.
Sharia has influenced civil law in some countries in the same way that
canonical (church) law and natural law have influenced the development of
European civil law systems. How it is applied in civil law is highly variable
!Tom nation to nation and within nations. Sharia may be incorporated into a
country's constitution or in aspects of its civil law system.
Interestingly, the United Arab Emirates (UAE) offers an example of all three
systems--civil, common, and religious--coexisting. The UAE is a Sharialaw
jurisdiction, heavily influenced by civil law codification, which generally
excludes common law principles. However, Dubai, one of the emirates,
includes the DIFC (Dubai International Financial Centre) free trade zone. To
promote international trade, the DIFC has its own legal system, modeled on
international standards and common law principles.
Sharia legal systems are dominant primarily in the Middle East (including Saudi
Arabia, the UAE, Syria, and Iran) but also in Africa (including Sudan and
Libya) and in Asia (Bangladesh).
Key Concepts of law

There are some basic legal concepts that help explain and describe how (or, in
some cases, whether) legal systems work and how an organization can expect to
be treated in a given location.
Ruie of Law
The rule of law is an ancient concept that stipulates that no individual is beyond
the reach of the law and that authority is exercised only in accordance. with
written and publicly disclosed laws. The rule of law essentially restrains
governments from abusing their power to deprive citizens of their rights.
The rule of law creates order and predictability, not just for the citizens of a
country but for foreign entities who may become litigants. In planning a
globalization strategy, organizations must consider the degree to which the rule
112 © 2015 SHRM

oflaw prevails in a given region-whether laws that protect the enterprise are
in place and whether the laws that are in place are actually enforced. For
example, a certain country may have laws regarding intellectual property, but it
may be almost impossible to bring suit in the country's courts for infringement
of patent or copyright.
In general, where there is rule of!aw, there is more control, greater

predictability, and less risk. The growth of globalization has been made possible
by increased rule of law through improvements in courts, adoption of new laws,
and greater commitment to enforcing laws. At the same time, global
organizations must recognize that there is greater accountability for compliance
with local laws and regulations.
Due Process
Due process, a critical component of the rule oflaw, is the concept that laws
are enforced only through accepted, codified procedures, thereby avoiding
unfair or arbitrary government action and restraining governments--or branches
of government or individual officials---from abusing their power over citizens
and entities doing business there.
Jurisdiction
Jurisdiction is the right of a legal body to exert authority over a given geographical
)I
te1Titory, subject matter, or persons or institutions. Jurisdiction directly affects
) global organizations: Territorial jurisdiction allows a legal body to decide cases
)
involving any activity that occurs within its borders (with certain exceptions). Thus
) host- rather than home-country laws may apply to corporate activities.
Because global organizations operate across multiple jurisdictions, jurisdictional

) disputes may arise. Resolution may require judicial review of the extent and nature
of the enterprise's contacts and activities within the telTitory. Sometimes, the matter
of jurisdiction must be negotiated.
)
) Two concepts related to jurisdictional issues are worth mentioning:

)
• Conflict of laws occurs when the laws of two or more jurisdictions with ties to
a lawsuit differ and in which the outcome of the case may depend on which
jurisdiction's laws are applied.
© 2015 SHRM 113

)
)
• Forum shopping occurs when plaintiffs seek to bring their suit in a jurisdiction
more likely to be sympathetic to their claims. For example, human rights
organizations have brought suit in U.S. courts against U.S. corporations for
activities occuning in other countries. The change in jurisdiction may mean
expanded discovery rules will apply, allowing enterprise documents and
communications to become public. (It should be noted that forum shopping is
rarely effective where employment contracts are concerned, since residency
laws favoring the jurisdiction in which the work is actually done tend to
prevail.)
Levels of Law
Even the simplest, most purely local business must comply with multiple levels
of law; the local barbershop must meet national health codes and tax
regulations, state employment rules, county building codes, municipal zoning
regulations, and so on. For a global organization, there are not only more layers
to contend with, but the potential for jurisdictional complications and conflicts
greatly increases. It is therefore important to understand the various levels of
law that can be in effect simultaneously.
Within a Nation
National Laws
These are laws enacted by the highest or federal legislative bodies of a country,
intended to apply across the entire nation.
Subnational
Subnationallevels might include municipalities, states, provinces, or regions
within a nation. The relationship between subnational and national laws can be
complex, especially in a federal or confederation national government, in which
there is a balance of power between national and subnationallevels of
govemment.
In the U.S., for instance, national laws may supersede subnationallaws; in

Canada, the reverse may be true. In some cases, subnationallaws may be
implementations of federal laws but with variations that allow for local
conditions.
114 © 2015 SHRM

Between and Among Nations

Extraterritorial
Extraterritoriality extends the power of a country's laws over its citizens
outside that country's sovereign national boundaries. This is important for
global HR professionals, as it can affect national organizations' intemational
functions. For example, the United States has enacted a series of laws that relate
to employment. Under certain circumstances, these laws govern the non-U.S.
operations of U.S. fitms.
This works in a few different ways. United States extratetTitoriallaws can apply
to:
• Operations within the U.S. (even by a non-U.S.-owned organization and
even if an organization's employees are not U.S. citizens).
• U.S. citizens (and sometimes non-U.S. citizens as well) working abroad for
U.S. companies.
• Non-U.S. organizations doing business with U.S. organizations. (An
example would be economic sanctions imposed on a foreign country's banks
for political reasons.)
There can, however, be a "foreign compulsion" exception where following U.S.

law violates a host country's laws.
In the Global Practitioner Handbook, Lisbeth Claus and Stephanie Moritz note
that whether extraterritoriality is invoked may rest on the impmiance of the law
and the principles it is upholding. Thus, matters of discrimination, sexual
harassment, or conuption are more likely to include extraterritoriality
provisions. Examples ofU.S. employment-related laws that apply to U.S. finns
operating abroad are the Americans with Disabilities Act, the Foreign Corrupt
Practices Act, the Foreign Account Tax Compliance Act (FATCA), the
_Sarb<mes::_Oxley Act, and IRS taxation regulations.
)
Regional/Supranational
)
These are binding agreements among nations of a region. A prime example is
)
the European Union (EU), which is a political as well as economic organization
(and which is discussed in more detail below). Regional or supranational rules
may supersede conflicting national laws among participants; this is referred to
as pnmacy or supremacy.
© 2015 SHRM 115

International
International law involves both the relationships between nations and the
treatment of individuals within national boundaries. Jurisdiction generally
derives from treaties, conventions, pacts, protocols, covenants, or similar
instruments. In other words, international laws generally apply in a country
only when that country has ratified a related treaty or agreement.
Examples include:
• Universal Declaration of Human Rights (1948).
• Geneva Conventions and Protocols (1864 to 2005).
• World Intellectual Property Organization (WIPO) Copyright Treaty
(1996).
• Declaration on Fundamental Principles and Rights at Work (1998).
Nations may also enter into reciprocal agreements regarding employment-

related issues such as totalization agreements (designed to prevent double
taxation of citizens of one country working abroad) and visas. The U.S. has
entered into totalization agreements with several nations (see Figure 24
below) to avoid double taxation of income for social security taxes. These
agreements determine if an alien is subject to U.S. Social Security/Medicare
tax or if a U.S. citizen is subject to another country's social security taxes.
• Australia • Italy
• Austria • Japan
• Belgium • Luxembourg
• Canada • Netherlands
• Czech Republic • Norway
• Chile • Poland
• Denmark • Portugal
• Finland • South Korea
• France • Spain
• Germany • Sweden
• Greece • Switzerland
• ireland • United Kingdom
Source: "Totalization-Agreements," Internal Revenue Service (U.S.)
Figure 24: U.S. Totalization Agreements
116 © 2015 SHRM

A small Silicon Valley software firm has designed a web-enabled mobile app
version of traditional business networking personal profiles. Their unique
value proposition is that their software aggregates several online sources to
Ethical derive a competency-based profile of job candidates-not simply a skill- or
Practice experience-based profile.
Competency
in Action During beta testing, they discover that many regions around the world have
completely different legal and cultural values regarding what can or should
be contained in a resume or CV. The challenge, then, is how to aggregate
and analyze this information in a way that adds value without compromising
on legal or ethical values.
The founders decide to implement a principle-based project management
philosophy: "Just because you can doesn't mean you should." The founders
believe that, to create a globally sustainable business model in this niche
between HR and technology, they must benchmark on the highest ethical
standards, even if that means compromising on the analytical information
that big data could produce.
They assign the responsibility to monitor and enforce this guiding principle to
the head of HR, in the belief that, given the business model, HR is in the
ideal position to moderate the intersection of global ethics and technology.
With or without technology, HR in a global context has a duty to adhere to
the precautionary principle. This is especially true, yet extremely challenging,
in industries where the business models, values, and ethics enter into
unprecedented territory.
In such cases, only by implementing and living ethically principled values can
the organization and global HR ,be morally proactive rather than ethically
) reactive.
)
)
)
An Example: The European Union
The European Union (EU) may at present be the only fully realized regional, or
supranational, government. The concept is discussed in other parts of the world,
though, and steps toward the model are being taken elsewhere, most notably the
) Union of South American Nations (USAN).
)
The EU provides a good example of how a supranational organization resolves
the jurisdictional challenges of being an organization of sovereign nations. It
also suggests the complexity of the net of laws with which an HR professional
) must contend.
© 2015 SHRM 117
)
Background
The European Union is a voluntary partnership in which 28 member countries
act jointly in three decision-making areas of common interest (the "three
pillars" of the European Union):
• Trade and economy (European Community)
• External security and foreign affairs (Common Foreign and Security Policy)
• Internal security (Justice and Home Affairs)
Although the union was originally conceived with an economic orientation

only, the scope of EU issues has expanded into areas beyond commerce, such as
foreign affairs and social policy. More critically in te1ms of its definition,
citizens of its member states vote directly for their nations' EU representatives.
A common visa system has also been established, and member countries are
viewed as a unified entity by international organizations such as the
International Labour Organization (ILO) and the Organisation for Economic
Co-operation and Development (OECD).
Thus, the EU differs in several regards from other supranational organizations

devoted purely to trade-such as NAFTA (the North American Free Trade
Association) or OPEC (the Organization of the Petroleum Exporting
Countries )--or to defense-such as NATO (the North Atlantic Treaty
Organization). And, in terms of direct representation, it differs as well from the
United Nations (although the UN, like the EU, has multiple spheres of interest).
The EU is not synonymous with the eurozone or euro area, which includes
those EU members who have adopted the euro as their common cunency.
Legal Institutions
The European Union has five major institutions.
• The European Parliament and the Council of the European Union draft
and pass legislation. Representatives to the Parliament are elected by
citizens of the member states. Council members represent the governments
of the member states.
• The European Commission may propose legislation and is the executive

atm of the European Union, responsible for directing day-to-day operations.
118 © 2015 SHRM

It is the driving force of the European Union. It operates through

directorates that deal with specific issues, including employment and social
affairs.
• The Court of Justice settles disputes over the interpretation ofEU treaties
and legislation.
• The Court of Auditors has fiduciary responsibilities, monitoring EU

revenues and spending.
Legal Instruments
There are five levels oflegal actions taken by EU institutions. Their principal
differences are the degree to which and the manner in which they are binding on
the member nations and, in turn, on those nations' respective citizens.
Treaties
The EU is based on the rule oflaw; all EU actions and authority are founded on
)
treaties approved voluntarily and democratically by all EU member countries. A
)
treaty is a binding agreement between EU member countries, setting out EU
)
objectives, mles for EU institutions, how decisions are made, and the
relationship between the EU and its member countries. Under the treaties, EU
institutions can adopt legislation, which the member countries then implement.
)
The EU Commission can propose laws only in policy areas specifically cited by
)
a treaty.
)
Regulations
These are EU-Iegislated acts that are directly binding on all member states.
They do not require implementation (transposing) by individual member states,
and they override any conflicting member state laws. Examples of EU
)
_ regulations are restrictions on fishing, banking, and-medical products and the
)
naming of products by region of origin.
)
)
Directives
)
These are ED-legislated acts that set a goal that all EU countries must achieve,
but each country can dete~mine how it will do so. Directives set a common
)
framework and are indirectly binding. Member states must transpose the
)
directives into their national legal system within a set period (usually two to
© 2015 SHRM 119

I
)
three years). Individuals and enterprises are, in turn, then bound to comply with
their local member state laws. For example, the Working Time Directive
(2003/88/EC) provides for a right to work no more than 48 hours a week. The
U.K. transposition allows employees to opt out and work more than 48 hours,
while the French transposition limits the workweek to 35 hours.
Judicial Decisions
The European Court of Justice hears cases and issues decisions that can affect
the way in which regulations and directives are applied. Decisions are directly
binding on those involved in the case, whether they be countries, corporations,
or individuals. For example, the commission decision finding that Microsoft
abused its dominant market position applied directly and solely to Microsoft.
Recommendations and Opinions

These are a non-binding means for EU institutions to make their views known
without incurring any legal obligations, direct or indirect.
Implications for HR Professionals

The information in this section provides a framework that may aid in
understanding the specific rules and regulations with which your organization
must comply in whatever countries it may do business. Given the complexity of
that framework, any HR professional's first and most impotiant step is to consult
with their organization's legal counsel. To better understand such legal advice, it
may also help to perform preliminary research on the laws of the particular
countries with which your organization does business.
An excellent statiing point for online research is through the "Global-Legal and
Regulatory Issues" page on the SHRM website, www.shtm.org/hrdisciplines/
globallpages/globallegalampregulatoryissues.aspx. Europa.eu (the European
Union website) provides an excellent guide to the rules and regulations with
which its member nations must comply.
120 © 2015 SHRM

Progress Check
1. What are the three main types of world legal systems?

( ) a. Civil, criminal, corporate
( ) b. Written, oral, transcribed
( ) c. Civil, common, religious
( ) d. Legislative, judicial, executive
2. Which world legal system is based primarily on legal precedent?

( ) a. Common law
( ) b. Civil law
( ) c. Religious law
( ) d. Criminal Jaw
3. Which system of law is the most prevalent in the world?

( ) a. Common Jaw
( ) b. Corporate law
( ) c. Civillaw
( ) d. Criminal law
4. What is the relation between Sharia law and civil law?

( ) a. There is none; nations enforcing Sharia law must do so exclusively.
)
( ) b. Sharia law often influences and coexists with civil law in national legal systems.
)
( ) c. Sharia law is the basis of all civil law systems.
( ) d. Civil law is a national legal system, while Sharia law is a tribal legal system.
) 5. What is the te1m for the concept that laws are to be enforced only through accepted, codified
) procedures?
) ( ) a. Rule oflaw
) ( ) b. Due process
( ) c. Conflict of law
( ) d. Jurisdiction
© 2015 SHRM 121
)
6. What is the tenn for the right of a legal body to exert authority over a given geographical
tetTitory, subject matter, or persons or institutions?
( ) a. Rule of Jaw
( ) b. Due process
( ) c. Conflict of law
( ) d. Jurisdiction
7. Whal i~cxtraterriioriality?
( ) a. Binding agreements among nations as to where trade may be conducted and under
what conditions
( ) b. An extension of the power of a multinational regional organization over the
national laws of its members
( ) c. Reciprocal agreements entered into by two or more nations regarding
employment-related issues
( ) d. An extension of the power of a country's Jaws over its citizens outside that
country's sovereign national boundaries
8. Under European Union regulations, what is the term for legislated acts that set a goal that all
European Union countries must achieve, but each country can determine how it will do so?
( ) a. Directives
( ) b. Judicial decisions
( ) c. Regulations
( ) d. Treaties
122 © 2015SHRM

I. c (p. 109)
2. a (p. 11 0)
3. c (p. II 0)
4. b (p. 112)
5. b(p.l13)
6. d(p. 113)
7. d (p. I I 5)
8. a (p. 119)
© 2015 SHRM 123

Diversity and Inclusion encompasses the qualities, life experiences, personalities,
education, skills, competencies, and collaboration of the many different types of
people who are necessary to propel an organization to success. HR demonstrates
value by creating opportunities that leverage the human experience to address
organizational needs or solve issues on a global basis.
··.:·-.
Responsibility Statements: Sample Application of Competencies:
Key responsibilities for all HR professionals • Ethical Practice-The ability to
include: recognize and mitigate the influence of
• Consulting on the difference between issues bias in business decisions.
of performance and those of culture or • Relationship Management-The ability
personal style. to manage interactions that provide
• Developing expert knowledge of global service to and support the organization
trends and best practices in diversity and from a global perspective.
inclusion. • Communication-The ability to
effectively exchange information with
• Maintaining expert global and cu~tural
global stakeholders.
knowledge.
• Global and Cultural Effectiveness-
• Facilitating an organizational culture that The ability to value and consider the
promotes a global mindset for diversity and perspectives and backgrounds of all
inclusion through development activities and parties.
experiences.
• Championing diversity and inclusion Knowledge Topics:
programs with external stakeholders (e.g., • Approaches to a multi-generational
diverse suppliers). workforce
• Providing mentoring, training, guidance, and • Developing cross-cultural relationships
coaching on cultural trends and practices to • Effective approaches to building trust
employees at all levels of the organization. and relationships
• Implementing audit practices to ensure • Emotional intelligence·
cultural awareness on a global basis. • Glass-ceiling prevention
• Demonstrating nonjudgmental respect for • High- and low-context cultures
others' perspectives. • Inclusive leadership
• Influence of the 4 T's (travel, training,
Key responsibilities for advanced HR transfers, and teams)
professionals include: • Intercultural wisdom
• In conjunction with other business leaders, • Issues related to disability, ethnicity,
developing, implementing, and overseeing gender, language, race, sexual
programs, practices, and policies that make orientation
the strategic connection between a global • Level of global acceptance of diversity
mindset and organizational success. (e.g., disability, ethnicity, gender,
language, race, religion, sexual
• Ensuring that equitability for all internal and
orientation)
external stakeholders is considered when
• Mindful communication
designing programs, policies, and practices.
• Religious influences and accommodation
• Taking diversity into account when planning
• Techniques for cultural awareness and
and implementing programs, policies, and
respect
practices.
• Fostering and influencing an inclusive
organizational culture.
• Fostering an environment that embraces
and encourages global mobility, which
allows for diverse experiences.
I
)
Introduction
"Google Steps Up Efforts for More Racial Diversity."

By Martha Mendoza and Michael Liedtke, May 29, 2014
SAN JOSE, Calif. (AP)-Google has had more trouble diversifying its workforce than
its computer scientists have had writing programs that respond to search requests in
the blink of an eye or designing cars that can navigate traffic without a human behind
the wheel.
That seemed to be the conclusion when the Silicon Valley giant this week issued a
gender and ethnic breakdown of its workforce that showed that of its 26,600 U.S.
employees, 61 percent are white, 30 percent Asian, 3 percent Hispanic and 2 percent
black. Thirty percent of its employees are women.
"Google is miles from where we want to be," said Laszlo Bock, head of personnel at
Google.
This AP news item about Google proceeds to detail not only how
disproportionate the current statistics at Google are but also why Google is
releasing this infonnation now and what steps Google is taking to rectify the
situation. The article is notable for several reasons:
• That a corporation so "global" and seemingly progressive has a diversity
ISSUe
" That Google recognizes it as a problem-as something that is limiting their

ability to succeed on a global scale-and that they define diversity as an
impmiant strategic asset
• That, despite that recognition, this is not their first attempt to rectify the
situation
• That this time the solution they propose is multi-pronged, including talent
acquisition efforts, company-wide diversity training, refocused effmts to
seed the pipeline of minority and women programmers (initiatives range
from grade school tech education for minorities and women to college
scholarships to an intern program), and a global corporate branding effort to
ensure that Google presents itself as a company that people with diverse
backgrounds will want to work at
• That Google is far from alone in working to create an effective diversity and
inclusion strategy that can both leverage the potential benefits of a diverse
workforce and minimize its costs and conflicts
126 © 2015 SHRM

WORKPLACE Diversity and Inclusion
The elements of the article on Google's diversity and inclusion (D&I) initiative that
are notable highlight the key subjects that will be discussed in this Functional Area:
• That diversity and inclusion is not just a legal requirement or a "nice to have"
goal or a "good citizenship" choice but a strategic necessity for any global
organization
• That implementing it requires a top-down organization-wide effmt, affecting
not only relations with all employees and employee prospects but also the
organization's supply chain and all internal nnd extemal stakeholders
• That it requires a detailed process, supported by clear metrics and data gathering
and analysis
• That HR plays a critical role in defining, implementing, and evaluating the
success of any diversity and inclusion efforts

discusses the critical impmtance of creating and implementing an effective
~ diversity and inclusion strategy and the critical role HR plays in enabling such an
initiative to succeed. Key elements of each section are as follows.
'\I
~
Section l, "Defining Diversity and Inclusion," covers:
I • The relationship between an organization's rationale for its D&l strategy and
I
)
how it defines diversity and inclusion.
I • The costs and benefits of having a diversified workforce and encouraging an
( inclusive world view.
)
• An·iving at an inclusive definition of diversity that recognizes the very real
l issues it will raise for an organization.
)
)
Section 2, "Developing a D&I Strategy," covers:
)
• Why implementing D&l requires a comprehensive strategy rather than just a
)
policy.
J • The steps required to create and implement a comprehensive D&l strategy.
)
''i Section 3, "HR's Role in the D&I Strategic Process," covers:
) • The need for a strategic initiative to change individual attitudes and behaviors,
)
managerial skills and practices, and organizational values and policies.
) e HR's critical role in effecting those changes.
)
J © 2015 SHRM 127

I
J
Section 1:
Defining Diversity and inclusion

• Consulting on the difference between issues of performance and those of culture or personal style.
• Developing expert knowledge of global trends and best practices in diversity and inclusion.
• Maintaining expert global and cultural knowledge.
• Facilitating an organizational culture that promotes a global mindset for diversity and inclusion througr
development activities and experiences.
• Championing diversity and inclusion programs with external stakeholders (e.g., diverse suppliers).
• Providing mentoring, training, guidance, and coaching on cultural trends and practices to employees at
all levels of the organization.
• Demonstrating nonjudgmental respect for others' perspectives.
• In conjunction with other business leaders, developing, implementing, and overseeing programs, practie-
and policies that make the strategic connection between a global mindset and organizational success.
• Ensuring that equitability for all internal and external stakeholders is considered when designing
programs, policies, and practices.
• Taking diversity into account when planning and implementing programs, policies, and practices.
• Fostering and influencing an inclusive organizational culture.
• Fostering an environment that embraces and encourages global mobility, which allows for diverse
experiences.
• Approaches to a multi-generational workforce.
• Developing cross-cultural relationships.
• Effective approaches to building trust and relationships.
• Emotional intelligence.
• Glass-ceiling prevention.
• High- and low-context cultures.
• Inclusive leadership.
• Issues related to disability, ethnicity, gender, language, race, sexual orientation.
• Level of global acceptance of diversity (e.g., disability, ethnicity, gender, language, race, religion, sexuu.
orientation).
• Mindful communication.
• Religious influences and accommodation.
• Techniques for cultural awareness and respect.
Overview: Key Terms

Diversity
Diversity is becoming more inclusive.
That may be a play on words, but it also accurately describes a global trend in
how diversity is being defined. Becoming more inclusive is not just a matter of
adding new categories to a growing list of identity groups: race, religion,
gender, culture, ethnic background, age, and so on. Rather, it marks a change
in how the whole concept of diversity is considered. It is a move from viewing
diversity defensively-as a matter oflegal or ethical compliance-to viewing
it strategically-as a valuable asset to be leveraged.
The SHRM Body of Competency and Knowledge definition presented at the

) start of this Functional Area reflects that trend and is worth repeating here. It
) starts by defining diversity as encompassing "the qualities, life experiences,
) personalities, education, skills, competencies, and collaboration of the many
) different types of people who are necessary to propel an organization to
) success."
)
) Defining diversity this way is a very different approach from a
I nondiscrimination focus on specified minorities. In an online article,
) "Introduction to the Human Resources Discipline of Diversity,'' SHRM offers
) a briefer but parallel diversity definition: "the similarities and differences
between individuals, accounting for all aspects of one's personality and
individual identity."
That article does also provide a list of diversity dimensions, including age,
color, disability, ethnicity/nalional origin, family status, gender, gender identity
or expression, generation, language, life experiences, organization function and
level, physical characteristics, race, religion, belief and spirituality, sexual
orientation, thinking patterns, and veteran status. Some of the categories listed
) (e.g., age, gender, ethnicity) are common in more traditional views of diversity.
) But others (e.g., life experiences, thinking patterns, organization function and
level) clearly indicate a very different way of considering what diversity is all
about.
© 2015 SHRM 129

Diversity definitions provided by global organizations underscore the change:
• Accenture (a global management consulting, technology services, and

outsourcing company and a recognized world leader in diversity)
At Accenture, embracing inclusion and diversity in the widest possible
sense-beyond gender, ethnicity or religion-is part of a powerful
recipe for success and central to being a high-performance business.
• PepsiCo
At PepsiCo, we define diversity as all the unique characteristics that
make up each of us: personality, lifestyle, thought processes, work
experience, ethnicity, race, color, religion, gender, gender identity,
sexual orientation, marital status, age, national origin, disability,
veteran status or other differences.
• Novartis Pharmaceuticals (which offers two definitions)

We define diversity as a broad concept. It includes the many elements
of our individuality-race, gender, age, experience, thinking and work
styles, culture, country of origin, job status and function, physical
ability, work/family balance, economic level, religious belief,
organizational tenure, sexual orientation, identity, expression and
more.
We define diversity broadly to include the similarities and differences

we each possess based upon characteristics we were born with,
experiences we have had and choices we have made. In short,
everyone is part of our definition.
All of these definitions (and many others offered by global organizations)

share a common thread of viewing diversity from a broader perspective.
Accenture views diversity in "the widest possible sense"; PepsiCo sees it as
"all the unique characteristics that make up each of us"; and Novartis argues
that "everyone is part of our definition."
Diversity of Thought
That broader vision of diversity can be summed up as a new focus on "diversity
of thought." A SHRM article on global diversity notes that, "Many employers are
using the tenn diversity of thought to value the unique perspectives individuals
bring to organizations." A Deloitte white paper, "Global Human Capital Trends
2014," makes the case more strongly, focusing on "diversity of thinking as a
business imperative."
130 © 2015 SHRM

That, in tum, brings us to the strategic value of diversity (and note that all the
definitions offered thus far consider diversity to be a strategic asset rather than a
legal or moral requirement to be met). What makes diversity valuable to an
organization is, first and foremost, the expanding range of perspectives and
modes of thinking that it provides, with potential rewards of greater innovation,
creativity, and problem-solving capabilities.
The SHRM definition on which this Functional Area is based is completed by this
statement: "HR demonstrates value by creating opportunities that leverage the
human experience to address organizational needs or solve issues on a global
basis." Gardenswartz and Rowe describe that strategic value as "capturing talent,
understanding markets, utilizing diverse perspectives for innovation, knowing
how and how not to pitch products, and, ultimately, how to generate employee
commitment."
Leveraging that strategic value btings us to the second key term: inclusion.
Inclusion
Diversity asks, "Who do we bring into our organization?" Inclusion asks, "How
do we make them feel welcome when they get here?''
The earlier-quoted SHRM online article makes the distinction in strategic terms:
"Diversity provides the potential for greater innovation and creativity. Inclusion
is what enables organizations to realize the business benefits of this potential."
It proceeds to define inclusion as "the extent to which each person in an

organization feels welcomed, respected, supported, and valued as a team
member." That is, having diverse perspectives available to the organization is of
strategic value only if everyone is encouraged to share them. And that happens
only when everyone in the organization can value one another's differences and
recognize that their own perspective is just one among many. That acceptance of
diverse perspectives is what is meant by inclusion. While it isn't the only value
diversity brings, it is the necessary starting point.
Diversity and inclusion, then, are two halves ofthe whole. Value is leveraged
only by working from a definition of diversity that enables everyone-
employees, management, customers, prospects, and collaborators-to feel that
© 2015 SHRM 131
)
he or she is included and accepted and has a valued place in the organization.
That also keeps it from being "us" (the majority) and "them" (the minorities).
Everyone has a perspective to offer-and their own preconceptions about others
to deal with.
Inclusion is thus also how you get people to want to join your organization (and
recmitment and retention are two other strategic values of diversity). Or, put
another way, diversity is the byproduct of effective inclusion.
Diversity Without Inclusion: The Phenomenon of Covering

The Deloitte white paper cites a study by Yoshino and Smith on a behavior
they term "covering." This defensive behavior occurs when an organization
recmits a diverse workforce but, consciously or otherwise, promotes
assimilation rather than inclusion.
The subtle (if unintended) message to recmits is "you are welcome despite
of who you are, not because of who you are."
This affects workers' behavior along four dimensions:
• Appearance. Adjusting their attire, grooming, and mannerisms to "blend

in"
• Affiliation. Avoiding behaviors associated with their "identity group"

(culture, ethnic minority, sexual orientation, etc.)
• Advocacy. Avoiding engaging in advocacy on behalf of their identity

group
• Association. Avoiding associating with members of their identity group
Beyond the psychological costs to the individuals who engage in covering,

this represents a tremendous loss to the organization. The unique perspectives
and insights these employees can offer as members of a patiicular identity
group--a key value that a diverse organization can leverage-is instead
suppressed.
Christine Riordan, Provost and Professor of Management at the University of

Kentucky, lists covering (or, in her terms, the tendency of"out-group
132 © 2015 SHRM

employees [to) try to confonn") as one of four dynamics that can work against
organizational inclusiveness. The other three she cites are:
• Prototypes for success: a "similarity bias" that tends to reward (with
assignments, promotions, etc.) people who share the same traits as
management.
• Bias•based exclusion: discriminatory treatment of minofit)' employees.
• Majority backlash: the result of members of the majority feeling excluded
from the benefits of diversity initiatives.
Diversity and Globalization

Globalization has been a key driver in broadening definitions of diversity and in
revealing both its strategic value and its challenges. As organizations have
expanded globally, they have learned (some more quickly than others) that
marketing to, or working within, new cultures requires in-depth understanding of
those cultures' needs, preferences, perspectives, and ways of working-and
ultimately requires bringing local people into the global organization. And that, in
turn, requires finding ways to incmporate new perspectives while minimizing the
inevitable conflicts and confi.!sions that global expansion can create.
Global forces have shaped and accelerated approaches to D&l in other ways as
well. These forces are discussed in more detail in the "HR in the Global Context"
Functional Area in this Workplace module. For example:
• There is a growing "demographic dichotomy" between emerging and

developed countries. Essentially, developed countties are facing an aging
workforce, while emerging economy workforces are much younger. For
organizations in all economies, this means meeting new challenges in
recruiting and retaining a multigenerational workforce and discovering
generational differences in motivations and work habits, technological
) expertise and preferences, and so on. So globalization has brought new
I attention to generational, as well as cultural, diversity.
I
l
I • The resulting accelerated hunt for specific skill sets to meet new global needs
has led organizations to more actively seek out women and other minorities,
I fmther broadening workplace diversity.
i)
)
© 2015 SHRM 133

)
)
• The diaspora of increased global migration (combined with other demographic

shifts) has meant that any given country's workforce is becoming increasingly
diverse. For example, U.S. public school emollments for 2014 are projected to
have more minority students than non-Hispanic whites, and the U.S. Census
Bureau indicates that whites will no longer be a majority in the U.S. by 2043,
with children of migrants now constituting the fastestcgrowing demographic;
The U.S. is by no means alone in its changing workforce:

0 As of2013, according to the United Nations Department of Economic and
Social Affairs (UN-DESA), 3.2% of the world's population, or 232 million
people, live in a different country than their country ofbirth~up from !54
million in 1990.
0 The same report show even greater immigration between developing
countries (82.3 million migrants) than from developing to developed
countries (81.9 million).
Diversity's challenges are multiplied by globalization as well: A global

organization must somehow come to terms with the varying attitudes--and in
some cases, legal requirements--concerning women and other minorities by each
of the many different cultures in which they operate.
Global Legal Distinctions

It is important to recognize that different countries have different legal standards,
measures, and requirements of which a global organization must be cognizant.
Many countries across the globe have laws prohibiting employment
discrimination, but these may follow two different principles:
• The principle of "equal opportunity"-where the employer needs to provide
a level playing field for all groups and minorities without discrimination
o The principle of"reservation"~where the laws mandate a percentage quota
or other special considerations for specified minority groups or ethnic
communities
The latter principle is often based on the concept that historic national
discrimination against a given minority requires counterbalancing favorable
"affirmative actions." The policy has different names in different countries:
"affmnative action" in the U.S., "positive discrimination" in the U.K., "positive
action" in Europe, "employment equity" in Canada, "reservation" in India. It
134 © 2015 SHRM

I
also, of course, has different target minorities based on national or regional

histOIY:
• Canadian "employment equity" regulations require that employers engage in

proactive measures to improve the employment opportunities of four
designated groups: women, persons with disabilities, aboriginal peoples, and
"visible minorities" (e.g., blacks, Asians, Hispanics, etc.).
I ~ India's "reservation" laws irnpu:se a quota sysrem to pr01note employn1ent (as

well as government representation) of designated underprivileged groups, based
largely on their historic caste system.
• "Positive discrimination" in the U.K. applies in relation to nine "protected char-

acteristics": age, disability, gender reassignment, marriage and civil partnership,
pregnancy and maternity, race, religion or belief, sex, and sexual orientation.
.) • European "positive action" is defined broadly by the EU's European Commission

as promoting "full and effective equality" for "members of groups that are
socially or economically disadvantaged or otherwise face the consequences of
) past or present discrimination or disadvantage."
)
• "Workforce nationalization"-the concept of reducing foreign national
)
employment by bringing more citizens into the workplace-is the stated goal of
the six Gulf Cooperation Council (GCC) states: the United Arab Emirates,
Bahrain, Saudi Arabia, Oman, Qatar, and Kuwait. Essentially, these Jaws are
)
designed to reduce reliance on foreign labor by encouraging (often compelling,
through percentage quotas) private-sector industries to hire citizens instead of
foreign workers.
. . . . . . . ·. .
The tenn "equity'> often arises i~ D~l di~cussions.

The word has se~eral.
different meanings ill the world of business, however, so some clarification of
its meaning in this particular context may be helpful:
)
• In finance, equity (aln1ost always) means. ownership.
)
• .In compensation, equity (almost always) means relative fairness in total
rewards.
.... In employment, equity means equat'opportunily (t<> work)..
I
)
© 2015 SHRM 135

Through a strategic U.S. partnership, a large hospital in Qatar has U.S.

staff on temporary assignments. One such U.S. transferee recently arrived
in Doha to become the hospital's head of recruiting. She had heard of
Qatar's Jaws giving preferential employment treatment (such as promotions
Communi- and non-termination rights) to Qatari citizens. While concerned about
cation
potential discrimination issues, experience had taught her to reserve
Competency
in Action judgment.
Upon starting work in Doha though, she quickly learns that the
nationalization program (Oatarization) was effectively a quota system that
seemed to disregard a person's capabilities for a job. Given the imperative
of hiring highly qualified hospital staff, she planned to propose to senior
management that they adopt and follow U.S. hiring standards and
practices.
Reporting directly to her is a local recruiter who had studied HR in the U.K.
Upon learning of her supervisor's plan to change the recruiting policy, the
recruiter respectfully and delicately informs her that Qatar's nationalization
programs are similar to U.K. positive action policies and U.S. affirmative
action programs. She further explains that Qatari citizens are actually a
minority in their country due to a disproportionally large number of foreign
temporary workers. Thus, the laws in effect support a minority group, much
like U.K. and U.S. laws.
By explaining a core HR concept using examples and terms familiar to her
manager, the recruiter is helping her new boss better understand the
history and rationale of the country's Jaws. While the new manager still has
concerns about the law, she can now at least make a more informed
business decision.
The challenge for global organizations, then, is arTiving at an organizational

approach to D&I that allows the organization to adhere to its principles and
strategic goals throughout the many countries in which it operates. The real
challenge, of course, arises when a given country's attitudes or legal
requirements concerning treatment of minorities directly contradict an
organization's D&I principles.
Grappling with such ethical dilemmas is discussed further in the "Corporate

Social Responsibility" Functional Area in this Workplace module.
The Benefits and Costs of Diversity

The desire to make organizations and workplaces more diverse and inclusive is
driven by a common sense that a diverse workforce strengthens the organization.
136 © 2015 SHRM

The types of perceived benefits can vary, however:
• Improved creativity and innovation. This benefit derives from having groups
with multiple perspectives, life experiences, and learning and problem-solving
styles. This generates more ideas, but the experience of working in a more novel
group with different behaviors and norms also fosters increased openness and
flexibility. As Columbia Business School Professor of Leadership and Ethics
Katherine Phillips explains, the discomfort caused by diversity in and of itself
helps promote innovation. Knowing that members of a group have a different
background and are likely to bring a different perspective increases both the
depth to which group members critically examine their own assumptions and
their openness to alternative ideas. A Forbes Insights survey of 321 global
executives, "Fostering Innovation Through a Diverse Workforce," found that
85% of the participants agreed that "a diverse and inclusive workforce is crucial
to encouraging different perspectives and ideas that drive innovation."
• Recruitment and retention. As discussed above, demographic changes and local

labor markets have driven employers to develop diverse workplaces. Here, as
with so many aspects of D&l, global principles must be applied to local needs.
Recruitment gaps and challenges may be very different for each local subsidiary
of a global organization. Developing an inclusive diverse workforce enhances the
employer's brand and ability to attract high-potential talent in minority groups.
• Market strengths. Having a diverse workforce improves an organization's

ability to understand the perspectives and needs of its customer segments, to
)
identify and reach new market segments, and to develop new products that
anticipate and meet those needs.
• Branding. The positive image of being a diverse, global, inclusive organization

can be a marketing advantage and selling point, helping the organization to
connect and identify a brand with diverse markets.
• Global integration and local differentiation. Local employees add to the

diversity and knowledge of a global organization, bringing with them greater
awareness of local laws and regulations and business models and practices. They
)
also bring potential entry into social networks, sources of information, and
)
influence.
© 2015 SHRM 137

It is also important to also recognize that a diverse workplace can-especially if not

well-managed-come at considerable costs to the organization. These can include:
• Teams that are fragmented, nonproductive, and unable to arrive at

decisions in a timely manner. Adler relates the story of a global organization
that made the mistake of convening representatives from all of its subsidiaries to
develop an organizational policy and system for creating employee medical
history records. The diversity of the participants only emphasized the differences
in national legal protections for privacy, and a single solution could not be
crafted.
• Increased costs for training. Training in cultural awareness, communication,

and team building may be needed.
• Increased costs and time frames for recruitment efforts. A broader diversity-
based talent search often requires new resources, procedures, and validation
measures.
• Increased management time. More time is needed to monitor, provide support,

and negotiate solutions.
• Difficulties in communication. Challenges may be due to differences in

language, culture, and communication styles.
• Diffuse or blurred branding, image, and marketing efforts. Targeted

marketing efforts that attempt to focus on specific diversity identity groups can,
over time and by cumulative effect, start to blur the core brand image (a problem
that is diminished the more that diversity is pmi of that core brand).
• The impact of the "stereotype threat" When managers or coworkers rely on

biases or stereotypes in the workplace, the perfonnance of targeted individuals,
and the chances for successful teamwork, are diminished.
• Global integration and localdifferentiation. Theretnay be difficulties in

aligning organizational diversity policies with the rules, regulations, and
practices of the diverse culh1res in which the organization operates.
• Up-front costs for designing and implementing a diversity strategy and

programs. An organization must balance these against the competitive
disadvantages and costs of not becoming a diverse and inclusive organization.
138 © 2015 SHRM

The potential strategic benefits and costs of workplace diversity are enormous.
While recognition of the need for expanded diversity initiatives is growing, the
design, communication, and implementation of those programs can pose a
unique set of challenges for global organizations. The potential benefits of a
diverse organization are most likely to be realized~and the potential costs are
best overcome~by a top-down, organization-wide effort, including a detailed
process, supported by clear metrics, data gathering, and analysis ... and a clear
definition of what constitutes diversity and inclusion and why they are important
to the organization's core business strategy.
The Four Layers of Diversity

This section began by describing a broadening view of diversity and examining
various definitions that attempt to move from an ever-growing list of identity
groups to a more conceptual definition (e.g., diversity of thought, or "the sum of
our unique characteristics). However, the fact remains that the many different
identity groups each have their own specific needs, preferences, and interests. So
an approach to considering diversity that can classify these groups in some way
becomes a highly useful tool.
Gardenswartz and Rowe have created one detailed attempt at providing a

thorough, inclusive definition. Their four-layer model of diversity dimensions,
shown in Figure 1 on the next page and described here, offers a useful framework
for understanding the range and complexity of the issue of diversity. Perhaps the
greatest benefit of this model is that it underscores the fact that we are all
multidimensional and that none of the many ways that can be used to "identify" us
(or, more importantly, by which we choose to identify ourselves) tells the whole
stmy.
The four layers are:
• Personality. At the center are matters unique to each individual~style and

characteristics, preferences, perceptions, behavioral predispositions, cognitive
and learning styles~a!l of which are influenced by, and in tum influence, the
successive outer layers.
)
• Internal dimensions. These are aspects of self, often assigned at birth, over
)
which we have little control. They include gender, sexual orientation, physical
abilities, ethnicity, race, and age.
© 2015 SHRM 139

• External dimensions. These are the results of life experiences and choices.
They include geographic location, income, personal habits, recreational habits,
religion, education, work experiences, appearance, marital status, and parental
status.
• Organizational dimensions. These are similarities and difterences based on

an individual's position in the organization. They include functional level or
classification; content or field of work; division, department, unit or group;
seniority; work location; union attiliatwn; and management status.
Source: "The Effective Management of Cultural Diversity," L. Gardenswartz and A. Rowe
Figure 1: The Four Layers of Diversity
Implications of an Inclusive Definition

Even a quick look at the many dimensions of diversity in the four layers makes it
clear that a simple goal to "treat all employees equally" is woefully insufficient.
Each dimension raises its own specific issues, problems, and potential conflicts,
each of which may in turn require different types of solutions, requiring changes
in policies, programs, and even physical infrastructure. Moreover, the different
dimensions of diversity influence one another, so the ways in which the
organization addresses each will need to be flexible and multidimensional.
Following are a few examples of the types of issues that particular dimensions of
diversity can raise for an organization.
• Gender. The first set of gender challenges for any organization is to ensure
equal treatment, both in terms of equality of pay for equal work done and
140 © 2015 SHRM

"glass ceiling" issues of equal opportunities for hiring and promotion into
management levels.
Beyond that, different divisions within an organization may face very

different staffing issues regarding gender. For example, IT or other
technical divisions may be challenged to find and recmit enough qualified
women prospects. In contrast, other divisions may find they have attracted
a dispropmtionately high percentage of female staff. For such divisions, the
issue may go beyond a desire for diversity; ifthere are any organization-
wide gender prejudices (especially any at the management level), an entire
department may find itself encountering a glass ceiling-resulting in fewer
resources, less power, and less oppmtunity to consult. This issue should
hold particular significance for HR, which is often perceived as being
staffed predominantly by women.
(
Further, an organization that operates in many different nations and
\ cultures will need gender policies that are internally consistent and legally
l
compliant while recognizing ditierent cultures' attitudes toward women
\ and the conflicts and contradictions that can create.
\
I
)
• Age. Generational ditierences among workers may affect:
• Preferences regarding modes and frequency of feedback.
• Attitudes toward and use of communications technologies---especially
social media.
• Motivation: someone just ente1ing the workforce and hoping to move up
the organizational ladder is differently motivated than someone nearing
)
retirement and hoping to preserve a legacy.
')
Age also exemplifies the fact that diversity rarely allows for "one size fits
all" solutions. For instance, providing work/life balance-an increasingly
impmtant benefit-may require very different accommodations and
adjustments for workers of different generations, who may well be at very
different life stages in terms of family relationships.
• Nationality. An employee's nationality may influence:

" Attitudes toward authority.
• Whether teamwork or individual achievement is more highly valued.
© 2015 SHRM 141

• Willingness to take risks.

• How work/life balance is defined.
Not least, an employee's nationality may influence his or her attitudes toward
the nationalities of other workers in the organization-or workers who
represent other cultures within his or her own nationality (a reason why any
successful diversity strategy includes conflict resolution components).
Finally, an organization must recognize that each individual is multidimensional:

A female employee may be from a different culture, have physical disabilities,
be deeply religious, be younger or older than most of her colleagues, and so on.
No single dimension can ever define a person or the potential contributions she
can make to an inclusive organization.
142 © 2015 SHRM

Progress Check
I. How do today's global organizations primarily view diversity and inclusion?

( ) a. As a series of interconnected tactical challenges
( ) b. As a set of quotas to be achieved
( ) c. As a strategic asset to be leveraged
( ) d. As a matter of legal compliance
2. What circumstances tend to result in the phenomenon known as "covering"?

( ) a. An organization promotes diversity but not inclusion.
( ) b. An organization rejects assimilation as a goal.
( ) c. An organization intentionally excludes specific identity groups.
( ) d. An organization fails to implement a consistent diversity policy.
3. What has been the effect of recent global demographic shifts?

( ) a. It has become more difficult to recruit a diverse workforce.
) b. There has been a decrease in the numbers of women in upper management
( ) c. Organizations have been forced to become multinational.
( ) d. Organizations have had to recruit and retain a multigenerational workforce.
4. How does increased workplace diversity tend to improve creativity and innovation?
( ) a. By increasing the amount of training workers receive
( ) b. By eliminating organizational hierarchies
( ) c. By providing multiple perspectives and problem-solving styles
( ) d. By encouraging more careful communication due to language differences
5. In the four-layer model of diversity dimensions, what factors belong to the internal
dimensions?
( ) a. Religion, education, work experiences, appearance, marital status
} ( ) b. Style, preferences, perceptions, behavioral predispositions, learning styles
( ) c. Gender, sexual orientation, physical abilities, ethnicity, race, age
( ) d. Functional classification, field of work, seniority, work location, management
status
© 2015 SHRM 143


1. c (p. 129)
2. a (p. 132)
3. d (p. 133)
4. c (p. 137)
5. c (p. 139)
© 2015 SHRM
144
Section 2:
Developing a D&l Strategy

• Facilitating an organizational culture that promotes a global mindset for diversity and inclusion through
• Providing mentoring, training, guidance, and coaching on cultural trends and practices to employees at al!
levels of the organization.
• Implementing audit practices to ensure cultural awareness on a global basis.
• Demonstrating oonjudgmeotal respect for others' perspectives.
• In conjunction with other business leaders. developing, implementing, and overseeing programs, practices,
• Ensuring that equitability for all internal and external stakeholders is considered when designing programs,
policies, and practices.
• Fostering an environment that embraces and encourages global mobility, which allows for diverse experiences.

• Influence of the 4 T's (travel, training, transfers, and teams).
• Intercultural wisdom.
• Issues related to disability, ethnicity, gender. language, race, sexual orientation.
• Level of global acceptance of diversity (e.g., disability, ethnicity, gender. language, race, religion, sexual orientation).
(
Why a D&l Strategy?

The previous section emphasized the importance of consideling D&I as a strategic
imperative to be closely aligned with an organization's core business strategy
rather than as a set of compliance policies. Accordingly, D&I requires the full-
fledged, organization-wide efforts of a comprehensive strategic initiative. Before
examining the components of a D&I initiative, or the steps involved in its
successful implementation, it is worth briefly considering why such a resource-
intensive effOn is necessary. Th~n:: art; three 111ain reasons, each examined here.
Reason 1: Priority
Because otherwise D&l efforts will always have a lower priority than
more immediate concerns.
Recall the example of Google's D&I situation described earlier. The AP news
story explained that this is not Google 's first effort at becoming more diverse. A
previous initiative, however well-intentioned, never went very far past a new
website and some recruitment efforts and soon lost momentum altogether. Among
the causes: It kept getting shunted aside by more immediate strategic imperatives.
The mticle quotes an analyst who describes what he considers the unique needs of
high-tech industries: "Silicon Valley moves at a pace that is unbelievable. It is a
breakneck marketplace. So when you're adding people, you don't take time to cast
a wider net." But it is hard to imagine executives from any industry who have not
felt themselves in a similar position-pressed for time and so feeling that they
need to rely on familiar channels, connections, and procedures and safe, expedient
choices rather than risking a broader, time-consuming diversity-based talent
search. Only when D&1 becomes a strategic priority, aligned with core business
goals, does such an effort become a justifiable "safe" choice for a manager to
make.
Moreover, all organizations today are competing in.an economy that is still
recovering from a global recession and still facing global climate change. In such a
business climate, only a strategic effort, clearly linked to core business strategies
and with full organizational buy-in, will be able to commandeer the resources and
commitment necessary to achieve any diversity goals-or more importantly, to
enable 0&1 initiatives to really help the organization achieve its business goals.
146 © 2015 SHRM

'
l
,'
•
Reason 2: Complexity
Because the complexity of the D&I problem requires a strategic, organization-

wide solution.
Simply put, any initiative aimed at creating a diverse, inclusive organization has a
lot of moving parts to consider:
• The many dimensions of diversity (race, gender, ethnicity, physical abilities,

generational differenGes, and so on) each involve their O\Vn distinct issues and
challenges-all of which must be addressed.
• Moreover, in a global organization, each nation and region imposes its own filter
through which diversity issues are viewed and prioritized. For example, an
American concern for racial and gender issues must be balanced with an Asian
focus on class and economic differences among workers.
• If diversity and inclusion are to be instituted across an entire organization, that

I means that every department, every function, every subsidiary, and every
)
location must be involved---and each department, function, subsidiary, and
)
location will have its own unique D&l issues to resolve.
)
• Each of the many functions that HR professionals address-recruitment and

retention effo1is, compensation and benefits, leaming and development, and so
J
on-must be involved for a D&l initiative to succeed.
)
A broad range of stakeholders are affected by a comprehensive D&I initiative:

• Internal stakeholders: from CEO and senior leadership through middle
managers to all employees and prospects
0 External stakeholders: from community organizations and leaders to
customers (current and prospective), regulatory agencies, investors (current
and prospective), labor organizations, media, vendors, and suppliers
• Finally, D&I solutions require considerable resource commitments-of time,

money, energy, and effort. These, in turn, require data-driven evaluations of the
current base-line situation, concrete goals, and development of detailed, how-to-
get-there steps.
© 2015 SHRM 147

Reason 3: Resistance
Because D&l involves major organizational change-and change is hard.
One of the most basic tenets of HR is that any organizational change requires a
strategic plan-not just a generalized goal. And achieving diversity in an
organization absolutely requires major organization-wide change, affecting
ingrained attitudes and habits as well as established policies and procedures.
Change management is discussed in detail in the "Business and HR Strategy"

Functional Area in the Strategy module. Among the core precepts discussed there
are:
• Strategic planning is necessary to define the goals desired and how to achieve "
them.
• Strategic planning integrates the goals and activities of the major business
functions of an organization-financial, accounting, research and
development, marketing, sales, operations, infom1ation technology, and
human resources-in order to achieve organizational success.
The D&i Strategic Process

The basis for the process described here is Gardenswartz and Rowe's seven steps
for developing and implementing an organization-wide D&l strategy. As they note,
the steps may not always be consecutive; some may occur at the same time as
others. HR will have, at the least, a major supportive role in almost all steps. For
key steps, HR professionals will need to be the drivers-or, at a minimum, will be
on the front lines--of the process. The steps, each of which is discussed below, are
shown in Figure 2 on the next page.
1. Executive Commitment
Without C-leve! (CEO, CFO, COO) leadership serving as role models and
advocates, D&I cannot become a primity or demand resources. As Google's
experience stJggests, this must be a real, active, and long-tenn commitment for
the effort to succeed-not a public relations statement or a symbolic gesture but a
highly visible and ongoing advocacy for a detailed program and a commitment to
specific resources and actions. As Gardenswartz and Rowe note, the real degree
of C-leve] commitment soon becomes clear throughout an organization. As they
put it, "The message about the priority on diversity always gets out."
148 © 2015 SHRM

1. Executive .
COJn.mltment
. /! ..,;,.
1: Evolution and 2. Preliminary

Integration Assessment
\
t
9. Me;::sutCrnt!nt
,and · 3. Infrastructure
Evaluation Ctel!tlcin
.. ·, ..
5. Training · 4. System
Changes
Figure 2: The 0&1 Strategic Process
The Forbes Insights survey mentioned in the previous section found that 70% of
organizations felt that ultimate accountability for their D&l efforts rested on the
shoulders of C-leve! executives, with 35% placing responsibility directly on the
CEO. Often, this is a literal chain-of-command matter, with the diversity function
reporting directly to the CEO (as, the repoi1 notes, is the case at L'Oreal USA) or the
CEO serving on or chairing the organization's diversity council (see Step 3 below).
Gardenswai1z and Rowe explain, however, that leadership at all levels must be
involved-and HR should certainly take a leadership role in promoting D&l
concepts and raising D&l concerns.
Making the Business Case for D&l

As discussed in Section I, D&l can only gain commitment at an organization's
highest level if it can demonstrate its ability to play a critical role in achieving
! core business goals. A D&l advocate must delve beyond general truths about the
benefits of broadened perspectives and diversity of thought to create a business
case linked specifically to the organization's unique mission, vision, and business
objectives. A SHRM Research article, "Global Diversity Advantage: The Next
Competitive Edge,'' explains that this may simply be a matter of applying
I diversity's general benefits to an organization's specific situation and challenges.
I
)
© 2015 SHRM 149

For example, an organization operating in the U.S. or other developed country

will face staffing challenges tied to an aging workforce. Diversity initiatives that
can find and attract skilled younger workers-and/or better retain its older,
experienced workers-help make the business case for D&l.
Similarly, an organization expanding globally must understand the needs and

priorities of the cultures that are its expansion targets. D&l efforts to bring
members of these cultures into the workforce, and especially into decision-
making positions, is a matter of business strategy, not just diversity strategy.
The "HR in the Global Context" Functional Area in this Workplace module, in
its section describing local responsiveness global integration tensions, details
L'Oreal's unique approach to meeting the challenge. They actively recruit
managers with multinational backgrounds to head their regional new product
development teams. The multicultural perspective has resulted in double-digit
sales growth percentages in their emerging markets in Asia, Africa, and the
Middle East.
It is wotth noting that aligning diversity and business strategies is not a new
concept. In 1940, Pepsico, today a global D&I leader, implemented what would
now be considered a diversity initiative to compete against market leader Coca-
Cola. According to professor of history and American studies Grace Elizabeth
Hale, writing in the New York Times, Pepsi recognized that Coca-Cola was
ignoring the African-American market. Pepsi responded by hiring a dozen
African-Americans to create what they termed a "negro markets" department. By
the late 1940s, Pepsi had both an African-American sales force and print
advertising campaigns targeting an exclusively African-American audience. Hale
notes that the success of the campaign had long-term imp! ications for both soft-
drink leaders: Coca-Cola by the 1950s began marketing to African-Americans
and visibly donating to organizations such as the NAACP, while Pepsi made
diversity central to its corporate identity and strategy.
A final note regarding alignment with corporate business strategy and

commitment from corporate leadership. It concerns chattge. Core business
strategies generally face reevaluation and repositioning every five years or so.
This means that D&I must be ready to, at the least, realign itself with new
directions and, ideally, be positioned to influence the direction strategic changes
take. Organizational leadership will also eventually change. Alignment with an
150 © 2015 SHRM

organization's evolving core goals enables D&J to continue a central role even
after a C-leve! champion moves on.
2. Preliminary Assessment
As noted earlier, a successful strategy must be data-driven, sta1ting with a
detailed assessment of the organization's cutTent state. Since HR will be
implementing much of the change process, it is critical that HR be directly
involvecl in formulating and ad!ninistering Gsscssmcnt tools and goals.
The purpose of an initial assessment is twofold:

• To identity current needs in order to set corresponding priorities, goals, and
objectives
• To provide benchmarks against which the success or failure of subsequent
D&I strategies can be measured
A clear picture is needed, not just of current organizational perfonnance but

also of current attitudes-~among those working within the organization and
among clients and collaborators-about diversity and about the organization's
existing D&l efforts. An added benefit of such attitudinal data is that the data
collection process itself becomes part of the organization's consciousness-
raising effmts.
It is also important to measure inclusion as well as diversity-not just the

numbers that indicate how well-represented the various demographic groups are
but also data reflecting how they are treated and how they feel they are treated
by the organization, whether they feel they work in a diverse and inclusive
environment, and what prevailing attitudes are about diversity and the
organization's D&J efforts. This requires both objective and subjective data.
Gardenswartz and Rowe list several kinds of data that combine to provide a
more complete picture. These include:
• Demographic data on the organization workforce and the larger labor force
and marketplace.
• Turnover statistics and other indicators of the rates at which employees
move up in, or out of, the organization.
• Existing employee opinion and customer satisfaction surveys.
© 2015 SHRM 151

• Surveys and focus groups to determine employee attitudes about how

inclusively they are treated.
• Leadership interviews to determine their goals, expectations, and concerns
regarding D&l initiatives.
\
As with all data, the more detailed and focused the breakdowns, the more useful
the assessment can be. Demographics can vary widely by department or J
geographic lo<:eation, ~nd the differences are almost always significant.
' )
Note: Applicable laws may dictate when and how ce1iain diversity-related data
may be collected and must be maintained (e.g., confidentiality safeguards).
Therefore, it is important to consult with legal counsel to ensure that diversity-
related data is handled properly and that the collection and use of this data does J
not expose the organization to undue legal risks.
3. Infrastructure Creation ' )
There must be a designated group whose sole responsibility is to guide,

oversee, and champion the organization's D&J initiative. There should also be
a mechanism enabling everyone in an organization to have input into the
process. There are different ways of achieving these ends, but generally these
two roles fall to, respectively, the diversity council and employee resource
groups. Additionally, the D&I initiative should consider what resources,
insights, and depth of knowledge are best obtained from outside the )
organization through strategic alliances. »
Diversity Councils
The diversity council is a task force created to define the D&I initiative and
guide the process. Key responsibilities include:
• Setting goals and priorities (one source even suggests creating formal D&l
)
vision and mission statements).
• Ensuring aligmnent with core business strategies.
• IdentifYing obstacles and opportunities.
• Recommending actions.
• Monitoring the process.
• Collecting data and evaluating results.
152 © 2015 SHRM

There is no single council structure. Some organizations prefer a council with

representation from all employee levels and functions; others opt for an
executive council consisting entirely of upper management personnel. A global
organization may need a network oflocal or regional councils that report to and
coordinate with a central executive board while focusing on local needs and
issues. The relationship with employee resource groups (affinity groups for
workers who share a given diversity dimension; see below) or other advisory
groups may vary as well. The key is that the council-whatever its stmcture-is
the nexus of the initiative. It establishes the vision, goals, and programs and
collects and analyzes outcomes. Equally critical: It includes direct involvement
of upper management.
Two organizations that promote D&l in the global marketplace have each
defined a set of criteria for a successful diversity council, presented in Figure 3.
Diversitylnc. has, for 15 years, held an annual Top 50 Companies for Diversity
competition. (Over I ,000 corporations participated in 2014.) Catalyst is a
global nonprofit focusing on expanding opportunities for women in business.
Their Catalyst Award, presented annually since 1987, recognizes diversity
initiatives.
blversltylnc. Criteria · Catalyst Criteria

,·_·.·
• Leader of the council is the CEO or a Support from senior leadership.

direct report to the CEO. The ability to link the organization's
)
Council meets frequently-usually diversity strategy with the overall
) monthly or quarterly. business strategy and emphasize the
) • Council sets and signs off on metrics importance of diversity in and to the
and goals. organization.
• Compensation of executives on the Diverse representation.
council is tied to those goals. Metrics to measure progress.
Council has rotational positions for • Consistent communication of goals
leaders of employee resource and efforts.
groups. • Long-term strategy.
• Council members serve as formal
mentors.
Sources: "The Diversitylnc. Top 10 Companies for Diversity Councils," Diversitylnc.;

"First Step: Diversity Councils," Catalyst Information Center
Figure 3: Diversity Council Criteria
© 2015 SHRM 153

Employee Resource Groups

An employee resource group, or ERG (also known as an affinity group or
network group), is a voluntary group for employees who share a particular I
.
diversity dimension (race, religion, ethnicity, sexual orientation, etc.). Depending
on how it is organized-and how actively the parent company participates-an
ERG can serve many roles, from social network and support group, to career
development resource, to organizational think tank, to advocacy group. It can be a
channel for mentoring and educational programs, a way to provide diversity
council input, and a resource for new hires.
Figure 4lists criteria for effective ERGs established by Diversityinc. for its
ranking of top l 0 companies.
• Whether groups have formal charters • If the groups' success is measured

• Percentage of employees in at least through retention, engagement,
one group talent development, and other
• Racial/gender breakdown of groups contributions to business (focus
• Percentage of top executives who groups, client interactions,
are sponsors of groups marketing ideas)
e Whether groups are used for • If resource group leaders have
recruitment, onboardirig of new rotational positions on executive
employees, talent development, diversity councils
marketing, mentoring, and diversity
training
Source: "The Diversitylnc. Top 10 Companies for Diversity Councils," Diversitylnc.
Figure 4: Employee Resource Group Criteria
One critical element of ERGs is that they are self-selecting. By joining an ERG,
an employee chooses to focus on one of many diversity dimensions that
comprise their identity. An employee may join an ERG for positive reasons-as
an opportunity to make a unique contribution to the organization or to pursue an
avenue of growth. Or there may be a negative impetus-it is the part of their
identity that they feel is least accepted or understood by the organization. Either
way, joining the ERG can in itself be empowering.
The name "employee resource group" can have a double meaning; ERGs often
serve as a valuable resource for their parent company. The Conference Board, a
154 © 2015SHRM
global business research association, in a report on diversity and inclusion,

provides several examples of such ERG service:
• A Latino ERG at a global foods company provided advice on targeting a
version of a popular Mexican product line to Latino consumers in the U.S.
• A pharmaceutical company's disability-focused ERG suggested product
design improvements for a new medical testing and injection product.
• A company was experiencing high turnover of new Asian employees. Their
Asian ERG identified a cause-prohlen1s spouses were having adjusting to
life in the U.S.-and set up a new-transferee spouse-support program.
• One company turned to its ERGs to help resolve translation problems in
product and marketing materials. It gave the employees a greater sense of
product ownership, improved translations, and saved costs.
A key service the ERG can provide is formal communication with the diversity
council, providing data, raising concems, reviewing projects, and so on.
Strategic Alliances
There are numerous national and global organizations dedicated to diversity
issues. These include certification organizations, academic resources,
govemment agencies, think tanks, and professional organizations such as
SHRM. Particularly at the research phase of creating a D&l initiative, many of
these resources can be tapped informally.
Part of that initial research, though, should include identifying those

organizations that can provide valuable resources on an ongoing basis, such as
global and industry benchmark data, leverage for key actions, best practices
guidelines, and outside evaluations of organization efforts. Such links to global
D&l efforts and practices can increase the effectiveness of an organization's
own efforts sufficiently to make formal strategic alliances worthwhile.
4. System Changes
If a D&I initiative is to achieve anything beyond vague consciousness raising,
organizational systems and operational processes, procedures, and practices need
to be aligned with diversity goals. This is the point at which identified problems
)
and issues and potential solutions are translated into actual practices. It is the
core of the D&l initiative and the real test of whether the initiative will effect
real change in the organization.
© 2015 SHRM 155

Organizational systems that inevitably need examination, evaluation, and

revision include:
• Policy review to ensure that all procedures and practices are in alignment
with and supportive of the organization's diversity values and standards.
e Recruiting initiative review to ensure that a maximum effort is being made to
attract and recruit a workforce representative of the organization's diversity
and inclusion goals global strategy.
~ Evaluation of succession planning, talent pools, and pipeline planning to
assess the diversity of the individuals affected by these initiatives.
• Review of supply chain policies and vendor relations, both for consistency
with D&I strategy and as a means of enhancing that strategy.
• Development of marketing and advertising programs targeted to global and
diverse markets.
• Review and modification of corporate social responsibility programs to
reflect the organization's D&l values and commitment
A more detailed look at key systems follows.
Recruitment, Sourcing, Hiring

System changes can include:
• Adding special recruitment initiatives (targeted job fairs, leveraging alliances
with outside educational and conununity organizations, outreach programs,
leveraging ERG networking, etc.).
• Changing everyday hiring practices by putting criteria and systems in place
to ensure that a wider net is cast in all hiring efforts. This includes training
recruiters, interviewers, and hiring managers to reduce biases and look
beyond existing channels and sources.
• Sourcing and pipeline initiatives, including targeted internships and CSR
efforts to promote education in specific fields and for specific groups (e.g.,
scholarships and programs promoting undergraduate STEM-science,
technology, engineering, and math-education for minorities).
When making the above changes to recruiting and sourcing practices, it is

important to keep in mind that applicable law may limit-or dictate-the extent
to which hiring decisions ultimately may take into account diversity-related
characteristics. For example, in some jmisdictions (such as the United States), it
may be perfectly legal to cast a wide net in order to ensure that the organization
156 © 2015 SHRM

has a more diverse pool of candidates to hire from, but antidiscrimination laws
prohibit the consideration of race, gender, religion, and other characteristics
when making the hiring decision.
Onboarding, Retention
This is where a focus on the "inclusion" aspects of D&I can have a real financial
impact on the organization, since losing good people is expensive. ERG input
can be especially helpful in refocusing on boarding (new-hil·e orientHtion and
adjustment) and retention efforts. Often, expanding the focus to consider the
family and social adjustment needs (to both the organization and the culture of
the host country) can greatly improve the success rate of retention efforts.
Promotion, Career Development

One of the most critical D&J challenges is increasing diversity in an
organization's upper management levels. The Forbes Insights report cites the
example of Deutsche Bank. Internal research revealed that female managing
directors were leaving because they were offered better positions elsewhere. The
bank established a mentorship program, pairing female executives with senior
:) management, to help raise women's visibility and provide them with a powerful
advocate when promotions were discussed.
(
)
I
I
)
Compensation and Benefits
Beyond evaluating whether compensation is equitable across all races, genders,
) etc., and making necessaty adjustments in compensation criteria, creating
I,
( targeted benefits can help attract and retain members of target groups (for
J example, flextime and on-site day care can help attract women and younger
I
} workers).
)
Supply Chain Management and Relations

An integral part of any organization's diversity program is to ensure that it
promotes diversity outside ofthe company in addition to its internal effotts.
Changes can include building diversity requirements into searches for vendors
) and suppliers and seeking out minority-owned vendors (to the extent allowed by
) applicable law).
)
One way organizations accomplish this goal is through supplier diversity

programs that supp01i minority- and women-owned businesses. Supplier
.I
© 2015 SHRM 157
)
)
ownership diversity can include all underrepresented groups that provide goods .
i
or services to the organization. For global organizations, who those groups are
may well change from nation to nation. IBM's description of their global •
)
supplier diversity program offers a good example:
'·'
il
Our program is global, and we work with businesses owned by diverse
groups all over the world. In the U.S. this includes women, blacks, Native
Americans, LGBT, and people with disabilities. In addition, we take local
(country) context into account, and adapt our definition of "diverse" to be
appropriate to the local cultural experience, such as including suppliers frorn
the bottom of the caste system in India.
Beyond supplier ownership diversity, an organization's D&I program should

have policies and procedures in place to ensure that the practices of all their
suppliers-regardless of whether or not they are minority-owned-are consistent · I
with the organization's own diversity policies. At the very least, an
organization's suppliers should not discriminate in their own hiring, retention,
and supplier policies.
I The business case for promoting supplier diversity includes:
II
• It strengthens the organization's appeal to its own diverse customer base and
to those customers who specifically support supplier diversity practices.
• Diverse suppliers, especially those that are politically active, can serve as
advocates for the company sourcing from them.
• In terms of regulatory compliance, organizations are increasingly held )
responsible for the actions of their suppliers. (And even if they are not
legally responsible, organizations may be judged by the "court of public
opinion.")
• Diverse suppliers can be resources in diversity recruiting efforts within the
organization.
e Diverse suppliers bring many of the same benefits as diversity within the
organization: unique skill sets, innovation, etc.
• Supplier diversity demonstrates social responsibility, which brings its own
business benefits.
Marketing, Branding, Customer Relations

These are key areas in which a more diverse workforce can translate directly to
an improved bottom line. The ability to identify new target markets and
understand their needs and motivations can be greatly enhanced by leveraging
158 © 2015 SHRM

,_
the knowledge of employees with similar backgrounds. Conversely, corporate

branding efforts that focus on an organization's diversity efforts can help attract
a more diverse workforce.
Note that almost all of these systems are direct responsibilities ofHR, which will
need to be at the forefront of designing and implementing these changes. This is
discussed in more detail in the next section.
5. Training
Gardenswartz and Rowe statt their discussion of training by explaining that it
shouldn't be blamed for failing to change an organization. That's not its role.
What training can do is create awareness and help develop knowledge and skills.
That, in tum, can gradually change individual behaviors within an organization,
thereby creating the necessary conditions for culh1rc change.
Accenture provides a good example of the three-part approach needed for

comprehensive D&l training and a good awareness of how it can serve
organizational goals. They describe their program as consisting of:
• Diversity awareness courses, to help their people develop a greater
sensitivity to the opportunities and challenges of working in an increasingly
dynamic, global, and diverse organization.
• Diversity management courses, to equip executives to manage diverse teams
effectively and foster an inclusive work environment.
• Professional development opportunities, which help their female, LGBT, and
ethnically diverse employees and others build skills to enable their success.
Their identity-group-specific professional development training includes

intensive three-day courses for top-performing managers as well as multi-month,
one-on-one programs to support professional growth of etlmically diverse
employees.
6. Measurement and Evaluation

) Clear metrics and a continual evaluation of results are critical to a D&I initiative.
) They enable course correction by providing feedback as to the success or failure
of initiative elements. And they provide credibility, demonstrating the
initiative's impact on the organization's competitive strategy.
© 2015 SHRM 159
)
Gardenswartz and Rowe see measurement as answering two areas:

• Process measures assess "how we did, what went well, what didn't and .. j
why," for example, the number of employees participating in a mentoring '

program and their feedback on the experience.
• Results measures assess the difference it made to the organization, for ' I
example, was there a decrease in turnover and how much did that save the
organization.
Comparative results will be needed at regular intervals for all the measures taken
in the preliminary assessment (Step 2), but new measures will also be needed as
I the D&l initiative evolves and incorporates new programs and elements (ideally,
' I
I at least partly in response to what the measurements reveal along the way). ' j
I KPMG, a global auditing firm and diversity leader, describes its key
i
!I measurement and evaluation components as follows:
• The Diversity Advisory Board Scorecard was developed to set meaningful

I diversity metrics for the firm. It comprises a core set of diversity metrics
I
covering recruiting, promotions, retention, succession planning, and
mentoring. The goals against these metrics are established by the Diversity
Advisoty Board and reported by function to the Management Committee.
• The Diversity Key Performance Indicators (KPls) web-based tool was

developed to enable multiple levels of leadership, working with human
!! resources, to drill down to the composition of their business units by race and
gender and establish and monitor their progress against their personal
III diversity goals.
I Finally, it is important that global organizations resolve regional and national

differences in creating their metrics. In "lvl.easure Global Diversity by Thinking
Locally," Mary Martinez and Michal Fineman offer three guidelines for
generating useful global D&I metrics:
• Let go of the notion that each country must have the same measures.
• Engage local staff fully in detemrining the "differences that make a
difference."
• Use a wide range of measures-beyond demographics-to demonstrate
progress toward inclusion and full utilization of available talent.
160 © 2015 SHRM

7. Evolution and Integration

The final step is to integrate all elements ofthe D&I initiative as fully as
possible into standard organization operations. For example, diversity training
becomes part of standard supervisory training rather than a stand-alone topic,
effmis to attract a more diverse workforce become a standard element of
normal recruitment procedures, and so on. That is, to succeed, D&I strategy
should become integral to tbe organization's sense of"the way we do
business" and "who we are."
That doesn't mean, however, than the initiative is no longer measured,

revised, and reevaluated. As with any other core strategy, continual
reexamination and adjustment of both tactics and overall strategic goals are
essential to any success. In the particular case of D&I, this imperative is
strengthened by evolving realities:
• As a global organization expands into new tetTitories, new diversity issues

will inevitably arrive, requiring adjustments and accommodations.
• The initiative's own success will change the nature of the kinds of issues
that need attention and resolution. An organization that has become more
diverse and inclusive will find it is communicating at a different level,
)
raising a different set of communication problems (e.g., the focus may
I)
I shift from conflict resolution to creating new team structures that better
)
I leverage differences).
r; • The focus on diversity issues shifts over time. Currently, global attention
I
) is centered on demographic shifts in workforce ages, issues concerning
I
women in the workforce, and LGBT issues. The attention will invariably
IJ
) shift over time, either as (to be optimistic) current issues are resolved or as
I
) world events raise new concerns. A D&l strategy shouldn't continually
) shift to the "cause du jour," but it does need to incorporate new concerns
) and issues into existing policies and ptocedutes.
)
)
)
© 2015 SHRM 161

Progress Check
1. What is one of the key reasons for developing and implementing a comprehensive diversity
f
and inclusion strategy?
( ) a. Most nations now require organizations operating within their jurisdictions to
have one in place. \..!!
)
( ) b. The complexity of the diversity problem requires a strategic, organization-wide
solution.
( ) c. It ensures that each element of a diversity and inclusion policy is implemented in • J '
the exact same way in all of a global organization's subsidimies. .i
,-)
( ) d. It enables global HR to justify its diversity and inclusion budget allocations. ,.
.
;
2. What must always be the first step in developing and implementing a diversity and inclusion . .
.•
strategy?
I
( ) a. Provide organization-wide diversity awareness and sensitivity training so that
subsequent steps will be understood and accepted by the organization.
( ) b. Create the infrastructure needed to implement all other steps of the strategy, in .. 1
particular by establishing a diversity council.

( ) c. Make an organization-specific business case for a diversity and inclusion strategy
to top-level leadership to secure executive commitment.
( ) d. Complete a preliminary assessment to provide benchmarks for subsequent
interventions.
3. A diversity and inclusion preliminary assessment provide benchmarks for subsequent

inte1ventions. What is a second reason to conduct such a preliminary assessment?
( ) a. To identify current needs in order to set corresponding priorities, goals, and
objectives
( ) b. To identify those employees who are most likely to impede the progress of the
diversity initiative
( ) c. To prepare data that will enable a business case to be made for a diversity
initiative
( ) d. To detennine whether the organization needs to implement a diversity and
inclusion strategy
162 © 2015 SHRM

4. What is the one critical requirement for a diversity council?

( ) a. The Council must include representation from all employee levels and functions
to ensure organization-wide acceptance of its decisions.
( ) b. The compensation of the executives on the council must be tied to achievement of
the diversity goals it sets.
( c. The council must include at least one representative from every employee
resource group in the organization to ensure that it is itself diverse.
( ) d. The council must be the nexus ofthe initiative, establishing the strategic vi,ion,
goals, and programs and collecting and analyzing outcomes.
5. What is a reasonable set of minimum requirements for a diverse organization to impose on its
supply chain?
( ) a. All supplier diversity policies should, at the least, be consistent with the
purchasing organization's own diversity policies.
( ) b. It is unreasonable for an organization to attempt to impose any diversity
requirements on its suppliers.
( c. A diverse organization should, wherever possible, use only minority-owned
organizations as its suppliers.
( ) d. Suppliers should be able to meet minimum quotas for hiring and retention of
minorities and women.
6. What are the three types of training that are needed for a comprehensive diversity and
inclusion learning and development program?
( ) a. Diversity awareness courses, diversity management courses, professional
development opportunities
( ) b. Sensitivity training, conflict resolution training, emotional intelligence courses
( ) c. Culture change management courses, ethical awareness training, diversity
dimension identification training
( ) d. Global awareness training, team-building courses, language skills courses
' I
© 2015 SHRM 163


1. b (p. 147)
2. c (p. 149)
( i
3. a(p.l51)
4. d(p.l53)
5. a (p. 158)
6. a (p. 159)
\ ;
© 2015 SHRM
164
Section 3:
HR's Role in the D&l Strategic Process

• Facilitating an organizational culture that promotes a global mindset for diversity and ·mclusion through
• Providing mentoring, training, guidance, and coaching on cultural trends and practices to employees at all
levels of the organization.
• Implementing audit practices to ensure cultural awareness on a global basis.
• Demonstrating nonjudgmental respect for others' perspectives.
• In conjunction with other business leaders, developing, implementing, and overseeing programs, practices,
l
• Ensuring that equitability for all internal and external stakeholders is considered when designing programs,
policies, and practices.
• Fostering an environment that embraces and encourages global mobility, which allows for diverse experiences.
( This section is designed to increase your knowledge of:

• Influence of the 4 T's (travel, training, transfers, and teams).
• Intercultural wisdom.
• Issues related to disability, ethnicity, gender, language, race, sexual orientation.
• Level of global acceptance of diversity (e.g., disability, ethnicity, gender, language, race, religion, sexual orientation).
Aspects of Organizationai Change

Just as a definition of diversity needs to be all-inclusive, so a diversity strategy
must cut across all aspects of organizational behavior, changing:
• Individual attitudes and behaviors.
• Managerial skills and practices.
o Organizational values and policies.
HR's role is central throughout. The learning and development needed to

influence attitudes and behaviors and the policy design and implementation that
make a diversity strategy real (staffing, recruiting, retention, compensation,
conflict resolution, etc.) all fall under the broader categorization and
responsibilities that comprise human resources. Each of these three areas is
examined in this section.
Individual Attitudes and Behaviors

Traditionally, when learning and development comes up in discussions ofD&I,
it is limited to "diversity sensitivity training"-sharing attitudes about other
cultures, genders, belief systems, and so on. As discussed earlier and in topics in
this section, there are many additional roles learning and development can play
in D&I.
That being said, encouraging and developing a global mindset-and its

component qualities of emotional intelligence and intercultural wisdom-does
I•
II lay critical groundwork for organization-wide acceptance of diversity as a
business strategy and is a necessary precursor for the productive interactions that
I enable an organization to leverage the diversity it has achieved. Instilling those

qualities throughout the organization is a critical outcomes-based HR
responsibility. The complexity and importance of accomplishing this also
demonstrates why the concept of linear, one-off "training" has evolved into a
more dynalllic and integrative notion of "learning and development." The
following outlines these three examples in more detail.
Global Mindset
An organization's mindset indicates how its employees think about the world
and how this view affects their actions-both toward one another and in their
interactions with clients, collaborators, and the competitive environment.
166 © 2015 SHRM

A global mindset is the ability to take an intemational, multidimensional

perspective that is inclusive of other cultures, perspectives, and views. Having a
global mindset requires imagination-being able to see the view from inside
' background and using that awareness to
another person's multidimensional
create solutions and bridges. It also requires self-awareness-recognizing the
ways in which one's own diversity dimensions have shaped one's perspective
and recognizing that that perspective is just one among many.
The "HR in the Global Context" Functional Area in this Workplace module
provides a detailed discussion of global mindset. That discussion understandably
focuses on the ability to accept differences among cultural backgrounds. Culture
is, of course, only one dimension among many diversity dimensions considered
here. The underlying principle is the same, however: a mindset that accepts and
embraces different perspectives and is able to help leverage those differences to
benefit the organization.
Emotional Intelligence
Emotional intelligence (EI) is the quality of being sensitive to and
understanding of one's own and others' emotions and the ability to manage one's
own emotions and impulses. Combined with a global mindset and intercultural
wisdom, this more complete set of intelligences enables people with very
different backgrounds and perspectives to work productively with one another,
tuming their differences into an organizational asset rather than a potential
liability.
HR must help develop El throughout the organization. Without EI, the behaviors
needed to make diversity in the workplace work-empathy, cooperation,
willingness to learn about and accept differences-are practically impossible.
Peter Salovey and John D. Mayer define four branches of emotional intelligence:
• Perceiving emotion. IdentifYing and evaluating emotions in oneself and

others. For example, the emotionally intelligent person is in tune with
J emotional shifts in a room during an organizational meeting.
)
) o Using emotion to facilitate thought, Capitalizing on feelings to promote and
inform decision making, problem solving, and other cognitive activities. The
© 2015 SHRM 167

emotionally intelligent person can use changes in mood, for example, as an

opportunity to approach a decision from multiple viewpoints.
• Understanding emotion. Interpreting complex emotions and understanding

their causes. The emotionally intelligent person, for example, can predict how
employees' emotions are likely to evolve following the announcement of
structural changes to the organization.
• Regulating emotion. Tracking and managing one's own and others' emotions.
For example, the emotionally intelligent person can detach from feeling angry
about a particular problem if anger has proven limiting in helping to solve the
problem.
Daniel Goleman popularized the concept of an emotional intelligence quotient

(EIQ) in the workplace, more specifically as a measure of leadership ability. The
EIQ Goleman describes suggests the qualities that an organization's upper
management and HR management will need to be able to successfully promote El
throughout the organization.
Goleman describes five components:
• Self-awareness. Becoming more aware of one's own emotions and needs and
their effect on work relationships. Goleman's example is the manager who
knows he becomes shm1-tempered under deadline stress.
• Self-regulation. Learning to control (and accommodate) one's emotions. The

manager who has trouble dealing with deadline stress can manage schedules
and work plans to minimize those stresses.
• Motivation. A passion for the job or current objective. Goleman explains that
the drive to succeed, resilience, and optill1isrn are all patt of this component:
• Empathy. Moving from self-awareness to awareness and acceptance of the

impot1ance and legitimacy of others' emotions. This is a critical quality for
team building, coaching, and mentoring. In a diverse organization, where one
person's emotional response may at first be inexplicable to someone with a
very different backgrotmd, this is a critical skill.
168 © 2015 SHRM

• Social skills. The ability to apply this intelligence to workplace activities,

such as forming teams, persuading and influencing, or leading change.
Managers with social skills are interested in and good at establishing
connections, even when there may be no immediate reason for the connection.
This is especially valuable in a diverse organization: The more coworkers
connect with one another, the more easily their working relationships can
move beyond surface differences.
Intercultural Wisdom
Intercultural wisdom, also called cultural intelligence, is the capacity to
recognize, interpret, and behaviorally adapt to multicultural situations and
contexts. As with the tenn "global mindset," the concept of"culture" here
needs to be extended to embrace other diversity dimensions-age, gender,
race, religion, socioeconomic background, and so on. David Livermore, in
Leading with Cultural Intelligence, makes that extension explicit, defining it
as "the ability to be effective across various cultural contexts--including
national, ethnic, organizational, generational, ideological, and much more."
In International Dimensions (~/'Organizational Behavior, Nancy J. Adler

describes three aspects of cultural intelligence. Livctmore offers similar
"CQ capabilities" of knowledge, drive, strategy, and action, elements of
which are incorporated in the description of Adler's three aspects that
follows:
• Cognitive, including thinking, learning, and strategizing. This involves

developing a knowledge of cultural differences and similarities and
being able to use that knowledge to determine how best to handle a
cross-cultural situation.
• Motivational, including effectiveness, confidence, persistence, value

congmence, and the level of attraction toward a new culture. This
quality enables one to genuinely enjoy cultural differences rather than
)
feeling threatened or intimidated hy them.
·)
)
• Behavioral, including an individual's range of possible actions and
)
responses to intercultural encounters. This quality enables one to be
tlexible and adapt in multicultural contexts.
© 2015 SHRM 169

)
When making an effort to develop and enhance intercultural wisdom, there

is a tendency to focus on the cognitive aspect, while in fact it is advisable to
use a comprehensive approach, paying equal attention to all three
components.
" \
I
The HR manager at a large resort in Las Vegas must resolve a conflict

between the IT manager. originally from the Netherlands, who is refusing to
fix the computer of the F&B manager, originally from Trinidad. The IT
manager feels that the F&B manager has been disrespectful to him by
Relationship ignoring all his e-mails; she, on the other hand, feels that he is challenging
Management her status as a manager by sending her lengthy e-mails rather than coming
Competency
in Action to her office to help her in person.
The HR manager knows from performance reviews and personal contact
that both are highly valued, competent managers. In a follow-up meeting,
she asks each to reverse roles and try to explain one another's problem.
l The IT manager struggles with the role play but does eventually admit that
perhaps his e-mails were a bit too long, adding that he had wanted to make
sure that all possible IT issues were being addressed. The F&B manager
I mimicked the IT manager's accent, but then admitted that she could have
tried harder to resolve the computer problem using his e-mail directions,
despite her lack of formal computer training.
The HR manager proposes a compromise that both managers find
acceptable: The IT manager will conduct three-hour tutorial sessions for the
l F&B head, who would in turn provide a guided tour of the F&B operations,
so he could see firsthand how they need to use the IT system. By focusing
I on business objectives while applying some emotional and cultural
intelligence role-playing, HR has helped both sides to better understand the
!i real issues that were causing personal conflict and work toward a resolution
that will avoid future conflicts.
Managerial Skills and Practices

HR has the dual role of developing the organization's future upper management
personnel (giving them the skills and experiences needed to move upward in the
organization) while also ensuring that, in their present positions, they are
effectively carrying out the organization's diversity policies.
The 4 Ts: Travel, Teams, Training, Transfers

HR has four powerful tools at its disposal in influencing managerial practices
and developing new managerial skills: the 4 Ts (travel, teams, training, and
170 © 2015 SHRM

transfers), which can be valuable strategies for creating a global mindset and
enhancing the multicultural awareness of leaders and senior managers.
J. Stewart Black, Allen Morrison, and Hal Gregersen conducted a survey

(described in Global Explorers: The Next Generation of Leaders) to define
the characteristics of global leaders and identify key factors in acquiring a
global perspective. Their research revealed the importance of the 4 Ts.
Travel
Effective global organizations recognize the value of travel in developing
cultural awareness and appreciation. Of the respondents in the Black,
Morrison, and Gregersen study, 80% stated that working and living abroad
was the most influential development activity they had ever experienced.
) Short-term travel assignments (to be part of meetings, teams, launches,

~ negotiations, and other events) may help managers and employees gain
:~u
experience, expand awareness and appreciation of different places and
cultures, and become more visible and valuable within the organization.
I)
) Briscoe, Schuler, and Tarique, however, question the effectiveness of short-
I) term assignments in developing a global mindset. They believe that the
I
experience of culture shock and the opportunity to learn to cope with cultural
i difference takes time-and multiple experiences in different cultures. One
i)
) must leam how to live in another culture and enjoy it.
I
)
I
) Teams
I
) Working on global teams and intemational projects is another highly
I
) effective way of helping individuals within an organization develop cross-
I
) cultural management skills.
I
)
) Team assignments can be functional or cross-functional, depending on the
) situation. In terms of integration of the D&I process (Step 7), managers
) can be trained to form all their teams with an eye toward diversity and
) inclusion (gender, generational, cultural, etc.)-not just for its own sake
) but for the problem-solving and innovation advantages of more diverse
teams.
)
© 2015 SHRM 171

A training team needs to revamp the corporate website. Launched several

years before, it now feels outdated and hard to navigate. It was meant to be
a primary gateway for client interaction, but team members now frequently
remove site references from business presentations to preserve their
Global and professional image. Something has to be done.
Cultural
Effective- As is her usual practice, the global team lead sets up a team conference call
ness to discuss the issue and propose ideas. But at the end of the meeting, the
Competency team lead is not happy with the results-she knows they can do better. Her
in Action team is a mix of seasoned professionals and new members. Stationed
throughout the globe to provide support across all time zones, they also
come from very different backgrounds and nationalities.
The global lead decides to change her approach and proposes a
competition. She divides the team into four mini teams of three to four
people, each a mix of regions and experience, and asks each to propose
their ideal team portal. Teams are free to choose how to approach this work,
how often to meet, and what tools and media to use. The only constraint is a
three-week deadline to submit their proposals.
The team lead has found a way to leverage her team's diverse perspectives
and provide a valuable team-building experience. By taking the activity
offline, and reducing the number of people in each team while balancing
cultural characteristics, she makes it easier for individual voices to be heard.
Members feel freer to offer opinions, be actively involved, and add unique
skill sets to the task. Team members also find it easier to coordinate
meetings across time zones and experiment with new collaboration tools to
achieve their goal. Whether a single proposal or a mix of proposal elements
is selected, the team lead now has four thoughtful proposals and fresh views
on the purpose and strategic value of the portal itself-for a much richer
value-added solution.
Training
Comprehensive D&l management training is an essential aspect of the 4 Ts.
Some diversity leadership abilities, such as mentoring or coaching, can be

developed, sotraininginthese skillsshouldbepart of the organization's D&I
training initiatives.
Training courses contribute to both skill building and development or

expansion of personal relationships. When courses focus on more than
functional skill building, they can also foster and reinforce a global mindset
and enhanced cultural awareness.
172 © 2015 SHRM

Diversity training offers some unique challenges:
• Peter Bregman wams that traditional diversity training has proven

ineffective when it focuses on "categories" and differences, thereby
reinforcing stereotypes rather than encouraging workers to see their
colleagues as individuals.
• Ironically, it is also critical that trainers be aware that employee rf:'sponses

to training will differ based on their individual diversity profiles (cultural
preferences and values, cognitive and learning styles, etc.). For example,
cultural differences can affect attitudes toward authority, influencing the
willingness to leam from a trainer. Cognitive and learning style differences
can affect how readily employees learn from lectures versus team
activities.
Transfers
The transfer experience represents a patticularly important component of the
cultural development of global assignees. Traditional international assignments
are often long, expensive, and restricted to senior managers, but participants
often identify the experience as the single most influential development activity
of their careers.
These intense immersion experiences have a strong and lasting impact on

individuals' relationship development and cross-cultural management skills as
well as their acquisition of a global mindset Again, the skills and experiences
gained from immersion in another culture are then transferrable to encounters with
differences due to other dimensions of diversity such as gender or age.
See the "HR in the Global Context" Functional Area in this Workplace module for
a more detailed discussion of global assignments.
Organizational Values and Policies

Consider the problem of the members of a global organization's sales force,
who are not from the culture they are now being asked to target. They are
encountering language ban·iers, and they lack the broader cultural
grounding that would enable them to understand the needs of their new
© 2015 SHRM 173

target market. Training may help, but more critically, they need to bring on
board qualified individuals who have the language skills and cultural
affinity with the target market they are not currently mirroring.
That, in turn, requires strategic policy answers to a whole string of

questions: How to find the right candidates? Once found, how to take fullest
advantage of the new perspectives and knowledge they bring to the
organization? How to then unify the sales force, enabling them to work
together and learn from one another? How to create the atmosphere and
work conditions that will keep these new people and help them grow in the
organization?
The challenge, then, is to implement global policies and procedures that are
not only consistent with larger organizational values and strategic goals but
are able to effectively meet local tactical and strategic needs as they arise.
Much of the burden of meeting that challenge falls on the shoulders of HR.
Critical Policy Challenge

HR must ensure that each policy has been devised and is implemented so as to
apply equitably and fairly across all the dimensions of diversity (gender and
sexual orientation, race, ethnicity, culture, religion, etc.) and across all
functions (IT, finance, administration, manufacturing, etc.) and all global
locations (which can include highly diverse cultures). Additionally, policies
may involve suppliers and other collaborating organizations and individuals,
in which case implications for these relationships must be thought through as
well.
As should be obvious by now, that doesn't mean that implementation is

identical across all dimensions, functions, and locations. Quite the opposite:
Policies must be flexible enough to accommodate unique local needs and
situations-including those that have not yet arisen-but in ways that are true
to core values, goals, and intentions.
Challenge of Details
The challenges of implementing policies across a diverse global
organization also include ensuring that the details of implementation are
thought through and followed up on.
174 © 2015 SHRM

For example:
• Translating objectives and policies-especially diversity policies-into
applicable local languages.
• Remaining aware that the organization's cultural assumptions may not
be universally shared.
• Ensuring that a diversity policy isn't based on cultural assumptions (the
organization's own or those of its parent country) that have not been
validated.
• Recognizing that a diversity policy designed for the needs of one
nation will not address the complexity of a multicultural, global
workforce. (For this reason, many global organizations leave
j implementation to managers at the local and national levels, so the

diversity initiatives can be tailored and adapted to fit local laws,
traditions, and sensibilities.)
~
)
•
•
Ensuring local and regional representation on groups that establish
diversity targets and program objectives.
Recognizing that the organization's diversity program implementation
~
( will be an ongoing process that is constantly changing and evolving.
l • Planning, budgeting, and ensuring adequate financing for a global

rollout, including adequate budget support for local entities in
\ emerging markets.
t ) Gardenswartz and Rowe note the sheer number of questions that arise once
I
) the actual details of any policy change are considered. They offer the
I
) example of changing recruitment policies to be more equitable and provide a
more diverse range of candidates.
\
'
The questions such a change raises include:
• How do you begin the process of selecting recruiters who themselves are
diverse? And does that necessarily mean they themselves are open to
)
differences and can be objective about others?
)
• What are the policies and practices around creating an equitable posting
system?
• Once that system is in place, how do you then make sure you have broad
hiring panels?
© 2015 SHRM 175

An American retail clothing company is interviewing for a new regional

marketing manager. The company uses a structured first interview process
with an emphasis on job-specific behavioral competencies.
Ethical Early in a first interview, one candidate asks about the organization's position
Practice on same-sex relationships. In fact, the company has a publically stated policy
Competency
of nondiscrimination, including on the basis of sexual orientation. However,
in Action
the jurisdiction in which the interview takes place does not recognize same-
sex relationships.
The recruiter initially defers answering~ stating that she vvHI be h3ppy to
answer any and all of the interviewee's questions after they finish addressing
all of her prepared questions. At the end of the prepared questions, the
interviewee once again asks about the company's position on same-sex
relationships. The recruiter states the company's policy. Unsatisfied, the
candidate then asks, "Doesn't that contradict the laws of this state?" The
recruiter restates the company's policy, adding that they have offices around
the world and do their very best to offer employees world-class working
conditions that respect the local laws and cultures in which the business is
operating. The candidate's body language suggests that he is not satisfied
with the answer, but he moves on, asking other work-related questions.
This organization uses a structured first interview. By maintaining the steps in
the structured interview process, the recruiter reinforces to the candidate that
no personal screening criteria will be given any more or less attention than
others. By stating and then restating the company's policy, the recruiter also
shows the candidate that she personally will not be pulled into a legal
discussion inappropriate to the context of a job interview. By focusing on the
actual needs of the particular job and using a structured interview
emphasizing the competencies for success in that job, the recruiter is
communicating to all potential candidates that the organization's priority is
hiring a candidate based upon ability, not their personal situation.
Challenge of Dimension-Specific Issues

In defining diversity, Section I described diversity's many dimensions (or identity
groups) and explained that each can create its own unique issues for the
organization. Figure 5 on the following pages provides a fuller (but by no means
complete) list of such issues, together with some possible policy solutions for them.
At the top of the chart are some policies and procedures-diversity training,
mentoring programs, ERG support and utilization-that are part of a solution
package for virtually any and all identity groups or diversity dimensions. It should
be understood, however, that each will likely require customization in order to
address any given group's or dimension's particular set of concerns and needs.
176 © 2015 SHRM

Not surprisingly, the policies and procedures that can address all such issues are
most often implemented by HR.
. Dimension· Issues. · Potential Solutions

ALL • Equal opportunities for growth and
development within organization I· Diversity awareness/conflict
resolution training/support programs
• Meaningful voice within organization • ERG support and cooperation
• Better understanding of others' needs • Refocused recruiting procedures and
and perspectivAs prnorBmS
i• Elimination of pressures to assimilate or

"cover" their unique identity traits
•
•
Mentoring programs
Revised promotion policies
Personality • Information exchange adapted to varied • Team-building and communication

learning and cognitive styles skills learning and development and
support programs
• Varied personalities enabled to work
together as effective teams • Learning/development retooled for
varied cognitive and learning styles
·-
Gender • , Increased percentage of women • Benefits refocused to include flextime,
employees at all levels on-site day care, parenting leave
• Increased percentage .of women in IT • Assignments and participation in
leadership development programs
and technical positions
that enable women to move up in the
• Glass-ceiling elimination
organization
• Pay equity issues
• Work/life balance issues
• Health-care issues
Sexual • Benefits lor partners • Benefits refocused to include flextime,
orientation on-site day care, parenting leave
(gender • Equitable opportunities for flextime
identity or
and/or other benefits provided for • Benefit equity lor life partners
traditional families
expression)
• Bathroom facility issues (i.e., which
bathrooms transgender workers use)
Religion • Conflicts between work and religious • Halal, kosher, or other religion-
obligations compliant foods offered in cafeteria
• Conflicts between employees with • Prayer rooms
different religious beliefs • Flextime adjustments lor religious
• Scheduling issues (e.g., different holidays and/or daily prayer
workweeks based on different Sabbath
days; religious holidays)
• Learning and development programs
to open up religious dialogues and
• Foods that meet religious requirements increase interfaith awareness
)
Ethnicity and • Language barriers and other cross- • Cross-cultural communication skills
i race cultural communication problems training
)
• Conflicts between employees with • Access to reference tools and
detailed business and cultural
different ethnic backgrounds
information on other countries
) • Stereotyping
• Recruitment of bilingual employees
)
Figure 5: Diversity Dimension-Specific Challenges and Solutions (continued on next page)
)
© 2015 SHRM 177

)
I
Nationality (culture)
• Conflicts between cultural and
organizational values
0 Diversity awareness and
conflict resolution training
• Different attitudes toward authority, e Team-building and
communication-enhancement
relationships, work/life balance,
motivation, risk, communication training and support
programs
• Resolution of value conflicts among
cultures and between national and • Mentoring programs
organizational cultures • ERG support and cooperation
Age
• Different work motivations of different • Reexamination of policies on
generations employee reviews and
feedback
• Generational differences regarding
preferred feedback • lntergenerational teams
• lntergenerational attitude conflicts • Customized benefits
• Work/life balance issues • Review of career path options
• For younger generations: social
media-related issues of privacy and
• lntergenerational mentoring
programs
use
• For older generations: phased
retirement, capture and transfer of
knowledge, increased disabilities and
medical costs
Physical ability
• Overcoming recruiter/interviewer • Changes in physical plant
biases (office furniture choices,
layout, bathroom facilities,
• Communication barriers between
addition of ramps)
employees
• Physical limitations • Exploring non-physical plant
accommodations (e.g.,
telework, flextime for needed
treatment)
Family status • Work/life balance issues (especially
responsibilities as parents and as
• Benefits refocused to include
flextime, on-site day care,
children of aging parents) parenting leave
Socioeconomic status
• Educational limitations 0 Educational benefits and
opportunities
Veteran status
• Translating military training and skills • Educational benefits and
to workplace skills opportunities
Organizational
function/level
• Elimination of barriers to upward and • Management learning and
lateral moves within organization development
• Ensuring that each function can
contribute ideas and perspectives on
• Educational benefits and
opportunities
projects and strategic decisions
• Promotion of mobility
• Ensuring that each function has
defined and is managing its own
unique diversity issues
Figure 5: Diversity Dimension-Specific Challenges and Solutions (concludedj
1ro © 2015SHRM
)·
Progress Check
1. What are the three aspects of organizational behavior that a diversity strategy must be able to
change?
( ) a. Hiring behaviors, teamwork behaviors, and conflict resolution behaviors
l (
(
)
)
b. Individual attitudes and behaviors, managerial skills and practices, and
organizational values and policies
c. Managerial communication behaviors, employee social skills, and diversity
awareness behaviors
( ) d. Thinking, leaming, and strategizing behaviors
2. What is a global mindset?

( ) a. The ability to encourage others with diverse backgrounds to see one's own
perspective as the correct one
( ) b. The ability to leam other languages
( ) c. The belief that all other cultures and identity groups are really no different from
i one's own
( ) d. The ability to take an intemational, multidimensional perspective that is inclusive
of other cultures, perspectives, and views
3. Which of the four branches of emotional intelligence is described as the ability to capitalize
I on feelings to promote and inform decision making, problem solving, and other cognitive
activities?
\ ( ) a. Perceiving emotion
II
( ( ) b. Using emotion to facilitate thought
I ( ) c. Understanding emotion
I ( ) d. Regulating emotion
I )
4. What HR-directed policy initiative could best help resolve work/life balance conflicts for
female employees?
( ) a. Revising promotion policies
( ) b. Instituting mentoring programs
( ) c. Providing flextime and parenting leave benefits
( ) d. Initiating diversity awareness training
)
© 2015 SHRM 179
5. What HR-directed policy initiative could best help resolve conflicts between older and
younger workers?
( ) a. Revising promotion policies
i
I ( ) b. Instituting intergenerational mentoring programs
l
'I
I!
(
(
)
)
c. Revising policies on employee reviews and feedback
d. Creating age-specific employee resource groups
I
"
i
I
~
© 2015 SHRM
180

l. b(p.166)
2. d (p. 167)
3. b (p. 167)
4. c (p. 177)
5. b (p. 178)
J
© 2015 SHRM 181
Risk Management is {he identification, assessment, and prioritization of
· risks (defined in ISO 31000 as the effect of uncertainty on objectives), followed
by the coordinated and economical application of resources to minimize, monitor,
and control the probability and/or impact of unfortunate events or to maximize the
realization of opportunities.
I )
Key responsibilities for all HR professionals • Human Resource Expertise-The ability to
include: maintain current and up-to-date knowledge
• Directly or indirectly developing, about the role of HR in risk management.
implementing and overseeing the execution • Business Acumen-The ability to
of programs, practices, and policies that understand and apply information to
mitigate risk and support organizational develop the organization's risk management
success (e.g., appropriate use of strategy.
technology, fiduciary responsibility, fraud, • Critical Evaluation-The ability to interpret
theft, workplace safety and security, internal and external information and data to
workplace violenc:A) make risk-based business decisions and
• Maintaining accountability for recording and recommendations that align with the
reporting workplace safety compliance. organization's level of risk tolerance.
• Developing crisis management and • Communication-The ability to effectively
contingency plans for the HR function and exchange information with stakeholders that
the organization. increases their understanding of
• Designing and implementing continuity approaches to mitigate risk exposure.
plans for the HR function and the • Relationship Management-The ability to
organization. manage interactions that provide risk-based
• Communicating critical information about service and support to the organization.
risk mitigation to all stakeholders.
• Communicating information about Knowledge Topics:
workplace safety and security issues to all • Business recovery planning
levels of employees.
• Continuity of operations planning
• Auditing risk management activities. • Corporate espionage and sabotage
prevention
Key responsibilities for advanced HR • Data integrity mechanisms and practices
professionals include: • Data management protection and
• In conjunction with other leaders, disclosure approaches
developing and implementing a • Drug prevention
comprehensive strategy to address and • Duty of care
mitigate risk on a global basis.
• Emergency/incident response plans
• Leveraging technologies (e.g., • Health and safety practices and procedures
communication systems, computer
• Information management theory
security, contingency systems, records
backup, social media) to manage and • Kidnapping and ransom prevention
protect workforce and organizational data. • Natural disaster and severe weather
emergency preparation
• Examining and providing guidance on
potential threats to the organization. • Occupational injury and illness prevention,
compensation, and accommodations
• In conjunction with other leaders,
• Public health preparedness and response
developing strategies to ensure the
• Safety auditing techniques
sustainability of the enterprise.
• Terrorism prevention and responses
• Evaluating labor market trends and industry
• Theft and fraud prevention approaches
standards for their impact on business.
• Whistleblower protection approaches
• Designing standards-based systems for
• Workplace incident investigations
mitigating risk.
( • Leading after-action debriefs.
• Workplace safety risks and hazards
I • Workplace violence prevention techniques
)
l
Introduction
Leaders of organizations and functions have discovered the complexity of the
risks facing them and the necessity of creating new, risk-aware organizations.
In a global economy, organizations may suddenly face threats posed by

distant and apparently disconnected events. A volcanic emption in Iceland
can suspend air travel across Western Europe and cost billions in lost
revenue. A tsunami in Japan can cause local devastation and widespread
chaos in the automotive industry supply chain. Trade sanctions against one
country can lead to increased energy revenue for another ... as well as
increased payments for agricultural imports. Being prepared for these rare
but costly risks requires risk-aware decision makers and a resilient
organization.
The depth of the damage that unforeseen or unmanaged risks can inflict on
organizations has also shocked many into action. The ethical transgressions
that resulted in the collapse of energy trader Enron and investment banker
Bear Stearns, the lack of transparency in AIG's accounting and credit swaps
scandals, the operation of clothing factories in patently unsafe facilities ... for
many of these organizations, the losses were not just economic. Corporate
and individual reputations were destroyed. Businesses were lost, employees
lost jobs, and communities were weakened. The magnitude of these losses
made it clear that risk management is not just an operational tactic, a reaction
to the demands of regulations. Risk management must be part of an
organization's DNA, so that the threats and opportunities that underlie a
decision are automatically considered.
We have also learned not to see risk as something entirely negative. We can
miss opportunities by avoiding risk. The heavy finru1cial.losses of the Great
Recession made investors nervous about new ventures and lending. How
many solid businesses failed because investors focused too much on the
possibility of loss and too little on the possibility of success?
From these experiences, organizations have learned the benefits of developing

an integrated and balanced approach to risk~of seeing the potential for loss
184 © 2015 SHRM

WORKPLACE Risk Management
and gain in every business decision. For example, from an HR perspective,

the decision to hire an employee, enroll a high-potential employee in a
leadership development program, or recommend the purchase of a competitor
should all include an evaluation of each potential upside (opportunity) and
downside (threat) of these actions.
Organizations that are effective at risk management have developed

enterprise-wide risk management frameworks and risk-intelligent employees.
This Functional Area reviews essential information about creating a risk-
savvy organization and explains key concepts through the roles and
responsibilities ofHR-for example, HR's role to provide duty of care.
This approach to risk management challenges HR professionals to rethink

their attitude toward risk. Historically, HR's position regarding risk has
tended to be:
• Limited in scope-considering risk only in the areas of health, safety, and,
perhaps, security.
• Risk-averse-inclined to say no to opportunities if positive outcomes are
not completely certain.
• Passive about managing risk-behaving in a reactive manner, after
incidents have occurred, rather than in a proactive manner.
HR professionals will become more confident in assuming risk if they

understand it better and are more prepared for a wider range of possible
outcomes. They will also become better at critical evaluation, because
understanding risk leads to deeper questioning of assumptions and less blind
trust of"best practices."
Finally, HR needs to better understand how their organization's employees

perceive risk. "Workforce 2020," a study by Oxford Economics conducted for
SAP, outlines current employee concerns, as shown in Figure 1 on the next
page.
HR professionals who are adept at managing risk can help lead their
organizations and their employees into a more volatile but opportunity-filled
world.
'I
j
}
© 2015 SHRM 185
l
•/
.i
'\_)
'l
Section 1:
. .)
") "
·).
Establishing the Context of Risk

• In conjunction with other leaders, developing and implementing a comprehensive strategy ..';
to address and mitigate risk on a global basis. ·)
• In conjunction with other leaders, developing strategies to ensure the sustainability of the )
enterprise. ·)
• Designing standards-based systems for mitigating risk. .)
)
J
)
)
)
' l
/
)
)
)
)
)
.)
.l
)
Focusing Risk Management

In a survey conducted by the Economist Intelligence Unit, responses indicated that
leaders overwhelmingly recognized the effect of risk on their organizations'
strategic success and survival. The ability to discern risks, especially emerging
j risks, was extremely critical, as was the mission to support better senior
management decisions.
~ At the same time, these leaders indicated that their organizations were most adept at
·~ managing risks associated with regulatory compliance and that risk awareness was
l
high after a catastrophe and invariably fell off as time passed. In other words,
despite knowing how important a strategic perspective on risk is, organizations
often fall back on the bad habits of responding to risk in purely defensive and
( temporary ways.
{
To be effective, 1isk management must have a broader focus, including risks that
Il affect strategic goals and those that affect daily operations. It must also be part of
~I the permanent mindset of eve1y member of the organization-not just leaders and
managers and not just during crises. As Tom Mumford, a leader of the global
I engineering firm KBR, noted, "We're all risk managers now."

(
HR can play a role in creating an organizational culture that reflects a proactive
l( stance for risk management-through, for example, recmitment and onboarding,
) performance evaluation and reward systems, and the model of leadership it helps to
l develop. In creating a risk-aware culture, HR will discover that its task of managing
.l organizational change may become a bit easier. Since fear of uncertainty often
) deters making needed changes, a more confident perception of unce11ainty and a
J feeling of organizational resilience and strength can increase the likelihood of
success for strategic change initiatives.
The first stage of risk management, then, is to understand where the

I org&nization positions.itselfregarding risk. What types of risks must it manage?
) How well is it equipped to manage risk? How much risk can the organization
tolerate, and how much is it willing to assume?
Before discussing how an organization answers these questions, let's review

)
basic definitions associated with risk management and the major standards
)
designed to promote risk management, ISO 31000-2009 and the COSO
Enterprise Risk Management Framework.
)
© 2015 SHRM 189

!
( i

( I
After being made redundant during the Great Recession of 2008 to 2009, a
young HR professional decides to take a post-graduate degree with an
emphasis in risk management (RM). Within a few years, she finds herself
back in HR, working as a research fellow at a national HR institute. She is
HR expected to write a research-based article for a major international
Expertise business publication and decides to focus on the perception and use of risk
Competency management in the HR community.
in Action
Our research fellow conducts a survey of global HR practitioners. Given
the recent recession and the fact that HR handles total rewards, employee
insurance plans, and numerous other health, safety, security, and
environmental issues, she is surprised by the degree to which many HR
practitioners in the survey indicate that they feel that risk management is
either "not my job" or that RM is "all about compliance."
Ultimately, her research shows that HR practitioners who hold business
degrees or professional HR certification are more likely to acknowledge
risk management as part of their fiduciary duty. And perhaps most
importantly, her research shows that these same HR practitioners are more . I
likely to perceive competence in the theories and best practices of risk
management as a key (causative) reason they are personally able to be
more proactive and strategic within their organizations.
Because of her experience in HR and her formal business education, this
HR practitioner is able to author a valid and reliable research-based article
that provides several real-world examples of how risk management's
principles and practices have a direct relationship to impactful strategic HR
management.
Defining Risk
In 2009 the International Organization for Standardization (ISO) released Standard
31000, "Risk Management: Principles and Guidelines." ISO 31000 presented
definitions related to risk, principles for organizations to follow in making
themselves more resilient and capable of managing risk, and a risk management
process.
In developing Standard 31000, ISO was building on the earlier work of the
Committee of Sponsoring Organizations of the Treadway Commission, the COSO
Enterprise Risk Management-Integrated Framework The COSO approach to risk
management, enterprise risk management (ERM), was created in the U.S.,
primarily for the needs of the financial industry and to support financial auditing.
190 © 2015 SHRM

There are some significant differences between ISO 31000 and COSO. COSO
tends to be more compliance-oriented, while ISO 31000 tends to be more proactive
and is applicable to a broader range of organizations. Their difference is partly a
shift in stakeholder focus: COSO reflects finance's historical mission to maximize
owners' (shareholders') equity, while ISO reflects a more contemporary focus on a
broader range of organizational stakeholders. Nevertheless, many of their
fundamental principles and approaches are very similar. Both of these documents
have helped shape organizational risk management programs.
One signifjcantdiftcrence ~lctwc.cn COSO and ISO is th~ definitjon qfrisk. •

While COSO defines risk as having an adverse effect, ISO defines risk simply.
as "!he ~ffelit ofunccrtainty on objectives.'' Althqugli risk is commonly seen as
something negative, strictly speaking it is neither pqsitive nor negative. It is .•
potential-.what eould happen. This wording was delibemtely chosen bY ISO.
It underscores the tact that uncertainty can bring good surprises (opportunities}
and bad surprises (threats). It can also bring cluingc, which may be good or bad
depending on what the organization t11ak.cs of it: This broader ntcaning of the
word "risk" challenges traditional perceptions of risk as solely negative, and
changing these percepti(ms in the organization may therefore take time and
persistence: .·.
Artorganization that is skiliful rrulnaging ri~k a socially responsiblc~nd ..

at i;t·
ethical m11nncr can benefit from risk taking. Willhtgncss to take risk is key to .
the success of entrepreneurs and the introduction of disn1ptive technologies ·
that redefine industries. Author Nassim Nicholas Talcb has eoined.thc term
!
) ''mttifrngllity"·-thcability to riotjust\vithstandhigh-impacl events orshocks ·
• .but to improve and benefit from them. ·
Risks should be understood as having immediate, mid-range, and long-term

effects. The goal then is to anticipate, prioritize. and manage as many risks as
)
is reasonably possible. For example, there may be an upside risk of a sales
)
advertisement that is mme effective than anticipated. The shmt-tcrm effect is
)
p<isitive, but the middle- and Jqng-range effects are more complex. The
success could lead to greater brand awareness and continued increase in sales.
J
© 2015 SHRM 191
)
The increase in sales could lead to increased pressure to produce goods,

resulting in strains on the workforce. However, new sources oflabor could be
identified, which could improve workforce stability in the long run. The
increase in production might also strain the supply chain that provides
materials for the goods. As a result, a Jess reliable supplier may make it
through the due diligence process ... or new and attractive supply partners may
be discovered.
In sum, an uncertain event should be considered in terms of a broad range of

possible outcomes, unfolding over time and in different configurations and
having a corresponding! y broad range of potential effects. I
. J
ISO defineJ> rislt J1lllnagement as ''coordinated activities .to direct and control
an· organlzatiorf with regard •to risk:1' Risk management strategies ate designed
to cl,lallge.the.Jli()l>ability of a ri!lk eve11ioccurring and/or the Qegn,-e of its ~ )
. j
· impact on. the Otganization!s objectiVes. An action taken to numage a risk is ·
referred to as a risk control•
Benefits and Barriers

The COSO ERM Integrated Framework provides a good general list of how
risk management can benefit an organization:
• A systematic approach to risk management aligns the process with the

organization's strategy and strategic objectives. An organization that has
staked its future on innovation and employee engagement must see its HR
risks as more than complying with health and safety regulations. It must
look to policies and processes that affect the availability and quality of
talent.
• It leads to a more effective response to risk. The process of managing risk

creates a broader understanding of a risk's causes and its potential and
applies a more systematic approach to evaluating the cost and relative
effectiveness of various approaches.
192 © 2015SHRM
• It leads to a more consistent response to risk across the organization. The

same criteria and processes are applied, which yields greater predictability
and control.
• Losses are reduced and the organization's resources are not wasted.
Opportunities are more readily identified, seized, and enhanced.
e In complex strategies and organizations, the interrelationship and possible

interactions ofnsks across the organization can be understood and managed.
In addition, organizations that are adept at risk management grow more resilient
to emerging risks, risks that may not have been identified and prepared for-a
growing consideration in a highly technological and global marketplace.
There is also the opportunity that an organization can become so expert at risk
management that its RM activities can become a revenue stream. Global
chemical company DuPont took its own experience in workplace safety
programs and created Operational Risk Management Consulting. This subsidiary
has since delivered safety training and advisory services to millions of non-
DuPont employees worldwide.
The baJTiers to risk management are primarily structural, cognitive, and cultural.
• Stmctural. Organizations that are structured in a silo fashion tend to respond

to risk in an operational, rather than strategic, manner. They overlook
dependencies within the organization that can create risks and/or interfere
with proactive risk management. There are few channels for communication
about risk and monitoring of practices that span the entire organization. Mark
Frigo and Hans L~ess0e describe how risk management evolved at the LEGO
Group from a silo-ed approach to an integrated ERM approach. When L<esS0e
} came to LEGO, operational risks were handled by planning and production,
)' Employee health and safety was attained by following the minimum ISO
) certification standards. "Hazards" were outsourced to insurers. IT was
) responsible for data security, finance for optimizing treasury management,
I ' and legal for copyright and contract management. Managing strategic risks
I required looking at threats and opportunities more holistically. The group
subsequently implemented an organization-wide risk management strategy.
J
© 2015 SHRM 193
}
)
• Cognitive. Managing risk effectively also requires imagination and openness

to change. One of the reasons why compliance has traditionally consumed so
much attention in risk management may be the attraction of its relative clarity:
Risks have been clearly identified and responses fully defined. It is a realm of
"if-then" scenarios, in which one posts certain warnings, provides certain )
safety equipment, and files certain reports with defined information at defined ' \
'·-..'
intervals. It takes more imagination to look beyond compliance to the realm of
"what-if' scenarios-a less-certain world containing other sources of risk,
especially emerging risks. Those responding to risk must also be willing to try )
new approaches to managing risk.
\
• Cultural. The cultural barriers ultimately involve what types ofmindsets are ·'
sought, instilled, and rewarded. Organizations must clearly communicate to )
their members just what the organization's position and appetite are regarding )
risk. They must educate anyone in a position of making a decision that . )
involves uncertainty-and that ultimately can mean everyone in the ' I'
organization--about the discipline of risk management. They must create risk ./
awareness and risk intelligence throughout the organization. )
'•)
An organization must also be aware of how the diverse cultural backgrounds of
its workforce shape the beliefs and attitudes each member brings to the
organization-including those regarding risk. For instance, the "HR in the Global
Context" Functional Area in this Workplace module presents cultural . i
i
anthropologist Geert Hofstede's concept of culture-based "uncertainty avoidance" J

and colleague Fons Trompenaars's' contrast of"universalist" cultures that value
)
clarity and consistency versus flexible "particularist" cultures that embrace ' I
ambiguity. Efforts to create a risk-aware corporate culture must take such varied
cultural attitudes into account.
Categories of Risk
ISO has hesitated to describe specific categories or classifications of risk on the
grounds that organizations are different in their goals and operations and
consequently have to deal with different types of uncertainty. Thinking about
categorizing risks, however, increases our awareness of the overall characteristics
of risk.
194 © 2015 SHRM

Known Unknowns and Unknown Unknowns

At a basic level, it may be useful to categorize risk from the perspective of the
amount and kinds of knowledge in hand when evaluating risk. In that regard,
risk can be categorized into "known knowns," "known unknowns," and
"unknown unknowns":
• Known knowns are events that are to be expected and so involve little
uncet1ainty.
• Known unknowns are uncertainties that we know exist but we don't know
much about their probability or impact.
• Unknown unknowns are risks that we don't know exist. They are the events
that "blindside" an organization (or individuals or entire cultures). Nassim
Taleb's "black swan" theory is about unknown unknowns. "Black swans"
are unforeseen "outlier" events that are extremely rare, have a major impact.
and, when viewed in hindsight, are reasonably predictable (e.g., the results
of abrupt changes in technology or sudden sociopolitical shifts).
Some people have suggested that there are also unknown knowns: risks we
mistakenly think we understand.
Looking at risk in this way emphasizes the need for recognition of the limits of
what is knowable. When an organization can fully consider all categories of
risk, it can more proactively manage risk. When an organization accepts that it
cannot entirely know the future, it increases its vigilance and its capacity to
respond to "black swans." This response may take the form of educational
campaigns, reserve funds, insurance, or contingency plans that accept unknown
possibilities.
Kaplan and Mikes's Categories

In a Harvard Business Review article, Robert Kaplan and Anette Mikes discuss
three categories of risk. The categories illustrate some of the basic characteristics
of risk: how it is perceived (to be avoided as a negative or accepted as potential
positive) and the degree to which it can be managed (whether it can be prevented
or guaranteed or simply managed to increase or decrease its effect).
'!
© 2015 SHRM 195
WORKPLACE, Risk Management
. )
Kaplan and Mikes's categories include:
• Internal and preventable. These risks come from within the organization
and could include violations of ethics and failures in routine processes.
• Strategy. This is desirable uncertainty that an organization willingly accepts

when it commits to a strategy-for example, uncertainty whether loans can
be repaid or employees will be fully productive.
• External. These sources of uncertainty are outside the organization and

beyond its control. They would include changes in the economy or laws and
regulations, disruptive technologies, and availability of trained employees.
. !
Enterprise Perspective
The COSO ERM Framework considers risk as an integrated issue that must be
managed across functions and divisions in an enterprise. The ERM Framework
divides risk into four categmies:
• Strategy-risks that affect the organization's ability to achieve its objectives
i 'j
• Operations-risks that affect the myriad ways in which the organization
creates value
* Financial repmiing-risks that affect the accuracy and timeliness of
information about the organization's financial performance and condition
• Compliance-risks associated with meeting the requirements oflaws and
regulations
Each of the categories could include numerous subcategories of sources of risk.

This is shown in Figure 2 on the next page, which places them in the context of
HR responsibilities. As we will discuss in the next section, each organization
must identifY the particular tisks to which it is subject and then deepen its
understanding of those risks.
HR and Risk
HR should understand the effect of risk on HR activities and objectives. To
understand the context of risk in HR, one must consider HR's strategic and
operational responsibilities to the organization, the processes that the function
performs to fulfill those responsibilities, and the locations in which HR operates.
All of these factors create a context for HR risk, as shown in Figure 2.
196 © 2015 SHRM

Risk
Sources of Risk HR Responsibilities · HR Process Areas
Categories
Strategy I•• Investment
Innovation
•
•
Workforce management
Talent management
I· Recruitment
• Succession planning
• Competitive • Employee engagement • Training and
behavior • Global management of development
• Consumer behavior HR function • Employee
I· Partners • Continuity of HR function communication
I• Employee
engagement anrl
• Reward systems
•
,-.,.........,..,.1..-.:-.&. - - - - I ..L: ___
\.J'UIIIt.llall H I t;:::;,UIUliUII
diversity • Contingency
planning
Operations • Sustainability • Duty of care • Workplace safety
• Supply chain • Performance • Global assignment
• Health and safety management • Employee relations
• Data privacy • Benefit
• Process efficiency administration
and effectiveness
Reporting • Growth of assets • Measuring and reporting • Technology
• Misappropriation of workforce data • Data privacy
assets • Analytics and
decision support
Compliance • Workplace • Compliance with • Filing of required
requirements international, country, reports
• Reporting and local laws and with • Communication with
requirements organizational policies employees
Figure 2: Risk Categories in the HR Context
ISO Principles, Framework, and Process

ISO has articulated II principles for risk management, shown in Figure 3 on the
next page, that allow an organization to assess its ability to manage risk, its level
of risk management maturity.
ISO also has described an organizational framework that supports the creation of a
risk-aware and risk-intelligent culture. The framework includes:
• Management commitment to risk management and clear direction that risk

) management is pati ofthe organization's strategy and culture. This
) necessitates management action consistent with this commitment: applying
an appropriate appetite for risk, managing risks in a way that protects and
)
© 2015 SHRM 197

enhances stakeholder interests, and rewarding individuals in a way that is

consistent with risk management goals. For example, rewards for senior
management should be tied to strategic objectives that a board has approved.
Management commitment will be essential to securing appropriate support
and resources for risk management activities.
'. ··.-<·
....,. ___ .;_ -.:. ·. . ~: :.- .- ,:. ..
An effective risk management program should:

Create and protect value.
Be an integral part of all organizational processes.
Be part of decision making. .'
Explicitly address uncertainty. '. I
Be systematic, structured, and timely.
Be based on the best available information.
Fit an organization's risk and control environment.
Take into account human and cultural factors.
Be transparent and inclusive.
Be dynamic, iterative, and responsive to change.
Facilitate continual improvement of the organization.
Figure 3: /SO 31000 Principles
• Design of a framework for managing risk that includes the organization's

governance layer of explicit policies and processes designed to fulfill those
policies. It also includes the organization's ethics and values, the examples of
the organization's leaders, and the culhtre created by the pattern of decisions
and behaviors of everyone in the organization.
• Implementing risk management to determine the management approach

for specific risks. This part of the framework includes a risk management
process, shown in Figure 4 on the next page.
• Periodic monitoring and review of the framework to make sure that it is

delivering on the goals of risk management. This could include determining
whether processes are being implemented throughout the organization as
required and whether the organization's members are behaving consistently
with its risk-aware culture.
198 © 2015 SHRM

• Continual improvement of the framework, which could involve realigning

the framework to a new organizational strategy for risk management, making
the framework more responsive to emerging risks, increasing awareness of
and experience with new management approaches, and improving auditing
tactics.
Communlca- Establish the context of . Monitor_ and

·tionarnt· · Review
risk.
Consultation
f!:." l_~ se~:i~ e~a-~ =k9~8~am_p _e~_\_it;_o_:1n:__.-se-t~..J< ·.'\
Evaluate. Identify and analyze risks.

Audit risk controls, review Gather information about risks
effectiveness, and monitor for and current controls, evaluate,
changes in risks. and prioritize risks.
;<.c.d_oc. pt-'-a"':" d"'ai"':" :"'l:"'~"':"';~ts~ -"'s:~

'
responses appropriate to each

risk.
·I
Figure 4: Risk Management Process
Figure 4 is based on the ISO process for risk management. It includes two
ongoing activities: "Communication and Consultation" and "Monitor and
Review." Section 4 of this module concerns monitoring and reviewing of risk
management practices.
J
The ongoing nature of"Communication and Consultation" underscores the need
to include intemal and extemal stakeholders at all stages of the risk management
process. Their input and perspective help make risk identification and analysis
)
more complete and balanced and help make sure that controls are designed to
)
)
work in their intended environments. This creates ownership in control plans and
makes the risk management process more sustainable. Ongoing monitoring and
reviewing help make sure that risk management strategies arc aligned with
overall strategy, arc following defined policies and processes, and are effectively
© 2015 SHRM 199

and efficiently meeting the goals established for the management of each
identified risk.
The rest of this section will address the challenge of establishing the context of
risk management: setting general goals based on defined risk criteria. Sections 2
and 3 of this Functional Area focus on risk assessment and management
response.
·Establishing the Context of Risk Management

During this first phase of the risk management process, the organization tries to
gain a sense of how prominent a role risk plays in the organization, where most of
the risk resides, and what are the typical sources of this risk. An organization or
function should get a good sense of this by conducting a SWOT analysis and
environmental scan. (These information-gathering tools are discussed in the
"Strategy" Functional Area in the Business and HR Strategy module.) These
internal and external reviews of risk sources should also consider risks that are
cross-functional.
For example, HR for a university brings together all staff for a workshop to
establish the role risk plays in their organization. They begin by listing the major
stakeholders and their expectations:
• Administration is most concerned with exceeding its annual payroll and

optimizing management of cash reserves. They want data about wage and
benefit expenses reported accurately and quickly. This is a challenge, given the
wide range of job classes and benefits.
• Faculty is concerned about erosion of their beneilts, particularly stipends for

research (including assistants) and travel. Research is revenue for the
university, and cuts here can threaten future revenue. Inability to perform high-
quality research hurts tlw future employment prospects of all levels of faculty.
The main risk here is losing talented faculty to competing institutions.
• Studeuts and their parents are concemed about the quality of the faculty. They
want the majmity of the classes to be taught by tenured professors, not
adjuncts or assistants. Those professors should come from prestigious
institutions. The main risks here involve satisfying those paying the tuition
bills and attracting talented faculty.
200 © 2015 SHRM

• Facility management has to make sure that a wide variety of venues-

from lecture halls to student dormitories and cafeterias to science labs-
are kept up to very specific standards of cleanliness and appearance.
Increasingly they need highly skilled technicians to support information
and control systems.
o Security has been under pressure because of several recent attacks on

students and burglaries. Some of the attacks were sexual and involved
other students.
• The government has been pressuring the university to cut tuition costs for
students, offer more scholarships to disadvantaged students, and increase
diversity ... but not through any form of preferential treatment.
• The community would like more access to university resources to offset

the considerable inconveniences caused by increased traffic and noise.
The HR group then considers other external sources of risk: upgrading an

information system to improve security and increase repotiing capabilities,
() terrorism on campus, weather interruptions, a new sabbatical policy, and an
I upcoming renegotiation of contracts with unions on campus.
)
I
\
' The experience shapes the group's perception of risk. They had been expecting
J discussions of payroll systems and health and safety, but HR risk is obviously
J a more complicated issue at the university. Even a quick review of these
)
observations raises some interesting questions. First, should administration be
)
more aware of risks other than budget? Its reputation with its key payers-
)
funding govemments, parents, students, alumni--<:ould be damaged or
)
enhanced by its ability to manage other risks, such as talent retention, student
)
security, and campus appearance. Second, many of these risks are cross-
)
disciplinary in nature. Budget affects faculty, who affect students. Security
)
affects students and community, who affect funding. How do you manage risks
that are so intertwined?
In the next phase of risk management, HR leaders at the university will take a
)
closer look at each of these areas, what creates risk, what is currently being
done to address risk, and what else could or should be done.
© 2015 SHRM 201

I
Risk Criteria
After getting a sense of where threats and opportunities exist inside and outside the
organization, leaders need to set a risk position for each of the risk categories they
have defined. The risk position can be defined as the organization's desired gain or
loss in value. (Keep in mind that much of the terminology about this aspect of risk
management comes from the financial and insurance industries. The terms there
have very technical meanings that we are generalizing here.)
The risk position the organization chooses will be influenced by its risk appetite
and risk tolerance, the amount of uncertainty the organization is willing to pursue
or to accept to attain its risk management goals. According to COSO, risk appetite
is a high-level characterization of acceptable risk-for example, "We will not risk
having open managerial positions due to poor recruitment." Risk tolerance sets a
more defined range above and below a target risk position: "We will take necessary
steps to make sure that management positions are filled within 30 to 45 days."
Risk appetite and tolerance are in turn affected by other factors, including:
• The organization's strategic goals and the degree to which Jisk will help achieve
those goals (e.g., engaging with a new financial services firm that may be able
to provide a better return on short-term reserve funds) or interfere with
achieving those goals (e.g., the effect of on-campus crime statistics on
prospective students and their families). One of the benefits of being involved
in early organizational strategy sessions is that HR leaders have a chance to
hear concerns raised by different leaders within the organization and add an HR
perspective.
• The organization's characteristic attitude toward risk, heavily influenced by

leadership and culture. Some organizations are risk-averse; they will avoid
choices in which the gains are too low or the costs too high. Others are Jisk-
seekillg, willing to hazard considerable sums with little guarantee ofsuccess. To
get a better sense of their organizations' attitudes toward risk, HR professionals
should include risk awareness and attitude as a topic to explore as they network
within the organization, expanding and deepening contacts.
• The organization's resources or risk capacity. Organizations with limited

resources may be more risk-averse. A university that is financially well-
202 © 2015 SHRM

endowed may be more willing to enter into competition for internationally

known faculty than a university with smaller means. HR leaders can discuss
these issues with senior management responsible for monitoring and controlling
organizational assets, such as a chief financial officer.
• Externally imposed requirements such as required insurance and risk

management strategies (e.g., certifications for information systems, tire
prevention designs, cash reserve funds). Some organizations have designated
risk management ottices that can provide more information about these
requirements, as can financial officers, stafflegal counsel, facility managers,
global directors, etc.
It is important that all of these criteria are aligned. The organization should invest
in managing the correct risks, the ones that have strategic impact. The risk appetite
and tolerance should be appropriate for the organization's resources and legal
requirements.
When the organization's risk attitude and the positions it seeks are not aligned with
these other factors, it is the responsibility of those who have greater understanding
of these risks to educate decision makers about issues. Three common examples of
misaligned risks are moral hazard, the principal-agent problem, and conflict of
interest.
Moral Hazard
Moral hazard exists when one party engages in risky behavior knowing that it is
protected against the risk because another party will incur any resulting loss.
Insurance, for example, can have the unintended consequence of creating moral
hazard by incentivizing people to act more recklessly than they would have had
they not had insurance.
The intemational financial crises of 2008 to 2009 were caused in large part by
individual high-risk behavior that exposed institutions-and ultimately taxpayers-
to enormous losses. Brokers were awarded bonuses for transactions regardless of
whether the end results were defaults. In the event of such negative outcomes, the
penalty fell to the institutions' investors, not to the brokers who had facilitated the
.I
transactions-and whose lack of due diligence was often a root cause. In too many
)
cases, these traders, in tum, worked for organizations that were then deemed "too
I
big to fail"-thus taking moral hazard to another level.
© 2015 SHRM 203

t )
\J
'·
' 1
Other examples of moral hazard include:

( I
e A manager under-reports workplace accidents to earn an incentive.
• Employees overuse an organization's health benefits, causing an increase in the (:._ I
plan's premimns the following year.
• A CEO receives a no-fault golden parachute when forced to resign due to poor
company performance.
·• A retail manager overestimates an inventory count to understate the cost of
goods sold. increasing the book value of income for that period.
• A member country of an economic union bonows beyond its ability to repay r
the loan, knowing it will receive support fi·om the larger organization.
·.· l
Principal-Agent Problem
Moral hazard in employment is often associated with the economic concept known
as the principal-agent problem (or agency dilemma). The problem arises when an
agent (such as an employee) makes decisions or takes actions on behalf of a
principal (an employer or owner) but has personal incentives that may not align ·1
with those of the principal. Generally, this is dealt with by providing incentives
(sometimes refened to as agency costs) that will help align principal and agent
interests. This may range from commissions, to performance bonuses or stock : 1
options, to employee ownership arrangements. Or there may be moral incentives, as ·1
when an organization asks its employees to adhere to sustainability standards that
may require extra time and effort. Even in the most communal, family-oriented,
socially responsible organizations, it can't always be assumed that the incentives of
employees and employer are fully and predictably aligned.
Conflict of Interest
Both moral hazard and the principal-agent dilemma exemplify the issue of conflict .
. )
\
of interest~in which a person or organization has the potential to be influenced by

two opposing sets of incentives. Examples of potential conflicts of interest include:
• An employee selects a vendor company owned by a personal friend.
• An employee is directly supervised by his or her spouse.
• An outside consulting company is simultaneously retained by two competing
organizations.
• A politician receives a valuable gift before a government contract is awarded to
a company in her district.
• An owner/executive of a publically traded company seeks to take his company
private, in the process increasing the value of his personal holdings.
204 © 2015 SHRM

The interpretation of conflicts of interest can and does vary significantly

depending on the jurisdiction. As such, it is always wise to check with qualified
legal counsel before concluding that a particular circumstance legally constitutes
a conflict of interest. The topic is discussed further in the "Corporate Social
Responsibility" Functional Area in this Workplace module.
~ The head of credit sales at a mid-sized bank is proposing a new

()) compensation system for his commercia! sales team. The system would
j r
Business
Acumen
emphasize a bonus linked to the number of new clients the team acquires.
Given his mandate from the board to aggressively increase revenue and
market share, the CEO has expressed his preliminary approval for the plan.
j Competency
in Action
The head of HR is not comfortable with the proposed system. Under the
plan, if salespeople do not achieve their targets, they will still earn their full
regular salary. She feels that while the bonus system is aligned with the
goals of the business, it is not balanced in terms of risk taking. The downside
risk of acquiring clients who are unable to pay their debts is being borne by
the bank, while the bonus will incentivize the sales agents to acquire any new
client regardless of ability to pay off the debts and without any impact to the
agents' basic pay should they be unsuccessful.
The head of HR requests a private meeting with the CEO. During this
meeting, she explains that one of the potential consequences of the bonus
plan is that the bank will acquire clients whose creditworthiness is
questionable. She uses the historical example of what happened just prior to
the financial crisis of 2008, when credit default swaps were being used to
misallocate the risks associated with mortgages, which, in turn, resulted in
the risk-reward balance between the lender and the borrower being broken.
The CEO is somewhat surprised to see that his head of HR understands the
business of banking and risk management so well. After more thoughtful
consideration, the CEO ultimately approves a bonus system but one in which
the salespeople can still opt to remain on their regular salaries. If, however, a
salesperson does opt to participate in the bonus plan, guaranteed salary will
be reduced by 50%, there will be a six-month lag in the payment of the
bonus, and, if any client defaults, any remaining bonus payment will be
forfeited.
The head of HR has demonstrated business acumen by recognizing the risk
management concept of moral hazard-that alignment and balance (not just
alignment) between an organization's goals and associated risks is a
) necessary requirement for a sustainable business model.
)
© 2015 SHRM 205

)
Progress Check
J. What organization will be most effective at managing risk?

( ) a. Global organization that has a highly compattmentalized structure
( ) b. Firm lmown for its rapid response to business crises
( ) c. Firm that includes the issue of risk awareness in its onboarding process
( ) d. Global firm that rewards managers based on decreasing numbers of compliance
tssues
2. What is risk?
( ) a. Organization's vulnerability to external threats
( ) b. Effect of uncertainty on achieving objectives
( ) c. Aggregate value of opportunities and threats an organization faces
( ) d. Techniques used to minimize loss and maximize gain associated with uncertainty
3. What are the categories of risk in the COSO ERM Framework?

( ) a. Compliance, financial, operational
( ) b. Internal, external, strategic
( ) c. Preventable, unpreventable, unknown
( ) d. Strategy, operations, financial reporting, compliance
4. What element is contained in the ISO risk management framework?

( ) a. Visible management suppott of risk management processes
( ) b. Mandatory insurance against professional errors and omissions
( ) c. Certification by an internationally recognized body
( ) d. Risk management office and officer
5. An organization has identified the risks associated With its operation. According to the ISO
risk management process, what activity should the organization perform next?
( ) a. Seek deeper understanding of the risks identified.
( ) b. Conduct an audit of risk management processes.
( ) c. Select the best approach to managing each risk.
( ) d. Secure management approval for budget to address tisk processes.
206 © 2015 SHRM

6. What is risk appetite?

( ) a. Degree to which an organization is conscious of the concept of risk
( ) b. What the organization has set as its target for gain or loss
( ) c. Amount ofloss an organization can sustain without jeopardizing the
organization's existence
( ) d. Amount of uncertainty an organization is willing to accept
7. An HR professional is new to an organization. What would be the best first step to gain a
proper understanding of the risk context in this organization?
( ) a. Review annual reports from the past decade.
( ) b. Talk with colleagues to gain their perspective on the organization's attitude
toward risk
( ) c. Look up the organization's rating by investor services firms.
( ) d. Conduct a visual inspection of the organization's facilities.
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© 2015 SHRM 207
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1. c (p. 189)
2. b(p.191)
3. d (p. 196)
4. a (p. 197)
5. a (p. 199)
6. d (p. 202)
7. b (p. 202)
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© 2015 SHRM
208
Section 2:
Identifying and Analyzing Risk

• Communicating information about workplace safety and security issues to all levels of
employees.
• Examining and providing guidance on potential threats to the organization.
• Evaluating labor market trends and industry standards for their impact on business.

• Duty of care.
• Workplace safety risks and hazards.
)
Risk Assessment Phase

This section deals with the complex first question raised when an organization is
r
developing a risk management strategy. What threats will it protect the organization
from, and what opportunities will it risk resources to capture? To answer this, the
organization must first identify all the internal and external risks that affect its
(
strategies and operations, in all of its locations and all segments of its operations.
This process will be repeated in an iterative manner by each function, country, or
division to prepare risk 1Hanagen1ent strategies that are more granular.
The risk identification and analysis stage begins with gathering information from a
variety of sources to make sure that the organization is considering all aspects and
perspectives of its strategy and operations. The information is then analyzed to
understand each risk more fully. Based on this analysis ofthe risk data, the
organization can then optimize its risk management plans by focusing its resources
on significant risks. It can also develop key risk indicators, signals that a threat or
opportunity may be materializing.
A best practice is to begin documenting risk information at this stage ofthe

process. Different te1ms are used for this documentation-risk profile, risk
alignment guide, risk event card, risk log. We will call it a "risk register," a term
used in project management and organizational risk assessments. The risk
register serves as a repository for all information about an identified risk.
identifying Risks
The goal for this phase of risk management is represented in the acronym MECE,
which stands for "mutually exclusive and comprehensively exhaustive." In other
words, the organizations wants to be confident that it has identified all plausible
risks for all strategic and operational aspects of its business, but it wants to avoid
duplication or overlapping in the identification. Duplicate risks may mean wasted
resources and burdensome reporting that could discourage compliance.
Overlapping risks could lead to incomplete management of a risk, conflicts
among the different owners of the risk, and loss of organizational control over the
management of the risk. Overlapping risks affect an organization across multiple
risk categories. For example, a data breach affects compliance with data privacy
laws, reputation with stakeholders, and financial integrity. Efforts to manage
these complex risks require careful coordination among relevant risk owners.
210 © 2015 SHRM

Risk Identification Approaches

A variety of approaches can be used to identify potential risks. Let's
illustrate these approaches through an example involving the key HR
responsibility of providing duty of care to employees.
An employer's duty of care is a difficult term to define succinctly. In its

broadest sense, duty of care means that organizations should take all steps
that are reasonably possible to ensure the health, safety, and w01!-b0ing of
employees and protect them from foreseeable injury. An employer's duty of
care spans the entire employment relationship-from recruitment through
employment to termination and, in some cases, beyond (e.g., retirement). ln
some cultures and assignee situations, employer duty of care also extends to
the employee's family.
)
) Duty of care implies that an organization should protect employees in the

) workplace. Global employers still have a duty-of-care obligation when
) employees work abroad and cross borders. Duty of care therefore presents a
) solenm and challenging responsibility for HR.
)
Consider an HR function in a global organization that has, in the past,
responded to the duty-of-care responsibility in an uncoordinated, compliance-
oriented manner. The major concern has been compliance with local
) workplace safety standards and processes, in which HR's processes have
) focused only on making sure that local operations performed the minimum
necessary steps or actions.
)
) However, a new chief human resources officer (CHRO) sees duty of care as
having strategic significance. It affects the employer brand, costs (through
insurance rates), and relationships with local governments and communities.
So the organization and HR commit to developing a deeper understanding of
the uncertainties that affect this responsibility to safeguard employees.
It will be important for this organization to develop a comprehensive and

multiperspective view on risk since its risks vary regionally and by business
sector.
© 2015 SHRM 211

)
)
For example, a global organization can be subject to a wide range of threats to

local employees and assignees:
• Political and social risks, including tenorism, high levels of poverty and
communicable diseases (e.g., Ebola, antibiotic-resistant tuberculosis, or
AIDS), unreliable transportation, kidnapping, theft, assault, and war
• Environmental health risks due to poor air quality and lack of clean water
• Weak public and legal infrastructures in certain locations, which affects health-
care facilities and supplies, telecommunications, transportation, and
regulations aimed at improving building healthy and safety
• Natural disasters, such as typhoons, tsunamis, and earthquakes-which are
made worse by weak local infrastructures
• Occupational hazards specific to certain business sectors, such as exposure to
inherently unsafe conditions (e.g., mining or oil drilling) or toxic materials
(e.g., chemical processing)
How can our global organization improve its understanding of this broad a
spectrum of risk?
• Consulting experts and information sources. In our example, the global

organization begins by consulting with expelis and reviewing documentation.
Insurance claims are examined to identify causes for injuries. Insurers are
interviewed for their perspective on the types of tisks they have seen in this
industry and in the geographic areas in which global assignees work. Manuals
for equipment are reviewed to identify hazards. A hazard is defined as the
potential for hmm, often associated with a condition or activity that, if left
uncontrolled, can result in injury or illness. Hazards have the potential for
immediate and sometimes serious harm to employees.
HR personnel reach out to colleagues and peers in similar fields. They contact
their own government offices (embassies and consulates) and business-related
offices (chambers of commerce, business associations, .executive clubs, etc.)
and even journalists in countries to which assignees are sent to retrieve
information related to health issues, crimes, kidnapping, and so on.
• Focus groups and individual interviews. HR organizes a series of focus

groups at different sites (e.g., different locations and types of operations) and
with different groups of employees (e.g., clerical and administrative, logistics,
212 © 2015 SHRM

or food service workers; managers and supervisors in different settings). The

focus groups are structured group interviews in which the participants
(selected to represent a good sample of tenure with the organization) are
guided through brainstorming, sorting, and consensus building about the types
of risks they encounter. Interviews are conducted with key individuals. The
results of the focus groups serve as stimulation for these one-on-one
discussions.
• Surveys. In those cases where focus groups and interviews are not feasible,
and to provide a deeper statistical context for the data gathered thus far, HR
distributes surveys that are organized to support data analysis.
• Process analysis. HR has identified certain of its own processes as especially

critical, given the organization's values and strategic priorities. For these
processes, they conduct process analysis. Processes are flowcharted and
analyzed to identify requirements at critical points. These requirements may
represent risk.
For example, HR has determined that communicating with mobile and

assigned employees is critical. To do this, the organization needs timely
infommtion about the presence of every employee. The risk here is that in the
event of a natural or manmade catastrophe, HR will not be able to locate its
l
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employees and give them directions or confirm their well-being. In an HR
Magazine article, Lisbeth Claus recounts the experience of Bank of America in
trying (successfully) to locate each of its employees after an earthquake in
Chengdu, China, and the terrorist attacks in Mumbai, India. After the
~ bombings of the London underground and bus system in 2005, employers
) needed to wam commuting employees to tum back and return home.
)
) • Direct observation. Vulnerabilities can be observed by walking through a
) facility as an employee or visitor might. For example, a local manufacturing site
can be checked for its vulnerability to and controls against fire: the presence of
fire suppression and detection systems and emergency evacuation routes.
Workplaces may show evidence of clutter or leaks that could cause falls.
Storage of heavy objects at high levels could cause injuries. Unsecured access
to a workplace could allow assailants to enter the workplace.
© 2015 SHRM 213

)
)
Analyzing Risks
Each risk must be analyzed to answer certain questions about the extent of the
organization's vulnerability to a threat or exposure to an opportunity. The
infonnation gathered will be helpful in deciding how to manage the risk.
• How likely is a risk event to occur? This is referred to as an event's

probability.
• If it does occur, how will it affect the organization? This is commonly

referred to as the event's impact.
• How quickly is the event likely to emerge? This idea has become more
urgent in risk management. Nassim Taleb's "black swans" are appearing
with increasing frequency. Organizations must be aware of the trends in risks
and vulnerabilities. Are conditions changing so quickly that a rare event is
now plausible? Has the organization changed abruptly in some manner that
has created vulnerabilities that have not been assessed?
• Are controls currently in place to manage this risk? If so, are they effective?
Do they represent the most efficient processes available today?
• What is the probable root cause of the risk? Considering root causes for risks
can help address the ME part of the MECE acronym. Analysis of causes can
reveal that the same cause can be attributed to different types of risks.
Addressing this root cause can effectively manage these separate risks.
Risk Analysis Tools

One of the basic tools in risk analysis is the risk equation, an attempt to quantify
the amount of uncertainty a risk represents. In general, risk level is described by
the following equation:
Risk level = Probability of occurrence x Magnitude of impact
Risk level can be quantified through risk scorecards or visualized in a risk

matrix. Risk level will be an essential consideration for decision makers as they
plan risk management budgets.
214 © 2015 SHRM

.\
Risk Scorecard
A risk scorecard is a tool used to gather individual assessments of various
characteristics of risk (e.g., frequency of occurrence, degree of impact/loss/gain
for the organization, degree of efficacy of current controls). Risks identified as
relevant to the organization are listed in a template. Individual risks may be
weighted more heavily according to their strategic importance. Each risk is
scored and adjusted by its weight. When scores are aggregated, the result
indicates how the organization perceives specific risks. This may lead directly
to consideration of management tactics or to further analysis.
Figure 5 on the next page is based on an online survey that asked HR to assign
a numeric value to certain aspects of different risk events. HR was to consider:
e How likely a risk was to occur-event probability.
• How quickly a risk would materialize if it occurred-speed of onset.
• How well the organization is currently prepared for a risk-existing
mitigation.
• The possible effects if the risk event occurs-severity of impact.
In this example, the score is an index, determined by multiplying individual

scores by each other. This particular location seems particularly vulnerable to
the loss of key talent and, to a somewhat lesser degree, weather-related
interruptions to power and access to the office. Its risk management efforts will
focus on these events.
Risk Matrix
Risk level is often expressed visually in a risk matrix, a simple grid in which
the horizontal axis represents the probability that an event will occur and the
ve1iical axis relates to the severity of the impact on the organization or function
if the event occurs. For example, if an HR fi.mction has multiple training
facilities and the buildings in which they arc located are fairly modern and free
of activities that might cause fires, inability to use a traii1ing facility due to a
fire might be rated as low in both impact and probability. However, for a
I global organization with a centralized database of employee records and
) weakly controlled access to the infonnation system, loss of data integrity
would have a great impact and a greater probability of occurrence.
© 2015 SHRM 215

Function and Location: HR, Country X
Threat
A: .Event B: Speed of C: Existing 0: Severity of
Ranking
Probability Onset Mitigation Impact
Index
Event/Threat
1 ; Unlikely 1; Very slow 1 ; Strong 1 ; Little Multiply ratings
for each
2; Possible 2; Gradual 2; Average =
2 Considerable evenUthreat.
3 =Probable 3; Sudden 3 =Weak/none 3 =Severe (A X B X c X D)
Water supply
interruption I '' "
v 3 2 18
exceeding 4 hours
1 3 2 1 6
Chemical spills
Power outage 2 3 2 2 24
exceeding 4 hours
3 2 2 2 24
Hurricanes
Loss of database 2 3 2 2 24
exceeding 4 hours
Winter event
preventing
employees from 3 2 1 1 6
coming to work
Sudden loss of key 2 3 3 3 54
personnel
Figure 5: Risk Scorecard
Figure 6 on the next page is an example of a risk matrix completed for a

hypothetical company in a mature and stable political/economic context. Specific
risks and their probability and impact will vary by organization, industry, and
location.
The downside of a risk matrix is that it does not reflect the degree to which the
organization or function is currently protected against the threat. For example, if
the organization in this example cutTently backs up databases to an off-site
location daily (whose vendor has its own risk management plan and adequate
redundancies and protections), it is probably sufficiently protected against this
risk.
The matrix can be useful, however, as a sorting tool in a risk analysis workshop.
As we will discuss in the next topic, an event's position on the matrix suggests
cmtain actions.
216 © 2015 SHRM

Long-term loss
• of workplace
• Failure of e Loss of HRISI
succession and • Epidemics data
workforce plan
• Workplace inaccessible
• Employee
theft due to weather
• Child-care incident • Noncompliance
• Employee violence • Employee ligation
Impact 1-----------:M=ed=i=u~:.:m:::.,:risk . High risk

Low risk: Medium !is!<
. .·
• Ptl.I!,J«<;n . . ..
endangering
h!>allh ood llali!ly
·.,, ....
• Short-tenn loss of
workplace
•
Probability
Figure 6: Risk Matrix
It is important to note that the risk scorecard and risk matrix examples shown
here focus on downside risks, but these tools can also be applied to analyzing
upside risks or opportunities. These tools are often used to select investments.
We should also note here that those engaged in constructively analyzing risk
should be prepared for resistance by others in the organization who disagree
about the existence of a risk or the degree to which the organization is protected
against a risk. For example:
• IT may insist that their processes ensure uninterrupted access and
unquestionable data security.
• Financial analysts may express confidence in investment returus with scant
suppmiing evidence.
• Building security may protest that current systems will prevent all
unauthorized intrusion.
To achieve a reliable risk analysis, one must be honest about all possible
) shortcomings, skeptical about claims, and courageous in challenging
)
assumptions .
.I
) © 2015 SHRM 217

An HR manager comes to the CHRO of a technology firm with a problem.

Over the past year, several very talented women have resigned. They have
all worked in the same area. None mentioned specific reasons for leaving,
saying that, while a great company, this just was not the right job or place for
Relationship them. The HR manager has tactfully talked to select colleagues working in
Management this area, assuring every reasonable effort to maintain confidentiality. The
Competency manager has concluded that the problem is the vice president of the division
in Action and that sexual harassment may have occurred. No one has been willing to
go on record accusing this individual directly, but several people have
independentiy made indirect r'eference to haiassment. VVhat shouJd be
done?
After being debriefed by the HR manager, the CHRO repeats this discreet,
highly confidential investigation through separate and more highly placed
colleagues, only to come to the same conclusion as the HR manager. The
CHRO arranges a meeting to discuss these suspicions with the CEO. The
CEO's immediate response is to dismiss the suspicions. She knows this
individual, they are friends, and he has never done and would never do this
sort of thing. She adds, if no one is willing to file a formal complaint, that
must mean something. And, besides, this vice president is far too important
to the firm's current strategy to risk losing him.
The CHRO describes the potential consequences of ignoring this risk,
especially since the organization's most senior decision maker is now aware
of it. The CHRO argues that the value this individual brings to the firm is far
outweighed by the potential losses he represents, including loss of more
talented women, damage to the reputation of the organization, and possible
legal judgments. Given the number of resignations in the past year, the
probability of further resignations or actions is high. The CHRO agrees to
review the information further and meet with legal counsel together with the
CHRO prior to deciding her next step.
Both the CHRO and the HR manager have been able to use their
relationships throughout the organization to tactfully gather sensitive
information about a serious issue. They have also quickly escalated it to the
appropriate decision maker. Finally, they have strived both to protect the
VP's presumption of innocence and to avoid adding new risks to an
established situation.
Fva!uating Risks
In this step of the risk management process, organizations prioritize the risks
they have identified, based on the results of analysis. In some cases, risks with a
large potential impact may be subjected to further analysis before evaluation. For
example, scenarios may be created for events at different levels of severity or
218 © 2015 SHRM

opportunity---<lifferent levels of success with a new executive recruiter and what

that will mean to the organization's ability to execute its strategic plans, loss of
productivity caused by stotms of different magnitudes. This aspect of risk
analysis can be highly technical.
Risks can be prioritized using the risk matrix tool. Organizations may choose to
focus their resources on more-certain and higher-impact threats or opportunities.
In that case they will look most closely at controls for events in the upper right
quadrant of Figure 6. The events is the lower left quadrant merit a "wait and see"
approach.
The LEGO Group uses a risk prioritization matrix called the PAPA model, for
prepare, act, park, and adapt. This model is shown in Figure 7. It uses two axes:
The vertical axis considers the speed of change and the horizontal access the
degree of likelihood. The matrix can be used for both threats and opportunities.
The quadrants represent recommended organizational actions.
Speed of
Change
Slow
Low High
Figure 7: PAPA Model
• Prepare events are not likely to happen but will materialize quickly if they
do occur. That means contingency plans must be in place and early indicators
defined. We will discuss the concept of key risk indicators shortly. For
example, HR may be aware that occasionally seasonal storms are capable of
inflicting severe damage in its localities. lt invests in developing
© 2015 SHRM 219

contingencies for data backup and remote access, the ability of key HR
\. I
personnel to work remotely on critical processes, and methods for
communicating with all employees quickly.
• Act events are both highly probable and fast-moving. These threats and
opportunities require immediate responses in terms of enhancing the chances
for opportunities and decreasing the chances of a threat occurring or creating •
' '
significant damage. For example, workplace accidents are an unfortunately

common occurrence in the mining industry. HR makes sure that response
equipment is in place, all personnel are trained in responding to accidents
(e.g., quickly stabilizing the scene and preventing access to unauthorized
personnel, delivering emergency treatment, communicating with key
personnel), and HR personnel are trained in complying with all compliance ' .
issues related to documenting and reporting workplace injuries.
• Park events are slow-moving and unlikely. They merit monitoring for
changes in their characteristics but not investment in mitigation or
contingencies. For example, HR determines that bullying is not an issue in its
workplaces for reasons of culture and the type of work being performed.
They see no imminent change in those conditions, so they do not prioritize
this risk. They do make sure that an open-door policy is in place to allow
reporting of situations that might signal a change in this state.
• Adapt events are actually slowly materializing trends that may affect the
organization significantly. For example, HR notes that an increasing number
of employees with various types and levels of disabilities are being hired.
The organization would benefit from a plan to change physical space and
processes to allow these employees to work more productively. This is not an
urgent need, but it can be tackled incrementally over the next three-year
planning period.
Key Risk Indicators

COSO defines key risk indicators (KRls) as metrics that "provide an early signal
of increasing risk exposures in the various areas of an enterprise." These signals
could call for a change in the way that risks are prioritized for management or in
the management actions themselves.
I 220 © 2015 SHRM

KRis are strategically aligned with key initiatives or strategic objectives. For
example, a retail chain is committed to increasing sales. Part of this plan is to
decrease the amount of out-of-stocks on its shelves. Making sure that shelves are
monitored and restocked requires inventory and supply chain control, but it also
requires adequate in-store staffing levels. Levels that fall below a certain
percentage of full staffing create uncettainty about meeting this strategic objective.
KRis are developed by considering the root causes of risks and intermediate events
that signal changes. For example, the recovery of an economy after a recession
may lead to lower unemployment rates and consequently greater difficulty in
staffing. Early signs of an emerging event here might be trends in the length of
time it takes to fill a position, the acceptance percentage for job offers, or declining
response rates to usual recruitment effmts.
Of course, identifying KRis will help an organization manage risk only if the
organization actively monitors those alerts. The mass merchandiser chain Target
had implemented a malware detection tool before a massive data breach resulted in
the theft of customer credit card information. The software worked as designed,
alerting the system of intrusion before the stolen data was actually transferred to the
thieves. The software would have deleted the mal ware automatically, but Target's
security team had turned off that function. And security did not follow up on the
I
)
alerts promptly. This is a cautionary tale for all enterprises.
KRls can also be developed for most strategic HR risks:

• Retention rates at two years can signal emerging issues in recruitment methods,
compensation systems, or employee engagement.
• Economic upturns of a certain percentage can signal an impending increase in
) demand for goods and services and an expansion of the workforce.
) • Individual absenteeism rates can signal an individual performance problem that
must be addressed. Trends in absenteeism due to health issues could indicate
harmfi.tl environmental conditions, internal (e.g., problems with outgassing of
volatile organic compounds from new furnishings) or extemal (e.g.,
deteriorating air quality). Improvements in absenteeism could signal success in
some efforts to improve health and safety and suppott further investment to
enhance this opportunity.
• Changes in worker entry regulations may create opportunities for global
employee mobility.
© 2015SHRM 221
)
)
• Alerts from health authorities can trigger contingency plans for organizations
that foresee the need to implement anti-infective procedures, such as remote
work, reinforcement of hygiene, sick leave policies, and alerting of temporary
workforce suppliers.
• Downsizing by key competitors can signal opportunities to capture talent.
• Travel advisories issued by governments indicate increases in risk for mobile
employees or global assignees in certain areas. Travel may be restricted to
certain personnel, and they may be required to take higher levels of precautions.
Identifying KRis puts an organization in front of the risk it is trying to manage. It

makes the risk more visible and provides more time to develop and implement
an effective control.
Risk Register
The risk register documents information about and responsibility for managing a
specific tisk. Whatever it is called, this information increases the transparency
and accountability in an organization's risk management process.
The register can be developed incrementally as an organization identifies a risk,

assigns its ownership to an individual or group, analyzes the characteristics of
the risk, and determines how it will address the risk.
Templates for risk registers are widely available online. They generally include
the following categories of information:
• Risk category-e.g., strategic, operational, compliance, financial
• Risk event--e.g., kidnapping of an assignee
• Risk classification--e.g., highly likely and high impact
• KRis-e.g., crime levels and trends for each country in which assignments
are made
• Risk management controls--e.g., training, screening before sdectionfor
assignment, criteria for assignment to an area, arrangements with a
kidnapping and ransom expert
• Risk owner(s)-individual(s) responsible for documenting the risk and
ensuring that the risk management process is fully implemented, including
monitoring and reporting
e Reporting requirements-how often results should be repmted and to whom
222 © 2015 SHRM

Progress Check
1. What is a benefit of the mutually exclusive, completely exhaustive (MECE) approach to risk
management?
( ) a. Reduced involvement of employees in risk identification
( ) b. Confidence that all risks have been identified and analyzed
( ) c. Greater acceptance of risk management initiatives by employees
( ) d. Reduced expense of risk management tactics
2. What is the best definition of duty of care?

( ) a. Due diligence in hiring and firing
( ) b. Preserving employees from injury due to work site incidents
( ) c. Obligation to protect employee health and safety
( ) d. Taking steps to identify threats to global assignees
3. What would be the best approach for identifying ethical risks in a new count1y of operation?
( ) a. Local experts
( ) b. Employee survey
( ) c. Local publications
( ) d. Visit to local site
4. What are the factors in the risk equation?

( ) a. Probability of occurrence and magnitude of impact
( ) b. Rate of emergence and degree of impact
( ) c. Probability, magnitude of impact, and risk tolerance
( ) d. Rate of emergence and prevalence
5. A risk is analyzed as likely to emerge slowly and likely to occur. According to the PAPA
evaluation model, how would this risk be prioritized?
( ) a. Prepare
( ) b. Act
( ) c. Park
( ) d. Adapt
© 2015 SHRM 223

6. What risk management tool does a country travel advisory illustrate?

( ) a. Risk position
) b. Probability indicator
!~ (
( ) c. Key risk indicator
~
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11 ( ) d. Risk tolerance
II I
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7. What is the purpose of a risk register?
( ) a. To estimate costs involved with specific risk management tactics
( ) b. To increase transparency and accountability in risk management processes
( ) c. To demonstrate an organization's total risk exposure
( ) d. To assess relative importance of certain risks
© 2015 SHRM
224

1. b (p. 210)
2. c(p.211)
3. a (p. 212)
4. a(p.214)
5. d (p. 219)
6. c (p. 221)
7. b (p. 222)
)
)
)
)
)
)
.)
)
)
© 2015 SHRM 225

)
)
Section 3:
Managing Risks

• Directly or indirectly developing, implementing and overseeing the execution of programs. practices,
and policies that mitigate risk and support organizational success (e.g., appropriate use of
technology, fiducial)' responsibility, fraud, theft, workplace safety and security, workplace violence).
• Developing crisis management and contingency plans for the HR function and the organization.
• Designing and implementing continuity plans for the HR function and the organization.
• Communicating critical information about risk mitigation to all stakeholders.
• Communicating information about wo_rkplace safety and security issues to all levels of employees.
• Leveraging technologies (e.g., communication systems, computer security, contingency systems.
records backup, social media) to manage and protect workforce and organizational data.
• Leading after-action debriefs.

• Business recovel)' planning.
• Continuity of operations planning.
• Corporate espionage and sabotage prevention.
• Data integrity mechanisms and practices.
• Data management protection and disclosure approaches.
• Drug prevention.
• Emergency/incident response plans.
• Health and safety practices and procedures.
• Kidnapping and ransom prevention.
• Natural disaster and severe weather emergency preparation.
• Occupational injul)' and illness prevention. compensation, and accommodations.
• Public health preparedness and response.
• Terrorism prevention and responses.
• Theft and fraud prevention approaches.
• Workplace violence prevention techniques.
...
Responses to Upside and Downside Risks

This section examines the implementation phase of strategic risk management
and the options used to manage response to a risk event. Because risk events can
have either positive or negative outcomes, there are parallel tactics for managing
;
upside (opportunity) and downside (threat) risks, as shown in Figure 8.
; J
Optimize
Share
Enhance
Eliminate uncertainty.
Redefine ownership.
Employ levers to increase
or decrease effect.
Avoid
Transfer
Mitigate
Ignore Take no action. Accept
Figure 8: Upside and Downside Risk Management Tactics
Developing risk responses requires investment of resources and time, so most

I
organizations develop responses only for those risk events that have been
' ) prioritized.
I
I)
"~
In choosing a specific risk management approach, the organization must weigh
I the costs of doing nothing against the costs of the response and the level of
)
I confidence that the response will attain tisk management goals.
IJ
I) As the response is developed, the risk register should be updated to include the
)
I response mechanism that has been selected and the individual or group with
I) ownership of implementation.
)
I
)
I Eliminate Uncertainty
)
I By eliminating uncertainty, the organization or function takes steps to guarantee
' )
I that positive risk events will happen and negative ones will not happen. These
)
I
)
steps must be thoroughly researched and analyzed to establish that desired
1 absolute degree of certainty.
I i
)
Consider the following examples.
)
© 2015 SHRM 227

Optimize
HR is developing a global assignment policy. To make the assignment program
as attractive as possible and attract the greatest number of qualified
candidates, HR includes a guaranteed income provision.
Avoid
HR is screening applications and pauses over a problematic one. The
individual has the required skills and is immediately available. However,
employment history shows periods of brief employment and unexplained gaps
in employment. The early departures and gaps could have legitimate reasons,
but they could also signify difficulty in adapting to work environments. HR
decides to demote the application to secondary consideration after other "group
A" applicants are screened.
Redefine Ownership
Ownership in this case refers to responsibility for financial costs and operations.
Sharing means that another party will be brought in to help maximize the upside
potential of an uncertain event. Finns frequently engage in strategic alliances
and joint ventures to manage higher levels of uncertainty in some strategic
initiatives, such as developing a new product or expanding into another country.
Transfetring means that a third party, frequently an insurer, will bear financial
losses, obligations, or, possibly, liabilities in exchange for a fee. A common
form of transferring risk for HR professionals is professional liability or errors
and omissions (E&O) insurance.
HR practitioners should be aware, however, that ownership is never completely

transfened for negative events. Organizations will suffer from loss of consumer
confidence even though they may have been protected from liability damages
after consumer complaints. Insurance to compensate employees or their families
for workplace accidents does not erase the possibility that the employee
relationship has been seriously weakened by a pattern of such injuries.
Outsourcing a hazardous process to another firn1 that proceeds to expose its own
workers does not relieve the firm of its ethical responsibilities.
Here are examples of this risk management strategy in action:
Share
A retailer is expecting a very brisk holiday season, and HR has hired temporary
workers to increase staff levels. If the season proves to be even more
successful than management anticipated, insufficient staffing could mean
empty shelves, angry customers, and lost sales. So H R arranges with a staffing
228 © 2015 SHRM

agency for contingent workers who will be available as needed, although at a

higher rate than the temporary workers are being paid.
Transfer
A global firm that regularly assigns employees to areas in which kidnapping is
more probable will obtain kidnapping and ransom insurance coverage. This
insurance usually includes the services of experts who assume responsibility
for negotiations for the employee's release.
Increase or Decrease Effect

The risk management tactics of enhancing and mitigating seek to change the
amount of risk through certain "levers." Enhancing involves increasing the
probability that an opportunity will materialize. A manufacturer, tor example,
stands to receive extra payment on a contract ifthe finn delivers an order early.
It increases the chance that this will happen by monitoring progress and
planning to shift factory lines over to this project if progress flags.
Mitigating aims at reducing the probability that a risk will occur or decreasing
the negative impact it will have. Prevention is a form of mitigation. Forbidding
entry to an area to anyone without a security badge reduces the chance that
unauthorized individuals or personnel can steal proprietary information or
damage firm assets. Fire sprinkler systems decrease the danger of harm to
employees and the amount of damage to firm assets.
One should note here that enhancement and mitigation effmis can be expensive.
They should be thoroughly tested under realistic conditions and modified if
necessary before they are implemented. Organizations must also carefully
examme:
• Whether the cost exceeds the tangible and intangible benefits of the
opportunity or avoided or diminished threat.
• The degree of success for the enhancement/mitigation plan.
• Ifthe pian creates ~mother layer of opportunity or risk, termed "secondary
risk," that must be managed as well. For example, HR implements
mandatory background checking to reduce hiring risks. The screening takes
a considerable amount of time and creates a secondary risk that the delay
) will decrease the chances that the firm will be able to hire its top choices.
)
HR will have to identify vendors who carl guarantee fast screening times.
© 2015 SHRM 229
)
There are numerous HR examples of enhancing and mitigating.
Enhance
HR positions career paths to include certain training/education requirements for
each job description. HR believes that by requiring that all new supervisors
complete training in communication and supervisory skills, the organization is
more likely to increase employee engagement.
Mitigate
HR believes that a proactive response to certain threats is necessary to protect
productivity, employee engagement, and stakeholder (government and
communities) interests. It develops policies and programs in a nurnber of
areas:
• Workplace safety committees are implemented to provide more accurate
assessment of hazards and practical prevention and mitigation techniques.
Committees direct training and conduct incident investigations.
• All employees are educated in detecting signs of possible violent behavior
and in how to respond when violence occurs. Counseling programs are
available to support employees who are victims of workplace or dornestic
violence or intimidation and to initiate interventions if' possible.
• A city's HR department makes sure that emergency response teams are
trained in protocols designed to reduce the chances that they will be
infected by victims they are treating or that they transmit infections.
Compliance with these protocols is monitored and is part of job
requirements and performance expectations.
• Global assignees are required to check in daily to confirm their location and
condition and to keep a phone equipped with GPS on them at all times.
Take No Action
By taking no action, an organization decides to ignore or pass up possible
opportunities or to accept the occurrence of a threat. Usually, these risk
management strategies are used when the possibility of increased opportunity or
threat is unlikely, when the gains and losses do not merit the investment of
mitigation efforts, or when no further action can be seen as having any effect.
This latter instance is referred to as residual risk, the amount of uncertainty that
remains after all risk management efforts have beeli exhausted.
Ignoring an opportunity means that an organization will be very happy with

whatever luck it receives but will not act to guarantee or enhance the outcome.
Accepting a threat means that the organization will not invest time or money in
mitigating or transfen'ing risk, nor will it avoid the risk. This does not mean that
the organization proceeds merrily and blissfully about its business. The
230 © 2015 SHRM

! WORKPLACE Risk Management
l organization may continue to monitor for the risk or may create contingency
funds to cover the costs of responding to the risk if it occurs.
Accept
) HR develops a program that it believes will help the organization achieve its
diversity goals through innovative recruiting and mentoring for new employees.
If it exceeds these goals, that will be great news, but HR will be satisfied with
l having met its goals.
Ignore
HR and management decide that the threat of terrorism at its headquarters is
unlikely, given the nature and location of the business. In addition, the effects
of a terrorist attack would be handled satisfactorily by other emergency
response plans. So HR does not issue a specific protocol or require training
)
related to terrorism in this context.
\
.I
The U.K. region of a large, global oil and gas company has experienced an
~
)
average of 11% year-over-year increases in employee benefit costs for the
) past seven years. The regional CEO is very cost conscious and highly
' ) suspicious of how benefit premiums are charged by insurance companies.
) Critical
Evaluation The CEO and the head of finance agree to implement an unofficial policy of
J Competency tendering for benefit plan coverage every year and then selecting the
)
in Action lowest-cost provider regardless of any other factors. The policy does not
achieve its goal. Despite changing providers almost every year, the
)
company still sees massive increases in premiums. In addition, more
)
insurance providers are deciding not to participate in the bidding process.
) The head of finance blames the ongoing premium increases on the
) company's employees, who are "abusing the system." Frustrated with the
)
situation and the head of finance's negative rhetoric, the CEO assigns full
management of the benefit plan renewal to the new head of HR.
)
The head of HR cancels the unofficial policy of always selecting the
cheapest benefit provider. At the same time, HR surveys the employees and
ranks the benefits that they desire most. Then insurance providers are
allowed to submit quotations using a higher deductible on many of the more
costly benefits. Lastly, he shares the aggregate benefit usage statistics with
all the employees in a town hall. meeting prior to introducing the new benefit
plan details. After the first year of the new plan, the loss ratio is below the
previous year for the first time in 10 years. This allows a modest decrease in
premiums the following yeai.
)
The head of HR has demonstrated the competency of critical evaluation by
conducting a root cause analysis of premium inflation and developing
' ) options that satisfy the needs of both the CEO and the unit's employees.
© 2015 SHRM 231

Implementing the Risk Management Plan

Once the risk management strategy has been chosen, implementation is handled
like any project or change. Ownership of the implementation of the strategy
must be designated to someone with the organizational expertise,
communication skills, credibility, and managerial support to execute the plan.
This responsibility is indicated in the risk register, along with a description of
the risk management strategy, the metrics that will be used to evaluate its
etlect1veness, and responsibility for monitoring the risk. l'v1onitoring can reveal
change in a risk's character that might require reanalysis and a change in
management approach-either an increase or decrease in efforts to manage its
effects.
Defining Risk Management Performance Objectives

At implementation, the need for support at senior levels of the organization is
very apparent, because implementing the risk management plan will require
budget and resources. That support will be easier to secure if the risk owner can
demonstrate the effectiveness of the risk management strategies by reporting
performance against specific, measurable, and significant targets.
Some risks may be so critical to the organization's strategy that the metrics
related to risk management performance will be reported in real time on a
management dashboard. Metrics are discussed ftuther in the "Technology and
Data" Functional Area in the Organization module.
As with all perfonnance measurement, HR's risk management performance

targets should:
• Be strategically focused. Certain risks may have been prioritized as

potentially interfering with the organization's and HR's ability to meet their
· strategic objectives; Measurement should focus on performance that dire.ctly
affects achieving the strategic goaL For example, the organization may be
particularly dependent on strong leadership who can provide consistent
direction. HR can help manage the risk ofloss of leadership through various
risk management strategies that are included in HR's succession planning
and executive compensation processes. Performance metrics may focus on
identifying key positions and successors for each position and on
232 © 2015 SHRM

conducting regular executive compensation surveys and revising the

organization's compensation strategy as needed.
• Combine activities and results. Metrics related to activities show

efficiency, while metrics related to results show effectiveness. For a
company committed to worker safety, the number of workplace inspections
conducted by HR demonstrates HR's efficiency in deploying this
prevention strategy. The number of workplace accidents occurring within a
period demonstrate the strategy's effectiveness.
• Combine lagging and leading metrics. Lagging metrics look backward at

what has been accomplished, while leading metrics measure performance
that will affect results in the future. For example, an organization has
determined that one of its key risks involves its ability to hire a specific type
of engineer. Lagging risk management performance objectives might be a
tolerable vacancy rate or period to hire. A leading performance objective
might involve creating relationships with institutions offering degrees in
this area that can generate ongoing sources of quality candidates.
In addition to managing risk in its specific responsibilities, HR in some

organizations may be responsible for managing risks posed by the
organization's governance-its culture, policies, and processes. Performance
targets here might include:
• Modifying risks related to noncompliance. This might involve

measunng:
., Efforts to educate the organization about laws and regulations.
" Implementation of a whistleblowing policy and system.
Incidence of noncompliance reports.
·• Incidence and levels of fines.
)
• Instilling risk management principles in the organization's members
)
and processes. This might involve measuring:
" Workshops delivered to boards, leadership, and managers.
,, Development of procedures for implementing risk review in all projects.
q Compliance with the organization's risk management policy (e.g., the
percentage of project plans that include a risk management section).
© 2015 SHRM 233

)
,)
integration
Implementation will also involve individuals and groups throughout the
organization. This must be an integrated enterprise effort.
After discussing and analyzing stakeholder needs and perspectives, the risk
management team will have a better idea of the requirements for the solution
and its constraints. For example:
• HR may work with IT to determine what methods for increasing the

security ofHR data records are effective and feasible. To what degree will
backup records be current and accessible quickly to authorized personnel?
Will backup processes proposed in the plan conflict with IT standards?
Will the use of cloud storage create other security issues that must be
mitigated? The interface of technology and HR is addressed in the
"Technology and Data" Functional Area in the Organization module.
• HR may need to work with facility management to secure temporary

workspace and equipment for HR personnel if facilities are lost or
inaccessible.
• The organization's security officer can collaborate on creation of workable

programs to respond to incidents of workplace violence: creating policies
for entering the workplace, installing cameras and checkpoints, and
creating lockable safe rooms.
Communication
Effective implementation also involves communicating what is essentially a
request that employees change their behavior or perceptions. In this sense,
implementing a risk management plan requires that employees understand the
need for· new practices (e.g., .why they will be requiredto take their laptops and
work home when an infectious health threat has been detected, why
anonymous reporting of bullying and potentially violent behavior is being
requested).
Employees must understand exactly what they are being asked to do. This may
require manuals, training workshops or presentations, or signage. In a global
234 © 2015 SHRM

organization, HR must make sure that this communication is effective for all
employees within their specific cultures.
Communication channels must be enhanced. There must be means for

employees to report, without fear of reprisal, when risk management policies
and processes are not being followed or when they are being implemented
ineffectively. And there must, of course, be effectual responses to this
feedback. An employee who reports that fire doors are being locked should
feel confident that the employee responsible will be appropriately disciplined
for this action.
Emergency Preparedness and Business Continuity

Sustainable organizations prepare and practice responses to emergencies of
{ different types and plans for how they can rehtrn to acceptable operation levels
as quickly as possible. By doing this, they fulfill their duty of care to
\ employees, supporting employees' productivity and the well-being of
employees and their families. They also fulfill responsibilities to economic
stakeholders by taking steps to recover quickly and to keep the organization
afloat while it recovers.
Emergency preparedness and business continuity require:
• Preparedness for foreseen and unforeseen events. This includes risk

)
identification and development of contingency plans for emergencies of
long or short duration. A contingency plan is a protocol that an
)
) organization implements when an identified risk event occurs.
• Response capability to secure employee health and safety. This may involve
developing plans, implementing policies, securing necessary equipment,
and practicing response plans.
)
An organization's preparedness may be challenged in very different ways.
)
Consider the following events:
)
)
• In 2013, the manager of a medical supply plant outside Beijing was held
)
hostage by 100 employees demanding compensation that would equal
generous severance packages for recently laid-off workers at the plant.
© 2015 SHRM 235
)
• During the 20 II earthquake in Japan, Yuki Bank was faced with the task of
locating employees at l 00 branches to make sure that they and their
families were safe.
• In June 2009, the swine flu epidemic struck a U.K. subsidiary of a global
business communications enterprise. By the end of July, 10% of employees
were infected and had to be sent home.
e In 2008, demonstrators occupied two commercial airports in Thailand,

stranding tourists and business travelers for over ten days.
Organizations can face a discouraging variety of threats and possible crises.

Many may be completely novel or extremely rare events that are difficult to
prepare for. Experts in crisis management, which includes both emergency
preparedness and business continuity, point out that by developing a crisis
management mentality, organizations can become more adept at handling all
types of crises, foreseen and unforeseen.
Because of its extensive knowledge about the location and needs of employees
and its communication and training roles, HR is usually a core member of an
organization's crisis management team. Practitioners should be familiar with
the process of crisis management and the role HR can play at each step.
Crisis Management Planning and Readiness Process

The model shown in Figure 9 applies the traditional plan, do, check, adjust
cycle to managing crises. It emphasizes the need to test plans and to leam from
tests and actual crises. Let's focus on the role global HR can play in each
phase.
Manage Risk.
The process of identifying risks was discussed in Section 2. Crisis management
seeks to identify risks that can result in sudden and extensive hatm to facilities
and/or the workforce and therefore in significant interruption and risk to the
business. HR plays a valuable role at this stage by making sure that plans
address the vulnerabilities of employees at different locations and the unique
vulnerabilities of short- and long-term assignees. HR can also bring awareness
of cultural issues to the development of crisis management plans-religious
236 © 2015 SHRM

~ WORKPLACE Risk Management
'
l
alarm and goip,g to a designated safe room until an all-clear announcement
is made).
~ • Continuity. Along with other functions, HR can identify essential HR

processes that will be necessary to continue or return quickly to an
I operational level, such as paying employees and vendors or reimbursing

expenses. Data such as employee records and contracts must be preserved.
HR may also help identify temporary replacements from within the
l I
organization or secure replacement/temporary staff and arrange for their
training and payroll.
I Bank of America implemented a 24/7 global security control hub that

could deliver emergency support and serve as a communication
I nexus. It established a policy on travel restrictions and mandatory

safety briefings before assignment, developed a communication
vehicle for regular travel alerts and special bulletins, developed
training on special risks and risk management processes for
assignees (and made it a policy that this training was required), and
designed notification processes appropriate to locations.
Plans require a significant investment in resources·-not for the purpose of gain but
) simply for preventing loss. Therefore, it is best to secure suppmt at the highest
) level within the organization. The person assigned the planning task should
command respect and support and be able to assemble and run an effective team.
)
) Plans can be reviewed in stages:
• A preliminary review by senior staff will help ensure that all contributing
areas complete their planning assignments in a quality fashion within the
specified time frame.
• Interdepartmental reviews can identify potential bottlenecks and areas in
which coordination is critical.
• Simulations can be run in test areas.
• If feasible, areas with a high potential for failure or whose failure poses a
l high level of risk to the enterprise can be shut down to test the plan.
)
Crisis management planning software is available to help step organizations
through the process, and the entire process may be outsourced to vendors
specializing in this area.
© 2015 SHRM 239

,. l
There is also a wealth of resources to assist a firm in its efforts. The embassies,
consular offices, and commerce departments of many countries publish
information of this nature. Local and international organizations (examples
include the Disaster Preparedness European Humanitarian Aid Office, or
DIPECHO, in the EU, the U.S. Federal Emergency Management Agency, or
FEMA, the International Red Crescent and Red Cross, and the World Health
Organization) provide valuable information about preparing for and recovering
from a wide range of natural and human disasters.
.)
Test and Implement Plans. ')
Plans should be tested in their entirety or by components. For example, ·-'
)
evacuation drills in buildings can be conducted. Sprinkler or alarm systems can
be tested, as can automated calling systems. Participants can also talk through
how they would act if different types of crises occurred. When multiple )
functions are involved in a plan, a workshop simulation can be conducted.
\
. I
Employees playing a specific role in a plan should be coached to observe how

the event unfolds when a crisis occurs and the plan is invoked. They can report ./
how employees and technology or infrastructure performed and common areas
of stress and confusion.
Debrief and Learn.

Knowledge from testing and actual crises can be used to strengthen fuh1rc
responses. During the Japanese earthquake, Yuki Bank discovered that their texting
solution to contacting and locating employees and their families was subject to the
failure of the cell phone system itself. The bank also noted that employees were not
always careful about updating mobile numbers and e-mail addresses.
It is difficult to develop plans for an event that is catastrophic in its effects-not

just logistically but emotionally. A crisis may mean the loss of leaders and
employees; The resulting confusion and depression can affect the rate at which
the organization recovers and its chances for recovery. All enterprise operations
may be halted, and revenue that could be used for rebuilding the organization
may be lost. Supply chains and systems may have to be rebuilt.
However, there can be no rebuilding and recovery without contingency

planning.
240 © 2015 SHRM

A firm was faced with the difficult task of evacuating all of its employees
from Libya when civil unrest and war broke out in 2011. They learned from
their experience and initiated a new comprehensive emergency response
plan that included using a duty-of-care checklist bench marked against global
Ethical
best practices.
Practice
Competency The head of HR had read a book called Anti-Fragile by Nassim Taleb and
in Action
was determined to put some of Taleb's ideas into practice. The firm would
adapt to existing risks by relying more on forward-looking preparation and
less on backward-looking audits and duplicating resources in case of
emergencies.
The most difficult part of this plan was communicating to all employees that
safety and security can be optimized only when everyone in the organization
knows and acts as if it is a primary duty and a personal responsibility.
Conveying this message would be difficult since in many parts of the
world-often the regions where it is most needed-the concept of a duty of
care is not legally recognized.
HR started with a comprehensive and global awareness campaign. Instead
of safety and security audits and staff safety videos, HR implemented
regularly scheduled on-site safety and security drills using a wide variety of
different scenarios. Next they allocated specific duties in case of an
emergency to all employees, even if that duty was as basic as crowd control
or monitoring the other staff. Lastly, they integrated their evacuation plan
with local stakeholders to ensure that the logistics channel required was also
connected as a key stakeholder in its execution.
The organization and HR moved beyond a reactive approach to risk
management to one in which securing their employees' safety and security
became an ethical obligation. They introduced best practices and exceeded
legal requirements. In the end their program was so successful that when a
second evacuation of staff was required in Libya in 2014, other
organizations in the area reached out to this firm for assistance in
evacuating their own staff.
.I
)
© 2015 SHRM 241

Progress Check I, I
1. HR is working on an employee wellness initiative that involves encouraging employees to

walk more during their breaks. The fim1 is located in an industrial park. While its grounds are i, I
fairly small, if all the employers in the park participated, they could install a great walking
path system. So HR approaches these neighbors with a proposal. What approach to managing
risk is HR illustrating?
( ) a. Optimizing
( ) b. Sharing
( ) c. Enhancing
( ) d. Accepting
2. What action demonstrates the risk management approach of mitigation as applied to security
threats to the organization and its employees?
( ) a. Allocating responsibility for personal security to employees
( ) b. Having liability insurance
( ) c. Hiring a security firm to develop and implement appropriate security
measures
( ) d. Policy mandating the wearing of identity badges throughout a facility
3. What is secondary risk?

( ) a. Risk that poses less impact
( ) b. Risk affecting the organization in an indirect way
( ) c. Risk caused by a risk management tactic
( ) d. Risk caused by failure to implement a risk management approach effectively
4. An organization decides that it cannot effectively address the risk of a flood and takes no
further action to manage this risk. What is this type of risk called?
( ) a. Residual risk
( ') b. Unavoidable risk
( ) c. Tolerated risk
( ) d. Reserve risk
242 © 2015 SHRM

5. During an evacuation drill, a supervisor tells employees to remain at their desks and continue
working. If anyone asks, they should say that they left through a different exit. An employee
tells a friend in HR that this has happened. How should HR respond?
( ) a. Meet individually with the supervisor, maintaining confidentiality about the
information source.
( ) b. Send a company-wide memo about the benefits of drills to maintaining the
organization's emergency preparedness.
( ) c. [nform senior management.
( ) d. Do nothing. The communication channels worked.
i
l
6. What HR risk management action contributes directly to a business continuity effort?
( ) a. Training staff in first aid
( ) b. Communicating evacuation plans to all employees
I ( ) c. Developing channels to facilitate reporting threats
( ) d. Maintaining succession plans
)
l
\
')
© 2015 SHRM 243

Progress Check Answers I, )
1. b (p. 228)
2. d (p. 229)
3. c (p. 229)
4. a (p. 230)
5. a (p. 234) '·
6. d (p. 239)
I
)
)
.I
'( I
' I
244 © 2015 SHRM

Section 4:
Evaluating Risk Management

• Auditing risk management activities.

• Safety auditing techniques.
• Whistleblower protection approaches.
• Workplace incident investigations.
\ )
y
' I
Providing Oversight ' I
The last phase of the risk management process involves providing

oversight. This is required for both individual risk management plans
and the entire risk management framework.
Evaluation aims at:

• Increasing transparency and accountability by measuring and
reporting risk management results.
• Making sure of compliance with requirements.
• Assessing the effectiveness of individual risk management
strategies.
)
• Assessing the effectiveness of the organization's risk management
framework-its values, policies and processes, and culture.
• Continually improving risk management by investigating incidents
and identifying opportunities for improving both strategies and
framework.
In this section we discuss techniques for evaluating effectiveness and

compliance and ensuring continuous improvement of risk management.
Evaluating Effectiveness of Risk Management

Policies and Processes
Specific risk management programs should be evaluated after every major
incident and at regular, agreed intervals--e.g., annually. Results should be
compared against objectives for managing risk and reported to management,
who may choose to intervene to change investment in the strategy.
Plans that require employee readiness and response or specific equipment should
be reassessed regularly as well. New-hire safety training supports health and
safety risk management programs, and periodic updates on regulations decrease
vulnerability to compliance risks.
246 © 2015 SHRM

A medium-sized, family-owned electrical and IT engineering firm livt;Js and

breathes its company values, which include "Safety before Profit." To
sustain this value, the firm has made a composite measure of Safety one of
its enterprise-level key petformance indicators (KPis ). This composite
Communi- includes four submeasures: potential risks, hazards, near-miss accidents,
cation and actual accidents. To reinforce the importance of safety, employees'
Competency annual bonuses are linked to the aggregate safety KPI.
in Action
By directly linking employee bonuses to a composite safety KPI, the
organization has inadvertently created an incentive to underreport potential
risks and near-miss incidents, which are easy to conceal. By avoiding
opportunities for analyzing risks and debriefing near misses, the policy has
increased the overall number of actual accidents.
Given the company's dedication to its value of "Safety before Profit," the
head of HR realizes that it will be difficult to convince the owners to accept
any changes to the safety KPI metric. HR decides that the best way to make
( changes is to construct a fair test of two alternatives and let the owners
make the decision themselves.
II
In a six-month test, the bonus is retained for all regions. However, in three
regions the bonus is based on all five KPis (including safety), while in the
fourth region the safety KPI was not included in the bonus calculation. After
six months, the fourth region reports a 39% increase year to year of
documented "potential risks," an increase of 18% in documented "near
I,
' misses," and a phenomenal decrease of 73% in actual accidents. The
\ owners can see for themselves how the aggregated safety KPI has been
}
incentivizing the wrong behavior. They change the overall safety bonus KPI
to focus on preventive safety metrics-;-potential risks, hazards, and near
)
misses-and to exclude any bonus linked to actual accidents.
HR demonstrates competency in communication by finding the most
appropriate way to show the owners how to make measuring their safety
efforts more effective. They are able to contrast the effects of the alternative
I measurement methods and make a decision consistent with their essential
goal-promoting the safety of their employees.
!
After-Action Debriefs and Incident Investigations

The tem1 "after-action debrief' comes from the discipline of emergency
) management. It is usually applied to meetings to examine the effectiveness of a
) risk response strategy, such as workplace evacuations, in-place lockdowns for
) security reasons, a workplace injury or act of violence, or temporary relocation of
I operations. Incident investigations are generally seen as more limited in scope-
e.g., an angry dispute that becomes physical and requires intervention, a workplace
© 2015 SHRM 247

)
I \
injury, or an employee's violation of the organization's policies. Their scope may

be different, but the approaches are similar.
Incidents and responses must be documented and reported to external parties, often
as a compliance measure in response to regulations, inslJrance requirements, or
.I
legal advice. However, the organization should ensure that the incident is
examined, documented, and reported internally as well. HR may be responsible for ' I
I
leading or participating in after-action debriefs and must be skilled in leading ' \
group discussion and problem solving. To conduct an investigation, an HR

professional must be skilled in interviewing, listening, and observing.
All events~including ones that do not involve compliance or may be false

alarms~present an opportunity for leami ng and improving the risk management
strategy. As the economist Paul Romer noted, "A crisis is a tetTible thing to
waste." This sentiment is echoed by Nassim Taleb's observation that "each major
I accident in the airline industry actually makes the industry safer because of the
I
\
i"
systems in place to learn from any mistakes."
i
The debrief can be an educational opportunity for everyone attending. There is a
good argument to be made, therefore, that the principles of the debrief should be
applied whenever a risk management plan has been invoked. The debrief team
asks question such as:
• What happened, why did it happen, and what were the results of the event?
• What did we do in response?
• Did we follow the plan?
• What were the results relative to the requirements for managing this risk?
• What unexpected events (beneficial or harmful) occurred? What do they
}
suggest about our current plan or process?
• How well did we communicate with each other, with external agencies, and
with employees?
• What could we hav.e. done differently to improve our handling of this risk?
An effective debriefing requires that staff be trained in their responsibility to

observe and remember details even in the midst of challenging conditions and to
record their memories as soon as possible.
The debrief or incident investigation may result in recommendations to improve

managing a patticular risk. The recommendations may be narrow (e.g., the
248 © 2015 SHRM

addition of a checklist to document compliance) or substantive (e.g., realignment

of compensation structures to discourage leaders and employees from taking
inappropriate risks or a comprehensive change in the organization's culture). Since
their goal is to improve the organization's exposure to risk, the stakes of the
outcome of debriefs and investigations are high. Cases for change must be made
persuasively and with convincing arguments and data.
Whistleblowing
I Whistleblowing, the reporting of the organization's violations of policies and
processes by employees, applies very directly to risk management. Employee
repm1s can point to risks that have not been identified or adequately managed,
such as particular safety or secmity concerns. They can reveal policies that are
not being followed, such as violations of antidiscrimination policies that ensure
~ compliance with the organization's values and local laws. Whistleblowing can
draw attention to fraudulent record keeping about implementation and testing of
I( risk management strategies.
'
HR can help make sure that a communication process is in place that allows
direct access to decision makers at higher levels at the organization and protects
whistleblowers from retaliation. We should note that in some countries
whistleblowers are protected from retaliation by law. Employees should be
educated about this process and supervisors and managers informed about the
) rights of whistleblowers and actions that could be interpreted as retaliatory.
)
When internal communication channels and protections are established,
)
whistleblowers will have less reason to take their accusations outside the
J
)
organization, to government agencies or the media. Whistleblowing is discussed
further in the "Corporate Social Responsibility" Functional Area in this Workplace
module.
Evaluating Compliance
Audits may be conducted internally or externally to check that policies for risk
management are adequate, in place, being followed, and producing the
anticipated results. Audits require having the right person-an unbiased third
party-equipped with the right tools, which include risk management expertise,
understanding of the organization's business and processes, and awareness of
best practices. Since audits can result in negative findings and recommendations
© 2015 SHRM 249
)
for changes, it is critical that management supports the audit process and
commits to implementing recommendations.
HR may request audits for compliance reasons and/or to improve processes. For
example, a compliance audit of recmitment and hiring practices may examine
documentation (e.g., advertising, screening data, application checklists,
\ I
interview guides, selection ratios for minorities) to demonstrate that
\ \
antidiscrimination and fair employment regulations are being followed. This
information may be required by government agencies.
Health and safety audits formally assess the effectiveness of an organization's

management of safety and health risks. They can be highly effective early
warnings of accident potential or job health problems. Often, employers can
obtain assistance in performing safety inspections from their workers'
compensation carrier, local safety associations, or third-patty consultants who
are qualified safety and health professionals.
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·.
Promoting Continuous Improvement
I Risk management is not a static process. First, risks are inherently dynamic,
! II
increasing and decreasing with changes in internal and external environments.
Identified risks must be regularly reassessed to see if the risk still exists or has
dissipated or whether the level or characteristics of the risk have changed. In
I
I addition, with every change in strategic focus, the alignment of risks with the new
or altered strategies should be reexamined. Changes in the stmcture, size, or
culture of the organization-after, for example, a merger or a major cultural
I
I;]!
change initiative-may create or remove organizational risks. Changes in
technology, communication, work habits, and business processes can increase
I both vulnerabilities and opportunities.
While debriefing and testing can show how performance of a given risk
management strategycan be improved, it is also important that leaders step back
occasionally and check that the risk management framework and policies still
reflect best practices. Individual strategies should be reexamined to see if there
are new and more effective (and cost-effective) approaches available. Changes in
technology may mean better ability to detect and deter threats. New approaches
to data analysis can support wiser investments in opportunities. New equipment
and materials may pose fewer health and safety hazards.
250 © 2015 SHRM

Progress Check
1. How often should an organization review the components of its enterprise risk management
framework?
( ) a. At an agreed and regular interval
( ) b. When a new strategy is developed
( ) c. Only if a major incident has occurred
( ) d. Every three years
2. An employee's ex-husband waits outside her place of work. When she emerges, he begins
yelling. She retreats inside the building. The husband attempts to follow but is prevented by a
door that locks automatically behind the employee. An HR staff member observes the
incident. What action should the staff member take?
( ) a. Call for immediate revision of the organization's security policies.
( ) b. Recommend that those involved debrief the incident.
( ) c. Write a memo to the HR head, documenting the incident.
( ) d. None. Security measures worked.
3. A head ofHR would like to create an open-door policy that would allow employees to bring
concerns to someone above their direct reports. The CEO thinks this will encourage constant
and meritless complaining. What would be the best reason to give the CEO for implementing
this communication policy?
( ) a. This would improve employee morale.
( ) b. It would help the organization to learn about issues before outsiders do.
( ) c. It would prevent retaliation by supervisors.
( ) d. It is required by law in many countries.
4. What is the primary purpose of a health and safety audit?

( ) a. To determine if policies are being followed
( ) b. To assess the soundness of a policy
J ( ) c. To identif'y more appropriate risk management strategies for identified risks
) ( ) d. To update health and safety programs to reflect new technologies
I
© 2015 SHRM 251

)
)
)
~
5. A mining company has had a safety program in place for over ten years. It has been effective
in decreasing workplace accidents and injuries. What should HR recommend?
( ) a. Leave the program as it is, since it appears to be effective.
)
{ ) b. End the program and develop an entirely new one. Ten years is too long.
l
( ) c. Consider scaling the program back since it has apparently changed employee
)
behavior.
i
( ) d. Review the technology used in the program to see if newer, more effective
)
technology is now available.
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r )
.)
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. )
)
)
)
I r
).
( '
252 © 2015 SHRM


1. a (p. 246)
2. b (p. 247)
3. b (p. 249)
4. a (p. 249)
5. d (p. 250)
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© 2015 SHRM 253

... ·,.
Corporate Social Responsibility represents the organization's commitment to

operate its business in an ethical and sustainable manner. HR demonstrates
value by understanding the societal impacts to business decisions and using this
insight to improve the quality of life for the community-people, organization, and
planet-through philanthropy, ethics and governance, and environmentally sound
practices, respectively.
Key responsibilities for all HR professionals • Consultation-The ability to provide
include: balanced guidance to stakeholders
• Acting with personal, professional, and that will have a positive impact on
behavioral integrity, in conformance with an HR the organization's reputation,
code of ethical conduct. internally and externally.
• Investigating, evaluating, and responding to all • Relationship Management-The
reports of unethical behavior, conflicts of interest, ability to manage interactions with
and associated levels of organizational risk. external stakeholders that
demonstrate corporate citizenship.
• Advising executives on any reports of unethical
behavioi or conflict::; uf interest ihat increase nsk
tolerance or risk of liability. Knowledge Topics:
• Designing mechanisms for employees to report • Anti-bribery approaches
unethical behavior or conflicts of interest without • Caux principles
fear of reprisal. • Charitable/community giving
• Demonstrating the highest ethical standards and approaches
practices and organizational values-espoused • Code of conduct development
as well as enacted. • Community inclusion approaches
• Consulting on and demonstrating the appropriate • Compliance program evaluation
level of transparency in organizational practices. • Confidentiality measures and
approaches
• Understanding PEST factors and how they affect
organizational and workforce decisions. • Conflicts-of-interest avoidance
• Establishing the HR team as a credible and

• Corporate citizenship and
governance programs and legislation
trustworthy organizational resource for internal
and external stakeholders.
• Corporate philanthropy approaches
• Corporate social responsibility best
• Consulting on management decisions related to practices
ethics, governance, and social involvement. • Economic trend analysis
i • Aligning HR's decisions with the organization's • Ethical decision-making in a global
} •
strategies and values.
Developing and implementing organizational •
context
Ethical employee management
I ' ) standards for the confidentiality of workforce and practices
I
) organizational data. • Investigation techniques
.1, • ISO standards
f Key responsibilities for advanced HR professionals • Key performance indicators
i include: • PEST factors

• Consulting on, developing, and implementing the • Privacy concerns
organization's corporate social responsibility • Social auditing techniques
\ strategy. • Social media usage
• Consulting on, developing, and implementing an • Transparent decision making
organizational culture that supports responsible • Volunteer programming
and ethical decision-making.
• Leveraging the organization's corporate social
responsibility programs to enhance the employee
value proposition.
• Consulting on, developing, and implementing a
code of conduct that reflects the appropriate level
of corporate self-governance .
.1
)
)
)
)
Introduction
Corporate social responsibility (CSR) is moving from the corporate
periphery to center stage.
As one indicator, consider some key findings of the "KPMG Survey of

Corporate Responsibility Reporting 2013." Each year, KPMG-one of
the global "big 4" audit, tax, and advisory services firms-issues its
review of the extent and quality of global CSR and sustainability
reporting. The 2013 report revealed that:
• Of the 4,100 global corporations surveyed, 71% now issue annual
corporate responsibility/sustainability reports.
• Growth in CSR reporting encompasses both developed and emerging
nations, with reporting rates of76% in the Americas, 73% in Europe,
and 71% in Asia-Pacific.
• Among the world's 250 largest corporations, the reporting rate is .J
93%.
• 51% of the corporations surveyed include corporate responsibility
information in their annual financial reports.
Another indicator can be found in the views expressed by the SHRM

Corporate Social Responsibility and Sustainability Special Expertise I
Panel in SHRM's 2014 "Future Insights" report. All-every single one- J
of the trends they list concern the expansion of global CSR efforts and I
CSR' s expanding importance to corporate financial success. The panel
sees CSR as a way to:
• Compete for and retain top talent.
• Remain competitive in a global market.
• Increase employee engagement.
8 Attract social! y conscious customers.
The panel also describes the increased measurement and reporting of

CSR accomplishments and increasing adherence to globally accepted
frameworks and standards.
256 © 2015SHRM
WORKPLACE Corporate Social Responsibility
This Functional Area examines the implications of three key facts about
corporate social responsibility today:
• Sustainability and CSR efforts are becoming more central and critical to
organizational global growth and success.
• CSR strategy and corporate business strategy are increasingly aligned and
operating in mutual support.
• Global HR has the opportunity to play a critical role in shaping,
implementing, and ensuring the success of CSR efforts and thereby to play a
more central role in overall corporate strategic planning.

covers the following topics:
• Section 1, "The Broadening CSR Landscape":

• Examines the relationship between traditional CSR and newer sustainability
efforts.
$ Explains how definitions of CSR, sustainability, the bottom line, and
stakeholders are all expanding and what the implications of that are.
I • Describes some key forces shaping today's CSR effmis.
)
\
:) • Section 2, "Creating a CSR Strategy":
• Details the steps of the process for creating an effective CSR strategy.
i
' I
I)
I
• Section 3, "Compliance and Ethics":
~
•
Defines the three pillars of CSR: compliance, ethics, and governance.
Describes key ethical and compliance issues facing today's global
) organizations.
I
) • Discusses the role of philanthropy and volunteerism in CSR.
I
)
I
I • Section 4, "Governance":
} • Discusses the role and implementation of a code of conduct and a
compliance program.
)
)
© 2015 SHRM 257
)
Section 1:
The Broadening CSR landscape

• Understanding PEST factors and how they affect organizational and workforce decisions.
• Establishing the HR team as a credible and trustworthy organizational resource for internal·
• Consulting on management decisions related to ethics, governance, and social
involvement.
• Aligning HR's decisions with the organization's strategies and values.
• Developing and implementing organizational standards for the confidentiality of workforce ·
and organizational data.
• Consulting on, developing, and implementing the organization's corporate social
responsibility strategy.
• Consulting on, developing, and implementing an organizational culture that supports
responsible and ethical decision-making.
• Leveraging the organization's corporate social responsibility programs to enhance the
employee value proposition.

• Community inclusion approaches.
• Corporate social responsibility best practices.
• Economic trend analysis.
• Ethical decision-making in a global context.
• PEST factors.
Is Sustainability the New CSR?

Let's deal right up front with some confusion. If you look through enough of
the current literature about corporate social responsibility, you are likely to find
yourself reading one source that ignores CSR altogether and instead discusses
"sustainability," a second that presents CSR as one element of a larger
"sustainability strategy," and a third that uses both terms, seemingly
interchangeably.
)
Corporate publications are no clearer on the question. Sustainability-
reports.com, a portal for global corporate annual sustainability reports, includes
access to the 2013 editions of Heincken's "Sustainabilily Report," Rockwool's
"CSR Report," CVGPapier's "Annual Report (Including CSR)," Adidas's
"Sustainability Progress Report," and Vodafone's "Group Corporate
Sustainability Report" (giving the initials CSR a whole new meaning).
Even SHRM uses differing terminology. You can read SHRM Foundation's
"HRM's Role in Corporate Social and Environmental Sustainability" or you can
read in the 2014 "Future Insights" report about trends cited by SHRM's
"Corporate Social Responsibility and Sustainability" panel.
At the heart of the confusion. neither "CSR" nor "sustainability"-nor several

related terms-mean what they did less than a decade ago:
• "CSR" is no longer just about charitable and volunteer efforts or
compliance issues.
• "Sustainability" is no longer just about environmental concerns.
• "Stakeholders" are no longer just stockholders.
• The "bottom line" is no longer just about profits.
)
What is happening?
What is happening is a paradigm shift-a change in the corporate world's sense

of what CSR is and what role it plays in corporate business strategy and goals.
Which term ultimately identifies that shift may not be significant, but the shift
itself is. And the ways in which all these terms are being redefined indicates the
)
direction such a shift is taking. This section examines those changing
dcftnitions and the forces that are driving them.
I © 2015 SHRM 259

/
)
Broadening Definitions
The terms "CSR" and "sustainability" have, in one sense, broadened one
i
another's definitions. Approaching questions of the proper corporate role in a • i
global society from two different directions, they have met somewhere in the
middle. CSR's ethical concerns have helped expand sustainability's purely
environmental focus, while sustainability's ecological underpinnings have given
CSR a new lens through which to view its ethical imperative.
Either term may end up carrying the banner for this new approach to corporate
responsibility. For now, though, the HR professional should be aware that the
exact meanings attached to each may differ in different contexts and documents_
(In this document, they are considered as essentially synonymous; whether an
organization is formulating a CSR strategy or a sustainability strategy, its key
goals and process will be the same. Shades of difference, or historical .I
differences, will be indicated along the way.)
As noted above, a whole set ofCSR-related terms are similarly redefining one
another. Their connection point is a set of questions about value:
• How does the organization generate value?
• What constitutes value?
• Who does the organization create value for?
• What measures are used to determine the organization's success?
The changes can be summed up as fo11ows:

l
. l
• CSR. CSR is evolving from a tactical, often public relations-centered

approach to "doing good"--or a compliance activity or defensive maneuver
to protect a company's reputation and share value-to a strategic approach
that is integrated into an organization's mission and core business strategies.
That is, it is taking a more central role in how the organization generates
value.
• Sustainability. The term has expanded from a purely environmental concern

to a broader consideration of all of an organization's resources:
environmental (water, energy, etc.), social (the people it employs,
collaborates with, and serves), and financial (its ability to sustain itself by
260 © 2015SHRM
making a profit). By reexamining what the organization takes from-and

owes to--each of these realms, sustainability is redefining what constitutes
value.
• Bottom line. If sustainability argues that an organization uses three types of

resources-environmental, social, and financial-then the measure of a
sustainable organization's success is the ROI (retum on investment) it is able
to generate from them. Accordingly, the bottom line has evolved into the
triple bottom line, redefining the measures used to determine an
organization's success.
• Stakeholders. Finally, expanding the sense of resources used and value

created from them in tum redefmes who an organization's stakeholders are.
Rather than just those with a financial stake in the organization, stakeholders
arc all those affected by the organization's social, environmental, and
economic impact-shareholders, employees, customers, suppliers, regulators,
and local communities. Who the organization creates value for is being
redefined.
Each of these interconnected redefinitions will now be examined in more detail.
Redefining Sustainability
) The term "sustainability" originally referred to an ecological goal. Projects
) undertaken by an organization were considered sustainable to the extent that they
minimized the negative impact on the environment by using as few resources as
possible and/or relying on renewable resources.
Now that focus has expanded to also consider an organization's social and
financial impact (sometimes referred to as the 3 Ps: people, planet, profits).
Paying employees a decent wage, treating them fairly and with respect, providing
educational opportunities that enable them to move uP in the organization, helping
them achieve a satisfying work/life balance ... are all practices that will, in the long
) run, make it easier to attract and retain employees and make them more productive
for the organization. That is, they become a more sustainable workforce.
) Likewise, providing customers with quality products and services that are
reasonably priced, responsibly produced, and backed by diligent customer service
will create a more sustainable customer base.
© 2015 SHRM 261

}
What sustainability has retained from its ecological origins is a focus on long-range
considerations of value rather than short-term returns. A sustainable enterprise
.:
takes the long view, aiming at creating a business model, policies, and practices
that meet the needs of the present without compromising the ability of future
generations to meet their needs. That requires a broader focus, encompassing
people and planet and profits.
Viewed from a CSR ethical perspective, a sustainable organization gains its social
legitimacy from its combined concern for environmental stewardship, workplace
responsibility, human rights protection, and good corporate citizenship.
Sustainability as it is viewed today incorporates the 3 Ps concept, as shown in

Figure I and as described in the example definitions that follow it.
Figure 1: Three Spheres of Sustainability
Sustainability is ... the commitment by organizations to balance financial

performance with contributions to the quality of life of their employees, the
society at large and environmentally sensitive initiatives.
"Advancing Sustainability: HR 's Role
Survey Report," SHRM, BSR, and Aurosoorya
A sustainable corporation is one that creates profit for its shareholders while
protecting the environment and improving the lives of those with whom it
interacts.
The Triple Bottom Line, Andrew Savitz
Corporate sustainability is a business approach that creates long-term

shareholder value by embracing opportunities and managing risks deriving
from economic, environmental and social developments.
Dow Jones Sustainability Indices
262 © 2015 SHRM

These definitions may seem similar, but there is a subtle but significant difference.
The first two argue for achieving financial goals while being environmentally and
socially responsible. The Dow Jones Indices definition argues for achieving
financial goals by being environmentally and socially responsible. The first two
recognize that a sustainable organization must also sustain itself-that is, remain
economically viable. The Dow Jones definition goes a step farther, suggesting that
sustainability can be the key to an organization's business strategy.
That strategic potential of sustainability has received considerable attention, most

notably Andrew Savitz and Karl Weber's concept of a "sustainability sweet spot,"
Michael Porter and Mark Kramer's "shared value," and the "sustainability
maturity curve."
Sustainability Sweet Spot

In The Triple Bottom Line, Andrew Savitz and Karl Weber argue that, properly
viewed, sustainability can become an engine of innovation and a means of
identifying business opportunities. By focusing on the area of common ground
between business interests and public interests, new products, processes, markets,
and business models can be identified.
That area will be unique for each organization, based on its particular business
focus and market. Savitz and Weber provide several examples of"sustainability
sweet spot" successes, inc! ud ing:
• General Electric's Ecomagination initiative to develop clean technologies.

Product successes have included fuel-efficient jet and locomotive engines and
wind and natural gas turbines, all sold to customers (notably China) who need
to reduce their carbon emissions and fuel consumption costs. Since
Ecomagination's launch, GE has "invested$ 12 billion in R&D and generated
more than $160 billion in revenues."
• Pepsico's acquisitions ofTropicana and Quaker Oats, enabling them to

introduce healthier snacks and drinks into their product mix. Pepsico has also
)
reduced energy consumption, waste production, and packaging and has
improved water management in its production facilities and supply chain. Such
moves benefit Pepsico's customers, suppliers, the communities in which they
operate, and the environment, while reducing their own long-run costs and
improving their bottom line.
© 2015 SHRM 263
)
\ )
)
In short, the sustainability sweet spot offers a new way of considering the very old
proposition of"doingwell by doing good."
)
)
Shared Value
t)
In a 2011 Harvard Business Review article, "Creating Shared Value," Michael
Porter and Mark Kramer introduce a similar concept. "Shared value" aims to
resolve what had been viewed as conflicting sets of values-corporate
( )
financial goals on the one hand and societal and environmental concerns on
the other.
In the traditional win/lose model, taxes and restraints are imposed on

corporations to help meet social and ecological needs, thereby reducing
corporate value. Shared value instead suggests a win/win approach, "creating
economic value in a way that also creates value for society by addressing its
needs and challenges." (Porter a.'ld Kramer include environmental concerns in
their use of the term "societal value.")
)
They offer three ways in which an organization can accomplish this:
.)
/ l
• Reconceiving products and markets. This begins by asking, "Is our ' I
product good for our customers?" Their examples include new global )
•
efforts to meet the needs ·of emerging economies and other underserved '. )
markets, such as inexpensive mobile phones that enable mobile banking

for low-income consumers in emerging markets.
'
. /
.
• Redefining productivity in the value chain. By examining each player
and process in the value chain-reducing waste, minimizing use of )
resources, and ensuring the health and safety of workers-organizations l
can both cut costs and benefit society.
Examples include:
• W al-l11art' s $200 tnillion in savings achieved by reducing packaging
and rerouting trucks.
• Nestle's switch to a more-suppmtive relationship with coffee growers,
adding costs in the sholi run but improving productivity and quality.
• Johnson & Johnson's improved employee health-care benefits that
return $2.71 in increased productivity for every dollar spent.
264 © 2015 SHRM

• Enabling local cluster development. Porter and Kramer argue that most
companies' success is dependent on a cluster of other organizations (related
businesses, suppliers, schools) and infrastructure (roads, communication
networks, water and energy supply). Shared value results when organizations
build and enhance the local cluster and improve the conditions of those
operating in it, benefiting the organization and its community.
Porter and Kramer contrast corporate shared value (CSV) with corporate social
responsibility (CSR) as traditionally defined. They argue that traditional CSR
efforts are too often focused on reputation and only tangentially related to the
core business, making their costs too hard to justify and maintain in the long run.
CSV efforts, on the other hand, are more suppottable because they are "integral
to a company's profitability and competitive position."
Sustainability Maturity Curve

Several sources describe an organization's evolving approaches to sustainability (or
social responsibility) as moving upward along a maturity curve: from a purely
tactical approach to sustainability, to a more strategically integrated position, to,
finally, a redefining of core corporate values and goals based upon sustainability
principles.
A SHRM report ("Advancing Sustainability: HR's Role Survey Report") labels the
three phases ofthe maturity curve as compliance, integration, and transformation. A
SHRM Foundation document ("HRM's Role in Corporate Social and
Environmental Sustainability") similarly describes three routes to sustainability:
defensive, strategic, and values-based. A PWC (PricewaterhouseCoopers LLC)
white paper ("Sustainability: Moving from Compliance to Leadership") describes
tour steps along the maturity curve: compliance (must do), obligation (expected to
do), efficiency (smart to do), and leadership (long-term viability).
Essentially, the steps are as follows:
• Compliance (or the defensive route, or PWC's compliance and obligation

) steps). This involves social responsibility as a cost of doing business~a tactical
response to regulatory requirements or negative publicity (for example, Shell
) Oil's CSR initiatives undertaken after the 2008 Niger Delta oil spill). They may
bt: a means of demonstrating good corporate citizenship, but such efforts rardy
align~and often directly conflict~with core corporate strategy.
)
J
© 2015 SHRM 265

' i
,!
II WORKPLACE Corporate Social Responsibility
II
II • Integration (or "strategic route" or "efficiency"). Sustainability is integrated

into the regular functioning of the business. These organizations have
redesigned their products or services to include sustainability benefits, or they
have redesigned their processes and procedures to make the business itself more
·. j
sustainable. These are the companies such as GE, Pepsico, or Wal-mart who
'· i
have found a "sustainability sweet spot" of enlightened self-interest.
• Transformation (values-based or leadership positions). These are

organizations for whom sustainabthty is their very reason for being. As the
PWC white paper states, "Sustainability leaders embed real, measurable,
ongoing commitments to sustainability practices as a strategic differentiator."
An example is Ben and Jerry's lee Cream, whose current advertising focuses on
their sustainable practices regarding ingredient sourcing, environmental
management, community engagement, and their B-Corp Certification (see
below). Such companies can be said to have fully embraced Porter and
. )
Kramer's shared value principles.
A critical issue for the HR professional is dete1mining where along the curve
their organization is at present and what next steps are logical and feasible for
moving the organization closer to the next higher phase. Figure 2 shows the
results of a SHRM survey of US companies' self-assessments of their current
position along the matw·ity curve.
Point in the Corporate Sustainability Maturity Curve
Phase 3:
Transformation
Phase 2:
Integration
Phase 1:
48%
Compliance
other
(n ~ 490)
Note: Excludes organizations !hat answered "not applicable" and those that
did not have an approach for defining sustain ability.
Source: "Advancing Sustainability: HR's Role Survey Report," SHRM
Figure 2: Corporate Positions on Sustainability Maturity Curve
266 © 2015SHRM
Certification at the Top of the Curve

For organizations striving to achi~ve the Transformation level of the n1<Jturity
. curve, there is an international certification
.. program.
. .
By meeting the nonprofit .
·BLab's detailed measures of social and environmental performance,
accoulltability, and trarisparency, an organization receives certificationas a
Benefit Corporation (B Corp). There arc currently O,ycr 1,qpo llC§ips, fro1~ 33
. ' " ..... COUntries and60 industries. Learn more at www.bcm'pomtion.net. ·.•.
Redefining the Bottom Line

A traditional corporate profit and loss (P&L) statement, or balance sheet, measures
the costs of all an organization's projects and activities (for example, the costs of
producing, distributing, and selling a product or service) and balances them against
the income derived from those activities in order to determine the organization's
"bottom line" profit or loss-the organization's value.
The concept of a triple bottom line (a term coined in 1994 by John Elkington)
applies sustainability's 3 Ps principle, arguing that the environmental and social
costs and benefits generated by an organization should be considered as well. By
measuring such "hidden" costs, a more accurate and complete account is given of
an organization's total value. The terms "full cost accounting" and "tme cost
accounting" have been used to describe this approach. Figure 3 (from Savitz)
provides a broad-brush view of the kinds of factors that are measurable.
) Economic: · Environmental· Social

I Typical Sales, profits, ROI Pollutants emitted Health and safety record
Measures Taxes paid Carbon footprint Community impacts
Monetary flows Recycling and reuse Human rights; privacy
Jobs created Water and energy use Product responsibility
Supplier relations Product impacts Employee relations
Total Total Total
J
Source: The Triple Bottom Line, Savitz
I
) Figure 3: Triple Bottom Line as Sustainability Tool
)
The triple bottom line can be viewed as the performance measurement of an

organization pursuing a strategy of sustainability; its goal, then, is to achieve a
)
© 2015 SHRM 267
positive ROI (retum on investment) in each of the three areas. It can also serve as an
organizing principle for a scorecard or checklist of measures for evaluating whether
and/or how to pursue a given project so as to meet sustainability goals. Figure 4
offers an example of such a triple bottom line approach to project evaluation.
Economic Return on investment • Direct financial benefits

Bw,tainability • Net present value
Business agility • Flexibility/optionality in the project
• Increased business flexibility
Environmental Transport • Local procurement
sustainability • Digital communication
• Traveling
• Transport
Energy • Energy used
• Emissions/C02 from energy used
Waste • Recycling
• Disposal
Materials and • Reusability
resources • Incorporated energy
• Waste
Social Labor practices and • Employment
sustainability decent work • Labor/management relations
• Health and safety
• Training and education
• Organizational learning
• Diversity and equal opportunity
Human rights • Nondiscrimination
• Freedom of association
• Child labor
• Forced and compulsory labor
Society and • Community support
customers • Public policy/compliance
• Customer health and safety
• Products and services labeling
• Market communication and advertising
• Customer privacy
Ethical behavior • Investment and procurement practices
• Bribery and corruption
• Anticompetitive behavior
Source: "A Maturity Model for Integrating Sustainability in Projects and Project Management," Silvius and Schipper
Figure 4: Sustainabi/ity Project Checklist
268 © 2015 SHRM

I
Perhaps most important, the triple bottom line has become the foundation for
measurement and public reporting of CSR or sustainability performance by
multinational corporations. Issuing annual sustainability or CSR repmts has, as
noted in the Introduction to this Functional Area, become expected of any global
corporation, with nearly three-quarters of global corporations, and 93% of the 250
largest global corporations, issuing such rep01is.
That trend is the result of a convergence of three main factors:

• A change in global attitudes about the importance of corporate sustainabiJity
and social responsibility practices
• The growing sophistication of data mining and analytics capabilities, enabling
meaningful collection and analysis of environmental and social responsibility
data
• Standardization of reporting measures and methods
GRI G4 Sustainability Reporting Guidelines

The third of those elements is due in large part to the efforts of the Global
Rep01ting Initiative (GRI), a network-based, multi stakeholder organization
providing a voluntary standard for sustainability measurement and reporting. Its
GRI Framework, now in its fourth revision (and so named G4), provides a near-
universally accepted guidance document for sustainability reporting: 78% of global
reporting corporations, and 82% of the 250 largest corporations, use the GRI
guidelines. The reporting categories established by the G4 document define areas
that require attention if an organization is to consider itself sustainable. (GRI and
its G4 Framework are discussed in more detail in the next section of this module.)
It is important to understand that the universal acceptance of such standardized

CSR reporting has enormous implications for the strategic importance ofCSR. It
allows meaningful, valid comparisons of corporate practices. That has been
noticed, first by governmental regulatory agencies, which are increasingly
requiring corporate repmting of sustainability measnres, but also by corporate
marketing departments. Sustainability has become a powetful tool of corporate
branding and product differentiation. A quick look through any of the annual
sustainability repotis-or their corresponding pages on corporate websites-makes
it clear that sustainability measures are being considered as key components of
corporate promotional materials. That strategic role, in turn, signals an opportunity
for HR to play a more significant role in shaping and implementing sustainability
and, through it, corporate strategy.
© 2015 SHRM 269

I
Social Audits
Another application of triple bottom line principles is the social audit. Whereas
sustainability annual reporting looks outward-a way for an organization to
present itself to investors, regulators, or prospective employees-the social audit
is primarily a tool for self-evaluation.
A social audit is a formal review of an organization's social and environmental

policies and procedures. A United Nations agency has described it as "a technique
to understand, measure, verify, report on and to improve the social performance of
the organization." A social audit resembles a financial audit in that the goal is to
assess an organization's current status, identify missing or inadequate elements or
inefficiencies, and determine steps for improvement. It also resembles a 360-
degree performance review in that it begins by interviewing all of an
organization's stakeholders-internal and external-and concludes by publishing
all results in a format available to all participants. Figure 5 iists the main areas a
social audit examines and the types of questions it seeks to answer in each area.
Ethics • Are the organization's policies, practices, and day-to-day activities fair,
honest, and transparent?
• What are its charitable and volunteering efforts?
Staffing • How does the organization reward, train, and develop its staff?
• How does it ensure nondiscriminatory, fair, and equitable treatment of all its
workers?
Environment • What are the organization's policies regarding energy use, waste
management and disposal, environmental impact of projects, and damage
reduction?
Human rights • How does it ensure that it does not violate human rights or deal, trade with,
or support any organization that violates human rights?
Community • What are its policies relating to the local community and community
involvement?
• How well does it uphold agreements made to or with the r.nrnm•
Society • How does the enterprise seek to improve or benefit society?

• How does that translate into policies, activities, and procedures?
Compliance • How does the organization ansure its compliance with statutory and legal
requirements (e.g., health and employment law, environmental law,
criminal law, financial and tax
Source: "Social Audit," Pilgrim Projects
Figure 5: Social Audit Areas of Examination
270 © 2015SHRM
Of particular significance to HR is that the social audit methodology is very

similar to the CSR strategy development process (described in the next section),
especially regarding the key role of internal and external stakeholders. Since HR
is a primary contact for stakeholders, the HR function is well-positioned to play
a central role in defining and implementing CSR strategy.
Redefining Stakeholders
The social audit highlights another expanding definition-that of an organization's
stakeholders. What has expanded is the sense of both who the significant
stakeholders are and bow the organization interacts with them.
Just as sustainability's 3 Ps have expanded the bottom line into the triple bottom
line, so they have expanded the notion of stakeholders from just those with a direct
financial stake in the organization to include as well those affecting or atfected by
)
an organization's social and environmental value. Figure 6 suggests the range of
~~ individuals and organizations that can be internal or external stakeholders, though
)
l it is by no means a complete list. Internal stakeholders can, for instance, include
)
~) ERGs (employee resource groups-affinity groups for workers based on their
•
I
)
shared race, culture, sexual orientation, etc.). External stakeholders can also include
media, special interest groups, unions, consultants, or community organizations.
)
I
)
I.
\
I Technology
) Experts
I
~----~
,)
)
I
Families and
,l Friends of
) Employees
(
)
I
)
)
)
)
Source: "HRM's Role in Corporate Social and Environmental Sustainability," SHRM Foundation
Figure 6: Stakeholders
© 2015 SHRM 271

Sustainability also expands the ways in which the organization interacts with its
stakeholders, who now play a more active role in helping it define and
implement everything from individual projects to larger CSR strategy and goals.
As the social audit exemplifies, a sustainable organization actively seeks out
internal and external stakeholder input in order to understand their expectations
and concerns and to benefit from their ideas and suggestions.
Stakeholder Engagement
Ceres, a firm that tracks corporate responsibility, issued (in partnership with
Sustainalytics, a "global responsible investment research firm'') a 2014 report
tracking the continued progress of613 U.S.-based corporations in their
sustainability practices. They report that:
• 52% (319 companies) engage investors on sustainability issues (up from

( i
40% in 2012). Ceres cites as a positive example Pepsico, which presents its
sustainability strategy and goals at its annual shareholder meetings and
identifies detailed environmental corporate challenges in its annual financial
reports.
• 40% (248 companies) have programs in place to engage employees on

sustainability issues (up from 30% in 2012). Intel, for example, provides
employee training on incorporating sustainability concerns in decision
making and links compensation to sustainability petformance targets.
Stakeholders themselves are redefining their roles and their areas of concern. A
key example is the emerging CSR activism of corporate shareholders. Ceres
reported that, in 2014 in the U.S., more than 400 corporate responsibility
proposals were made as shareholderresolutions (up from 100 plus in 2012)
asking for corporate commitments to change social and environmental practices.
The Ceres repmt also offers statistics on the influence of sustainability factors in
professiOn<lllYrnanaged assets:
• More than $13.6 trillion (21.8%) of professionally managed assets in Europe,
the U.S., Canada, Asia, Japan, Australia, and Africa incorporate ESG
(environmental, social, and governance) concerns.
• Approximately $3.74 trillion (11%) ofU.S. professionally managed assets
are invested according to sustainable investing strategies.
272 © 2015 SHRM

Significantly, this demonstrates that even financial stakeholders view the triple
bottom line as their legitimate area of concern.
lntemational organizations and governments are also recommending-···or

requiring-that enterprises include performance on CSR objectives in their
annual rep01ts. The steadily increasing participation in corporate CSR reporting
shown in the KPMG 2013 survey results can in some measure be attributed to
such stakeholder efforts.
Strategic Social Partnerships

A sustainable organization is also more likely to fo1m alliances and
partnerships with outside stakeholder groups, including nongovernmental
organizations (NGOs), community organizations, government agencies, and
other companies. A Deloitte white paper suggests that such alliances, in
particular with nonprofits and public-sector organizations, can be a key means
of achieving Porter's shared value goals. Such groups provide strengths that
complement those of a for-profit corporation:
• Nonprofits offer on-the-ground knowledge of a community, specialized
skills, credibility, and an ability to buy down start-up costs.
• Government agencies can leverage public infrastructure, develop policy
frameworks, and reduce investment risks.
They offer the following as examples of successful alliances:
• Dole Food Company was able to create a sustainable supply chain of

small organic farmers in Peru by creating a partnership with 11 local
producer organizations. Through them, the small farmers obtained the
technological assistance and certification to meet Dole's quality, quantity,
)
and cost requirements.
)
• TOMS Shoes has grown into a multimillion-dollar business, based on its
"One for One" business model, giving away one pair of shoes in Africa,
Asia, and Latin America for every item bought. TOMS works with
nonprofits like Africare, UNICEF, and Management Sciences for Health
) (MSH) to identify worthy recipients in developing countries, distribute
) donations, and maximize their value by combining them in "kits" with
products from other sources.
© 2015 SHRM 273

)
I
After carefully reviewing current market conditions and prospective new

routes, the commercial VP of an airline presents a strong business case for
acquiring new planes to satisfy a growing demand in South America. The
CEO likes this proposal. However, the VP of operations doubts that the
Consultation company can find the required skills in the local labor market, since it has
Competency become increasingly difficult to find aeronautical technicians and engineers.
in Action
The HR VP has been aware of this issue, having watched this metric
deteriorate over time, so he is well prepared to discuss the topic. He agrees
with operation's diagnosis of current labor market conditions, but he has been
working on a CSR initiative that addresses the issue. The initiative involves
working closely with local universities and technical schools, leveraging
agreements with current partners in the industry, and escalating the current
traineeship program. The initiative benefits the community by creating new
educational and employment opportunities and aligns with the organization's
business objectives by opening its pipeline for new technicians and
engineers. The HR VP believes that, if implemented immediately, the program
can provide a sufficient number of graduates ready to join the company by the
time new routes could receive approval to operate and the new planes arrive.
He presents the details of the program, the research supporting his
assumptions, and the potential strategic partners to the commercial VP, the
CEO, and the VP of operations. He explains how the program is strategically
aligned with current CSR activities and strategic objectives of the company.
The HR VP demonstrates a solid knowledge of his area and an in-depth
understanding of the business challenge the labor market represents to the
future growth of the company. He has generated an innovative solution
aligned to the core of the organization that can have a positive impact on its
unique environment and stakeholders .
. Employee Value Proposition

Pursuing a sustainability strategy also enables an organization to better leverage its
stakeholder relationships. An example is its ability to enhance the organization's
employee value proposition (EVP) and employment branding strategy. An EVP
answers the question "Why would a talented person want to work for this
organization?" The EVP mustbe aligned with the organization's strategic plan,
vision, mission, and values and create an image that attracts and retains people.
People work for a variety of reasons. Many workers, skilled and talented younger
workers especially, .look beyond salary and benefits. An organization's
environmental and social record, the volunteer opportunities it provides its
workers, their sense that they can "make a difference" or be creative and
innovative within an organization-these are all valuable intangibles that greatly
274 © 2015 SHRM

enhance a global organization's EVP. Thus, a sustainability strategy enhances and

reinforces the organization's employment branding strategy.
Of course, employee attraction and retention and stakeholder outreach are all key
HR skills and responsibilities, underscoring how centrally involved HR should be
in creating and implementing an organization's CSR/sustainability strategy.
Redefining CSR
Each of the redefined terms discussed thus far has contributed to an expanded sense
of what is meant by the term "corporate social responsibility":
~ From the new definition of sustainability, an expanded sense of what constitutes
an organization's social responsibility, including environ-mental and financial
concerns in addition to social and ethical issues
• From the creation of the triple bottom line, the notion that CSR concerns are
measurable and, as a consequence, can generate value as key components of
corporate branding and product differentiation efforts
• From the new definition of stal,eholders, a broadened sense of who should be
involved in CSR development, implementation, and demonstration and how they
should be engaged
) In effect, CSR has moved up the sustainability maturity curve: from CSR as a tactical
approach to "paying back" or doing good or as a compliance activity or defensive
maneuver to protect a company's reputation and share value, to CSR as a strategic
approach that is fully integrated into an organization's mission and core business
strategies. It is important to recognize, however, that CSR's traditional areas of
concern-notably corporate ethics, govemance, philanthropy, and volunteerism-
remain critical elements of its current focus. The difference is that these efforts are
}
now strategically aligned rather than isolated concerns. For example:
• Employee volunteer efforts are likely to be more fully integrated with an
organization's particular sustainability goals and issues and become more central
to employment branding.
• Ethical oversight of the supply chain is more apt to now also take into
consideration providers' environmental track records in addition to evaluating
)
their employee relations and anticorruption performance.
)
• Codes of conduct are more apt to state behavioral expectations for employers as
)
well as employees and to offer the organization's sustainability position as the
)
foundation for all expectations.
) © 2015 SHRM 275

)
HR's Sustainability Sweet Spot

This redefinition of CSR creates an opportunity for HR. Employee training and
oversight functions have always placed HR at the forefront ofCSR efforts. But
while CSR had traditionally been considered a tactical and peripheral area-a
cost of doing business rather than a value generator-it has now become
strategically valuable. And that can mean a more strategically central role for HR.
As explained in the report "Advancing Sustainability: HR's Role," roughly 20%

of the Global Reporting Initiative's reporting measures directly involve HR.
These include labor relations, human rights/child labor, diversity, health and
safety, wellness, employee satisfaction, etc. As explained here, sustainability/CSR
directly affects recruitment and retention, employee engagement, and
productivity.
The "HR sustainability sweet spot" is to become a sustainability resource for

corporate leaders. "Advancing Sustainability: HR's Role" suggests four key HR
opportunity areas:
• Culture change. The further down the sustainability maturity curve an

organization is at present, the larger and more difficult the necessary culture
change will be. Increasing stakeholder engagement and becoming more
customer-responsive are difficult and critically important-and HR is
perfectly positioned to help with these human-related objectives.
• Corporate strategy. The more directly involved stakeholders are in the

strategic process-and such involvement is a measured aspect of GRI
reporting--the more central HR's role can become in strategic planning. The
more central employee behaviors are to successfully canying out a
sustainability strategy, the more central HR's role in strategic
implementation becomes.
• Organization effectiveness. Sustainability requires decisions and changes

regarding corporate stmcture and processes. Is there to be a separate CSR
department? Are outside organizations or consultants needed? HR is well-
equipped to help match the right stmctures and processes to the
organization's culture and needs.
276 © 2015 SHRM

• Human capital development. Creating a CSR strategy redefines how a

company sees its mission and goals and how its employees see their jobs.
Helping form those visions and helping them align with one another are HR
capabilities.
How CSR Redefines HR Functions

HR has the opportunity to assume a significant role in shaping CSR effotis-and
thereby help sh::tpe corporate strategy as \:veiL But the reverse is also true:
Because CSR efforts today are both more strategic and more comprehensive,
they have a larger effect on traditional HR functions.
"Advancing Sustainability: HR's Role" lists seven areas that will be affected:
• Employee contract. The desire for meaningful work in an organization that

values sustainability is a trend that HR must, first, actively convey to
management and, second, weave into the corporate culture.
• Recruiting. Recruiting efforts need to be refocused, incorporating the

organization's sustainability profile into its EVP.
• Brand. Sustainability will increasingly become patt of the corporate brand,

both internally and externally. Recruiting will both reflect and influence such
corporate rebranding efforts.
)
• Engagement. Employees will need to be given oppmiunities to act on their
)
interests in promoting the social and environmental responsibility espoused
by the organization's mission and values.
)
• How people work. Efforts to reduce an organization's carbon footprint will

require openness to new ways of working, and this may involve everything
from telecommuting to flextime to new technologies.
• Accountability and measurement. CSR will need to be incorporated into

key performance indicators. Reporting mechanisms that create accountability
)
for sustainability performance will need to be implemented.
)
• Training and leadership development. Sustainability will need to be

woven into all training and leadership development curricula.
© 2015 SHRM 277

Forces Shaping Today's CSR

Critical terms don't redefine themselves, and paradigm shifts don't happen in a
vacuum. Here's a brief overview of some of the PEST (political, economic,
social, and technological) forces that have shaped the many changes described
thus far. Some have increased the impmtance of sustainability issues; others
have helped determine what those issues are.
Technoiogy
The web, smartphones, GPS, and social media (especially platforms such as
Twitter) have all combined to make communications global, continuous, and
instantaneous. Among the many repercussions:
• Corporate actions (and the actions of suppliers and of individual executives)
are immediately knowable worldwide. Impacts can be large and negative, as
when poor working conditions were revealed to exist in emerging-economy
subsidiaries of electronics and clothing multinationals.
• The same global communications capabilities have increased pressure on
governments to be more environmentally sustainable and socially
responsible, which in turn has increased regulatory pressures on businesses.
Data mining and analytics capabilities have made CSR factors more readily
measurable and their impacts more demonstrable and understandable. That, in
tum, has increased accountability, helped shape regulatory requirements, and,
where measurable perfonnance results are positive, given organizations a
powerful strategic tool.
Data collection capabilities and the proliferation of social media have combined
to create new ethical and compliance challenges for organizations. Most notably,
privacy and work/life balance issues have become much more ubiquitous and
complex. Privacy issues have ranged from employer-employee privacy issues to
compliance questions raised by government requests for customer data from
corporations.
Environmental Concerns
Climate change has increased governmental regulations and requirements-
including rep01ting requirements-that necessitate sustainability-related efforts.
As climate concerns have achieved higher-profile public attention, sustainability
has become more central to corporate branding.
278 © 2015 SHRM

As a positive force, climate change challenges have created new "sustainability

sweet spot" innovation opportunities for organizations. Growing energy costs
have also increased the positive economic retum on sustainability efforts that
result in energy efficiencies.
Economic Pressures
The continuing financial pressures of a gradual global recovery from the 2008
economic crhds have likewise had both positive and negative effects on
corporate sustainability efforts. Energy efficiencies can have an even larger
impact in times of financial limits, which can encourage sustainabi!ity efforts.
The financial impact of such effmis is further increased when they are
accompanied by the competitive advantage of positive publicity and the
polishing of a corporate image.
Economic pressures have made it more difficult to find, attract, and retain skilled
workers (even while resulting in lost jobs for many unskilled workers), which
has further enhanced sustainability's EVP value (especially as salary and
benefits packages face constraints).
Economic pressures can also, however, limit corporations' willingness to finance

) sustainability efforts. Or organizations may choose to limit their sustainability
program to highly visible local initiatives that require small investments
(employee volunteer programs, for example) but have the potential for an
immediate payback.
Sociopolitical Forces
Civil and social rights movements have made their presence felt worldwide,
resulting in some startlingly rapid shifts in public opinion-the changing views
on LGBT issues such as same-sex marriage being the most recent example.
These movements have reshaped corporateaswel! as govemment policies
)
(benefits for same-sex spouses, family leave policies, etc.).
)
I
Changing public perceptions on key issues such as diversity issues and
)
environmental concerns have also helped shape which social responsibility
)
efforts are emphasized and what the "appropriate" responses are.
© 2015 SHRM 279

)
Progress Check
I. What have the new definitions of sustainability retained from their ecological migins?
( ) a. Exclusive focus on environmental considerations
( ) b. Focus on long-range considerations of value rather than short-term returns
( ) c. Desire to reduce or eliminate reliance on technology
( ) d. Resistance to use of outcomes-based measurements
2. What is the term for the common ground between business and public interests that can
generate innovation and business opportunities?
( ) a. Sustainability sweet spot
( ) b. Sustainability maturity curve
( ) c. Triple bottom line
( ) d. Strategic social partnership
3. What is the term for a formal review of an organization's social and environmental policies
and procedures used for self-evaluation?
( ) a. Annual report
( ) b. CSR report
( ) c. Sustainability project checklist
( ) d. Social audit
4. What is a key significance of the global acceptance of the Global Reporting Initiative's 04
framework?
( ) a. It allows corporations to replace annual financial repmts with CSR repmts.
( ) b. It prevents corporations from using sustainability as a marketing tool.
( ) c. It allows meaningful, valid comparisons of corporate sustainability practices.
( ) d. Itreduces theneedforgovemment environmental regulations.
5. What has been a critical change in how organizations view their stakeholders?
( ) a. Both who they are and how the organization interacts with them has expanded.
( ) b. Internal stakeholders have become more important than extemal stakeholders.
( ) c. Financial stakeholders no longer have a voice in corporate sustainability decision
making.
( ) d. All stakeholders now have an equal say in corporate decisions.
280 © 2015 SHRM

WORKPLACE Corporate Sociai Responsibility
6. How have traditional CSR concerns, such as ethics, governance, and philanthropy, been
affected by the changing role ofCSR?
( ) a. They have been replaced by more important sustainability considerations.
( ) b. They are becoming strategically aligned with sustainability and business
strategies.
( ) c. In most organizations, they are now assigned to a separate department.
( ) d. They are unaffected by such newer concerns as sustainability.
'
7. What has made CSR factors more readily measurable and their impacts more demonstrable
and understandable?
( ) a. Proliferation of social media
( ) b. Lingering impact of the global recession
( ) c. International governmental regulations
( ) d. Growth of data mining and analytics capabilities.
© 2015 SHRM 281

I
I WORKPLACE Corporate Social Responsibility
!
jl Progress Check Answers
I. b (p. 262)
2. a(p. 263)
I 3.
4.
d (p. 270)
c (p. 269)
I
I
5.
6.
a (p. 271)
b (p. 275)
I
I 7. d (p. 27~)
© 2015 SHRM
282
Section 2:
Creating a CSR Strategy

• Establishing the HR team as a credible and trustworthy organizational resource for internal
) • Consulting on management decisions related to ethics, governance, and social
) involvement.
) • Aligning HR's decisions with the organization's strategies and values.
) • Consulting on, developing, and implementing the organization's corporate social
responsibility strategy.
) • Consulting on, developing, and implementing an organizational culture that supports
• Leveraging the organization's corporate social responsibility programs to enhance the
employee value proposition
)
) • Charitable/community giving approaches.
)
• Community inclusion approaches.
J • Corporate philanthropy approaches.
)
~ Ethical decision-making in a global context.
• Key performance indicators.
• Social auditing techniques.
• Transparent decision making.
• Volunteer programming.
J
J
CSR Strategy
As explained in Section l, CSR's global corporate role has changed. HR can no
longer consider CSR as just isolated defensive or tactical actions. CSR (or
sustainability) instead should be considered a comprehensive strategic initiative,
to be carefully aligned with corporate business strategy.
As with any strategic initiative, that requires considerable planning and effort.
This section describes what that involves:
• The necessary preparatory research into existing benchmarks, including
international frameworks and guidelines and the reported results of global
companies' CSR efforts and initiatives
• A CSR strategic development and implementation process
Frameworks, Guidelines, and Examples

The best starting point for developing and implementing a CSR strategy is gaining a
clear perspective of work already done internationally on defining CSR issues and
responses. A number of international organizations have provided frameworks,
templates, and guidance for creating a CSR strategy. These include:
• Broad statements of principles upon which an organization-wide CSR strategy
should be based (such as the United Nations Global Compact).
• Highly detailed guidance~notably the ISO (International Organization for
Standardization) and SA (Social Accountability International) standards that
address specific social responsibility and sustainability issues.
• Reporting frameworks, most notably the Global Reporting Initiative's G4
guidelines.
Some of the most influential and widely accepted guidelines and frameworks are
briefly described below.
Note that, wEiile siJchframework-s andguidances serve as an excellent starting point,

each company must tailor them as appropriate, taking into consideration
requirements and metrics that are unique to their particular industry and global
environment. For that reason, it is equally valuable at this stage to review the annual
CSR or sustainability reports of other organizations. These show how other
organizations have customized general principles and reporting guidelines to focus
on their own particular industry's areas of interest and their own strategic goals.
284 © 2015 SHRM

OECD Guidelines for Multinational Enterprises

One of the earliest initiatives related to corporate governance was the Guidelines
for Multinational Enterprises, established by the Organisation for Economic Co-
operation and Development (OECD) in 1976. The OECD is an organization of
30 democratic nations; the Guidelines--derived from International-Labour
Organization (ILO) Conventions-are recommendations from the member
governments, consistent with their laws, to multinationals. Adherence is
voluntary and not enforceable by the governments.
The Guidelines, which have undergone several revisions over the years (200~
being its most recent version), cover the following areas:
• Disclosure and transparency (governance)
• Workforce relations
• Environment
• Combating bribery
• Consumer interests
• Application of and access to science and technology
United Nations Global Compact

The United Nations Global Compact was introduced in 2000. Its ten principles
address human rights, labor, environmental, and anticormption issues. The
principles are listed, and their areas of concem identified, in Figure 7 on the
next page.
Significantly, by committing to uphold these principles, an organization also

agrees to repmt annually on its progress-which in turn requires turning
abstract principles into specific actions and measures.
)
Caux Principles
)
A network of business leaders4'rom-Europe, Japarr, and the United States(the
CauxRound Table) began meeting regularly in 1986 in response to mounting
trade tensions. In 1994, they fmmalized a set of international business
standards based on two underlying values: human dignity and "kyosei," the
Japanese ideal of living and working together for the common good. These
became the known as the Caux Principles-one of the earliest employer-led
efforts to establish an intemational code of ethics.
© 2015 SHRM 285

Ten Principles of UN Global Compact

Human Rights Environment
• Principle 1: Businesses should support and • Principle 7: Businesses should support
respect the protection of internationally a precautionary approach to
proclaimed human rights; and environmental challenges;
• Principle 2: Make sure that they are not • Principle 8: Undertake initiatives to
complicit in human rights abuses. promote greater environmental
responsibility; and
• Principle 9: Encourage the
Labor development and diffusion of
• Principle 3: Businesses should uphold the environmentaiiy friendly ledmologies.
freedom of association and the effective
recognition of the right to collective
bargaining; Anticorruption
• Principle 4: The elimination of all forms of • Principle 10: Businesses should work
forced and compulsory labour; against corruption in all its forms,
• Principle 5: The effective abolition of child including extortion and bribery.
labour; and
• Principle 6: The elimination of discrimination
in respect of employment and occupation .
. Figure 7: UN Global Compact Principles
I
I
,I
The key components of the Caux Principles are:
•
•
The responsibilities of businesses: beyond shareholders toward stakeholders.
The economic and social impact of business: toward innovation, justice, and
I world community.
• Business behavior: beyond the letter of law toward a spirit of trust.
• Respect for rules.
• Support for multilateral trade.
• Respect for the environment.
• Avoidance of illicit operations.
• Stakeholder treatment: customers, employees, owners/investors, suppliers,
competitors, and communities.
ISO 26000
ISO (the Intemational Organization for Standardization) is the world's largest
developer of voluntary international standards. ISO 26000 is a quality
standard, though not for cettification, that provides guidance on key themes of
social responsibility across a broad spectrum of topics. It contains principles
of social and environmental responsibility as well as guidance for action and
expectations for implementation.
286 © 2015 SHRM

The ISO site lists the contents of ISO 26000 as:

• Concepts, tenus, and definitions related to social responsibility.
• Background, trends, and characteristics of social responsibility.
• Principles and practices relating to social responsibility.
~j
• The core subjects and issues of social responsibility.
• Integrating, implementing, and promoting socially responsible behavior
throughout the organization and, through its policies and practices, within its
sphere of influence.
• Identifying and engaging with stakeholders.
J • Conununicating commitments, performance, and other infonnation related to
social responsibility.
l
··~
SA8000
Social Accountability International (SAl) is an international nongovernmental
organization that aims to improve workplaces and communities by developing
·~
socially responsible standards for certification. SA8000, one of the earliest
certification standards (first issued in 1997), is a certiJiablc standard focusing on
} human rights and labor relations, providing both process and performance criteria.
( It is based on both United Nations and ILO standards.
)
I
) SA8000 has been adopted by close to 2,500 facilities around the world with almost
I
1.5 million employees. It is often used as a tool for ensuring human rights in
?) extended supply chains rather than being limited to direct employees. An important
:) part of this standard is its focus not only on standards of performance but also on
) management systems that need to be put in place to ensure the proper outcomes.
I
I)
) Its most recent version, issued June 2014, focuses on nine key areas of human
I rights and labor relations: child labor, forced or compulsory labor, health and
)
I
) safety, freedom of association and right to collective bargaining, discrimination,
) disciplinary practices, working hours, remuneration, and management systems.
GRI G4 Sustainability Reporting Guidelines

As explained in Section 1, the Global Reporting Initiative (GRI) G4 Sustainability
Repotting Guidelines are the universally accepted standard for global reporting of an
) organization's sustainability efforts and progress, enabling meaningful and
) consistent comparisons of multinational organizations' sustainability performance.
© 2015 SHRM 287
)
The Guidelines are presented in two parts (in addition to an introductory overview
document):
• Reporting Principles and Standard Disclosures. Includes criteria to be applied

in preparing a sustainability report.
• Implementation Manual. Provides explanations for applying the principles and

preparing the information to be reported.
GRI also provides a number of supplementary guides, including:

• Assistance in coordinating G4 efforts with compliance with other guidelines
such as the UN Global Compact and ISO 26000.
• Sector Supplements to assist in adapting guidelines to the specific concerns of
various business sectors, including mining and metals, nongovernmental
organizations, oil and gas, financial services, food processing, and media.
• Online interactive guides for identifying which aspects relate to specific strategic
concerns, such as supply chain and risk management.
• A Sustainability Disclosure Database that provides online links to existing
corporate CSR and sustainability reports as well as benchmark scorecards on
their reporting.
The goal is for each organization to identify and report on what GRI terms "material
aspects"-those issues that "are significant to a business' economic, environmental
and social impacts and that substantively influence the assessments and decisions of
its stakeholders." Such aspects help each reporting organization better understand
how its sustainability strategy and business strategy influence one another.
Figure 8 on the next page presents the G4 list of these aspects, organized into
categories.
Given that the GRI-G4 is the standard for sustainability reporting, HR managers
must understand it in ordertobe part of an effective CSR team.
The G4 Guidelines are useful in at least two steps in the strategic process:
• At this initial assessment stage, a detailed look at the G4 Aspects provides a
'
template for determining the organization's cun-ent conditions and needs.
• At the later measurement and evaluation stage, the G4 Guidelines provide the
metrics needed for meaningful progress evaluation.
288 © 2015 SHRM

Category . Alip~N;ts
Economic • Economic Performance • Indirect Economic Impacts
• Market Presence • Procurement Practices
Environmental • Materials • Products and Services

• Energy • Compliance
• Water • Transport
• Biodiversity • Overall
I • Emissions • Supplier Environmental /\ssc!:>smcnt
• Effluents and Waste • Environmental Grievance Mechanisms
Social Sub-Categories
Labor Practices and Decent Work Society
• Employment • Local Communities
• Labor/Management Relations • Anti-corruption
• Occupational Health and Safety • Public Policy
• Training and Education • Anti-competitive Behavior
• Diversity and Equal Opportunity • Compliance
• Equal Remuneration for Women • Supplier Assessment for Impacts on
and Men Society
• Supplier Assessment for Labor • Grievance Mechanisms for Impacts on
Practices Society
• Labor Practices Grievance
Mechanisms Product Responsibility
• Customer Health and Safety
Human Rights • Product and Service Labeling
• Investment • Marketing Communications
• Non-discrimination • Customer Privacy
• Freedom of Association and • Compliance
Collective Bargaining
• Child Labor
• Forced or Compulsory Labor
•
• Security Practices
• Indigenous Rights
• Assessment
Supplier Human Rights
-------·· J ..
Assessment
• Human Rights Grievance
Mechanisms
Source: "G4 Sustainability Guidelines-Reporting Principles and Standard Disclosures," Global Reporting Initiative
Figure 8: GRI-G4 Material Aspects
KPMG Survey of Corporate Responsibility Reporting

The KPMG annual report on global CSR/sustainability reporting provides a
detailed examination of the extent of reporting worldwide, what is being reported
© 2015 SHRM 289

on, and the quality of those reports. It is especially useful when viewed in tandem
with the GRl document, providing a detailed view of how sustainability measures
are being used globally. The KPMG document is useful in a few ways:
• Making the business case. The report's detailed overview of the extent of
reporting worldwide and by industry can provide useful suppmt in making the
business case for a sustainability strategy. The section on quality of reporting
includes interviews with industry leaders that discuss how to maximize the
• <" • 1 "1. . .f'+.
value 01 sustamauuity reporting cuorts.
• Identifying areas to address. The KPMG quality measures help indicate

what areas within the organization ought to be addressed by a sustainability
strategy as well as how best to measure and report on the results. This is
suggested in Figure 9, which offers a map of the areas examined.
Risk, Opportunity, Materiality Targets and

and Strategy Report demon- Indicators
Report identifies strates dear, Report de dares Report is open
social and ongoing process to timebound and about challenges as
environmental risks/ identify most measurable targets. well as achieve-
opportunities and significant issues. ments. Communi-
explains the cates effectively.
company's strategic
response.
Governance of CSR
Report shows how CSR is governed wtthin the company, who has responsibility, and how CSR
performance is linked to remuneration.
Source: "KPMG Survey of Corporate Responsibility Reporting 2013," KPMG
Figure 9: Reporting Quality Criteria
290 © 2015 SHRM

Accessing Frameworks, Guidelines, and Examples Online

All the resources discussed above are available online for downloading. (ISO
26000 must be purchased; all other resources are free.) Figure 10 provides a list
of links.
'~·'"''''''
··r·-<L:·.· '"'•'·
•>tl'i'i
:1~tz;~:{;~
f. ;, ;{',';',0,·'.' ~:1E7'· ···
;S:Si''\;;~;,~~;:, . . , ·~'~'M~',:'!:1ri;1_8c!
<;··•
,, ' ....,
OECD Guidelines www.oecd .org/investmenUmne/1922428. pdf
United Nations www.ungiobaicompact.org/abouttheGc!TheTenprinciples/index.html
l~
Global Compact
Caux Principles www.cauxroundtable.org/index.cfm?&menuid=8
ISO 26000 www.iso.org/iso/home/store/catalogue_tc/catalogue_detail.htm?c
snumber=42546
SA8000 www.sa-intl.org/_ data/n _ 0001 /resources/Jive/
SA8000%20Standard%202014. pdf
~
;
GRI G4 Guidelines www.globalreporting.org/reporting/g4/Pages/default.aspx
Sustainability database.globalreporting.org/
Disclosure
I Database
-~ KPMG Corporate www.kpmg.com/global/en/issuesandinsights/articlespublications/
I)
Responsibility
Reporting Survey
corporate-responsibility/pages/corporate-responsibility-reporting-
survey-2013.aspx
Figure 10: Online Links for CSR Frameworks, Guidelines and Examples
1)
')
') The CSR Strategic Process
I As explained in the "Business and HR Strategy" Functional Area in the Strategy
r: module, any strategic initiative requires a development and implementation
i) process. The steps shown in Figure II depict a process for developing and
I implementing a CSR (or sustainability) strategy. It customizes the basic strategic
)
I development process described in "Business and HR Strategy" to focus on some
I
I unique CSRstr:ategic considerations, but its foundation is the same strategic ·
)
process depicted there.
)
The steps may not always be consecutive; some may occur at the same time as
others. HR will have, at the least, a major supportive role in almost all steps. For
key steps, HR professionals will need to be the drivers---or, at a minimum, will
be on the front lines-of the process.
© 2015 SHRM 291

Figure 11: The CSR Strategic Process
Step 1. Executive Commitment

Any strategic initiative requires buy-in at the highest level. (This basic tmth of all
strategic initiatives is discussed at greater length in the "Diversity and Inclusion"
Functional Area in this Workplace module.) The key to getting that buy-in is
making the business case for CSR--demonstrating that it has business value. As
discussed in the previous section, CSR is increasingly viewed today as aligned
with--or even having a foundational role in-corporate business strategy by
providing such strategic benefits as:
• Improving the organization's ability to attract and retain top talent.
• Enhancing innovation and new product development capabilities through
pursuing sustainability sweet spots.
• Cutting costs on operations, transportation, and energy usage.
• Increasing brand image value by being presented to the public as an ethical
and sustainable organization.
• Reducing sanctions through improved compliance measures.
However, it is critical to recognize that any business case to be made for a CSR
strategic initiative must be specific to the needs and goals of the particular
292 © 2015 SHRM

organization for which that case is being made. This requires a preliminary
assessment of possible impacts across the organization's many functions and
locations. (A more detailed assessment is required to develop the strategy; it is
part of the second step of the process.)
In "The Business of Sustainability: McKinsey Global Survey Results,"

McKinsey and Company, a global management consulting film, offers a useful
model for approaching that task. As shown in Figure 12, it organizes
sustainability's potential to "capture value" into three main areas:
• Growth. Includes "sustainability sweet spot" product innovations
• Returns on capital. Include both savings from carbon footprint reduction
efforts and improved sales resulting from "green" marketing efforts
• Risk management. Includes compliance issues as well as effect on
corporate reputation and branding
By examining the implications for one's organization within each area in turn,
a detailed case can be made for CSR's strategic value to the organization.
Growth • Composition of business portfolio

• Innovation and new products
• Reaching new customers and markets
Returns on • Green sales and marketing
Capital • Sustainable value chains
• Sustainable operations (e.g., reducing emissions. energy,
waste, water)
-
Risk • Operational risk management
Management • Reputation management
• Regula'tory management
Source: "The Business of Sustainability: McKinsey Global Survey Results," McKinsey and Company
Figure 12: Three Areas of CSR Value Creation
Step 2. Assessment
The assessment aims to provide a detailed picture of where the organization is at
present and-by "framing" that picture within the context of existing CSR
guidances, templates, and initiatives already reviewed-also visualize the
direction in which the organization can go.
© 2015 SHRM 293

There are two components to the assessment:

• Reviewing systems and procedures within one's own organization to
determine their current state of sustainability
• Gathering input from internal and extemal stakeholders
Discussions ofboth components follow.
Current Organization Systems and Procedures

The preparatory reviews of existing trameworks, guidelines, amlexamplcs of other
organizations' CSR repotts should give a clear sense of what areas within one's
organization require examination-a useful preliminary step in developing a
comprehensive, organization-specific CSR strategy. The next step is to apply what
has been learned to a thorough examination of the organization. That includes:
• Any current CSR systems and processes. (For some organizations, that may
just be ethics and governance components; other organizations may have
sustainability programs in place.)
• Operations, products and services, transportation and logistics, employee
relations, marketing.
• For global organizations, a review of all subsidiaries, with an eye toward
identifying local differences that a CSR strategy will need to take into
consideration.
• The supply chain. (Organizations are held accountable for the actions of their
vendors and suppliers; the supply chain can also be a source of sustainability
measures that have an immediate economic as well as environmental return.)
Stakeholders
Next, all key stakeholders in the organization should be consulted for their sense
of where the organization is at present, how it interacts with their area or group,
and what their priorities would be for change. This can be accomplished through
various communications channels, such as in-person interviews, surveys, or focus
groups. The information gathered can be used in formulating an overall CSR
strategy and in developing key components, sucb as a code of ethics.
Among questions to ask:
• Internal stakeholders. Where do they feel your organization and its

practices, policies, and procedures are at present? What do they feel is the
present state of their own area? What would they like to see change or
294 © 2015 SHRM

improve? What are their priorities? How do they feel they can have a positive
impact on the organization's sustainability practices and strategies? What
would they like their CSR role to be'?
• External stakeholders. What is their assessment of the organization's current

sustainability progress? What are their priorities? How do they see their
interests and the organization's interests coinciding or conflicting on
sustainability issues? Are there opportunities for strategic alliances?
While consulting with all stakeholders is a critical initial step, it is equally

important to recognize the need for continual communication with stakeholders as
the CSR strategy is implemented, evaluated, and revised. All of these
communications are key opportunities for HR to take a lead role in the CSR
strategic process.
The commercial VP, CEO, and VP of operations of an airline have approved

the acquisition of new planes to expand in response to a growing demand in
South America, despite a scarcity of local aeronautical technicians and
engineers. Their decision was based on the HR VP's CSR proposal-an
Relationship educational initiative involving strategic partnerships with local universities
Management ~nd technical schools and industry partners.
Competency
in Action That CSR initiaiive has now has been running for a year. The HR VP has
been working closely with all the stakeholders involved in the initiative:
• The local university has offered a new specialization in aeronautics, for
which a scholarship program has been created.
• Technical schools in the area have awarded traineeships to students with
the highest grades; machinery and special tools have been donated to
equip their engineering shops.
• The VP of operations and the training manager have collaborated to
revamp the traineeship program and identify subject matter experts to act
as internal trainers and coaches for the new trainees.
• Industry partners have provided technical consultation and highly
specialized professionals to run workshops related to the business.
To review the implementation, plan next steps, and identify improvement
opportunities, the HR VP has called representatives of all stakeholders to a
review meeting at the company's headquarters and invited the CEO to open
the encounter.
By maintaining a close and professional interaction with all stakeholders
, I
involved in the new CSR initiative, the HR VP has demonstrated the ability to
)
manage relationships in a manner that supports the organization in the long
term and benefits all parties involved.
© 2015 SHRM 295

Step 3. Infrastructure Creation

This step involves creating the infrastructure that will be responsible for
guiding, overseeing, administering, reviewing, and championing the CSR
strategy. Questions to answer include:
• Will there be a single head of CSR?
• Will a separate sustainability department be created?
~ Will HR spearhead strategic implementation?
• For a global corporation, win there be local departments, divisions, or
individuals responsible for local efforts, and how will these be coordinated
with global goals and initiatives?
• How will data be collected, who will they go to, and who will evaluate
results?
• Will outside consulting organizations or individuals need to be brought in
to organize and administer the effott?
There may likewise need to be similar decisions made for individual initiatives
and elements of the overall strategy. For example, will there be a separate
committee spearheading the creation of a code of conduct?
Case for HR Leadership

Global HR is positioned strategically and geographically to promote CSR
involvement tlu·oughout the organization, globally and locally. The Chartered
Institute of Personnel and Development notes two reasons why HR should be
involved in implementing a global CSR strategy:
• HR's involvement helps ensure that the organization's policy will be
translated into actions, that it will not be seen as "PR or shallow 'window-
dressing.'"
• From the perspective of HR, involvement in CSR policies engages the HR
function at a higher and more strategic level within the organization.
Specifically, to support CSR strategy implementation, global HR can:
• Help create an ethical management and staff through hiring, education, and
supply chain management.
• Serve as a connection with the organization's global and local communities.

Global HR can use its international and local contacts to identify opportunities
296 © 2015 SHRM

for social engagement and establish pmtnerships. It can facilitate employees'

engagement in their communities by promoting volunteer opportunities and
matching employee expertise with community needs.
• Examine transgressions for organizational significance (compliance

program steps of incentives and discipline, remedial action, evaluation/risk
assessment). Failure to correct a tlaw in the ethical infrastructure of an
organization will almost certainly lead to additional problems.
• Make sure that employees and suppliers understand ethical requirements

and are supported in their efforts to follow the company's code. HR can
draw attention to the organization's CSR policy through its regular
communications with management, employees, and suppliers and can
ensure that all three groups are included in training programs it develops.
Step 4. Plan Implementation

The key tasks in this step are to:
• Set the strategy.
• Set priorities and objectives. These should incorporate a clear sense of
how intermediate, tactical steps will lead to long-term objectives. They
should also clearly define how results will be measured and who is
accountable.
• Implement the action plan created.
The SHRM Foundation recommends creating a scorecard of HR

responsibilities, objectives, priorities, and metrics, together with a clear
statement of the business value of meeting each objective. Figure 13 on the
next page shows the sample sustainability scorecard they provide.
Step 5. Measurement, Reporting, and Evaluation

Using G4 criteria as basis, ensure that all objectives have con-esponding
)
metrics and that a complete reporting and evaluating infrastructure is in
\ J
place. (That is, everyone in the organization should know what, when,
and how to provide data, and those responsible for analyzing and
repmting on the data should likewise have a clear agenda, schedule, and
)
set of procedures.)
)
© 2015 SHRM 297

HRM Role HRM Objective HRMMetrlc .Business Value

Values and Employees understand % of employees trained Mitigation of risk due to
ethics and behave in line with in values and ethics unethical behavior by
corporate values. % of employee employees; improved
responses in survey corporate reputation and
showing employee trust
support of company
values
Recruitment Recruitment is based on % of employees Improved business
diversity principles. recruited by gender and results, innov:::~tion: and
by minority groups customer satisfaction
Compensation Compensation is driven Ratio of base salary, Lower HR costs due to
by equal opportunity for men to women turnover, improved
men and women. motivation and trust
Compensation is linked Number of employees Improved execution of
to sustainability with sustainability sustainable business
performance. targets in annual work strategy
plans
Well-being Employees are fit to % of employees who Reduced business
contribute to their engage in a corporate health costs, lower
maximum capability. well-being program absenteeism, improved
% improvements productivity
achieved in employee
well-being (health,
stress, diet, etc.)
Development Diverse employees are %of women in Improved business
given opportunities to management positions results, innovation, and
advance. % of minorities in customer satisfaction
management positions
.
Engagement Employees understand % of employees trained Improved execution of
and act in line with in sustainability sustainable business
sustainability strategy strategy
and principles.
Employees enhance % of employee Employee engagement,
corporate community volunteers reputation benefits,
relations. enhanced community
relationships
Employees contribute to % of employees Energy and materials
improving participating in "green" costs reductions
environmental impacts. activities
Figure 13: Example of Sustainability Scorecard
298 © 2015SHRM
All measurement and evaluation should be keyed to the specific goals and
objectives set in the fourth step. To maintain the business case for the CSR
strategy, there should also be clear procedures in place for providing access to
results to marketing and other organization functions that can profitably leverage
the data.
6. Reassessment and Revision

Based on the evaluation of results, tactics and strategic goals should then be
revised. It is also useful to continue to think in terms of the sustainability
maturity curve, continually reassessing where the organization is along the curve
and considering what next steps would move the organization further up the
curve,
Critical to this step is having an infrastructure and process in place to provide the
entire organization with a clear sense of progress achieved, victories won, and
next steps needed.
)
)
)
I
© 2015 SHRM 299

Progress Check
1. What set of sustainability frameworks was created by a network of business leaders from
Europe, Japan, and the United States?
'
( ) a. ISO 26000
( ) b. OECD Guidelines for iv1u1tinational Enterprises
( ) c. SA8000
( ) d. Caux Principles .,
2. Whatsetofsustainabilityframeworks, based on United Nations and International Labor
Organization standards, focuses on nine key areas of human rights and labor relations?
( ) a. ISO 26000
( ) b. SA8000
( ) c. OECD Guidelines for Multinational Enterprises
( ) d. Caux Principles
3. According to the Global Reporting Initiative's G4 Guidelines, what are "material aspects"?
( ) a. Issues that are significant to the economic, environmental, and social impacts of a
business
( ) b. Measurable aspects of the physical operations of a business
( ) c. Components of an organization's products and their environmental impacts
( ) d. Elements of a business that determine its carbon footprint
4. What is the first step that must be taken in developing and implementing an organization-
wide CSR strategy?
( ) a. Measure and evaluate.
( ) b. Create the necessary infrastructure.
( ) c. Obtain executive commitment.
( ) d. Perfonn apreliminary assessment.
5. When should the organization decide whether to create a separate sustainability department
and who should spearhead strategic implementation?
( ) a. During infrastruch1re creation
( ) b. During plan implementation
( ) c. During preliminary assessment
( ) d. During reassessment and revision
300 © 2015 SHRM


I. d ( p. 285)
2. b ( p. 287)
3. a ( p. 288)
4. c ( p. 292)
5. a( p. 296)
© 2015 SHRM 301

)
Section 3:
Compliance and Ethics
-------------------------------------·
• Demonstrating the highest ethical standards and practices and organizational values-
espoused as well as enacted.
• Consulting on and demonstrating the appropriate level of transparency in organizational
practices.
• Consulting on management decisions related to ethics, governance, and social
involvement.
• Developing and implementing organizational standards for the confidentiality of workforce
and organizational data.
• Consulting on, developing, and implementing an organizational culture that supports

• Anti-bribery approaches.
• Confidentiality measures and approaches.
• Conflicts-of-interest avoidance.
• Ethical employee management practices.
• Privacy concerns.
• Social media usage.
The Three Pillars of Sustainability

Three pillars fonn the foundation, or necessary precondition, for an
organization to be able to develop and implement a CSR or sustainability
strategy:
• Compliance
• Ethics
• Governance
l
All three are defined here. Compliance and ethics are then discussed in more
detail in this section. Two key elements of governance-the code of conduct
and the compliance program-are discussed in the next section.
For these elements to create an effective foundation for CSR strategic

implementation, they all need the active suppoti of upper management and a
corporate culture that sees sustainability as central to its identity, both as a
strategic goal and an ethical imperative.
Compliance
The SHRM Foundation, in "HRM's Role in Corporate Social and
Environmental Sustainability," defines compliance as being in accordance with
'! all national, federal, regional, or local laws, regulations, and government
authority requirements for all the nations in which an organization operates.
Compliance issues apply to the organization as a whole and to its individual

directors, managers, and employees and may extend to collaborators and supply
J chain partners. Noncompliance with a given set of regulations or laws incurs the
risk of sanctions, either restrictions on conducting business, fines, or legal
proceedings .
.I
\ Beyond coping with the .complexities of any single set of laws impacting a
) business organization, the global organization must be prepared to comply with
) the laws of multiple nations-including dealing with overlapping jurisdictions,
extraten·itoriality considerations, trade agreements between nations, and
conflicting national laws.
)
)
)
© 2015 SHRM 303
Ethics
Ethical behavior goes beyond law to essential beliefs and values. Compliance
with legal requirements is not the same as ethical behavior.
Ethics is a set of behavioral guidelines by which all directors, managers, and

employees of an organization are expected to behave to ensure appropriate
moral and ethical business standards, typically beyond the letter of the law.
'·
Ethics requires organizations to consider the social and environmental impacts
of their operations and, as far as possible, to do no harm while pursuing
business interests.
Corporate ethicahssues can overlap with compliance issues and can include
employment rights, the environment, consumer interests, child welfare,
corporate disclosure and transparency, conflict of interest, corruption, bribery,
maintaining business records, discrimination, and so on.
Compliance vs. Ethics

The distinction between compliance and ethics is not always simple and has been
described in many ways. Mushtaq Dost, an International Compliance
Association Fellow, describes the difference as adhering to the letter of the law
(compliance) versus striving to follow the spirit of the law (ethics). He notes that
having a "compliance culture" within heavily regulated industries (such as
finance) does not necessarily result in ethical behavior. He in tum cites Michael
Josephson's distinctions between the two cultures:
• A rules-based compliance culture takes a legalistic, "minimalist" approach,
aims to meet the technical requirements of regulations, and views
compliance as a mechanical "check box" process.
• A values-based ethical culture aims to follow the spirit or purpose of the law
as well as its letter and views adherence as an active decision-making process
in which the law is interpreted and applied according to "core ethical beliefs
and convictions'' about "honesty, respeCt, fairness, a1ld responsibility."
Put another way, compliance asks "What can I do?'' While ethics asks "What
should I do?"
Answers to either question are even more complex, of course, for global
organizations that must face sometimes-conflicting mles and regulations from
304 © 2015 SHRM

the various jurisdictions in which they operate, including laws that the
organization may believe to be unethical (such as infringements of privacy or
laws that discriminate against a particular ethnic, racial, or religious minority).
An approach to resolving such issues is discussed later in this section.
Governance
Governance is the system of rules and processes an organization puts in place
to ensure its compliance with local and international laws, accounting rules,
ethical norms, and environmental and social codes of conduct.
Good governance is the outcome of a thoughtful assessment of an enterprise's

legal, ethical, and civic obligations to the communities it serves and the
development of systems that support fulfillment of these obligations.
Good governance emanates from the top--the board of directors and C-suite
officers-and continues to make itself felt though each subsequent managerial
and supervisory layer of the organization. An organization with good
governance is transparent and accountable at each level and function. It aims to
behave ethically both in its internal actions and communications and externally,
with the communities in which it operates and with the individuals and
organizations with which it collaborates and competes.
Note that when an organization lacks good governance and fails to recognize
and respond to ethical issues, its stakeholders may perform that task for it, to its
detriment. As noted earlier, we live in a highly connected world in which
private information often becomes public, instantaneously and globally, and in
which social media can quickly intensify and focus public responses. For
example:
• Consumer boycotts. These are sometimes, but not always, orchestrated by

activist organizations (e.g., human rights, animal rights, or environmentalist
groups) and have arisen in response to actions as diverse as the public
statements of an owner about gay rights or the working conditions at a
supply chain subsidiaty.
• Shareholder resolutions. Investors have convinced companies like Avon,

Hershey, and Smucker's to source 100% certified sustainable palm oil, an
J
© 2015 SHRM 305
ingredient that is otherwise grown on plantations that displace carbon-

capturing rain forests and animal habitats.
• Employee resignations. More commonly, an organization may simply find

itself unable to attract top talent based on a negative reputation.
As noted earlier, two key instruments of good governance are a written code of
conduct and a compliance program. The development and implementation of
these are described in the next section.
Ethical and Compliance Challenges

"First, dO no harm." "Don't be evil."
Physician's Hippocratic Oath Google Corporate Motto
Even with the best of intentions, the simple mandate "Don't be evil" isn't
always easy to fulfill. A few recent examples from the world of technology
services:
• To maintain its service in China, where the government regularly blocks

access to certain information and websites, Google compromised by
creating a domain for Chinese users operating within government
resl!ictions while striving to remain as transparent as possible about their
actions.
• A June 6, 2014, New York Times headline-"Facebook Under Fire for

Temporarily Blocking Pages in Pakistan"-indicates the complexity of
the problem. In this case, obeying a nation's laws resulted in ethical
controversy and highly negative publicity and feedback.
• Another New York Times article from the same day-"Internet Giants
Erect Barriers to Spy Agencies"-further suggests the complexity of the
relation between the ethical and the legal. It details how Google,
Face book, Microsoft, and Yahoo are encrypting data to thwart efforts of
the U.S. National Security Agency and other governments to access
customer data.
Global organizations, especially, must perform something of a balancing act

as they strive to compete with prevailing business practices in new countries
306 © 2015 SHRM

· WORKPLACE Corporate Social Responsibility
in which they operate while avoiding the ethical missteps such as those that
have led to the business scandals of recent decades. Such missteps can
damage the business climate by destabilizing markets, weakening the rule of
law, and making it more difficult for firms to compete on an equal footing.
Having a values-based organizational sustainability strategy-with clear,

comprehensive compliance and ethics positioning and a well-established
corporate governance system in place-provides a foundation from which
to navigate what can be tricky waters. Case-by-case approaches or after-the-
fact solutions are neither an effective nor an acceptable substitute.
Ethical Universalism versus Cultural Relativism

As organizations engage in business beyond their borders, they and their
individual employees face numerous ethical and compliance challenges.
Simply put, what is considered unethical and/or illegal in one country may be
perfectly acceptable in other parts of the world. In these cases, choosing the
right ethical path is especially complex because of differences in cultures,
values, business practices, and levels of economic development in countries. A
company, therefore, must carefully consider standardization (ethical
universalism) versus localization (cultural relativism) issues when developing
its code of conduct.
Ethical universalism argues that there are fundamental principles that apply
across cultures and that global organizations must apply these principles when
making decisions in a country, without regard to local ethical nonns.
But organizations may mistake their home-country ethical systems for

universal values and risk imposing their ethical practices on other cultures.
Also, fundamental principles may be expressed in different ways on a local
level, and cultures can prioritize values differently. Briscoe, Schuler, and
Tarigue relate an example of a Western manager reporting an employee for
theft in China and discovering that the employee had been executed-a
) punishment that seemed disproportionate to the manager but not within the
) local culture.
Cultural relativism argues that ethical behavior is determined by local culture,

laws, and business practices. However, an organization may find itself directly
© 2015 SHRM 307

violating its core values and thus weakening its ethical character. Also, it can
be difficult for individuals outside a culture to gauge other cultures' ethical
nmms accurately--especially when it may be in their own economic interest to
accept local norms, as when a local culture allows low-cost child labor or is
more lax about worker safety standards. In these latter situations, it may be
useful to consider long-range corporate value (and values) over shmt-term cost-
cutting measures.
HR's Role
Global HR professional Janet Morrison argues that global HR should "assist
organizational members in embracing the local culture while recognizing
that ethically accepted horne-country organization practices (both legal and
customary) are to be adhered to as long as local law is not broken and the
local community is not harmed."
Among the practices she recommends are:

• At a minimum, commit to compliance with local labor laws that are
aligned with home-countJy ethical standards even if it risks loss of
profit.
• Embody the organization's commitment to global diversity and
sustainability in a clear, concise document.
• Research the culture of host countries.
• Benchmark the organization's practices against those of similar global
organizations.
• Develop a CSR mission statement specific to the host country.
• Create action plans and publicize actions by the organization and by
individual employees that demonstrate commitment.
Multicultural Ethics Decision Tree

Briscoe, Schuler, and Tarique discuss the work of Thomas Donaldson, who
developed a decision tree !() help tl1llltihati6rialorganization leaders and
employees resolve petplexing ethical challenges. This guide is illustrated in
Figure 14 on the next page.
The framework includes awareness of fundamental rights but also

accommodates economic differences and business realities.
308 © 2015 SHRM

If "no," the If "no" to If "no" to

If "yes," the
practice is either, the both, the
practice is
not practice is practice is
acceptable.
acceptable. unacceptable. acceptable.
Figure 14: Thomas Donaldson's Framework for

Making Ethical Decisions in a Multicultural Environment
Resolving ethical dilemmas requires cultural awareness. Managers must

be sure they are not considering a host country's practices unethical
simply because they are different from those oftheir own countries.
Different cultures may respond to the same ethical choice in different
ways.
Mcfarlin and Sweeney observe that U.S. managers tend to be absolutist

in rejecting certain actions, while in China the response may lie in
moderating behaviors. Donaldson concludes that finding the most
ethical path often requires balancing policy with flexibility and
imagination-the ability to appreciate other perspectives and develop a
mutually acceptable way to achieve a shared goal.
l The following content provides an overview of some of the major

ethical and compliance responsibilities and issues that global
organizations face today.
© 2015 SHRM 309

A firm is expanding into another country. The general practice in the new
country is to pay bribes to accelerate work activities, including obtaining
workers and ensuring that ifllrl1igrati()l1 permits are ill place for foreign
Ethical workers. The firm has a tight deadline. Much of its success for the next two
Practice years depends on this location, the first phase of its international expansion
Competency plan. The chief human resources officer (CHRO) meets with the chief
in Action executive officer (CEO) and chief financial officer (CFO). They must find
some way to balance the risks of being delayed and not achieving their
strategic goal, being noncompliant with laws regarding bribery, and being in
conflict with the tlrm's own values.
The CHRO identifies and communicates this ethical quandary and the
potential reputation risk as well as the potential legal ramifications if the
payment of bribes becomes public information. The CHRO recommends
that, rather than using bribes, the firm adds extra workers to help with the
aggressive time lines and targets. The additional costs associated with this
approach outweigh the potential risks and costs of being found guilty of
engaging in bribery.
The CHRO has demonstrated the ability to understand the firm's business
needs and balance those with upholding the firm's core values and ethical
considerations.
I Supply Chain Responsibilities
I For the global organization, ensuring that its suppliers' policies and practices are
closely integrated with its own ethical policies has become a critical and complex
i issue. While organizations historically have taken little interest in their extemal
I
'I
suppliers beyond product features, quality, price, and availability, the issue of
supply chain behavior is now closely integrated with a global organization's ethical
I policies. This position is not merely defensive (avoiding disruptions in the supply
I chain because of strikes, negative publicity, or lawsuits); it is good business. Ethical
I
I
supply chain behavior means better products, more satisfied customers, and more
sustainable working communities that support the growth of business.
What is required, then, is securing buy-in across the supply chain of an

organization's code of conduct (or at least those provisions that touch directly on a
given supplier's actions, which can range from its labor relations conduct to its
environmental policies).
The British home improvement, appliance, and electronics retailer Kingfisher

includes attention to supply chain behavior in its own corporate social
310 © 2015 SHRM

responsibility program. Believing that this focus strengthens both the supply
chain and the Kingfisher brand, the multinational has set policies to:
• Know the provenance of every product it sells-who sells Kingfisher the
product and where they make it.
• Set and assess workplace standards for suppliers' factories.
• Work with suppliers, govemments, and nongovernmental organizations to
address challenges within the supply chain.
• Support factories to help them achieve Kingfisher's standards.
The company has created a code of conduct for factory working conditions
based on the ILO Conventions. Each operating company and sourcing office
then develops its own action plan to implement and monitorthe code.
Following are some specific areas in which global organizations find themselves
being held accountable for the behaviors of their suppliers.
Workplace Safety
The following all-too-recent example suggests the life-or-death seriousness of
ensuring an ethical supply chain. It also exemplifies the growing willingness of
industries, nations, and international organizations to work together to codify
acceptable standards of business behavior:
In 2013, as a result of several workplace disasters in Bangladesh-

including a fire in which 112 garment factory workers died and a building
collapse that killed more than 1,1 00-apparel producers, retailers, and
labor unions entered into an accord on fire and building safety. The
accord requires signatories to implement programs to monitor workplace
conditions in their global supply chains. Joining in the accord were over
80 global clothing industry members, including H&M, lnditex (Zara), and
Carrefour.
Child Labor
- - -
This is another critical area in which international codes have been implemented,
notably:
• In 1989 the United Nations General Assembly adopted the Convention on

the Rights of the Child, which has been ratified, accepted, or acceded to by
194 member countries. The articles specify a number of rights, including a
requirement that countries signing onto the treaty take "legislative,
© 2015 SHRM 311

administrative, social, and educational steps" to protect children from abuse,

exploitation, and neglect.
• In 1999 the Organisation of African Unity (now the Afiican Union) issued
the African Charter on the Rights and Welfare of the Child. Latvia, in 1999,
adopted the Children's Rights Protection Law, which focuses on providing
specific legal protections in this area.
""unpl"
V r- Y "h-'~ "'"st-:~~bmt
V I CUI' ..... u U.IIIU fl• ..
1
Environmental issues provide a perfect example of an area of concern in which
economics, ethics, and, increasingly, regulatory compliance all converge to
change what metrics are applied and how their results are evaluated. The focus
has dramatically shifted from traditional supply chain metrics (transportation
times and costs, delivery timing, etc.) to sustainability measures applied across
the supply chain. Among the factors that have caused this shift are:
• Growing energy needs of (especially) developing countries.
• Strains on natural resources caused by global warming.
• Increasing costs of energy and transportation.
• And perhaps ultimately most important, increasing consumer demands for
green products and proof of sustainable practices.
Figure 15 describes guidelines by which global organizations can help ensure the
ethical conduct of their suppliers.
0 Perform extensive due diligence on all 0 Create a detailed database to track

potential business partners. inspection results as well as actions
• Research the ethical vulnerabilities of taken in response to any negative
their home countries. findings for every supplier location.
• Inspect their work sites; interview their 0 Use this information to make subsequent
customers and employees and decisions related to a particular supplier.
members of the local community. 0 Assess the broader risks associated with
• Seek out evidence that legal and ethical doing business in specific countries, and
behavior is a top priority. develop strategies for minimizing them in
0 Develop a code of conduct specifically for the future.
suppliers, and stipulate in the partnership 0 Proactively provide the same information
agreement that compliance is a condition to other organizations for which you are
of doing business. a supplier.
0 Establish procedures for ongoing reporting
and monitoring.
Figure 15: Checklist for Ensuring Socially Responsible Supplier Conduct
312 © 2015 SHRM

I( WORKPLACE Corporate Social Responsibility
Bribery and Corruption

I
This may be the key area in which organizations feel torn between a desire to, on
the one hand, "compete on a level playing field" with local organizations and, on
the other hand, compete ethically. While bribery and conupt practices are
increasingly unlawful in many jurisdictions worldwide, significant differences
remain as to enforcement regimes. For example, "facilitating" payments (small
payments of money or goods) awarded to perform (or speed up) routine
governmental actions are permissible in some countries hut are not allowf;'d
under any circumstances in the United Kingdom.
In some countries there can also be wide variance between official policy and
actual practice. In many other countries, both public and private bribery (whether
domestic or foreign) are expressly outlawed but the definition of bribery varies
widely. In spite of such local differences, the passage and enforcement of
) anti bribery and anticorruption laws is a global trend. Key examples are the U.S.
) Foreign Corrupt Practices Act of 1977 and the U.K. Bribery Act 2010, which is
now among the strictest legislation internationally on bribery.
)
) Implementing and maintaining an effective anticorruption program can decrease
corruption risks. Steps to implement a sustainable anticorruption program will
vary across multinational enterprises, but they typically include:
• Identifying specific risk areas where payments are made (e.g., promotional
)
expenses, travel and entertainment, facilitating payments, charitable
)
donations, lobbying).
• Instituting effective controls concerning the method and location of all
)
payments.
• Providing culturally appropriate training and communication programs.
• Embedding disciplinary mechanisms within the business model to help
)
mitigate areas of risk.
• Implementing 1"obust menitoring, detection, and auditing processes.
e Periodically reassessing all corporate govemance and compliance programs.
) Conflicts of interest
) Conflicts of interest can arise both on a person-to-organization level (in
) which an employee's personal interests conflict with the employer-
) organization's interests) and on an organization-to-organization (or
© 2015 SHRM 313

)
organization-to-government) level (in which an organization serves a client in

conflicting capacities or simultaneously serves two clients whose interests
conflict).
Employee-Level Conflicts
Issues concerning potential conflicts between an employee's personal interests
and those of the organization for which he or she works may involve the
employee's dealings with customers, suppliers, contractors, competitors, or
anyone seeking to do business with the organization. Conflicts may also
extend to that individual's interests in outside organizations doing business
with the employer or to their connections through family or friends.
The SHRM "Sample Code of Ethics and Business Conduct" lists seven possible
conflict-of-interest situations. These include situations in which an employee:
• Is directly involved with, or has a financial interest in, the business of a
competitor, contractor, or supplier.
• Hires, supervises, or awards business to a close family member.
Organizational-Level Conflicts
Where organizations provide consulting services (legal, marketing, etc.), their
simultaneous services to clients who are in competition with one another may
create a conflict of interest when internal safeguards have not been put in place.
Other organizational conflicts of interest can occur when a client is being
served in conflicting capacities, as when a company both supplies products to
the government (such as an arms contractor) and sits on the government board
that sets the criteria for awarding such contracts.
Ethical Employee Management

This includes a range of concerns, all made more complex by differences in
national standards, regulations, economics, and cultural attitudes:
• Workplace safety and child labor. These concerns are mentioned above
in the discussion of supply chain mai1agement, but, of course, the same
ethical obligations apply to the organization itself, and the same issues of
conflicting local standards can apply to a global organization's subsidiaries
as well as to its suppliers.
314 © 2015 SHRM

• Antidiscrimination. Any CSR strategy should involve a detailed diversity

and inclusion (D&I) strategy, ensuring that hiring, compensation and
promotion, and all other aspects of employment are all performed without
discrimination as to an employee's race, national origin, color, religion,
gender, sexual orientation, age, disabilities, and any other legally protected
classification. The types of benefits available to workers (for example,
family leave, etc.) are subject to antidiscrimination considerations as welt.
These issues are discussed in detail in the "Diversity and Inclusion"

Functional Area in this Workplace module. It should be noted that, here
again, conflicts may arise between corporate policies and national
regulations.
• Fair treatment. This may include anything from equal pay for
comparable work done, reasonable pay for the amount of work done,
rights to review of quality of work where promotions or pay-level
decisions are made, rights to be fully informed about the nature of the
contract with an organization, and so on.
J
Privacy and Confidentiality
Privacy and confidentiality are two closely related but separate concems:
I • Privacy refers to an individual's right to freedom from intrusion (by

viewing, monitming, reading, etc.) into matters, actions, or information
that is personal. The line between "personal" and "public" sometimes can
be complicated. For example, it would clearly be wrong to examine text
messages sent and received on an employee's personal mobile phone, bHt
what of checking e-mails sent from the company's computer or documents
stored on a company server? Another example: Cameras in a company
batlu·oom would be wrong, but what of security cameras in a stairwell?
• Confidentiality refers to the treatment of personal information that has

been disclosed to another person (e.g., one's doctor, lawyer, or financial
advisor) or organization (e.g., one's employer or a hospital); maintaining
confidentiality is the agreement to not share or make public that
information. Ensuring that an employee's medical document doesn't go
into his personnel file would be an example of maintaining confidentiality
consistent with legal requirements and best practices.
© 2015 SHRM 315

Put another way, privacy concerns whether an organization (or person) has the
right to data, knowledge, or information from or about an individual, while
confidentiality concerns whether an organization (or person) has the right to
share information it has obtained. Thus, the 2014 News Corp "phone hacking"
scandal and trials involved both privacy issues (obtaining infom1ation by
hacking into private phone and e-mail accounts) and confidentiality issues
(publishing news stories based on that data).
Both concerns require an organization to balance its needs-the need to

preserve workplace safety, to ensure security of company propiietary
information, to ensure proper and productive use of workplace
communications technologies, to comply with relevant legal requirements
(such as laws involving personal medical data)--with each employee's rights
to privacy and confidentiality.
Specific organizational concerns include violence in the workplace, identity

and property theft, data security, viewing of pornography, lowered
productivity, and on-the-job accidents and injuries. Employers also have a duty
to their employees to protect the privacy and confidentiality of the personal
information gathered and maintained in the course of employment.
Overstepping the bounds of monitoring can, at the least, seriously degrade

employee morale and can constitute ethical and legal transgressions. The
problem is exacerbated by today's technologies, increasing both the use of
personal communications technologies (i.e., mobile phones and tablets) in the
business environment and the ability to monitor that use.
Ethical conflicts involving privacy rights can also be person-to-person (rather

than organization-to-person), as when an employee with access to another
employee's data uses it for personal, rather than organizational, purposes (which,
of course, would also constitute conflict ofinterest).
Philanthropy and Volunteerism

Ethical behavior may begin with the directive to "do no hann." But being
ethical also involves striving to do positive good. In traditional CSR, that
ethical component had a tendency to remain far-removed from core corporate
strategies. However, philanthropic efforts and employee volunteerism can
316 © 2015 SHRM

become a fully embedded component of a comprehensive CSR strategy-and

a key HR initiative.
Philanthropy
Corporate philanthropy can take many forms-all of which can be
strategically aligned with an organization's CSR and business strategies:
• Like individual philanthropic efforts, organizations can simply make

charitable donations to existing causes. The range of social and
environmental charitable organizations makes it relatively easy to select
causes that align with strategic goals.
• Larger organizations may instead form foundations to award grants or

sponsorships to individuals or organizations. For example, a Forbes
listing of the ten largest college scholarships awarded by corporations is
notable for how focused many of the scholarships were. Buick, through
the OM Foundation, offers scholarships to engineering, design, and
business students who plan on entering the automotive field; Siemens, the
global electronics fim1, awards scholarships to math, science, and
technology students; and KFC awards scholarships to entrepreneurially
inclined students.
• Corporations may fonn strategic partnerships with nonprofit

organizations. For example, the environmental group the Nature
Conservancy has formed strategic alliances with corporations worldwide,
each focusing on one or more specific environmental reclamation
projects. BHP Billi ton, a global resources corporation based in Australia,
works with the Conservancy on the Martll Living Deserts Project-
helping the Martu tribe in Australia sustainably manage one of the largest
arid ecosystems on earth-and on helping preserve Chile's Valdivian
Coastal Reserve, a rain forest along its southern coastline. Dozens of
global companies have formed similar alliances with the Conservancy,
often focusing on projects in the corporations' home countries or related
to the type of business they do. For example, Monsanto is involved in
agriculture-based projects; Coca-Cola works with the Conservancy on
projects to replenish water ecosystems.
© 2015 SHRM 317

• An organization may create and manage its own entity to administer and
provide a community, social, or environmental service. As part of its
CSR strategic efforts to increase diversity in computer science, Coogle
has created and administers the Made with Code program
(www.madewithcode.com). In alliance with other organizations, and
working through groups such as Code.org, Girls Who Code, NCWIT, and
Black Girls Code, the group provides introductory coding projects
designed to engage girls in computer science. For example, girls are
shown how to write code to create a bracelet that is then printed by a 3D
printer and sent to them, or they compose music or animate an online
avatar. From there, they are given access to resources, events, and a
mentoring program to help them pursue their new interest.
Employee Vo!unteerism
As with philanthropic donations, direct involvement by employees in volunteer
efforts can have considerable strategic benefits. In this case, there are the added
benefits of improving employees' engagement and motivation at work as well as
their teamwork capabilities, leadership skills, and interpersonal skills.
In "HRM's Role in Corporate Social and Environmental Sustainability," the

SHRM Foundation identifies four types of benefits that accrue to the volunteers
themselves and to the organization for which they work:
• Individual benefits, which include the recognition employees receive and the
skills they gain
• Team benefits, which include teamwork skills and the sense of camaraderie
employees gain
• Organizational benefits, which include strengthening of the corporate culture
• Business benefits, which include an enhanced corporate reputation and
strengthening of the brand
The SHRM Foundation document also describes a continuum of organizational

involvement in employee volunteerism: from individual employee efforts
without organizational support, to those efforts that are either supp01ted,
sponsored, or planned by the organization, or, finally, those that are fully
integrated into the organization's corporate strategy. Figure 16 describes each
level of organizational involvement and maps each to the four types of benefits
gained.
318 © 2015 SHRM

Supported
Private
Employee
Volunteering
Volunteering
Employees volunteer The employer

in the community on recognizes employee
their own time in volunteer activities
activities of their own and may provide
choosing. resources or funding
if requested by the
employee.
No direct benefit lo the Limited ad hoc benefit

employer other than through specific
the indirect benefit of empJoyoo increase in
employee capabi lily motivation and loyalty
development through to the employer,
volunteering activities.
Organizational benefits
through the goodwill
from employees who
appreciate the
organization's support
for colleagues and the
community.
Figure 16: Employee Volunteer Program Continuum
Organization-based employee volunteer programs can take a variety of forms.

A white paper, "Seven Practices of Effective Employee Volunteer Programs,"
cites several examples of corporate effmts, including:
• Timberland gives its employees 40 paid hours per year to devote to
l
volunteer efforts.
• Toyota Financial Services (TFS) focuses on youth education for its

employee volunteer program. Each year it conducts a three-day retreat for
its entire volunteer team, during which the team crafts an annual plan,
© 2015 SHRM 319

including an updated vision, strategies, goals, operational improvement, and

priority programs.
• HP has devised a Social Impact Scorecard, measuring how its employees in

over 170 countries carry out HP's "local knows best" CSR philosophy. The
scorecard measures volunteer hours, participation, and impact (including
collecting feedback from participating nonprofits and measuring effects on
employee morale). Employees can use up to four hours of paid work time
per month for volunteer efforts in HP's selected volunteer areas of health,
education, and environment.
Global vs. Local Philanthropy

The "HR in the Global Context" Functional Area in this Workplace module
discusses the strategic choices any global organization must make between
global integration-which emphasizes consistency of approach, standardization
of processes, and a common corporate culture across global operations-and
local responsiveness-which emphasizes adapting to the needs oflocal markets
and allowing subsidiaries to develop unique products, structures, and systems.
Such organizations face the same basic choices when it comes to strategic
philanthropy. Figure 17 lists some key advantages that each approach provides.
• Fewer relationships and designees • Local managers are better judges of

means lower operating costs. local stakeholder demands.
• Single focus offers opportunity for • Local stakeholders (both
greater shared learning. governments and consumers) may
be influenced by local philanthropy.
• Dominant relationship with single cause
may strengthen organization's brand and • Organization can create impact most
lessen appearance that organization is needed by each country.
exploiting cause.
• Competitors are Jess likely to copy
• Favorite programs ofJocal m<~nagers are organization's efforts .
less likely to be singled out for support.
• Having multiple nonprofit partners
• Single focus may magnify effect of diminishes donor fatigue .
donations.
• Risk is spread out across nonprofit
• Risk to the organization from association partners .
with multiple, little-known causes is
reduced.
Figure 17: Benefits of Standardized and Localized Philanthropic Programs
320 © 2015 SHRM

Progress Check
1. What are the three pillars of sustainability?

( ) a. People, planet, profits
( ) b. Risk management, growth, returns on investment
( ) c. Compliance, ethics, governance
( ) d. Stakeholders, infrastructure, measurement
2. What is the te1m for a set of guidelines by which all directors, managers, and employees of
an organization are expected to behave?
( ) a. Ethics
( ) b. Compliance
( ) c. Philanthropy
( ) d. Governance
3. What is the term for the proposition that ethical behavior is determined by local culture, laws,
.i
) and business practices?
) ( ) a. Ethical universalism
( ) b. Multiculturalism
) ( ) c. Laissez-faire ethics
) ( ) d. Cultural relativism
)
) 4. What is the common position of global organizations today as to their own obligations
regarding their supply chain's ethics?
( ) a. The only concerns regarding suppliers ought to be product features, quality, price,
) and availability.
) ( ) b. Suppliers' policies and practices must be closely integrated with the
) organization's own ethical policies.
( ) c. Suppliers must comply with local laws.
( ) d. Suppliers must demonstrate sustainable practices.
)
)
)
i
)
© 2015 SHRM 321
)
5. What is the tenn for the agreement to not share or make public information that has been
disclosed to an organization?
( ) a. Right to privacy
( ) b. Conflict of interest
( ) c. Confidentiality
( ) d. Anticonuption
6. What is the term for a program in which employees volunteer in the name of the employer in
areas that enhance the employer's reputation?
( ) a. Supported employee volunteering
( ) b. Employer-sponsored volunteering
( ) c. Employer-planned volunteering
( ) d. Business-integrated employee volunteering
322 © 2015 SHRM


1. c (p. 303)
2. a (p. 304)
3. d (p. 307)
4. b (p. 310)
5. c (p. 315)
6. b (p. 319)
i
1.,
1
)
j
)
)
)
)
)
·,
)
)
}
)
)
)
)
)
)
)
) 323
© 2015 SHRM
)
Section 4:
Governance

• Acting with personal, prolessional, and behavioral integrity, in conformance with an HR code of ethical conduct.
• Investigating, evaluating, and responding to all reports of unethical behavior, conflicts of interest, and
associated levels of organizationa I risk.
• Advising executives on any reports of unethical behavior or conflicts of interest that increase risk tolerane·
or risk of liability.
• Designing mechanisms for employees to report unethical behavior or conflicts of interest without fear of
reprisal.
• Demonstrating the highest ethical standards and practices and organizational values-espoused as well
as enacted.
• Consulting on and demonstrating the appropriate level of transparency in organizational practices.
• Establishing the HR team as a credible and trustworthy organizational resource for internal and external
stakeholders.
• Consulting on management decisions related to ethics, governance, and social involvement.
• Developing and implementing organizational standards for the confidentiality of workforce and
organizational data.
• Consulting on, developing, and implementing an organizational culture that supports responsible and
ethical decision-making.
• Consulting on, developing, and implementing a code of conduct that reflects the appropriate level of
corporate self-governance.
• Anti-bribery approaches.
• Code of conduct development.
• Compliance program evaluation.
• Confidentiality measures and approaches.
• Conflicts-of-interest avoidance.
• Corporate citizenship and governance programs and legislation.
• Ethical employee management practices.
• Investigation techniques.
· WORKPLACE Corporate Social Responsibility
Codes of Conduct and Compliance Programs

As explainedintheprevious section, good governance is one ofthe
three pillars of sustainability, along with compliance and ethics.
Governance involves the rules and processes by which an organization
ensures compliance with local and international laws, accounting rules,
i
)
and other standards and codes.
This section will describe the two key instn1n1ents of governanct:: lhe
code of conduct and the compliance program. As with ethics and
compliance, these can best benefit the organization as integral
components of a comprehensive CSR strategy. And, as with all CSR
components and programs, their value depends on support by
management, both explicitly and implicitly-through management's
j behavior.
)
A written code of conduct can help an organization live the values it
)
espouses-and can be an effective tool in constructing a
)
CSR/sustainability strategy. A formal, detailed, written code
)
communicates commitment both intemally and extemally and serves as
a benchmark against which employees and managers can judge their
actions. Common provisions for corporate codes of conduct include
employment conditions and practices, customer and vendor relations
)
)
(e.g., fair pricing, anticorruption, conflicts of interest), community
activism, and environmental protection.
)
)
The code of conduct in turn becomes the basis of a more detailed set of
)
policies and procedures addressing the specific legal and regulatory
)
risks the organization faces in its particular industty and international
)
environment. The compliance program is the system for ensuring that
)
)
all of these are presented to, and understood and acted on by, everyone
in the organization and for evaluating the results of those efforts. As
with all other aspects of governance, it works only with the full, active,
and continuous support ofleadership at all levels and with specific
means of evaluating results and making revisions to improve the
)
program.
)
)
)
© 2015 SHRM 325
Creating a Code of Conduct

A code of conduct (or code of ethics) can be defined as principles of conduct
within an organization that guide decision making and behavior. The International
Federation of Accountants (IF A C), in "Defining and Developing an Effective
Code of Conduct for Organizations," argues that the code should be an ethical
decision-making tool for addressing ethical dilemmas rather than a list of rules
and regulations. They refer to such an approach as a "values-based code" (as
opposed to being Hrules-based"). Such a code should enable etnployees to:
• Recognize potential compliance and ethical risks.
• Apply a tl·amework or decision-making process to their resolution.
• Articulate reasons for the decision based on the code.
• Understand stakeholder ethical/compliance expectations and the costs/benefits
of meeting them.
• Track and report on their code adherence.
i • Assess the risks of future actions and initiatives.
'~
jl,,
The code should also be values-based in the sense of emanating directly from
11
R
lj core organizational principles and values. As such, the published code of
!I
ethics is one of the outcomes of an internal process that requires management
commitment and consensus building, reflecting the input and commitment of
all stakeholders. A code developed exclusively by an enterprise's legal
I counsel, HR department, or executive team will be unlikely to reflect the

cultural diversity of the organization's stakeholders. An effective code;
• Is clear about its objectives.
• Is understandable in its language. Codes should be translated into the
languages of all countries in which the organization has employees. The
translation should be reviewed within those countries to ensure that terms
have the intended meanings.
• Equips employees to respond to real situations. It should reflect the
specific and unique challenges of the particular organization's industry and
its locations.
• For the global organization, balances a deep understanding of how
acceptable behavior differs from one location to the next with an
acceptance of the organization's core values.
326 © 2015 SHRM

That last point requires the global organization to, once again, carefully consider
standardization versus localization issues when developing its code of conduct.
Figure 18 lists guidelines global organizations may follow to ensure that their
codes of conduct are truly global.
0 Assemble an international task force 0 Avoid home-country biases. Choose

on which all affected cultures are words that are nonjudgmental and that
represented. translate well into other languages (for
example, "business practices" and
0 Solicit feedback from a diverse cross
"corporate responsibility" rather than
section of employees; be sure to
"ethics" and "integrity"). Limit
involve workers from all locations,
references to specific regulatory
levels, and functional areas.
instruments to those that are
0 Identify a set of shared principles and international in scope (for example, the
develop mutually agreeable policies to OECD's Convention on Combating
address each one. Incorporate enough Bribery of Foreign Officials in
detail to effectively monitor and International Business Transactions
measure compliance and enough rather than the U.S.'s Foreign Corrupt
flexibility to accommodate variations in Practices Act).
local practices.
0 In addition to a company-wide code of
0 Ensure that training materials are conduct, consider creating ethical
available in the local languages and guidelines specific to at-risk personnel
that translations are accurate and such as salespeople in countries
sensible. where bribery is prevalent.
Figure 18: Checklist for Global Code of Conduct
Two online resources can be highly useful in creating a code of conduct:
• SHRM's "Sample Code of Ethics and Business Conduct." This is an actual

template that an organization can use as a starting point. It is available at
www .shrm.org/templatestools/samples/policies/pages/cms_014093 .aspx.
• IF AC's "Defining and Developing an Effective Code of Conduct for

Organizations." This offers an excellent, detailed discussion, including the
rationale for a code, principles, topics, a template, and implementation steps.
It is available at www.ifac.org/sites/default/files/publications/files/
Det!ning -and-Developing-an-Effective-Code-of-Conduct-for-Orgs_ 0. pdf.
© 2015 SHRM 327

HR Role in Developing and Transmitting the Code of Conduct

A critical dimension of the role of global HR is its dual responsibilities to:
• Promote ethical environments within global organizations and within global HR
by creating awareness of core values and implementing processes to support
commitment to those values.
• Develop relationships with external stakeholders in the communities in which
their organizations operate so as to promote sustainability.
Both responsibilities are critical to creating a code of conduct. HR's role as

educator is key in ensuring that guidelines and examples will make intuitive sense
to an employee, agent, or other stakeholder. HR's role as outreach to stakeholders is
critical in the process of developing guidelines and defining principles and values:
• As information gatherer from all stakeholders, HR is instrumental in involving
representatives of all internal and external stakehvldcrs in the formulation
process.
• As information disseminator, HR ensures that the finished product conveys the
results in a way that appreciates stakeholders' various perspectives
Code Creation and Implementation Process

The code of conduct is, ideally, an integral component of an organization's
comprehensive CSR strategy, and its creation is, by the same token, inseparable
from the process of creating that strategy. Figure 19 on the next page lists the steps
IF AC recommends in creating a code of conduct; note their congruence with the
CSR strategy creation process detailed in Section 2. Essentiaily, the two processes
happen at one and the same time. For example, the insights, concerns, and opinions
gathered from internal and external stakeholders early in the process will guide
both the CSR strategy and the code of conduct that reflects it.
Key Code Components

Above all, the code of conduct should reflect the needs, concerns, and values of
the organization that creates, adopts, and uses it. There is no definitive set of
elements or order of components. Whatever elements a given organization's code
contains should be there because of their usefulness and meaningfulness to the
organization. The suggested components listed here should be adjusted, combined,
renamed, reconfigured, or added to or deleted to fit the particular needs of the
individual organization.
328 © 2015 SHRM

• Gain senior management • Test, pilot, and revise the code as

commitment. necessary.
• Agree on the purpose and uses of the • Gain formal approval.
code.
• Publish and publicize .
~ • Identify all stakeholders and their
• Review after implementation .
~
priorities and concerns.
• Train and communicate to the
• Identify who should be directly entire organization.
involved in the code creation process.
•
l
Connect the code to performance
• Review existing frameworks and management policies and
guidelines. systems and internal controls.
• Draft the code (perhaps done by
working group involving key
organizational functions).
Source: "Defining and Developing an Effective Code of Conduct for Organizations," IFAC
Figure 19: Code Creation and Implementation Process
The following component list presents a two-part code:

• Part One defines the organization's values, principles, and obligations to its
internal and external stakeholders.
• Part Two defines what the organization expects of its people, providing
guidelines for expected employee/agent behaviors.
Traditionally, codes of conduct focused on-or contained exclusively-the Part

Two components. The main goal of such a code was to outline employee
obligations. There are, however, several benefits to beginning the document
with clear and detailed stateme11ts of the organization's vision, values, and
principles:
• It enabies the code to serve as a foundation of the organization's
sustainability/CSR strategy.
• It grounds organization and employee actions alike in a set of sustainability
values, providing a clear rationale for whatever will be demanded of
employees in terms of their behaviors.
• It enables the code to become a unifying document rather than one
separating management from employees. Its tone becomes "what we all
must do together" rather than "what we expect you to do for us."
© 2015 SHRM 329

In short, this addition to the traditional code of conduct exemplifies the broader
redefinition of CSR discussed in Section 1, enabling the code to become values-
based rather than a rules-based document.
The components of a values-based code of conduct are as follows:
Part One: Organization's Values
• Commitment of leadership to the code

This may be in the form of a statement from the CEO or board of directors.
• Mission statement and/or vision statement
• Organizational values and principles

As the mission statement provides a broad-brush declaration of what the
organization hopes to accomplish, this provides a declaration of the values it
will uphold in achieving its goals.
• Organization's relation to community, environment, and society

The organization's CSR stance, this presents a more detailed set of
principles and goals, specifying the organization's ethical obligations to all
its various stakeholders. It should enable someone to make decisions about
future organizational actions.
Part Two: Organization's Expectations
• Ethical and conduct guidelines

This will likely include such areas as conflict of interest, bribery/corruption,
confidentiality, privacy, harassment, record keeping, relations with external
stakeholders, use of company resources, and so on. As with all components,
the specific items will depend on the particular organization's needs and
practices.
• Examples of Ethical and Unethical Behavior

The goal here is to help employees recognize a potential risk or conflict
when it arises. This can take several forms. The SHRM sample code, for
instance, offers a set of hypothetical questions to ask (e.g., Have I been
330 © 2015 SHRM

asked to misrepresent information or deviate from normal procedure? Would

I feel comfortable describing my decision at a staff meeting? How would it
look if it made the headlines? Am I being loyal to my family, my company,
and myself?)
• Specific rules of conduct

These cover issues of compliance with specific external regulations. This
may be a separate document or even a set of function-specific documents for
separate departments within the organization.
• Performance evaluation
Employees should have a clear sense of accountability and of how conduct
will be evaluated and acted upon. Clear channels for reporting misconduct
should be specified.
Implementing a Compliance Program

Key to the development of good governance is developing organizational
standards for behavior, communicating principles and standards throughout the
organization, and training managers and employees in how to apply these
standards to common work-related situations. The foundation for this is the code
of conduct. The compliance program, in turn, proactively ensures that all
members of the organization understand and adhere to the code and are able to
apply it to new situations and issues as they arise (which, of course, they will).
Key Components of a Compliance Program

) To be proactive, the compliance program must:
J • Be supported by a corporate culture--and clearly defined channels and
) procedures supporting the culture's values and goals-that encourages
employees to seek advice on compliance and ethical issues and to report
transgressions.
)
• Have a comprehensive educational component that provides not only rules of
conduct but decision-making guidance.
0 Have an ongoing monitoring, auditing, and evaluation component that ensures
its effectiveness.
)
© 2015 SHRM 331

Organizational Leadership and Culture

Beyond the active support and involvement of the uppermost levels of
management, there need to be leadership positions responsible for each
aspect of the compliance program. There may be a compliance officer in
charge of the program and/or an oversight committee with the power and
resources necessary to act on any noncompliance problems. The particulars
of the oversight structure will ideally have been determined at the
infrastructure creation phase of CSR strategy development.
HR, which has been directly involved in the creation of the code of conduct,
will certainly be responsible for many aspects of the compliance program
(training and education, evaluation, etc.). HR is also directly responsible for
a necessary condition of program success: due diligence in hiring, especially
for sensitive positions in, for example, management, finance, and
contracting.
Training and Education

Employees must know where to find information and guidance on how to
"
respond to compliance and ethical dilemmas, and compliance and ethical
I behavior must be included in performance reviews. The key component is

that employees know where to seek advice on ethical/compliance matters
I
and feel that they can seek advice without fear.
II As with all education, compliance training must actively involve the

employees receiving it. It must be much more than a walk-through of1ules
and regulations. The most effective training will present challenging ethical
situations and allow employees to work together to analyze their immediate
responses. That is, like the code of conduct, compliance training should be
values-based rather than rules-based.
Disciplinary and Preventive Measures

The program must ensure that responses to transgressions are appropriate and
consistent (as well as thoroughly grounded in full, impartial, and comprehensive
investigations into wrongdoing, as described below) and that such responses
. prote~t both organizational liability and individual rights. (No one wants to work
for an organization they fear will "throw them under the bus.")
332 © 2015 SHRM

It must have a system in place that both addresses an unethical or harmful action
and prevents reoccurrences. Preventive steps may involve disciplinary action,
but they may also involve changes in the compliance program or code of
conduct. For example, a guideline may not have been clearly conveyed or
sufficiently emphasized, in which case preventive measures may include
additional training or revisions in the wording or presentation of the code.
Preventive measures must also include continual compliance risk assessment

measures and evaluation of the program (including year-to-year performance
comparisons and industry benchmarking). Risk assessment measures are discussed
further in the "Risk Management" Functional Area in this Workplace module.
Reporting and Investigation

An organization should have clear whistleblowing procedures, systems, and
policies-enabling individuals within the organization to call attention to
harmful, wasteful, or unethical practices they see in the organization, at
whatever level. As is so often the case, a balance must be reached:
• Employees must feel, on the one hand, that they have a clear, confidential
(shared strictly on a need-to-know basis) means of reporting perceived
wrongdoing without fear of retaliation.
On the other hand, they must also feel that there is an effective system in
place for timely, impartial, and fair investigations of such reports-that
) they needn't fear malicious accusations made for personal motives.
l
Such issues-which may often directly involve HR, depending on
)
organizational structure-are vitally important to the organization's ability to
live up to its code of conduct and CSR values. It is critical that all stakeholders
rightly believe that the organization is ethical and is willing to take necessary
actions to live by its principles.
)
Monitoring, Auditing, and Evaluating Program Effectiveness
Writing in an article on the Ethics Resource Center (ERC) website, Kenneth
Johnson distinguishes between two approaches to program evaluation, both of
which are necessary:
)
• Process evaluation of the compliance program monitors components and

outputs. Its purpose is to monitor which program activities are actually
performed and what their outputs are.
© 2015 SHRM 333

It asks questions such as:

• What training classes exist?
" How often are they given?
• How many attend?
• What knowledge do they retain
• What is their satisfaction with the courses?
• Outcomes evaluation aims to determine the actual results achieved by the

program. It asks questions such as:
• Is there less misconduct?
• Is there less exposure to risk for misconduct?
e Can employees and agents recognize compliance issues at work?
• How often are decisions made with reference to standards, procedures,
and expectations?
• How willing are employees and agents to seek advice?
• How willing are employees and agents to report concerns?
• How satisfied are those who report their concerns with the response from
management?
• How committed are employees to the organization?
• How satisfied are stakeholders with the organization?
• Does the culture of the organization promote ethical conduct and
discourage misconduct?
By combining both approaches, the organization can obtain a clear picture of

what elements of the program are working, so that individual elements can be
adjusted as needed in order to achieve optimal results.
334 © 2015 SHRM

1 Progress Check
]. Is it more effective to have a rules-based code or a values-based code, and why?

} ( ) a. A values-based code is more effective because it can be a more concise document
and so is more likely to be used.
I ( ) b. A rules-based code is more effective because it is clearer and less likely to cause
I (
(
)
)
confusion among employees.
c. A values-based code is more effective because it enables the code to be an ethical
decision-making tool for addressing future ethical dilemmas.
d. A rules-based code is more effective because it provides a more definitive legal
and ethical basis for any disciplinary measures the organization may take.
2. What is a key critical decision for global orgm1izations in creating their codes of conduct?
( ) a. How many different languages the code should be translated into
( ) b. How to balance differences in acceptable behaviors from one location to the next
with an acceptance of the organization's core values
( ) c. How to keep the code concise enongh to be easily disseminated throughout the
global organization
( ) d. How to create a code that will still be applicable when subsidiaries are opened in
new locations
!
)
3. What two dimensions of global HR make it central to fulfilling the code of conduct's role in
the organization?
( ) a. Educator and stakeholder outreach lead
( ) b. Disciplinarian and employee retention manager
( ) c. Consultant and relationship manager
( ) d. Ethicist and decision maker
4. What is a key component of compliance program training?

( ) a. Teaching which rules to follow
( ) b. Ensuring that all employees understand how severe disciplinary measures may be
( ) c. Ensuring that all employees know where to seek compliance and ethical advice
and feel they can do so without fear
( ) d. Ensuring that knowledge of the code is thoroughly tested
© 2015 SHRM 335

5. What type of compliance program evaluation asks questions such as "How often are classes
given?" "How many attend?" and "How satisfied are attendees with the courses?"
( ) a. Process· evaluati ol1
( ) b. Ethical evaluation
( ) c. Outcomes evaluation
( ) d. Compliance evaluation
336 © 2015 SHRM


1. c (p. 326)
2. b (p. 327)
3. a (p. 328)
4. c (p. 332)
5. a (p. 333)
© 2015 SHRM 337

'
~
I~
I~ U.S. Employment Law and Regulations deals with the knowledge and application
11
! of all relevant laws and regulations in the United States relating to employment.
1:
~ These provisions set the parameters and limitations for each HR Functional
II
~
Area and for organizations overall. HR demonstrates value by ensuring the
organization's compliance with laws and regulations on both domestically and
globally (including extraterritorially).
li
I
i
ii,,
II"
This Functional Area is applicable only to examinees testing within the United States;
examinees outside the U.S. will not be tested on this content.
Responsibility Statements: Knowledge Topics:
Key responsibilities for all HR Listed below are six broad categories of U.S. laws, regulations,
professionals include: a.ncl.cases relating .to employment. togetherwith examples. (This
• Mainiaining a current working is not an exhaustive list of categories or examples.) Local laws
knowledge of relevant employment and regulations, such as those on the state or municipal level,
laws, domestic and/or global. are not included.
• Establishing criteria for organizational
compliance. • Compensation
• Educating and advising the executive • Examples: Employee Retirement Income Security Act of
team on legal compliance relating to 1974 (ERISA); Fair Labor Standards Act of 1938 (FLSA;
HR issues as a factor in decision- Wage-Hour Bill; Wagner-Cannery Wages and Hours
making. Act) and amendments; Equal Pay Act of 1963
• Promoting broad-based HR (amending FLSA); Lilly Ledbetter Fair Pay Act of 2009;
knowledge to ensure compliance with Ledbetter v. Goodyear Tire & Rubber Co. (2007)
laws and regulations. • Employee relations
• Ensuring the alignment of HR policies
• Examples: Labor Management Relations Act of 194 7
and procedures with laws and
l
(LMRA; Taft-Hartley Act); National Labor Relations Act
regulations.
of 1935 (NLRA; Wagner Act; Wagner-Cannery Labor
• Overseeing and consulting on HR Relations Act; NLRB v. Weingarlen (1975); Lechmere,
issues involving legal and financial risk Inc. v. NLRB (1992)
to the organization.
• Brokering internal or external legal • Equal employment opportunity
services for the interpretation of • Examples: Age Discrimination in Employment Act of
employment laws. 1967 (ADEA) and amendments; Americans with
• Establishing or positioning HR Disabilities Act of 1990 (ADA) and ADA Amendments
technology approaches for compliance Act of 2008; Civil Rights Acts; Equal Employment
and reporting. Opportunity Act of 1972 (amending Civil Rights Act);
Uniform Guidelines on Employee Selection Procedures
(1978) (29 CFR Part 1607); Griggs v. Duke Power Co.
Sample Application of Competencies: (1971 ); Phillips v. Marlin Marietta Corp. (1971)
• Human Resource Expertise-The
• Job safety and health
ability to remain current on relevant
laws, regulations, and legal rulings. • Examples: Drug-Free Workplace Act of 1988;
• Ethical Practice-The ability to Guidelines on Sexual Harassment; Occupational Safety
immediately respond to reports of and Health Act of 1970
unethical or illegal behavior. • Leave and benefits
• Critical Evaluation-The ability to • Examples: Family and Medical Leave Act of 1993
interpret legal compliance information (FMLA; expanded 2008, 201 0); Patient Protection and
and data to make business decisions Affordable Care Act (PPACA; ACA; "Obamacare");
and recommendations. National Federation of Independent Business v.
• Leadership and Navigation-The Sebelius (2012)
! ability to direct and contribute to legal
compliance processes within the • Miscellaneous protection laws
I •
organization.
Communication-The ability to
• Examples: Employee Polygraph Protection Act of 1988;
Genetic Information Nondiscrimination Act of 2008
exchange information on legal (GINA)
compliance ~ith internal stakeholders.
• Consultation-The ability to provide
knowledge of legal compliance to
internal stakeholders.
• Relationship Management-The
ability to manage interactions that
provide service and support to the
organization.
I
I
Introduction
A primaty responsibility for an HR professional involves assistance with legal
compliance of the employer, litigation avoidance, and helping to ensure that
employee rights are not violated. The complexity of employment law, however,
poses myriad challenges for HR. Given the ever-changing nature of laws and
regulations, HR must be vigilant in efforts to help ensure that the organization's
policies, procedures, and practices are compliant with relevant laws and
regulations.
This. Functional Area examines.the knowledge HRprofessionals need to address

legal issues across their organizations as well as in specific HR Functional
Areas. The information is intended to help HR build and sustain a culture of
organizational compliance, avoid violations, and establish powerful legal
defenses if the organization faces litigation.

In line with the SHRM Body of Competency and Knowledge, this Functional
Area covers the following:
• Section l, "HR and the Legislative and Regulat01y Environment," looks at
the source of law, the rule-making process, and monitoring the
legisla~ive/regulatOJy environment.
• Section 2, "Organizational Compliance," discusses ways to ensure
compliance with laws and regulations and HR involvement in litigation.
• Section 3, "U.S. Laws and Regulation," reviews U.S. laws in five categories:
equal employment opportunity/antidiscrimination and workplace harassment,
compensation, leave and benefits, job safety and health, employee relations,
and miscellaneous protections.
• Section4, "Employee RecordsMan<tgement," discusses record-keeping
requirements and practices.
340 © 2015 SHRM

. . ,..'
Section 1:
HR and the legisiative and Reguiatory

Environment

• Promoting broad-based HR knowledge to ensure compliance with laws and regulations.
WORKPLACE U.S. Employment Law and Regulations
Sources of the Law

. Many laws help frame the relationship between organizations and employees.
These laws safeguard the rights of employers as well as employees in both union
and nonunion environments.
Legal protections come from a variety of sources. The key ones include the
following.
• The Constitution. The Constitution is the highest law in the country and the
fmmdation on which all U.S. law has been built. The Constitution defines the
powers of the different federal government branches (executive, legislative,
judicial) and how these entities operate and interrelate. The Constitution also
provides basic principles, such as fundamental freedoms and rights.
. J
• Statutes. Statutes refer to actions passed by legislative bodies, such as
Congress and state legislatures, and by local government units, such as cities
and counties. One of the important functions of the court systems is to
interpret statutes (e.g., what they mean, how they apply).
• Regulations. Regulations reflect how laws will be implemented and often

have the force oflaw. Regulations are proposed, adopted, and enforced by
administrative agencies to whom government units have delegated specific
rule-making authority. Regulations may have just as profound an effect on
organizations as laws.
• Executive orders. An executive order is a directive by the chief executive of

a govemmental unit (e.g., the president of the United States) telling that
govemmental unit how it will act or interact with members of its community.
While executive orders direct only the govemmental unit, they have a direct
impact on any individual or entity interacting with the governmental unit. For
example, U.S. presidents may issue executive orders to create committees or
organizations (e.g., the Peace Corps). Typically, presidents use executive
I
orders to direct and manage how the federal government operates (e.g., EO
,· I
11246 as issued by President Lyndon Johnson, which mandated that any
individual or entity doing business with the United States government must
comply with affirmative action requirements).
342 © 2015 SHRM

o Agency guidelines. Administrative agencies may also issue guidelines that

interpret how laws and regulations will be enforced. Such agency guidance
includes agency interpretations, policy statements, letters, and advisoty
materials to supplement or explain regulations and statutes. Guidance may be
binding or nonbinding. Agency guidelines can greatly influence how
organizations operate.
• Common law. Common law is a concept the United States inherited from its
British roots. Common law is based on court decisions, rather than statutory
law, and is recognized on the federal level and in all states except Louisiana
(which follows the Napoleonic Code). At-will employment is an example of
common Jaw. Common law is also the source of the concept of precedent,
which states that once a court of sufficient authority decides what the law is
in a particular circumstance, subsequent courts dealing with similar cases
must apply that principle of law. The justification for the concept of
precedent is to provide stability and predictability in the Jaw.
How do all the legal protections intersect and apply to HR? Consider the
requirements associated with employing the disabled, including those
requirements found in the Americans with Disabilities Act (ADA) of 1990 and
the ADA Amendments Act (ADAAA) of2008. Congress charged the Equal
Employment Opportunity Commission (EEOC) with the responsibility of
enforcement of the ADA. The EEOC has issued regulations regarding the ADA
and other fairness issues, such as record keeping and complaint-resolution
procedures. The EEOC has also issued guidelines to help employers understand
how to apply the reasonable accommodation requirement in the workplace.
Other administrative agencies, such as the Occupational Safety and Health

Administration (OSHA), and the National Labor Relations Board (NLRB),
exercise great influence on how organizations manage their work environments.
It is critical that humanresourceprofessionals stay cutTent in the activities of
these and other agencies to ensure compliance with changing regulations for
their organizations.
The Rule~Making Process

Statutes are enacted by legislatures, and rules designed to implement and
interpret statutes are promulgated by administrative agencies. The mle-making
© 2015 SHRM 343

process may vary slightly from federal to state to local levels as well as from
state to state. The federal process, however, provides a good sense of the general
procedure. Figure 1 shows the steps ordinarily followed in rule making.
_/ ______ , - - · · - - · · - - .......... ··-·--·

/ '·
· 1. Rule is proposed.
'
; 3. Final rule is issued.
Figure 1: Rule-Making Process
Important Legislative and Regulatory Terms

A few important legislative and regulatory terms regarding the legislative and rule-
making processes are summarized in Figure 2.
Term Description
Amendment The modification of the Constitution or a law. Modification may
be either formal (written) or informal (unwritten).
Bill A proposal presented to a legislative body for possible
enactment as a statute.
Public comment The time allowed for the public to express its views and concerns
period regarding an action of an administrative agency.
Regulation A rule or order issued by an administrative agency; often has the
force of law. Interpretive bulletins distributed by administrative
agencies are helpful in deciphering regulatory developments.
Veto Action of rejecting a bill or statute. For example, the President of
the United States may veto a statute that has been passed by
Congress.
Figure 2: Important Legislative and Regulatory Terms
Legal terminology often can seem indecipherable to HR practitioners-even though

the legal terms typically have very straightforward meanings. SHRM's Workplace
Law LegalEasc web page provides plain English definitions of several common legal
terms for HR professionals; sec www.shrm.org/templatestools/glossaries/ ( i
legalterms( akalegalease)/pages/default. aspx.
344 © 2015 SHRM

Monitoring the Legislative and Regulatory

Environment
In today's legislative community, HR professionals can make a difference.
Whether by phone, letter, e-mail, or personal visit, HR professionals should
voice their concerns about HR-pertinent legislation to their officials.
SHRM has devoted a section of its website to legal issues and public policy.
lnfonnation provides HR professionals with the latest information on
employment law areas and federal, state, and local resources as well as updates
on what is happening with public policy issues that have the potential to impact
HR day-to-day workplace tasks.
For example, SHRM Government Affairs developed the HR Policy Action

Center to help HR professionals stay informed on HR-related federal legislative
proposals that Congress is considering. The center allows HR professionals'
voices to be heard in Washington, D.C., by providing the necessary resources to
communicate with lawmakers and their respective staffs.
For more information, go to the SHRM website, www.shrm.org.
© 2015 SHRM 345
I
Progress Check
I. Which of the following is the BEST example of a regulation?

( ) a. Civil Rights Act of 1964
( ) b. Fair Labor Standards Act
( ) c. Interpretation oflegal matters related to expatriation
( ) d. Process by which the Department of Labor clarifies the exempt status of
employees
2. Title VII prohibits discrimination against an employee for exercising rights protected by the
statute (e.g., retaliation). Should the U.S. Supreme Court issue a ruling that an employer's
response to an employee's discrimination claim is unlawful retaliation, this would be an
example of
( ) a. a regulation.
( ) b. an executive order.
( ) c. case Jaw.
( ) d. a judicial guideline.
346 © 2015 SHRM
I

I. d (p. 342)
2. c (p. 343)
© 2015 SHRM 347

Section 2:
Organizational Compliance

• Establishing criteria for organizational compliance.
• Educating and advising the executive team on legal compliance relating to HR issues as a
factor in decision-making.
• Ensuring the alignment of HR policies and procedures with laws and regulations.
• Overseeing and consulting on HR issues involving legal and financial risk to the
organization.
• Brokering internal or external legal services for the interpretation of employment laws.
The Impact ofthe law

From a legal perspective, there are things every business should have in place to
be compliant and to prevent potential liabilities and employee lawsuits.
These "essentials" include but are not limited to items such as:
• Workplace policies, procedures, and training programs.
• Workplace posters.
• New-employee orientation to explain and clarify policies.
• Workers' compensation insurance as required by state law.
• Proper withholding of taxes from employee pay.
• Paychecks delivered in accordance with the law.
• Compliance training that educates employees and managers how to
understand and comply with the law.
• An organizational code of conduct that reflects the organization's values and
complies with applicable laws.
• Communication of the code of conduct throughout the organization.
• An organizational compliance hotline for employees and other individuals
(whistleblowers) to repott discriminatory employment practices.
• Provisions to protect employees who report discriminatory employment
practices or participate in an investigation of a discriminatory employment
practice.
An anonymous call is placed to the compliance hotline about a potential

unlawful act of the organization's chief financial officer (CFO). The HR senior
vice president (HR SVP) is a direct report of the CFO. The situation presents
Ethical multiple ethical issues: What should the HR SVP do? How does the HR SVP
Practice respond (especially given the reporting relationship)? Who should investigate
Competency and how?
in Action
The HR SVP immediately secures the services of an outside investigator. A
timely and thorough investigation is conducted, and the HR SVP takes all
necessary actions to address the investigation findings. The HR SVPmust
respond to ethical concerns regardless of who commits them or that
individual's seniority, title, or position in the organization.
Compliance Checklists and HR Audits

Compliance checklists and HR audits are often used to help ensure compliance
with laws and regulations.
© 2015 SHRM 349

I
I HR Compliance Checklists
~ HR professionals typically use compliance checklists to prepare for an HR audit

While some organizations and administrative agencies must undergo formal and
I II
regularly scheduled audits by an external auditor (e.g., for regulatory
compliance), any business-small or large--can benefit from conducting their
II own internal audits of functions integral to their operations.
!
i" ll
~ can effectively help to:
I
I
• Keep organizations compliant with employment laws and regulations.
i • Prevent potential liabilities and employee lawsuits.
I • Ensure that business operations are generating results and supporting the
II organization's brand.
An organization may choose to develop its own checklist to evaluate

management practices. Additionally, several administrative agencies have
published compliance checklists and other resources on their websites that
organizations can download. For example, the U.S. Department of Labor offers
compliance assistance information (www.dol.gov/ebsa/compliance_
assistance.html) and a "40 I (k) Plan Checklist" is available from the Internal
Revenue Service (www.irs.gov/pub/irs-pdf/p4531.pd1). There are also many
I
i
I
consultants (e.g., law firms, tax advisors, benefits groups) that have compliance
resources (either free or for a fee).
I
I
i
I"
I
I duriog a conjpliance audit, ao admioistrative agency may be rnore or less
I rigorous initse~orts(e.g., requestfewerdoeuments or make more extensive
I
~
documQnt requests than those on tnccheck[ist), depcllding on tile scope of the
. alldit.
I
],
Jl
I ChecklistS and othetresdurees are a good starting poi~t to help an organization .. ·
]' assess hii!lic cornpl~arice; But !lucbtesdurees are: gtiides ·orily and not a
definitiveSO!JI'C~ ~~d~~ertriinl) ifal;lpr9pri~t~h~!ll~nresoutce practices are in
place and I 00% compliant \Vitlfla"'S and rcgtilations.
350 © 2015 SHRM

HR Audits
In an HR audit, an organization's HR policies, practices, procedures, and
strategies undergo a systematic and comprehensive evaluation. This helps to
establish whether specific practice areas or processes are adequate, legal, and/or
effective. Audit results also help to identify gaps in HR practices; these can then
be prioritized for corrective action .
, .. ·
. . .
· If an organization has legitimate concerns that an HR audit may reveal

organizational noncompliance with employment laws and regulations, the
organi~tion shouA~ f()llo\1/Jairly strict audit prqcedures and protocols a11d
consider hiring outside legal counsel. to conduct the audit. In doing so, the
organization may be able safeguard the audit results through the application of
legal privileges against disclosure.
SHRM offers a variety of resources related to HR audits. A good starting point is

the "Conducting Human Resource Audits" toolkit found at www .shrm.org/
Temp latesTools/Toolkits/Pages/HumanResourceAudits.aspx. Links to several
other SHRM audit resources are embedded in the toolkit. (This resource is
available to SHRM members only.)
More information on HR audits can be found in the "Structure of the HR

Function" Functional Area in the Organization module.
legal Services and Risk Mitigation

The costs of employment-related litigation are far-reaching. Consider but a few
examples of the potential consequences:
• Negative impact on the organization's bottom line
• Poor employee morale
• Decreased employee productivity
• Damage to the employment brand and reputation
Given the risks and their implications, securing the advice and services of
appropriate legal counsel (whether internal or external) is a prudent HR practice.
© 2015 SHRM 351

Another way organizations can mitigate risk is through employment practices

liability insurance.
Brokering for Legal Services

Ev~ry organization has a unique business focus, so legal advice is not a one-
size-fits-all proposition. Plus, employment law is such a broad area of the law
that it typically necessitates specialized expertise. Because of the depth and
breadth of employment !a'v, employment lawyers often focus their practice to
one or a limited number of areas related to employment and human resources
law.
Depending on the specific organizational need, legal counsel-.-.internal or

external-should be experienced in the relevant area of employment law
required (e.g., workplace discrimination warrants legal expertise in handling
discrimination claims or workers' compensation decisions necessitate legal
counsel versed in the administrative procedures involved in workers'
compensation law).
At a base level, HR needs to have a current working knowledge of relevant

employment law and the potential implications of noncompliance. HR must
also recognize when involvement oflegal counsel may be necessmy.
Think of the idiomatic expression in the English language "An ounce of

prevention is worth a pound of cure," which means that it is better to try to
avoid problems in the first place rather than trying to fix them once they arise.
On behalf of the organization, HR should secure appropriate legal advice and
expettise and adopt preventive legal strategies.
Two key ways HR can do this are noted below .
. $ Consultwith the organizatilm's at:t~;~wey hl prepare fo1· cwnplaints.

With the attorney, HR can review likely scenarios and develop appropriate
processes that ensure a prompt, consistent, and legally safe response. HR
must act quickly once the possibility of litigation arises. Having legally
reviewed checklists and communication templates in place will speed the
organization's response.
352 © 2015 SHRM

• Deliver training related to litigation responsibilities. Improper

communication and document handling can have severe repercussions for
the 6tgal1izatibti. Althbl.lghHR is ()fteti res]lbtisible f()f issl.litig reniiriders
in the event of a complaint, managers and supervisors should be informed
ahead of time about their responsibilities. Training can also suggest ways
to preempt litigation by recognizing and responding to employee
complaints fairly, promptly, and thoroughly.
In general, HR professionals should develop a habit of seeking legal advice on

any issue that could involve a potential violation of any statute. This advice can
be proactive (e.g., seeking review of a handbook) or reactive (e.g., responding to
an employee complaint filed with a federal agency or in a court).
Employment Practices Liability Insurance

No employer, whether a for-profit company, a not-for-profit organization, or a
governmental entity, is immune from employment litigation. Employment
practices liability insurance (EPLI) is a type of liability insurance covering
an organization against claims by employees, former employees, and
employment candidates alleging that their legal rights in the employment
relationship have been violated.
The purpose of an EPLI policy is to protect a business against the risk of heavy
financial losses resulting from employment claims and lawsuits. Essentially,
EPLI transfers the risk of losses associated with employment litigation during
the entire employment life cycle, from recruiting tlu·ough termination, to an
insurance carrier.
What EPLI Covers

EPLI is typically stmctured as gap insurance for the company. It covers such
things as discrimination, breach of contract, and wrongful discharge suits,
which usually are not covered by general business liability insurance,
Directors' and officers' liability insurance just protects the individual and not
the company itself. EPLI is most commonly designed to fill this gap in
coverage.
EPLI is a contract that must be carefully considered and reviewed by the

employer to ensure that it provides the level of protection needed. Furthermore,
© 2015 SHRM 353

EPLI coverage must be tailored to every state where an organization has

business operations.
EPLI Costs and Reimbursements

The cost ofEPLI coverage depends on the type of business, the number of
employees, and other risk factors (such as whether the organization has past
employment practices claims and lawsuits). EPLI policies typically reimburse
the costs of defending a lawsuit in court and for judgments and settlements. The
policy covers legal costs regardless of the outcome. Policies typically do not pay
for punitive damages or civil or criminal fines.
However, ELPI should not be thought of as the proverbial "magic bullet" or a

panacea. EPLI coverage should be a last line of defense. Proper risk
management should include appropriate policies, procedures, and training (such
as diversity and sensitivity training). An ELPI policy insures against risk, but if
an organization is proactive on other fronts, risks can be substantially reduced.
HR Involvement in the litigation Process

In spite of the actions an employer takes to promote positive employment
practices, some situations lead to employment-related litigation. HR is often
involved when an employee complains to an administrative agency (e.g., the
EEOC) or files a lawsuit. HR professionals often work directly with the
employer's attorney-attending depositions and gathering information necessary
to respond to the plaintiffs allegations and requests from the court or
investigating agency, protecting evidence, attending meetings with agencies and
plaintiffs, and testifying in court. They may also work with attorneys to craft
preemptive settlements or implement ordered remedies.
Figure 3 on the next page provides an overview of the milestones of an

employment lawsuit as well as HR involvement.
Possible Remedies
Remedies for successfhl plaintiffs may include reinstatement, promotion, back pay
and benefits, front pay (fi.Jture wages, usually in lieu of reinstatement), remedial
training and/or transfer, injunctive relief, and actual damages. Remedies may also
include payment of attorneys' fees, expert witness fees, and court costs.
354 © 2015 SHRM

------------~--~--~~~~·~···~--~--------------------
-~~-~~-_.-....,~..__..._.._ . ......,...."--'.~'-~
Step Description Examples. of HR [nvolvement

Notification Notification of complaint in one of two ways: • Notify employer's legal counsel promptly and respond
• Delivery by sheriff or other process server as directed.
• Mail by plaintiffs attorney along with • Issue a litigation hold letter.
"Waiver of Service of Process" form
• Ensure that employees refrain from retaliation against
the complainant
Answering complaint Responsive pleading filed with court that either • Supply legal counsel with p aintiff's personnel files
admits or denies complaint allegations and and any other related documents.
raises affirmative defense or seeks dismissal of • Assist legal counsel in any investigation as requested .
complaint
~
Scheduling Meeting( s) of attorneys for both sides and Advise attorney of time requirecl for conducting internal
conferences judge to establish dates for getting case to trial investigation.
as well as actual trial date
Discovery process Period during which each party learns the facts • Help employer's legal counsel gather information in
about other side's case; generally quite time- timely manner to prepare initial disclosures.
consuming (may go on for months) • May sign off on interrogatory answers .
• May need to provide depos.tion .
• May attend plaintiff's deposition .
Motion to dismiss Request from one side for judge to end the Usually no HR involvement.
proceedings
Summary judgment Motion prepared at discretion of legal counsel • May be requested to gather additional facts .
requesting court to dismiss case without a trial;
granted only if there are no material facts in
• May be asked to sign affidavit.
dispute
Pretrial and trial Time leading up to trial date and actual trial
proceedings
• Support employer's legal counsel with final trial
preparations and trial litigation.
• Provide additional documentation as may be required .
• Help with scheduling of witr·esses .
-
Figure 3: Examples of Possible HR Involvement in Employment Lawsuits
© 2015SHRM 355
If the complaint is to the NLRB, remedies may be expanded to posting notices

about the right to belong to unions, permitting union agents to talk to employees
in the \V()rk]Jlace, ]Jelinittirig urii()J1 age!its t() make s]Jeechesto the e!ll]Jloyees ori
paid time, and reading notices regarding the rights of employees to unionize and
engage in other activities protected by the NLRA to the assembled employees by
the senior officer of the work facility.
The Civil Rights Act of 1991 allows for the awarding of compensatory and
punitive damages as well in certain circumstances.
Additional Aspects of a Compliant Workplace

As we have read, HR professionals make many contributions in suppott of a
compliant workplace. This section closes with a discussion of two additional
aspects that HR should be aware of, as they both contribute to legal compliance
processes within an organization:
• Attorney-client privilege and discoverability
• Conducting safe, legal, and effective investigations
Attorney-Client Privilege and Discoverability

HR professionals should be aware of the impmtance and limits of attorney-
client privilege. A discussion between a client and an attorney related to
securing legal advice is considered "privileged" or confidential and is not
subject to the discovery process-within cettain limits. Some activities that are
perfmmed by HR during the process of litigation may be covered by the
attorney work product privilege where those activities are specifically directed
by the attorney. Privilege does not extend in most areas to a discussion for the
purpose of committing a crime or ci vii tort.
Tn discussions with their clients, attorneys need to know the tmth. Lying or lying
by omission will not help the employer's case. At the same time, attomeys do
not want extraneous details that could create new problems. In discussions with
the employer's attorney, HR should aim for a tight focus on the issue at hand and
offer only getmane, objective, evidence-supported facts. This does not include
undocumented suspicions.
356 © 2015 SHRM
I
Conducting Safe, Legal, and Effective Investigations

Whenever a complaint or employment issue can become a matter for litigation-
including charges of discriminatory employment practices and wrongful
termination-HR should be prepared to support a timely investigation into the
matter. If the investigation uncovers any unlawful behavior by the employer's
representatives, that behavior must be stopped immediately. Throughout the
investigation process, HR must take steps to ensure that there is no retaliation
against employee witnesses or complainants by the employer or other
employees. HR should also remain sensitive to the volatile and emotional nature
of disputes and take reasonable steps to secure the safety of all employees.
Investigation reports and notes taken by an investigator will be discoverable by

the other side unless protected by attorney work product privilege. As a
consequence, great care should be taken with regard to what is recorded during
the course of or following any investigation.
To conduct an effective investigation, HR should:
• Ensure confidentiality. Investigators should assure employees that

infmmation will be held in confidence as much as possible. Disclosed
information should be discussed with others on a "need to know" basis only.
However, HR should be aware that the NLRB has taken the position that
generalized instmctions of confidentiality in all employee investigations are a
violation of the NLRA because they prevent employees from discussing work-
related issues.
The NLRB has ruled that an Arizona hospital violated the NLRA just by its
human resources consultant asking employees interviewed in connection with
an internal investigation to not discuss the matter with their coworkers while
the investigation was ongoing (Banner Health System d/b/a Banner Estrella
lvfed Ctr,, 358 NLRB 93, July30, 2012). The board's ruling clarifies that an
employer's mere suggestion to employees that they not speak to others
regarding an intemal investigation (as opposed to a mandate) could intetfere
with, restrain, or coerce employees in the exercise of their Section 7 statutory
rights and thereby violate Section 8(a)(l) of the NLRA. This is the latest in a
growing number of decisions from theN LRB expanding the scope of Section
7's protections for employees in both union and nonunion workplaces.
© 2015 SHRM 357

HR professionals are advised to restrict the confidentiality instruction to a

specific topic and for a specific length of time, based upon very particular,
specifiC iristiliCfiOns. Some employers ma)'optto orily request, rather than
require, confidentiality.
• Select investigator. An investigator should be chosen who is perceived as

fair and unbiased by employees, is generally respected by employees, and
who is emotionally intelligent and has strong questioning and listening skills.
HR is often assigned the task of investigating, but it may be appropriate to
bring in an outsider to assist, especially if the matter has special security or
legal issues. Again, HR should consult with the employer's attorney, who
may choose to hire an investigator and cover the investigator's results under
the attorney work product privilege.
• Create plan. All possible sources of evidence must be identified and plans
laid for seeming this evidence. A list of interviewees must be created.
Investigators should develop interviewing guides to ensure that questions are
relevant and focused on the inforn1ation that must be uncovered and that they
do not intimidate those being questioned.
• Conduct interviews. Interviewers should maintain impartiality and

objectivity but must listen carefully to detect inconsistencies, evasions,
implausible statements, and contradictions. Individuals may need to be re-
interviewed to clarify previous statements or based on subsequent
information. It may help to have two people working together as
interviewers, but more than that may be counterproductive. If the number of
interviewers begins to outnumber the employee greatly, the employee may
feel intimidated and not inclined to speak freely. Careful notes must be taken
and preserved from all interviews.
• Create report, if appropriate. If an attorney advises it, the evidence from

the investigation should be summarized in a thorough repoti. If findings are
appropriate, the evidence should be analyzed, a decision made, and the
grounds for that decision explained in a report.
358 © 2015 SHRM

Progress Check
1. Why should an employer have EPLI?

( ) a. To discourage employees from filing employment-related discrimination claims
( ) b. To mitigate the financial risk of employment litigation
( ) c. To minimize expenses associated with wage and hour violations
( ) d. To make it easier to negotiate a pretrial settlement
2. An HR manager is informed that an employee has made a complaint to the EEOC regarding
promotion. Which of the following BEST describes HR's possible involvement?
( ) a. Issue a hold on all communications stored on the employee's work computer.
( ) b. Monitor the employee's work situation to prevent any possible retaliation.
( ) c. Contact IT to perform a thorough search of all electronic files related to this
employee.
( ) d. Notify the employer's legal counsel promptly and respond as directed.
© 2015 SHRM 359


1. b (p. 353)
2. d (p. 355)
360 © 2015 SHRM

Section 3:
U.S. Laws and Regulations

• Maintaining a current working knowledge of relevant employment laws, domestic and/or global.

• Compensation laws
Examples: Employee Retirement Income Security Act of 1974 (ERISA); Fair Labor Standards Act
of 1938 (FlSA; Wage-Hour Bill; Wagner-Connery Wages and Hours Act) and amendments; Equal
Pay Act of 1963 (amending FLSA); Lilly ledbetter Fair Pay Act of 2009; Ledbetter v. Goodyear
lire & Rubber Ca. (2007)
• Employee relations laws
Examples: labor Management Relations Act of 1947 (LMRA; Taft-Hartley Act); National labor
Relations Act of 1935 (NlRA; Wagner Act; Wagner-Connery Labor Relations Act); NLRB v.
Weingarten (1975); Lechmere, Inc. v. NLRB (1992)
• Equal employment opportunity laws
Examples: Age Discrimination in Employment Act of 1967 (ADEA) and amendments; Americans
with Disabilities Act of 1990 (ADA) and ADA Amendments Act of 2008; Civil Rights Acts; Equal
Employment Opportunity Act of 1972 (amending Civil Rights Act); Uniform Guidelines on
Employee Selection Procedures (1978) (29 CFR Part 1607); Griggs v. Duke Power Ca. (1971);
Phillips v. Martin Marietta Corp. (1971)
• Job safety and health laws
Examples: Drug-Free Workplace Act of 1988; Guidelines on Sexual Harassment; Occupational
Safety and Health Act of 1970
• leave and benefits laws
Examples: Family and Medical Leave Act of 1993 (FMLA; expanded 2008, 2010); Patient
Protection and Affordable Care Act (PPACA; ACA; "Obamacare"); National Federation of
Independent Business v. Sebelius (2012)
• Miscellaneous protection laws
Examples: Employee Polygraph Protection Act of 1988; Genetic Information Nondiscrimination
Act of 2008 (GINA)
WORKPLACE U.s. Employment Law and Regulations
Laws, Regulations, and Case Law

Both federal and state governments have enacted a wide range of employment
laws and regulations protecting employees from discriminatory treatment, unsafe
work conditions, unfair labor practices, and more. This section overviews the
fundamental principles of U.S. federal employment laws and agency guidelines
and case law that HR professionals working in the public or private sectors
should understand.
i
III The laws and regulations discussed are related to the following areas:
II • Equal employment opportunity/antidiscrimination and workplace
I harassment
I • Compensation
I • Leave and benefits
I • Job safety and health
11
• Employee relations
I • Miscellaneous protections
II A note to test takers: TheceJ.tification examination does not test stale•speclfic

laws or regulations:. Dates oflaws and court cases are also generally not
tested. However, given the tendency. for one Jaw or court decision to influence
II
,.
additional. legisl!ltion or future cases, it is desirable to recognize the general
timing and sequence of key legislation and court cases.
In addition to the tederallegislation covered in this functional area, you should

educate yourself on an ongoing basis about state/local requirements that may be
applicable to your environment.
Equal Employment Opportunity/Antidiscrimination

and Workplace Harassment Laws
We open this content with a discussion of core principles that support equal
employment opportunity (EEO). Following the discussion of the EEO principles,
the fundamentals of several antidiscrimination laws, regulations, and select cases
are covered: Title VII of the Civil Rights Act of 1964, amendments, and cases;
362 © 2015 SHRM

the Age Discrimination in Employment Act (ADEA) of 1967 and amendments;

and the Americans with Disabilities Act (ADA) of 1990 and the ADA
A111e11.dme11.ts ACf(ADAAA)of2008.
Unlawful workplace harassment is also discussed, including guidelines on sexual

harassment.
The Concept of Equa! ~='mployment Opportunity

The basic premise offederal antidiscrimination legislation over the past four
decades is that employers should not make employment decisions on the
basis of an applicant's or employee's race, sex, ethnicity, religion, age,
color, military/veteran status, genetic infmmation, Family and Medical
Leave entitlement, or disability status.
Rather, employment decisions~including hiring, work assignments,

compensation, promotions, and terminations~must be job- and business-
related.
I
Protected Classes
Within the context of equal employment opportunity (EEO), the term protected
class describes people who are covered under a particular federal or state
antidiscrimination law.
Recognizing Discrimination
Determining whether an employer's actions are discriminatory or job-related is
not always easy. There are two primary types of discrimination: disparate
treatment and disparate impact. Discrimination may also occur when employers
perpetuate certain types of past policies.
Disparate Treatment
Disparate treatment discrimination occurs when an applicant or employee is
treated differently because of his or her membership in a protected class.
Examples:
• A manager who automatically rejects Mexican-American applicants on
the grounds that they might be illegal aliens
• Sexual harassment, where a manager refuses to promote an employee
who will not engage in a sexual relationship with him or her
© 2015 SHRM 363
j
• Having different entry requirements for women than for men

• Inconsistent management practices and/or enforcement of
.organizational. policies based on race (if, for example, Caucasian
employees who violate organizational policy are not disciplined but
African American employees who violate the same policy are
disciplined)
Disparate (Adverse) Impact

Disparate (adverse) impact results when a neutral policy has a
discriminatory effed. An ex.an1ple would be nonessential education
requirements for certain jobs that impact minority groups looking for work
who have been limited in their access to educational opportunities.
Example: An organization hires only high-school graduates for custodial

positions.
Disparate impact is usually unintentional. Employment screening

requirements (such as height and weight requirements or disqualification
based on mTest records) that appear neutral but have a discriminatory
effect on a protected class are considered to have adverse impact. HR
professionals need to look carefi.Jlly at how job qualification criteria and
tests are applied and used to make certain that they do not intentionally or
unintentionally have a disparate impact.
Figure 4 compares disparate treatment and disparate impact.
Direct discrimination Indirect discrimination

Unequal treatment Unequal consequences or results
Intentional Usually unintentional
Prejudiced actions Neutral actions
Different standards Same standards but different
consequences
Figure 4: Disparate Treatment and Disparate Impact Compared
We now look at examples of federal antidiscrimination legislation.
364 © 2015 SHRM

Title VII of the Civil Rights Act of 1964, Amendments,

and Cases
Title VII of the Civii Rights Act
·. The comcrstoncot'f~deral antidiscrimination legislation is the Civil Rights

·.. Actof1964.This laridn1aikpleceofU.S. legislation was thenation;sfimt. ··.·.
in
comprehensive federal law m:iking it unlawfial to di~crimhmte employment
·.on the basis ofrace, color~ religion, sex, or national origin. Now, under vaiious
statutes, there. are ten federally protected classes. Title VII of the Civil RightS
Act was passed to bring about equality in hiring, transfers, promotions,
cmnpensation, access to training, and other employment-related decisions:·
Title VII Terminology

It is critical to understand the following terms, which arc embedded in Title VII
\
legislation.
Sex is the classification of people as male or female; it refers to the biological

and physiological characteristics that define men and women (or boys and girls).
)
Gender refers to the socially constructed roles, behaviors, activities, and
)
attributes that a given society considers appropriate for men and women. Stated
another way: Male and female are sex categories, while masculine and feminine
)
are gender categories.
)
)
An individual's gender identity refers to one's internal, personal sense of being
a man or a woman (or boy or girl). It is also the perception by others and
includes a person's appearance, behavior, or physical characteristics that may be
)
in accord with, or opposed to, one's physical anatomy or sex assigned at birth.
For transgender people, their birth-assigned sex and their own internal sense of
gender identity do not match. "Trans gender" is the general term applied to
individuals, behaviors, and groups involving tendencies to vary from culturally
conventional gender roles.
National origin refers to the country-including those that no longer exist -of
)
one's birth or of one's ancestors' birth. "National origin" and "ethnicity" often
)
© 201.5 SHRM 365
')
are used interchangeably, although an "ethnic group" can refer to religion or

color as well as the country of one's ancestry.
Title VII of the Civil Rights Act of 1964 defines national origin discrimination
as the denial of equal employment opportunity because of an individual's, or his
or her ancestors', place of origin or because an individual has the physical,
cultural, or linguistic characteristics of a national origin group. This type of
discrimination can occur in hundreds of different contexts in thousands of
different workplaces.
Race discrimination involves treating someone (an applicant or employee)

unfavorably because he or she is of a certain race or because of personal
characteristics associated with race (such as hair texture, skin color, or certain
facial features). Color discrimination involves treating someone unfavorably
because of skin color. Race/color discrimination also can involve treating
someone unfavorably because the person is married to (or associated with) a
person of a certain race or color or because of a person's connection with a race-
based organization or group or an organization or group that is generally
associated with people of a certain color. Discrimination can occur when the
victim and the person who inflicted the discrimination are the same race or color.
Title VII Protections

Under Title VII, it is unlawful to discriminate against any individual based on
race, color, religion, sex, and national origin in regard to all terms, conditions, or
privileges of employment.
Several state and local laws have expanded these protected classes to include, for
example, sexual orientation, marital status, weight, or status in regard to public
assistance. It should be noted, however, that Title Vll does not protect people
based on these characteristics or based on individuals' genetic predisposition to
health conditions. Nor does Title VII require "all employees . , . to have equal
working conditions."
Specific Title VII provisions include the following.
• Recruiting, hiring, and advancement. Job requirements must be uniformly

and consistently applied to persons of all races and colors. Even if a job
366 © 2015 SHRM

requirement is applied consistently, if it is not important for job performance

or business needs, the requirement may be found unlawful if it excludes
persons of a certl.liti raCia] group 01' color significantly more than others.
Examples of potentially unlawful practices include:

" Soliciting applications only from sources in which all or most potential
workers are of the same race or color.
® Requiring applicants to have a certain educational background that is not
important for job performance or b11siness needs.
• Testing applicants for knowledge, skills, or abilities that are not important
for job perfmmance or business needs.
Employers may legitimately need information about their employees' or

applicants' race for affirmative action purposes and/or to track applicant flow.
Employers subject to affitmative action obligations must ensure that such
infonnation is collected in a manner compliant with all relevant laws.
• Segregation and classification of employees. Title VII is violated if

employees who belong to a protected class are segregated by physically
isolating them from other employees or from customer contact. In addition,
employers may not assign employees according to race or color. It is also
unlawful to exclude members of one protected class from particular positions
or to group or categorize employees or jobs so that certain jobs are generally
held by members of a certain protected class.
• Harassment/hostile work environment. Title VII prohibits sexual

harassment and harassment based on the other protected categories. In order
to avoid unlawful harassment and protect against legal liability, employers
should, among other things, develop a policy prohibiting sexual and other
unlawful workplace harassment, including an internal complaint procedure,
and disseminate the policy to all employees. (This topic is discussed moi'e
fully in upcoming content on workplace harassment.)
• Compensation. Title VII prohibits discrimination in compensation practices.

Best employer defenses include basing compensation practices on seniority,
merit, petformance, or systems that measure the quality and/or quantity of
work.
© 2015 SHRM 367

• Other terms, conditions, and privileges of employment. Title VII

prohibits discrimination in several other terms, conditions, and privileges of
employment. Thus,. discdl11i11ation on the basis of a protected Class may riot
be the basis for differences in benefits, work assignments, perf01mance
evaluations, training, discipline or discharge, or any other area of
employment.
As amended by the Equal Employment Opportunity Act of 1972 (discussed

next), Title VII applies to:
• Most private employers who have 15 or more persons.
• Educational institutions.
• Federal, state; and local governments.
• Public and private employment agencies.
e Labor unions with 15 or more members.
• Joint (labor-management) committees for apprenticeships and training.
Title VI! Exceptions

There are some exceptions that apply to the application of Title VII
antidiscrimination principles in the workplace.
• Work-related requirements. An employer may be able to defend a practice

that has a disparate impact on a class of people but is job-related and required
by business necessity.
• Bona fide occupational qualification. If religion, sex, or national origin is a

bona fide occupational qualification (BFOQ) reasonably necessary to
can·ying out a patticular job function in the normal operations of the
organization, the factors may be used in employment practices. Race can
never be a BFOQ.
• Bona fide seniority systems. Bona fide seniority systems that were not
designed to discriminate are lawfultmder Title VII.
• Affirmative action plans. Targeted or selective selection to fulfill an

affinnative action plan can be a "consideration" in the otherwise
antidiscrimination approach of the legislation within the Civil Rights Act of
1964.
368 © 2015 SHRM

Equal Employment Opportunity Act

Title VII of the Civil Rights Act of 1964 established the Equal Employment
Oppmtunity Commission to enforce antidiscrimination provisions, but the
commission's responsibilities and authority have been shaped by numerous
laws, amendments, and executive orders. The Equal Employment Opportunity
Act is one signiftcant example. From 1965 through 1971, the EEOC Jacked any
real enforcement authority. It was responsible for investigating claims of
discrimination; if it found reasonable cause to believe that discrimination had
occurred, it referred the case to the Department of Justice to litigate.
The Equal Employment Opportunity Act of 1972 amended Title VII and
to
gave the EEOC authority "back up" itsadministrative findings and conduct
. its own enforcement litigation.
In addition to granting the EEOC litigation authority, the act:

• Expanded Title VII coverage to include educational institutions, state and local
governments, federal executive agencies, and defined units of the other branches.
• Reduced the number of employees needed for a private employer to be covered
by the act (from 25 to 15).
• Expanded the period of time charging parties have to file their charges with the
commission ( 180 or 300 days rather than 90 or 210 days).
• Expanded the period of time charging parties have (90 days rather than 30 days)
to file a lawsuit after the EEOC has informed them that it is no longer working
on their charge (allowing charging parties a better chance to find a lawyer if they
wish to pursue their charges in court).
Pregnancy Discrimination Act

. .. . . - .
. ·. ·. the Pr~gnancy Discrhilination Act of l978 ("PDA") amended Tille VII to .
prohibit discrimination on the basis of pregnancy, childbirth, or related medical
condidons: it requires employers to. treat pregnancy the same as any other
tcmpomry disability. Employers must provide access to medical bene tits and
sick leave on the same basis as such benefits arc provided to other employees ·
or for other CO!Iditions.
© 2015 SHRM 369

Under the PDA, it is unlawful to:

• Refi.1se to hire a woman simply because she is pregnant.
• Fire a woman simply because she is pregnant.
• Force a pregnant employee to leave work if she is ready, willing, and able to
perfonn her job.
• Stop the accrued seniority of an employee who has taken a leave to give birth
or have an abortion (unless seniority does not accrue to other temporary
disabled workers under similar circumstances).
I
~ Uniform Guidelines on Employee Selection Procedures
~ In 1978, the Civil Service Commission, the Department of Labor (DOL), the
Department of Justice, and the EEOC jointly adopted the Uniform Guidelines on
I Employee Selection Procedures ("Unif01m Guidelines") to document a unifom1

federal position about prohibiting discrimination in employment practices on the
I
I'
lI
basis of race, color, religion, sex, or national origin.
' ... "· . ... ·.
. Tht> Uitl~o~m Gnldelin~ on Emp!o)'eeSeleetion Proccdu~~s c~vcr all

I aspecls ol'the selection process, including recruiting, testing, interviewing, and
·pcrfom1ant1.1 appraisals (to the extent that they arc used to make employment
decisions).
The Uniform Guidelines are not in and of themselves law; they are a procedural
document that is published in several places in the Code of Federal Regulations
(including 29 CFR Part 1607 and 41 CFR Part 60-3) to assist employers in
complying with Title VII, Executive Order 11246, and other equal employment
opportunity requirements of federal law. The Uniform Guidelines outline the
requirements necessary for employers to legally defend employment decisions
based upon overall selection processes and specific selection procedures. Over
time, due to references to the Uniform Guidelines in a number of judicial decisions,
they have been identified by the courts as a source of technical information and
have been given deference in litigation concerning employment issues.
The guidelines recommend that employers (including federal contractors) be

able to demonstrate that selection procedures that have an adverse (or disparate)
impact upon minorities or women are valid in predicting or measuring
370 © 2015 SHRM

performance in a patticular job. Any selection procedure that has an adverse

impact on the hiring of any protected class will be presumed discriminatory and
inconsistent with the·unifonn Guidelines·uhlessthe ptocedute has been
validated in accordance with the guidelines or an alternative selection procedure
is used instead (provided the alternative procedure eliminates the adverse
impact, is lawful, and is job-related).
Under the guidelines, adverse impact occurs when the selection rate for an
employment decision works to the disadvantage of a protected class. As a rule of
thumb, this occurs when the selection rate for a protected class is less than 80%
of the rate for the class with the highest selection rate. This is commonly known
as the 80% rule or four-fifths rule.
A revision of the Unifotm Guidelines introduced the "bottom-line concept,"

which specifies that federal enforcement agencies will not expect an employer to
evaluate each component of the selection process individually if the total
selection process does not have an adverse impact. Stated another way: If one
selection criterion is tainted, the selection process will not be found to be
discriminatory if other criteria have offset it and the final results are somewhat
reflective of the population in the area where the employer recruits.
Checking for Adverse Impact

Let's look at an example of how to internally assess adverse impact using the
80% rule and where the majority group is the non-protected class.
Example: Assume that an organization interviewed the following people

for factory assembly positions:
Group Number Interviewed Number Hired

Males 40 20
Females 30 6
To determine adverse impact:
1. Identify the selection rate (the percentage hired) for each group.
• The male selection rate is 50% (20 + 40 =50%).
• The female selection rate is 20% (6 + 30 = 20%).
2. Identify the group with the highest selection rate (males at 50%). This is
the majority group.
© 2015 SHRM 371

WORKPLACE U.S. Employment law and Regulations
3. Divide the lowest selection rate (minority group) by the highest

selection rate (majority group).
20 +50 =40%
Adverse impact is indicated if the selection rate of the minority group (in
this example, females) is less than 80%, or four-fifths, of the selection rate
of the majority group (in this example, males). In this case, adverse
impact is indicated, since the selection rate of females is not 80% that of
males. The female selection rate must be at least 40% to avoid a
presumption of adverse impact (40/50 = RO%)
< When the 80% rule is violated and a~ verse impact occurs, employers have th~..
~ following alternatives:
~ • Analyze .the data more rigorously to dctenuincwhcthcr there is infact
l ;tdversc impact This may include both statistlcalandpractical analyses.
~ (Note: This al.ternative may be the first step toward rneetlng the "strong
. basis in evidence... standard set by the U.S. Supreme Court decision Ricciv.
I
II •
DeStefanq in2009, but it is not the only step;)
Abandon the procedure. (Note: Under Ricci v. DeSt!ifano. abandoning the
iI procedure and discarding the existing results because it creates adverse

impact appear to no longer be permitted if the lest has been announced, its
I intended usc has been communicated, and it has been implemented, unless
there is a stroflg basis in· evidence that the procedure has an impermissible
I disparnte.impact-.i.e., the procedure adversely impacts a protected class

and it [I] is notjob-related and consistent with buljiness necessity [i.e., it Is
110! valid} or [2]is valid bt.tl th!lre is an equally valid, les~ diserif!linatory
·testing alternative.)
• Modify the procedure to eliminate adverse impact;
• Validate the job-relatedness of the selection procedure (e.g., validation

studies, detailed records, and fact finding about alternatives with less
adverse impact).
• Justify the proc;edurc as a business necessity. (Note: The guidelines do not

.·.·specifically refer to "business .necessity"; however, a compelling business
necessity defense may be used to counter an adverse impact charge.) ·
372 © 2015 SHRM

Employees can use statistical evidence to support disc1imination claims.

Moreover, any evidence that an employer has a selection procedure that excludes
merribel;S of a proteCted Class, whether il1tentio!lal or not, may constitute adverse
impact. An employer can rebut the presumption of adverse impact by validating
that the selection procedure is job-related for the position at issue and is
consistent with business necessity or can challenge the validity of the
employee's statistical analysis.
Additional infmmation about the Unifmm Guidelines on Employee Selection

Procedures can be found at www.gpo.gov/fdsys/pkg/CFR-20ll-title29-
vo14/xml/CFR-20 I 1-title29-vol4-partl607 .xml.
Griggs v. Duke Power
Griggs's application was denied, based on the fact that he was not a high-school
graduate and on the results of two preemployment tests that were also
requirements of the job. Griggs claimed that these job requirements were
discriminatory because they did not relate to job success and had a negative
impact on protected classes.
Griggs's position prevailed, and the following two critical points were
established.
• Employment discrimination need not be overt or intentional to be
unlawful.
• Employment practices can be unlawful even when applied to all
I' employees.
© 2015 SHRM 373

Phillips v. Martin Marietta Corporation
Pltillip.~ v. Martin Marietta Corpomti~n (1971) is one ofthe tlr~t cases to .

apply the sex discrimination provisions of Title VU of the Civil Rights Act of
.. 1964to employment decisions. An employer may not, in the absence of·
.'busineSs necessity, refuse to hire women \~ith preschool-aged children while
~·.- • ' • • c '· •
..
._ .,,.:
'hiring men with such childrell:
Phillips applied for a job with Mmtin Marietta but was informed that the
company did not hire women with preschool-aged children. The U.S. Supreme
Court ruled unanimously, however, that it is contrary to Title VII for a company
to refuse to hire a woman because she has preschool-aged children when it does
not impose a similar restriction on hiring men, even where there is no
demonstration of discrimination against women overall.
Civil Rights Act of 1991

The passage of the Civil Rights Act of 1991 was in response to a series of U. S.
Supreme Court decisions on employment discrimination. The statute negated
several of the Court's decisions and also added some new provisions, most
notably one that allows employees who win discrimination cases to collect
punitive and compensatory damages.
According to thcCMIRights Act ofl99I,jury trials are allowed in cases

where the plaintiff seeks compensatory or punitive datmtges.
This act provides for, but limits the damage awards available to, victims of
intentional discrimination in violation of Title VI!, the Americans with
Disabilities Act, and Section 501 of the Rehabilitation Act of 1973 (which
applies to federal government employees only).
Compensatory damages under the act are awarded to make an injured person
"whole." Such damages include compensation for damaged property, lost wages
or profits, pain, bereavement, medical expenses, etc., and financial payment for a
person's out-of-pocket losses and fi1ture expenses due to injury, disability,
374 © 2015 SHRM

disfigurement, pain, and suffering and all actual losses, whether economic or
noneconomic.
Punitive damages (also called exemplary damages) are damages requested

and/or awarded in a lawsuit when the defendant's willful acts were malicious,
violent, oppressive, fraudulent, wanton, or grossly reckless. The purpose of
punitive damages is to punish the defendant for outrageous misconduct and to
deter the defendant (and others) from future similar misbehavior. Punitive
damages are not possible against a governmental unit or agency under federal
law. However, they may be available under state law.
Age Discrimination in Employment Act of 1967 and

Amendments
Age Discrimination in Employment Act
The Age Discrimination in Employment Act (ADEA) was passed to prohibit
discrimination in the workplace on the basis of age.
The act prohibits discrimination in every aspect of employment against

employees and applicants agc40andover, with a fe\v Umhed exceptions to
recognize that advanced age may, in some circumstances, affect an individual's
': ...·.- ... ___,,: ability to.perform certain jobs e!Tectively, · ·. · · ·
Under federal law, the mandatory retirement age was originally 65. In 1978, an
l amendment to the ADEA raised the age to 70; a subsequent amendment in 1986 then
I
eliminated the mandatory retirement age (except in certain limited circumstances),

thereby shifting the requirement for employment from age to ability.
I,
)
The Older Workers Benefit Protection Act (OWBPA) passed in 1990 further
)
amended the ADEA, adding detailed provisions on employment benefits and
waivers. (OWBPA is discussed next.)
J
Claims of age discrimination can be brought only by individuals who are 40
)
years of age or older who have been refused employment or who have been
)
terminated or treated less favorably because of their age.
© 2015 SHRM 375

!
ADEA Exceptions
There are exceptions to the ADEA's prohibition against age discrimination. Age
discrimination is permissible under ADEA if age is a bona fide occupational
qualification for reasons that are reasonably necessary to the normal operation of
the enterprise.
. ~' '·· ,.
Other exceptions to ADRA 's nondiscrimination requirements tmly occur under

the following circumstances:·.
• The employer is adhering to a genuine seniority or benefit plat!.
• ·The employer is disciplining or firing a person for good cause.
• The employee is 1itop exectitive or policy rnaker. (}{igh~levcl managers and
ccriain bona fide executives or high policy makers can be required to retire
at age 65 if they are entitled to receive organization-sponsored retirement
benefits of at least $44,000 per year, ill the aggregate, and have held their
position for two years immediately prior to retirement.)
.. . . •' . .. .. . . . : . . . .. . . ... . . . .
The top executive exception to tht: prohibition on m(lndatory retirement does

qot apply in some states. lf.the exception does not apply in a particular state,
then the federal exception is irrelevant In that state. In sollle stales, hpwever,
while there is not a top executive exception, there tnny be a. cap of age 70 for
protection. In those states, a top executive cah be requited to retire only if he or .
she meets the ct'iteria. established under federal law and is age 70 or older under
state law.
In addition, special rules regarding retirement plans and insurance may legally
apply to those who are age 65 and older:
• Since 1988, the Employee Retirement Income Security Act (ERISA) has
barred plans from ceasing or reducing retirement benefit accruals and/or
contributions for employees who work past normal retirement age. (ERISA
is covered in more detail in the discussion of compensation laws.)
• Employers must offer employees age 65 and older and their spouses the same
group insurance coverage provided to younger workers and their spouses.
Medicare may be primary or secondary for active employees eligible to
receive the organization's group insurance coverage.
376 © 2015 SHRM

Step 1. Individual asks for accommodation.
essential job functions for the indi~.

J
Step 2. Identify lhe barriers to performance of
1
;·
Step 3. Identify possible accomm·odations that ·

might be helpful in overcoming the :§}
barriers.
~=='"=~l
Step 4. Assess lhe reasonableness of lhe
accommodations, including whether they
are the employer's responsibility and
whether they impose an undue hardship.
Step 5. Choose lhe appropriate accommodajon

. ·
for the individual.
~ .;.
Figure 6: Identifying a Reasonable Accommodation
Direct Threat Standard

)
The ADA permits employers to establish qualification standards that exclude
l individuals who pose a direct threat (a significant risk of substantial harm) to the
)
health or safety of the individual himself or herself or others if that risk cannot
)
be eliminated or reduced below the level of a "direct threat" by reasonable
accommodation. However, an employer may not simply assume that a threat
)
exists; the employer must establish through objective. medically supportable
.)
methods that there is a significant risk that substantial harm could occur in the
workplace.
By requiring employers to make individual judgments (including engaging in the

}
interactive process with employees and applicants) based on reliable and
)
objective evidence---rather than on generalizations, ignorance, fear, patronizing
}
attitudes, or stereotypes-the ADA recognizes the need to balance the interests
I
of qualified individuals with disabi lilies against the legitimate interests of
employers in maintaining a safe workplace.
)
© 2015 SHRM 385
WORKPLACE u.s. Employment Law and Regulations
Workplace Harassment
The EEOC describes harassment as a form of employment discrimination that
violates Title VII of the Civil Rights Act of 1964, the ADEA, and the ADA.
While harassment cases historically were focused on sexual claims, the
commission rulings and court decisions now encompass other types of
harassment. In fact, based on statistics posted on the EEOC website, thousands
of charges are filed in the areas of"harassment" and "sexual harassment" each
forms of unlawful discrimination and harassment-not just those of a sexual

nature.
The EEOC tells us thafharassment becomes unlawfi.1l in the following

situations:
= When enduring offensive conduct becomes a condition of continued
employment
• When the conduct is severe or pervasive enough to create a work
environment that a reasonable person would consider intimidating, hostile,
or abusive
• When an individual is harassed in retaliation for filing a discrimination
charge, testifying, or participating in any way in an investigation,
proceeding, or lawsuit
To be unlawful, the conduct must create a work environment that would be

intimidating, hostile, or offensive to reasonable people. Offensive conduct may
include (but is not limited to) offensive jokes, slurs, epithets or name calling,
physical assaults or threats, intimidation, ridicule or mockery, insults or put-
downs, offensive objects or pictures, and interference with work performance.
The EEOC notes that petty slights, mmoyances, and isolated incidents (unless
extremely serious) will not rise to the level of illegality. In other words, one
teasing comment, a single joke, or an isolated derogatory phrase typically does
not constitute harassment.
So when does conduct rise to the level of unlawful harassment? There is no

specific number of incidents that automatical!y translate to unlawfi.il
harassment. When investigating workplace harassment claims, the EEOC
386 © 2015 SHRM

looks at the whole record and considers the context in which the alleged
incidents occurred, whether there is a pattern or a series of incidents over time,
and how flagrant the incidents are. A determination on the allegations is made
from the facts on a case-by-case basis.
Harassment can occur in a variety of circumstances. For example, the harasser

can be the victim's supervisor, a supervisor in another area, an agent of the
employer, a coworker, or a nonemployee. Furthermore, the victim does not
have to be the person harassed but can be anyone affected by the offensive
conduct.
While subsequent content provides more specific details on sexual harassment

and sexual orientation discrimination, the takeaway here is that unlawful
workplace harassment can be based on characteristics other than sex or sexual
orientation. The EEOC encourages employers to take appropriate steps to
prevent and correct unlawful workplace harassment. Recommended actions that
employers can take to prevent and respond to unlawful workplace harassment
conclude the discussion of the topic.
Sexual Harassment Legislation

Consider the following facts about sexual harassment in Figure 7 fi·om the EEOC
website.
• Sexual harassment is a form of sex discrimination that violates Title VII

of the Civil Rights Act of 1964.
• Unwelcome sexual advances, requests for sexual favors, and other
verbal or physical conduct of a sexual nature constitute sexual
harassment when this conduct explicitly or implicitly affects an
individual's employment, unreasonably interferes with an individual's
work performance, or creates an intimidating, hostile, or offensive work
environment
• The victim as well as the harasser may be a woman or a man. The victim
does not have to be of the opposite sex.
• Unlawful sexual harassment may occur without economic injury to or
discharge of the victim.
• The harasser's conduct must be unwelcome.
Figure 7: EEOC Facts About Sexual Harassment in Workplace
© 2015 SHRM 387

}
!.
J
Similar to other types of harassment, with sexual harassment:

• The harasser can be the victim's supervisor, an agent of the employer, a
supervisor in another area, a coworker, or a non employee.
• The victim does not have to be the person harassed but could be anyone
affected by the offensive conduct.
EEOC guidelines about sexual harassment state that" ... unwelcome sexual
advances, requests for sexual favors, and other verbal or physical conduct of a
sexual nature constitute sexual harassment when:
• Submission to such conduct is made either explicitly or implicitly a term or
condition of an individual's employment.
• Submission to or rejection of such conduct by an individual is used as the
basis for employment decisions affecting such individuals.
• Such conduct has the purpose or effect of unreasonably interfering with an
individual's work performance or creating an intimidating, hostile, or
offensive working environment."
Types of Sexual Harassment

Sexual harassment claims fall into two categories.
• Q11itl pro q11o. Quid pro quo means "this for that'' or ''something for
sQillellting.'' Quidpro quo harassment occurswhcn.anell1Ployce is forced
to choose between giving in to a superior's sexual demands and forfeiting
· an eccmomlc benefit such as a payincrease, a promotion, or continued
employment.
• Hostile environment, Hostile environment. harassnicnt occurs when

sexual ot other di$criminatory conduct. is so severe and pervasive that it
unreasonably interferes willian individual's pcrfon11ance; creates an
. intitni<fating. th;teateniog, or humiliating work environment; or
perpetuates a situation thataffccts.the.entployee:s psychological well-
. being.
388 © 2015 SHRM

Precedent-Setting Harassment Cases

As with many other areas of employment law, court cases related to sexual
harassment have shaped legal principles or concepts regarding the interpretation
of Title VII of the Civil Rights Act of 1964. The outcomes of two particular
cases have been significant in the sexual harassment arena: Faragher v. City of
Boca Raton and Burlington Industries, Inc. v. Ellerth .
. . , ·..
Faragller v. Citj• of Boca Raton (1998)and Burli11glon Jmlustries, Itt c. v.

Ellerth (also 1998) are tWo separate U.S. Suprcrtle Court rulings
distlnguishi~gb~twcen supc!V isor harassment that results in tangible
·· · ··. employn1ent !)etion (such as discharge, failure to promote, or demotion) and .
supervi.$or harassment that docs not. When harassment results in a tangible
adverse cmploynnmt action, the employer is always liable.
This legal responsibility ofthe employer.is a forn1.ofvicarious liability.

VIcarious Ilability is a legal doctrine under which .a pa1:t;y can be held liabl'C
for the wrongful actions of another party. Because of this doctrine, employers
are legally .responsible tor the discriminatory acts of their employees.
The Faragher and Ellerth decisions established that an employer's vicarious

liability for supervisor harassment that does not result in a tangible employment
action is based on two principles:
• Employers have the responsibility to promptly and irrevocably end
harassment (sexual or otherwise) through appropriate intervention, including,
if necessary, discipline.
• Employees should be encouraged to take advantage of preventive and
I corrective opportunities.
I
The implications of the U.S. Supre,me Court decisions are that in order to reduce
i.I liability for harassment claims, a company must:
l •
•
Train both employees and managers on a regular basis.
Oblige employees to report any incidents of harassment.
( • Investigate reported allegations thoroughly,
• Implement corrective measures when necessary.
© 2015 SHRM 389

It has been five years since employees have received harassment

prevention training.Furthermore, there were no segments in that training
that focused solely on management and supervisory responsibilities;
employees, managers, and supervisors were trained together as a large
Leadership group.
and
Navigation Although harassment training is not required under federal law and the
Competency organization is not in a state that requires sexual harassment training, the
in Action
HR manager knows that such training is not only good practice but
essential for th8 company to reduce liability for harassment claims. Senior
leadership, however, does not want to offer harassment training because it
fears that it will result in a flood of complaints.
The HR manager presents a strong case for harassment training to senior

leadership and secures their buy-in to move forward with the initiative. The
HR manager screens and selects two comprehensive workplace
harassment training programs (one program for employees and another
one for managers and supervisors) and works with the vendor to customize
the materials. The HR manager hires an outside trainer to deliver the
employee training but personally trains the managers and supervisors.
The HR manager also puts together a plan outlining how to monitor and
update the training. The plan includes provisions to train new hires and to
offer training for employees and management on a regular follow-up basis.
Through this harassment training, the HR manager supports organizational
compliance with Title VII, the ADEA, and the ADA.
Sexual Orientation Guidelines

At present, no federal statute bars employment discrimination on the basis
of sexual orientation. Bills to han sexual orientation discrimination in
employment have been introduced in the U.S. Congress, but none have
been passed.
Thus, the term "sex" remains as a reference to the condition of being male
or female,nottosexualorientation. While the U.S. Supreme Court has
upheld this definition, at least one federal court has concluded that a claim
under Title VII for sex discrimination could be based upon a theory of
gender stereotyping. Fmther, some state and local laws do prohibit sexual
orientation discrimination. In addition, a number of states and local
jurisdictions have extended their civil rights law to include gender identity,
which may protect transsexuals and other transgcndered persons. However,
even in those states or local jnrisdictions in which there is no protection
390 © 2015 SHRM

based on gender identity, there may be some protection under Title VII
case law involving gender stereotyping.
In the absence of federal laws or other regulations addressing sexual

orientation discrimination, there are voluntmy steps an organization can take
to provide a fair workplace and ensure nondiscrimination based on sexual
orientation. Recommended measures are presented in Figure 8. However,
before implementing any of these measures, employers should consult with
legal counsel regarding the risk of liability associated with policies that may
create obligations beyond the scope of applicable laws.
• Include sexual orientation • Recognize organizations

in nondiscrimination representing the interests of gay
policies. and lesbian employees.
• Provide training . • Refer to "sexual orientation"
rather than "sexual preference."
• Prohibit and prevent
harassment of gay and • Consider extending employment
lesbian employees. benefits to domestic partners.
Figure 8: Measures Employers Can Take to Help Ensure Fair Workplace
When organizations include sexual orientation in their policies and

practices, either as a matter oflegal compliance or inclusion beyond legal
mandate, employers also need to be sensitive to the religious beliefs of some
who may oppose the protection. An employer can regulate workplace
conduct (prohibit discrimination, harassment, etc., inconsistent with its
policies) but needs to be careful not to try to dictate beliefs on this sensitive
ISSUe.
Awareness and diversity training are also discussed in the "Diversity and
Inclusion'' Functional Area in this Workplace module.
Employer Responses to Harassment

The EEOC has published guidelines to help clarify how employers can
i avoid harassment lawsuits. Figure 9 summarizes these measures.
)
I
I)
)
!
I
!
© 2015 SHRM 391

The program should:

• Be in writing. • Include a prompt and thorough
• Define what constitutes investigation of every complaint.
harassment and declare that it will • Provide for an investigation that
not be tolerated. results in corrective action,
• Establish a complaint procedure including disciplinary action if it
that encourages employees to is determined !hat unlawful
come forward. harassment occurred.
• Involve training and education • Use a variety of methods to
programs to sensitize communicate the policy to
management and employees to management and employees.
harassment issues.
Figure 9: Effective Harassment Policy/Prevention Program
A written harassment policy should include concrete examples of inappropriate

behaviors. A few such examples might be:
• Derogatory remarks about a person's membership in a protected class.
• Visual messages (e.g., posting of cartoons) that are demeaning to a protected
class.
• Jokes that stereotype or make fun of a protected class.
• Nicknames for protected classes.
• Verbal or nonverbal (e.g., mimicking or imitating) innuendoes that have a
negative connotation for a protected class.
Further, it should be stated that the harassment policy applies not only to the
workplace during normal hours of operation but also to all aspects of "work,"
including organizational travel and all work-related social functions, even if such
activities are held off site.
While the U. S. Supreme Court does tiot reCj1lire ah bt'ganizatiol1 tohave a

complaint procedure, the Faragher and Ellerth decisions make it clear that if a
credible complaint procedure exists and the plaintiff fails to make use of it, that
failure may work to the legal advantage of the employer.
Harassment, like any form of discrimination, must be dealt with appropriately.

Employers who have a singular sexual harassment policy statement should
392 © 2015 SHRM

)
~ WORKPLACE U.S. Employment Law and Regulations
;
'I
modify the policy to ensure that their definition of harassment includes other
factors~such as race, color, age, religion, disability, and national origin---in
~· addition to gender. Preventive and corrective actions should be thought of as

positive strategic tools that reflect organizational values and shape organizational
!•
behavior, not just as a means to prevent legal liability.
)· More detailed information about harassment policies and prevention is available

at www.eeoc.gov.
~)
'j Compensation Laws

Federal, state, and local governments play a significant role in the management
of employee compensation. Legislation on all levels has been enacted to
( establish a minimum wage, govem overtime pay, protect employees from wage
discrimination, and determine how compensation is taxed. Other legislation (e.g.,
l pertaining to voluntary employer pensions) may be highly regulatory.
The fundamentals of the following compensation legislation are covered here:
I •
•
•
Fair Labor Standards Act (FLSA) of 1938, amendments, and case law
Employee Retirement Income Security Act (ERISA) of 1974
Ledbelter v. Goodyear Tire & Rubber Co. and Lilly Ledbetter Fair Pay Act
I
)
I
Fair Labor Standards Act, Amendments, and Case
Law
( The core wage and hour regulations have a dual purpose:
~
• To set a minimum wage for workers
• To regulate the number of hours individuals must work before being entitled
)
to overtime compensation
Fair Labor Standards Act {1938)
The Fair La !lor Standards Act (FLSA) of.l938 establishes minimum wage.
overtime pay, youth employment, and record•keeping standards affecting full~ ·
) time and part-time workers in the private sector llrld in federal, state, arid local .·
) governments..
)
)
© 2015 SHRM 393

The FLSA is commonly referred to as the Wage and Hour Law; it is also called
the Wagner-Connery Wages and Hours Act for the two legislators who
sponsored the law.
It was designed to protect workers and address conditions that burdened the
American economy during the Great Depression; it has been amended over the
decades.
FLSA Compliance
The FLSA applies to public and private employers with at least $500,000 in
artrtualdollarvolum~ofbusiness(with some limited exceptions), ·
[t also. applies
to organi?.ations with employees who. engage in interstate
commerce or(he proqucdon ofgoods for interstate commerce.
The interstate commerce compliance requirement impacts almost all

businesses, because the provisions cover any employees who handle, sell, or
work on goods or materials that have been moved in or produced for interstate
commerce.
It also includes employees who travel across state lines and any employees
who use the mail, telephone, Internet, or other means to communicate across
state lines.
The FLSA covers the following organizations regardless of the dollar volume of
their businesses:
• Hospitals
• Institutions primarily engaged in the care of the sick, aged, mentally ill, or
disabled who reside on the premises
• Schools for children who are mentally or physically disabled or gifted
• Preschools, elementary and secondary schools, and institutions of higher
education
• Federal, state, and local government agencies
394 © 2015 SHRM

Under certain circumstances, the FLSA may also cover domestic service
workers, such as day workers, housekeepers, chauffeurs, cooks, or lull-time
babysitters.
Employee Status versus Independent Contractor Status
An employer hilS 110 ongoing obligations under the FLSA!o selfcemployed ·

independent contractors. Therefore, ifi:. criticanhutlhe organization clearly
identify which of its workers arc employees (covered by FLSA regulations)
and which are Independent contractors (not covered by FLSA regulations).
The distinction between employees (who receive Form W-2 for tax reporting
purposes) and independent contractors (who receive Form I 099) is not
philosophical or always apparent. Titles or labels affixed to particular workers
often are misleading and should not be relied upon to determine a worker's
classification.
)
.1
The following are some critical tests for an independent contractor:
.I • Having the ability to set own hours and detennine sequence of work
• Working off-site
I • Working by the project rather than having a continuous relationship with the
) employer
) • Being paid by the job (rather than by the hour or pay period)
) • Having the opportunity for profit and loss
I • Furnishing own tools and training
) • Being self-employed and holding oneself out as such
)
) In determining independent contractor status, the Internal Revenue Service uses

I the "20 factor test," which can be characterized in the three main groups shown
in Figure 10.
Complete information regarding the IRS 20 factor test can be downloaded from
y www.irs.gov/pub/irs-pdf/p 15a.pdf.
)
© 2015 SHRM 395

}
Behavioral control .. Facts that.show.whether the organization has a right to

direct and control how the worker does the task for which
the worker is hired, include the type and degree
Examples:
• Instructions the organization gives the worker
• Training the organization gives the worker
Financia! contro! Facts that show whether the organization has a right to
control the business aspects of the worker's job
Examples:
• The extent to which the worker has unreimbursed
business expef1ses
• The extent of the worker's investment
• The extent to which the worker makes services
available to the relevant market
• How the organization pays the worker
• The extent to which the worker can realize a profit or
loss
Relationship of the Facts that show the parties' type of relationship·

Parties
Examples:
• Written contracts describing the relationship the parties
intended to create
• Whether the organization provides the worker with
employee-type benefits, such as insurance, a pension
plan, vacation pay, or sick pay
• The permanency of the relationship
• The extent to which services performed by the worker
are a key aspect of the regular business of the
organization
Figure 10: Basics of IRS 20 Factor Test
Exempt Employees versus Nonexempt Employees

Once the employer has detennined that a worker is an employee and is covered
by the FLSA, the next step is to determine if the employee is exempt or
nonexempt as defined by the FLSA.
Figure II shows the path the employer follows to determine worker status.
396 © 2015 SHRM

Worker
i
_....-------····-'---
(
Independent i
! Employee
contractor
r-··· ___ j
··--------~
\ Nonexempt j
<.... ---· I
Figure 11. Determining Worker Status
The exemptlnonexcmpt distinction is important Under the PLSA, exempt

l.llllployet.-sarc excluded from the minimum wage and overtime pay
· requirements of the law. To qualify tor exemption, these employees must \Vork
in 11 b<ma tide mnlliwr in, Tor example, executive, administrative, professional,
and ()lltslde sales pllsitlons.· In general, they must meet certain tests regarding
their job duties llfld must be paid on a salary basis, as a uniforn1 amount no
matter hOw many hours al'c worked perwcek, at noi less than $455 per week.
Nonexempt employees are ntlt exe.ludcd from minhnum wage pay
requirements and arc entitled to overtime pay.
Most workers who are paid less than $23,660 per year-or $455 per week--
are guaranteed minimum wage and overtime protection and classified as
nonexempt employees under the FLSA. Any employee compensated on an
hourly basis is automatically considered a nonexempt employee under the
FLSA (except for certain computer employees).
Before determining an employee's exemption status, employers should also

refer to the applicable state law, as many states have their own differing
versions of the federal FLSA. Employees are entitled to the advantages and
rights afforded them under both state and federal law.
© 2015 SHRM 397

FUlA exemptions. Gener~lly, in order for an employee to be exempt, three

requirements must be met: (l) minimum salary, (2) paid on a salary basis
·(without impro(}er deductions), and (3) primary duties.
The issue of primary duties is an important part of the exemption. A "primary

duty" i:s the maill Uf ntost i1nportant duty of the position. A! though no particular
percentage of exempt duties is required under the FLSA, the lower the total
percentage of exempt duties, the greater the legal risk to the employer if
challenged by the Department of Labor. Conversely, if more than 50% of an
employee's time is spent performing exempt work, the employee is more likely
to be considered exempt. However, there is no 50% requirement under federal
law.
The DOL has issued regulations on the FLSA 's "white-collar" exemptions. The
following categories of employees are referred to as white-collar exemptions:
executive, administrative, professional, computer, and outside sales. Employees
who meet the requirements of the associated exemption tests are exempt from
overtime pay.
Visit the DOL website for a fact sheet and more detail on white-collar
exemptions administered under the FLSA; see www.dol.gov/whd/regs/
compliance/fairpay/fs 17a~overview.htm. This fact sheet provides general
infonnation on the exemption from minimum wage and overtime pay.
Improper deductions and safe harbor. Employers that make improper deductions
from an otherwise exempt employee's salary will lose the exemption if facts
demonstrate that the employer did not intend to pay employees on a salary basis.
The regulations list a number of factors to consider for purposes of determining

whether an employer has a practice of making improper deductions. If facts
demonstrate that the employer has an actual practice of making improper
deductions, then the employer loses the ove1time exemption for all employees in the
same job classification working under the individuals responsible for the improper
deductions during the time period in which the improper deductions were made.
398 © 2015 SHRM

However, when the improper deductions are either isolated or inadveltent, the
employer will not lose the exemption as long as it reimburses the employees for
the improper deductions.
·. A sate-ha~bor provision pr~vent~ an employe~ from losing an overtime ·

·.· ••.•. cxemptionJor ituproperpay dedo.ctions-rcgardless ofthe reason for the
improper doouctions-~\\;here the em [I Ioyer:
. • !·las a "clearly communicated policy" that prohibits improper p<iy ·..
· ~· deductions and.includes a complaint mechanism,
• Reimburses employees for any improperdeductions.
• · MakeS.~ goOd-faith cfrOrt to comply in the future.
While the DOL has stated that a written policy is the best evidence of an
employer's good-faith effolts to comply with the regulations, a written policy is
not required. However, the employer must communicate the policy to employees
prior to the impem1issib\e deduction. The "clearly communicated" standard
could be met by providing a copy of the policy to a\\ newly hired employees, by
publishing the policy in an organizational handbook or on an intranet, or, for
small businesses, through an oral statement to employees.
Blue-collar worke•·s and veteran status. The DOL has defined blue-collar
workers and veterans in the fo\\owing manner.
Blue-collar workers ate defined as those \\;ho perform worklrivolving · ·

. repetitive operations with their hands, physical skill, and.cncrgy. The DOL has ·
stated thatindividtl.als in these positions will not be exempt no matter how
highly they arc compensated.
Mechanics, plumbers, electricians, maintenance workers, production

workers, and constntction workers are among the positions identified as
blue-collar.
© 2015 SHRM 399
)
The DOL has stated that military training is generally not sufficient to meet the
requirements of the professional exemption because this exemption applies only
to employees in occupations that have attained recognized professional status.
Thus, veterans working in traditionally blue-collar positions will not find
themselves subject to the white-collar exemption because of their military
training and/or experience.
Specific .iobs. The regulations provide several examples of positions that qualify
for overtime and those that are exempt. Examples of exempt and nonexempt
positions in this category include:
• First responders.
• Insurance adjusters.
• Financial service industry workers.
• Human resource employees.
• Nurses.
• Technologists and technicians.
Each oftltes!' provisions t?nee agai~ states that exen1ptionsare based. not o11job
titl\)S butonjobduties. Thus, while the specific jobs listed are likely to fall into
the .categories stJggested by the DOL, case-by-case Malysis will still be
necessary. The job description becomes a key document for determining FL~A
status. Therefore, organizations n~ed to keep theirjob descriptions up-to•date
to ensure that theyaccurately reflect job duties.
FLSA Overtime Pay Provisions

Under the FLSA, all nonexempt workers must be paid overtime pay-1.5
times their regular rate of pay for hours worked in excess of 40 in any
workweek. The regular rate of pay includes basic pay plus nondiscretionary
bonuses, shift premiums, production bonuses, and commissions. It does not
include other supplemental earnings such as discretionary bonuses,
employers' contributions to benefit plans, pay for unworked hours, or small
noncash gifts on special occasions (generally valued under $25, such as a
holiday turkey).
400 © 2015 SHRM

During an internal HR audit of payroll practices, an HR practitioner (HRP)

determines that the organization is inappropriately paying overtime (OT) for a
nonexempt employee who receives an hourly wage. The problem is that the
employee's attendance bonus was not included in the regular rate. The HRP
Consultation properly recalculates the OT.
Competency
in Action In taking these actions, the HRP helps to ensure compliance with the FLSA
overtime pay provisions.
A workweek is any fixed, recurring period of 168 consecutive hours (7 days x 24

hours= 168 hours). An employer's workweek may begin on any day of the week,
and it must be consistent from week to week. An employer may have different
workweeks for different locations and/or classifications of employees. For
instance, truck drivers required to deliver material by Monday-the beginning of
the workweek for others-may have a workweek that starts on Sunday.
Time worked as it applies to overtime. The FLSA requires that overtime be

paid on time worked, not time compensated. Therefore, no ovettime need be
paid on sick pay, holiday pay, vacation pay, jury duty pay, or similar
compensation for unworked days. Some organizations, l].owever, voluntarily
treat such time as time worked for the purpose of determining overtime pay.
Since overtime covers only time actually worked, a key question is when the
workday actually begins and ends. If the employee is preparing to work but not
yet doing anything productive, do these hours need to be included in the
overtime calculation? The FLSA did not initially define the term "hours worked"
and, consequently, Congress amended the act; the general rules are now defined
by the Portal-to-Portal Act (which is the next law covered).
)
It is important to recognize that the law says that the employer "shall not pennit"
employees to work overtime (over 40 hours per workweek) without the payment
of an overtime premium. The employer is prevented from using the defense that
the employee volunteered to work overtime. As such, employers must be
)
cautious and not allow nonexempt employees to volunteer to work overtime
without prior management approval. If a nonexempt employee works
unauthorized overtime, the employee must be paid for that time and may also be
subject to discipline because the employee did not seek management approval
)
prior to working the ovettime hours.
© 2015 SHRM 401

.The FLSA also stipulates that employers must be sure that nonexempt
<:mployees are fully relieved oftheirduties during lmtch or other breaks. and
·thatlunch and other breaks are ofthc length of time required under federal and
state iaw. for example, nonexetiipt empioyees who answer business e-mails
·<· while eating lunch at their desks maybe owed colnpensatiort not orlly for the ···
· · ·time that is worked but also for the entire break period~depending on the
' · · ·· ~~i1ou1lfof ~~ork that ls.p~rton11M during thatbreak.Agaln, while an employee
... whowurks duririg a break is entitled to be compensated for such time, the
· employee may also be subject to discipline.··
Compensatory time as it applies to overtime. In general, overtime must be paid

in the form of wages. Presently, compensatory time is not allowed for nonexempt
employees in the private sector, which includes those organizations not controlled
by the government, such as privately owned businesses and not-for-profit
organizations. However, public-sector employers, generally comprising entities of
the federal, state, and local governments, may grant compensatory time off ("comp"
time) instead of wage payments in certain circumstances. The FLSA requires that
compensatory time be earned at a rate of not less than one and one-half hours for
each hour of employment for which overtime compensation is required.
Other FLSA Regulations

Along with employee status, the FLSA regulates the following.
Child labor(Jrovisions.Thc FLSA restricts the hours and conditions of

employment for minors. It protects children under I 8 years of age from
''oppressive" conditions of employment. Employers should obtain a proof-of-
age certificate approved by the Wage and Hour Division ofthe DOL(the
enforcing agency); this certificate is ustmlly issued by.the appropriate state
agency. Child labor provisions under FLSA are designed to protect the
educational opflbrtunities of youth and prohibit their employmentin jobs that
are detrimental to their health or physical and mental safety. The FLSA
restricts the hours that minors" can Work and lists hazardous occupations too
dangerous for young workers to perform •.
402 © 2015 SHRM

The DOL's Wage and Hour Division is the sole federal agency that monitors
child labor and enforces child labor laws. For additional information about child
labor laws. see www.dol.gov/dol/topic/youthlabor/.
Minimum wage. The FLSA requires employers to pay covered nonexempt

employees at least the federal minimum wage for all hours worked up to 40 in a
workweek.
employee protections; employers must comply with both.
The FLSA does not provide wage payment collection procedures for an
employee's usual or promised wages or commissions in excess of those required
by the FLSA. However, some states do have laws under which such claims
(sometimes including fringe benefits) may be filed.
There are some exceptions to the minimum wage, including but not limited to:
• Employees younger than 20 years old, during their first 90 consecutive
calendar days of employment.
• Tipped employees.
• Full-time students who are employed in retail or service establishments,
agriculture, or institutions of higher education.
• Student learners who are students at an accredited school, college, or
university, at least 16 years of age, and employed on a part-time basis
pursuant to a bona fide vocational training program.
• Workers whose earning or productive capacity is impaired by physical or
mental disability.
ln most of these cases, workers may be paid less than the standard minimum
wage, but only if the employer first obtains a certificate from the appropriate
regional office of the DOL's Wage and Hour Division.
Employers need. to display the DOL's required "Federal Minimum Wage''

poster. Employers can get a free copy by visiting the DOL website,
. www.dol.gov. Employers should also visit their states' departments of labor
wcbsitcs to download statc~rcquircd postings regarding minim\Im wage.
© 2015 SHRM 403

Record keeping. Under its record-keeping provisions, the FLSA requires that an
employer retain cettain information regarding its employees for a set period of
time. Refer to Section 4 for more information regarding record keeping.
Other administrative concerns. The FLSA also addresses the following issues.
• Enforcement. The Wage and Hour Division of the DOL has broad powers to
enforce the FLSA minimum-wage and overtime provisions.
• Investigating claims. Any employee covered by the FLSA may initiate a

complaint. An investigator will visit the work site of the claimed infraction
and review the employer's pay practices and status determinations. A
conference between the investigator and representatives ofthe employer will
be held to discuss a settlement. If none is agreed to, the employer can be
taken to court by either the secretary of labor or the employees who are owed
unpaid back wages.
• Penalties~ An efllployer who violates the FLSA's. requirements to pay

overtime is liable to an erhployee in the amount of the unpaid overtime
compertsationa:,q \ve.ll as anJidditional, equal amount as Jiquidateddamages.
The staMe l'!flimilations under the FLSA is generally two years, butthe
time period can be extended to three years ifthere has been a wiHtltl
violati¢1) ~y tho cll)ployer. In addition to an award ofunpaid wages, the
employee is also entitled to recoverreasottable a!t'omeys' fees and costs
incurred in bringing the action. An ell)ployec may not bring suit if he orshe
· , has be<-'tt paid bade wages under the supervision of Wage and HU!lr
Division ofthe DOL ori flhe secretary oflaborhas already filed suit to
recover tho wages. Criminal penalties of not more than $10,000 and six
months' inJprisonmeflt may also be imposed for certain willful violations.
Under the FLSA, a violation is willful generally iflhe employer knew or
showed reckless disregard a$ to whether.its conduct violated the law..
The legal publisher Commerce Clearing House has prepared a list of tips for
employers regarding regulations under the FLSA. This list can be accessed at
cch.com/press/news/2004/20040329h.asp.
404 © 2015 SHRM

When State Laws Differ

While the FLSA defines a great deal about the employer-employee relationship,
there are many aspects regarding employee compensation and benefits that are
either not covered by the FLSA or that are also governed by state law. For
instance, questions such as pay frequency, severance or vacation pay, and the
disposition of unclaimed wages (escheat laws), if regulated at all, are governed
by the states, usually under their own state wage and hour laws. In addition,
! some states have passed legislation that is more generous than the federal
guidelines. For example, a state may require a higher minimum wage than the
federal government.
A general rule is: Whenever state and federal laws differ,fol/ow the
regulation that most benefits the employee. Thus, if the state minimum wage
is $7.50 per hour and the federal minimum wage is $7.25, employers in that
state must pay employees at least $7.50 per hour. Conversely, if the federal
minimum wage is higher than the state minimum wage, the employer must
pay at least the federal minimum wage. If the state does not have a minimum
wage, the employer must pay at least the federal minimum wage. Minimum
wage requirements are made more complex by the fact that some
municipalities have instituted "living wage" ordinances that stipulate pay rates
that exceed both state and federal minimums.
It is important to look at state law not only with regard to nonexempt

employees but also with regard to exempt employees. There are a number of
ways in which state law may be more restrictive than federal law in terms of
whether an employee is exempt. For example:
• Cetiain exemptions under federal law may not be recognized under state
law.
• Even if an exemption is recognized under federal and state law, percentage
limitations on nonexempt work that no longer apply under federal law still
may applyul1det state law. Plus, ihere maybe a higher niinlmum salary
requirement in some states with regard to certain exemptions.
Equally important, the potential damages may be greater under state law, for
example, up to 30 days' pay for each willful violation, regardless of how small
the violation may be .
.I
© 2015 SHRM 405

Portal-to-Portal Act
The Portal-to-Portal Act of I 947 amended the FLSA and defined additional
rules for hours worked. Following are some guidelines included in the Portal-to-
Portal Act and its amendments.
On-Call/Standby Time
',.~. ·.· . '._,.__
· ffthe employerrestricts ll!1 e!1Jp!<Jyee's activities !lnd does not allow any
personal business, then the hours arc inchrdcd in overtime; Employers may not .
. be required to pay overtime when an employee is off the premises and on call
(asked to stay by the phone or computer, carry a mobile deviee, or respond to a
.6ecJ)er) as lotig as the cltipldycc generally is not otherwise res.trictcd.
Federal district courts, however, may differ in their interpretation. Generally, the
more restricted an employee's freedom is, the more likely the time will be
considered compensable working time.
Preparatory/Concluding Activities
Certain types of preparatory and concluding activities must be compensated, and
others need not be. The general test is whether the activity is performed solely
for the employer's benefit and is an indispensable part of the employee's job
activities (e.g., putting on safety gear, making deliveries for the employer on the
way home).
Changing in and out of uniforms is a growing litigation issue. Generally

speaking, an employee must be paid for the changing time if he or she is required
to change in and out of his or her uniform at work; ordinarily the employee does
not have to be paid for such changing time if he or she has the option to wear his
or her uniform to and from work but elects to change at work solely for his or
her convenience.
Waiting Time
An employer does not have to pay an employee when the employee arrives at
work early and is waiting for the workday to begin. However, the employee
cannot be doing even casual work without pay during this waiting time. For
example, clerical employees who arrive to work early and who, during that time,
406 © 2015 SHRM

"help out" other employees or go to their own workstations and perform job-
related duties such as checking their e-mail, tum noncompensable time into time
that must be compensated. In addition, the clock starts as soon as the shift
begins, even if there is no work.
Similarly, if waiting time occurs in the middle of the shift (e.g., if a machine
breaks down), the waiting time is generally compensable. If the employee
reports to work, is immediately sent home for lack of work. and perf01ms no
work, the employer is not, in general, required to pay the employee.
Meals and Breaks

The act does not require an employer to provide rest or meal breaks to non-
minors. State law and collective bargaining agreements may vary greatly,
however. Under the act, rest periods of five to 20 minutes are considered hours
worked. Bona fide meal periods of 30 minutes or longer, during which the
employee is completely relieved of duty, are not considered hours worked.
However, as a matter of enforcement, the DOL may scrutinize closely any break
that is less than 30 minutes, regardless of whether the break is characterized as a
rest or a meal break.
Travel Time
Specific guidelines for travel time are as follows.
• Commuting time. Commuting time is not paid work time, even when the
employee is tiSing at! organization vehicle. _However, nonexempt employees .
. \vho drive vehicles that contain essential tools or equipment theof
emjlloyer from their homes to work sites may be working while traveling · ·
and should receive travel pay. Travel from home to a customer's site in
response to an emergency. call after the regular workday is work time.
) • Workday travel. Employees who travel in the course of a workday, such as

) from one work location to another, are entitled to compensation for their
travel time. Travel to work-related meetings is compensable.
© 2015 SHRM 407

)
)
()
()
o Out-of-town travel during the course of a day. Travel out of town may
also comprise work. When an employee who normally works at one location
is sent out of town on a single-day trip, the time spent traveling is work time.
However, the employer may consider the time spent traveling to and from
the airport or other transpottation terminal in the morning and evening to be
the equivalent of the home-to-work commute and not compensable work
time.
)
o Overnight travel. An employee who travels away from home overnight is . 'I
not working when he or she is a passenger on an airplane, train, boat, bus, or ')
automobile outside of regular work hours. Any time that the employee
spends traveling as a passenger on a weekend will be counted as work time if
the travel cuts across the hours that the employee would normally work
during the week. Any time that an employee spends working while a
passenger must be counted and paid as work time. Figure 12 provides an
example of paid time vs. unpaid time for an employee who travels overnight .
lI
for a weekend conference. )
Day Activity Total Paid J

Hours
Friday Travels to conference and
5
works en route
Saturday Works at conference 12
Sunday Travels from conference

4
and does not work en route
7 8 9 10 11 12 1 2 3 4 5 6 7
a.m. p.m.
Paid time
Normal Work Hours
IJI Unpaid time Time
Figure 12: Example of Compensation for Weekend Work Trip
All travel that is compensable bycontract. custom, or practice must be counted

aswork time; regardless ofthe above limitations on counting tl'!lvelas work
time.
408 © 2015 SHRM

Training Time
Training time is generally included in the calculation of hours worked. However,
the time spent at a conference, meeting, or seminar does not have to be
compensated if four conditions are met:
• Attendance is voluntary.
• Attendance is outside of the employee's regular work hours.
• The event is not directly job-related.
• The employee performs no productiw work during this period.
Equal Pay Act
· .·.The Eqmll Pay Act (EPA).of1963, t.~chnican'Yananlendme~t toth~ FtsA,

. prohibits unequal pay for' equid oi· "substantially equal" work performed by
men and women. Once a pay disparity is established between a male worker
·.. aiUl fifemalc worker pcrfonning substanti~ll/cqual jobs, the burden ~fproof ·
· · · shifts to the employer tojusti(y its actions.
The law is enforced by the EEOC. Key provisions define equal work,
discriminatory actions, and exceptions.
Equal Work
)
Equal work is defined by equal skills, equal effort, equal responsibility, and
)
similar working conditions in the same establishment. Figure 13 provides
)
definitions of the equal work factors.
)
Equal Work Factors

Skills Experience, training, education, and ability required to
Iperform a job
) Effort Physical or mental exertion needed for performance of a job
Responsibility Extent to which an employer depends upon the employee to
perform the job as expected, with emphasis on accountability
Working Physical surroundings and hazards of a job, including
conditions dimensions such as inside versus outside work, excessive
heat or cold, and fumes and other factors relating to poor
1 ventilation
Figure 13: Equal Pay Act Definitions
© 2015 SHRM 409

In defining equal pay, the EPA requires only that workers performing equal
work be paid at the same pay rate, not that workers receive the same total
amount of pay.
Exceptions ·
. Aii empl<)yer can defend its pay disparity by showing that the pay disparity was
based on:..... .· ...·
• ·A seniority system.
• A merit system.
• A diffetence in the quality or quantity of work ..
. • ·. Geographic work differentials:
• . Any.
factor other.than gender.
~
Employer defenses such as union rules or prevailing pay for the market are not
permitted.
Discriminatory Actions
Under the EPA, a plaintiff would have a prima facie case (i.e., the minimum
amount of evidence an employee must demonstrate in order to state a claim as a
matter oflaw) if she or he received a lower wage than members of the opposite sex
for performing work that requires substantially the same skills, effo1t, and
responsibilities under similar working conditions, all performed at the same location.
Comparable Worth
The law does not address comparable worth, a themy that goes beyond pay
equity.
I
I' Comparable Wllrfh deals with pay differentials between women and men who
I perform eomparabte-.::..but not. equal-··work. ComparablewortbJO(Jks at
differentjobs !bat women and men hold that tequire comparable skills, effort,
· responsihility, a11d working conditions. Although the EPA does not.require
consid~ration ofcomparableworth,.somc states require.all publ.icjurisdictions .. ·
such as school districts to eliminate any gcndcr"based wage inequities. •
410 © 2015 SHRM

Employee Retirement Income Security Act

The Employee Retirement Income Security Act (ERISA) of 1974 and its
subsequent amendments establish uniform minimum standards to ensure that
employee benefit and pension plans are established and maintained in a fair and
financially sound manner. It is designed to protect the interests of participants in the
plans and their beneficiaries. Employers are not required to offer a retirement or
health and welfare plan, but if they do have one, it must conform to the requirements
of the lntemal Rt:veuut: Code and ERiSA in order to receive the tax advantages.
·ERISA ensures the uniformity of the minimum standards by virtue of the fact
I)
that the federal ERISA law preempts any state laws that would relate to or. fir
• .
·any way attempt t() regulate employee benefit plans, except for the regulation
·~ of insurance. Most private-sector employee benefit programs arc subject to
:; some provisions of ERISA. The legislation applies to and regulates qualified
private retirement plans and welfare plans such as employcNponsored group
• ) medical programs, group life
. insurance, and long-term disability coverage. ··
•)
I
~ ' . . . . . -
Many public-sector employers and churches are not subject to ERISA.
- .
,J
)
I
) ERISA Regulatory Enforcement and Jurisdiction
I
) Enforcement and jurisdiction for ERISA is split across the DOL, the IRS, and the
I
Pension Benefit Guaranty Corporation.
,!
.; • The DOL has jurisdiction over reporting, disclosure, and fiduciary responsibility.
I
• The IRS has jurisdiction over tax-related matters involving benefit plans (funding,
I)
)
eligibility, etc.).
I
)
I
)
I
)
• .The Pension Benefi!Guarimty Corporation (PBGC) insures payment of ·
I
)
certain pension plan benefits in the event that a privaie-sector defined _
I
)
benefit pensioll plan lacks sufficient funds to pay the promised benefits.
I
)
Covered plans or their sponsors are required to pay premiums to the PBGC. ·
I
)
In tum, the PBGC guarantees payment of vested benefits (up to a maximuin .
) limit) to employees covered by these pension plans. It does not insure
retirement plansthat'iJo not pronlise specific benefit amowts -~~lcfincd
or
. ·.·contributiollplans such as profit-sharing 401(k) plans.
© 2015 SHRM 411

General Rules under ERISA

ERISA requires that employers follow a number of regulations; several are noted
here.
I • Fiduciary duties. An ERISA plan must be operated for the exclusive benefit
I,, of the participants and their beneficiaries. The employer sponsor must follow
I,,,'I the prudent person rule with respect to the handling, investment, and
i management of the plan's assets. According to this rule, the employer cannot
I take more risks than a reasonably knowledgeable, prudent investor would
I under similar circumstances.
I
I • Eligibility requirements. ERISA establishes certain eligibility requirements
for retirement plan benefits. In general, the requirements are attainment of
age 21 and completion of 12 months of service, with only a few exceptions.
An organization cannot set the age for participation at more than 21 or the
service requirement at more than 12 months. However, an organization can
lower the age and service requirement thresholds.
• Vesting requirements. ERISA establishes minimum vesting requirements

for retirement plans. Vesting is the process by which a retirement benefit
becomes nonforfeitable, that is, when the employee is pennanently entitled to
a potiion or all of his or her benefit.
Although an employee is always I 00% vested in his or her own

contributions, employer matching and other employer contributions
customarily vest over time.
Some plans provide for cliff vesting, whereby such benefits become l 00%
nonforfeitable after passage of a certain number of years; other plans provide
for graded vesting, whereby the benefits become incrementally
nonforfeitable ()\lei' a set period of years.
The vesting requirements differ between defined benefit plans and defined
contribution plans.
• Communication requirements. ERISA requires benefit plan sponsors to

prepare and distribute summary plan descriptions (SPDs) to participants.
412 © 2015 SHRM

These summaries of participant rights, benefits, and responsibilities under the

plans should be designed and written so they are easily understood by the
reader. Sllrrirnary plari descriptions musfbe issued a! least once every five
years. If plans are modified in the interim years, sponsors may distribute
summaries of material modifications (SMMs) to participants to describe the
r, changes, or they may issue a new summary plan description. Participants
must also receive a summary annual report (SAR) that contains financial
information about the plan.
• Reporting requirements. In general, an annual report (Form 5500) must

be filed with the IRS and made available for participants to inspect. Form
5500 is required for employers that sponsor qualified retirement plans
and/or that have at least 100 employees participating in health and welfare
plans.
DOL regulations mandate the implementation of benefit claims procedures and

specify the precise content of various documents that employees are entitled to
receive as well as the mandatory IRS filings. To learn more about ERISA
compliance, see www.dol.gov/ebsa/compliance_ assistance.html.
Employers should consult with their benefits professionals in regard to the

design and administration of communication documents, and they should also
obtain regular and ongoing advice on ERISA compliance issues from qualified
counsel.
Ledbetter v. Goodyear Tire & Rubber Co. and Lilly

Ledbetter Fair Pay Act
Ledbetter v. Goodyear Tire & Rubber Co.
In Ledbetter v. Goodyear Tire & Rubber Co. (2007), the U.S. Supreme Court
ruled against Lilly Ledbettet'' s claims ofsex discriminatiotl. ill pay under Title
VII. The court ruled that Ledbetter's claims were not timely because she did not
file discrimination charges with the EEOC within the 180-day time frame, which
)
is a prerequisite for bringing a discrimination lawsuit.
)
) (The EEOC complaint process is covered at the end of this section.)
.)
© 2015 SHRM 413

)
Lilly Ledbetter Fair Pay Act

The Lilly Ledbetter Fair Pay Act of2009 overturned the Ledbetter 2007 U.S.
Supreme Court decision. I
_ U_nder the [,edbetter Act, the statute of limitations resets as the employer _
· · ·· issues each allegedly discriminatory paycheck. Additionally, the open-ended
nature of the law's coverage of unlawful employment practices, which
includes comperisation decisions ol'''other practices," suggests that. ·-
employees and their families or heirs could file a discrimination lawsuit
against an employer regarding benefits such as salary-based defined benefit
and contribution-based defined contribution retirement plan payouts and · ., ' ·
salary~based life insurance proceeds:
Due to the potential for legal exposure under the law, proactive organizations
will identify and remedy any potentially discriminatory pay practices.
Discriminatory pay practices include basing pay decisions on a person's
belonging to a protected class, such as race, religion, color, gender, national
origin, age, disability, or veteran status. Employers should review their
documentation and record retention practices related to compensation
decisions to ensure that they have the ability to show that pay disparities that
may give rise to discrimination claims are the result of lawful factors.
Leave and Benefits Laws

A variety of legislation affects employee leave and benefits programs. The
fundamentals of the following leave and benefits legislation are covered in this
section:
• Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 and
amendments
• Family and Medical Leave Act (FLMA) of 1993 and amendments
• Uniformed Services Employment and Reemployment Rights Act (USERRA)
of I 994 and amendment
• Patient Protection and Affordable Care Act (PP ACA) of 2010, amendment,
and case law
414 © 2015 SHRM

Consolidated Omnibus Budget Reconciliation Act

and Amendments
Consolidated Omnibus Budget Reconciliation Act
Employers who provide health-care benefits to their employees and who employ
20 or more people must allow for its continuation in the event such coverage
would end due to termination of employment, divorce, death of the employee,
etc. An exception to this general rule applies in the case of a person whose
employment is terminated due to gross misconduct.
The Consolidated Omnibus Budget Reeo~cillatlon Act {COBRA.) of-1985

provides individuals arid their dependents who otherwise would lose their
. coverage dtie to a COBRA-qualifying event with an. opportunityto pay to
continue receiving health-care coverage under the employer's group health
·plan. Employees must pay the full premium for the coverage; fnaddition, there
may he a 2% administrative feethat the individuals pay.
COBRA Coverage
The length of time COBRA coverage continues ( 18 to 36 months, sometimes
longer) is determined by the type of qualifying event. Figure 14 lists the
qualifying events that can trigger COBRA coverage and the length of time
benefits are continued.
Maximum Length of
Event
Continuation (Months)
Termination of employment for gross misconduct 0
Termination of employment for any reason other
than gross misconduct 18
Reduction in hours 18
Employee is disabled at the time of reduction in
hours or termination 29
Divorce or death of the employed spouse 36
______]______________
Dependent child loses eligibility status 36 _
Figure 14: COBRA Coverage
)
© 2015 SHRM 415

COBRA coverage generally ends when the employee or dependent ceases

paying premiums, becomes eligible for medical insurance from a new employer,
bt gains Medicare coverage or when the· employer terminates its· health •care plan
(e.g., goes out of business). However, in some states there may be continuation
of COBRA options that would extend beyond COBRA's minimum mandates.
COBRA Compliance
COBRA is administered by the DOL in conjunction with the Internal Revenue
Service.
DOL regulations specify several requirements for the timing and content of
COBRA notifications,HR professionals .should ensure that they understand all
the specific conditions and obligations.
i In turn, an employee must make COBRA elections within 60 days of the date
Iil that he or she loses coverage or the date that he or she was notified of the right to
~ elect COBRA coverage (whichever is later).
jl
!
II'j
Complying with COBRA is a complex endeavor. There are statutory penalties
~
i under both the Internal Revenue Code and ERISA for noncompliance. Failure to
II comply with COBRA could subject an employer to serious penalties as well as
'I payment for incurred medical expenses. Employers subject to COBRA should
II seek expert guidance from legal counsel, consultants, their group medical
II insurance vendors and plan administrators, or outside claims administrators to
ensure that they are COBRA-compliant. Organizations utilizing the services of
third-party administrators (TPAs) for COBRA should vigilantly monitor reports
and documentation provided by the vendor to ensure legal compliance and
accuracy and to review the fiscal impacts of the outsourced program.
The DOL website provides several resources that describe COBRA continuation
coverage in more detail; explaining therules that apply to group health plans.
See www.dol.gov/ebsa/publications/cobraemployer.html.
Over time, COBRA has been amended by various regulations. Some were
"temporary" such as COBRA provisions under the American Recovery and
Reinvestment Act (ARRA) of2009. Permanent amendments are discussed next.
416 © 2015 SHRM

Amendment of COBRA by the Patient Protection and Affordable Care

Act
The Patient Protection and Affordable Care Act (PPACA), passed in March
2010, amends COBRA. Although most of the PPACA health-care reform
changes have general applicability to all group health plans-regardless of the
extent to which those plans are providing COBRA coverage-certain health-care
reform mandates have specific COBRA implications. The mle requiring
coverage for children up to age 26 is one of them.
PP ACA requires group health plans to provide coverage to dependent children

up to age 26, regardless of whether the adult child is a tax dependent, has any
financial relationship with the participant, resides.with the participant, is a
student, or meets any other requirement of a relationship other than that of a son,
daughter, stepchild, or adopted or foster child of the participant. Generally, this
requirement applies to all plan years beginning on or after September 23, 2010,
or January 1, 2011, for calendar year plans.
A COBRA implication of this new rule is that once a plan is required to extend
coverage to children up to age 26, the coverage mandate has to be extended to
qualified beneficiaries as well. For example, consider a group health plan that
currently provides dependent child coverage up to age 22. Under PPACA reform
coverage, the plan must extend coverage for dependent children up to age 26-
and, most importantly for COBRA purposes, this coverage needs to be provided to
qualified beneficiaries to the same extent as it is provided to similarly situated
active employees.
Employer-based and individual health plans in effect with at least one participant
on the date ofPPACA enactment-March 23, 2010-are considered
"grandfathered plans" and are subject to a lesser set of rules than "nongrandfathered
plans." As PPACA dependent care applies to grandfathered plans, the plan sponsor
may optionally decline coverage(until January 1,2014)foranyad\lltchildren who
have group coverage available through their own employer.
Some states have dependent coverage requirements that are lower than age 26 or
go beyond age 26. Where a state law is more generous than the federal law,
employers are required to follow the state law. If the PPACA is more beneficial
to the employee or dependent than a state law, employers must follow PP ACA.
© 2015 SHRM 417

For example, some states restrict dependent eligibility by criteria such as marital
or student status; however, PPACA does not.
The PPACA legislation is discussed later in this section.

'
Amendment of COBRA by the Health Insurance Portability and
(
Accountability Act
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 made
the following changes to the rules regarding COBRA:
• Individuals who have had employment-based coverage for at least 18 months
and who are ineligible for or who have exhausted COBRA coverage are ensured
availability of coverage without preexisting condition limitations ifthere is less
than a 63-day break between the end of coverage and obtaining new coverage.
• The act clarifies that all qualified beneficiaries are entitled to purchase the
additional II months of continuation coverage----for a total of 29 months-if
they are disabled at the time of termination. It also provides an extension if the
beneficiary is disabled at any time during the first 60 days of COBRA coverage.
• The preexisting condition limitation to COBRA was cut off.
• The definition of qualified beneficiary was changed to include newborns and
adopted children of covered employees during COBRA continuation.
Family and Medical Leave Act and Amendments

Family and Medical Leave Act
The Family and Medical Leave Act (FMLA) of 1993 requires employers to allow
employees to take time off for cetiain caregiving, medical, and family needs.
Coverage
·.. ' .. . -.· _< ...
. . The act covers pri~ate-sector employers with SO or more empioyees (full- o~

part~time) for 20 or more workweeks in the current or preceding calendar year.
It applies nofonly to private employers but also to Mnprofit organizations and
public agencies (regardless of the numberofemployees), including Congress;
To be eligible for FMLA leave, an employee n1usthave worked at .least. J 2
months (total)forthe employer, for at least 1;250 hours in the 12-month period ·
preceding the commencement ofthc leave, and at a site within 75 miles of
which 50 or more employees work.
418 © 2015 SHRM

Basic Leave Entitlement Provisions

The FMLA allows employees to take up to 12 workweeks of unpaid, job-
protected leave during a designated l2~month period in thefollowing cases:
• For incapacity due to pregnancy, prenatal medical care, or childbirth
• To care for the employee's child after birth or placement for adoption or
foster care
• To care for the employee's immediate family member (e.g., spouse, child, or
parent) who has a serious health condition
• For a serious health condition that makes the employee unable to perform his
or her job
FMLA Compliance
The DOL administers the FMLA. The DOL has released numerous documents
regarding employer and employee rights and procedural requirements under the
FLMA.
Some of the key DOL regulations and interpretation documents pertain to:
• Guidance on how the FMLA applies when there is no legal or biological parent-
child relationship.
• Clarification of intermittent leave (when leave is taken a little at a time, as
needed).
• Medical certification requirements and under what circumstances an employer
is permitted to contact an employee's health-care provider.
• Terms for fitness-for-duty certification (both for the initial return to work and
any periodic requirements).
• Provisions for health benefits continuation while the employee is on approved
FMLA leave and how COBRA is triggered if the employee does not return to
work.
• Reinstatement rights regarding an employer's responsibility to restore the
employee to the same position that the employee occupied prior to FMLA _leave
or to an equivalent position with equivalent benefits, pay, and other terms and
conditions of employment.
)
• Modified-duty programs when the employee returns to work from FMLA leave.
)
• Provisions for cost containment and how employers can integrate leave benefits
(sick or vacation days), workers' compensation leave, and/or disability
) insurance with FMLA leave to reduce the costs of FMLA compliance.
)
© 2015 SHRM 419

An employee who has been with an organization for 14 months on a part-time

basis meets with the HR manager and the employee's direct supervisor to
inform them of a need for medical leave of absence (LOA) for a personal
Critical
medical condition. Following the meeting, the HR manager conducts
Evaluation appropriate due diligence regarding the employer's LOA coverage and the
Competency employee's eligibility to ensure compliance with FMLA provisions. The HR
in Action manager calls a follow-up meeting with the employee and the supervisor to
discuss how to best manage the LOA, even if it will be on an intermittent basis.
The HR manngcr's nctions demonstrate how to ba!ance the emp!oyAP.'s

request and right to LOA with business needs and operating requirements.
The definition of a "serious health condiiion" has also.~wolvcd over lime: The
II 1993 FMLA regulations defined a serious health condition as one requiring
I
l inpatient hospital, h<lSpicc, or residential care or continuing treatment by a
Ii health-care provider (with multiple definitiOils). DOL regulations issued in 2009. ·
I
IT
clarified one of the <lcfiniti(ms of a serious health condition, \vhich involves
cmpl(lyeq incapacity for more than three e<msecutive calendar days plus two
I visits to a health-care pwvidcr or one visit to a hcalth,carc. provider plus a
l regimen of continuing. treatment. The first he!l.lth"earc provider visit mustocctir
within seven days of the first d11y of incapacity. Where applicable, the two visits
.must occur within 30 days ofthe beginning of the period. of incapacity, ah.~erit
. -· ..: . extenuatingdrcu!llstanecs: In addition, for chronic scrions health conditions, the
employee must visit a health,carc provider at least twice per year.
Many FMLA resources can be accessed at the DOL website, at www.dol.gov/whd/

fmla/.
The interplay of the FMLA, the ADA, and workers' compensation laws is
complicated and fraught with legal challenges. Employers should understand these
interactions and determine applicability of any state laws before taking an adverse
employment action against any employee who is on FMLA leave or who has
requested such leave action. Review and understanding of cutTent court rulings as
well as involvement of legal counsel may be prudent to minimize legal liability.
Next we look at two important acts that have expanded the FMLA.
420 © 2015 SHRM

National Defense Authorization Act (2008 and 201 0)

The National Defense Authorization Act (NDAA) for Fiscal Year 2008
provided the first expansion ofFMLA leave for employees with family members
who are covered members of the military. Specifically, the act added two new
FMLA-qualifying events: qualifying exigency leave and militaq caregiver leave.
The National Defense Authorization Act for Fiscal Year 2010 (2010 NDAA)
further expanded the military family leave rights added to the FMLA in 2008.
Many, but not all, of the provisions of the FMLA apply to these two new
categories ofFMLA leave, including employer coverage, employee eligibility
requirements, health insurance continuation, and reinstatement rights. Employees
can utilize the leave all at once or on .an .incremental basis.
Qualified Exigency Leave

This benefit provides up to 12 workweeks of FMLA leave clue to a spouse, son,
daughter, or parent being on covered active duty or having been notified of an
impending call or order to covered active duty in the anned forces. For members
of a regular component of the atmecl forces, "covered active duty" means duty
during deployment with the armed forces to a foreign country. For members of
reserve components of the armed forces, including members of the U.S. National
Guard, "covered active duty" means duty during deployment of the member with
the armed forces to a foreign country under a call or order to active duty in a
contingency operation as further defined in the law.
DOL regulations address what constitutes a qualifying exigency leave under the
FMLA's military leave provisions. Employees can take qualifying exigency
leave in circumstances that fall under one of the following categories:
• Short-notice deployment
• Militaq events and related activities
• Child-care and school activities
• Financial and legal arrangements
• Counseling; rest and recuperation
• Post-deployment activities
• Additional activities agreed to by the employer and the employee
Military Caregiver Leave

This benefit provides up to 26 workweeks of unpaid FMLA leave during a single
I 2-month period for an eligible employee who is the spouse, son, daughter,
© 2015 SHRM 421

parent, or next of kin of a covered service member with a serious injury or

illness. Under the 2010 NDAA amendments, "covered service members" was
expanded to include certain veterans. The definition of "serious injury or illness"
was also expanded. (A "serious injury or illness" is one that may render the
member medically unfit to perform the duties of the member's office, grade,
rank, or rating.) For cmTent members and veterans of the armed forces, this
encompasses not only a serious injury or illness incurred in the line of duty while
on active service but also a serious injury or illness that existed before the
beginning of the member's active duty and that was aggravated by service in the
line of duty while on active service in the armed forces. For a veteran, the injury
or illness may manifest itself before or after the member becomes a veteran.
Uniformed Services Employment and Reemployment

Rights Act and Amendments
Since 1940, federal law has guaranteed certain employment rights to employees who
serve in the military. The Uniformed Services Employment and Reemployment
Rights Act (USERRA) of 1994 substantially revised such provisions.
USERRA was enacted to protect the employment, reemployment, and retcittion

tights of persons who voluntarily or involuntarily serve or have served In the
. uniformed services.
The Veterans Benefits Improvement Act of 2004 amended portions of USERRA.

The DOL administers USERRA and published final regulations in 2005.
The final DOL regulations confim1 that USERRA applies to virtually all
employers, bOth public and private, regardless of size, and prohibits
discrimination in ernployment,joh retention, advancement, or any benefit of
employrnent on the basis of membership, application for membership,
application for service, performance of service, or obligation for service in the
·uniformed services.
422 © 2015 SHRM

The USERRA DOL regulatory provisions:

• Confirm that job applicants are covered by USERRA if an organization rejects
a candidate or withdraws an offer of employment due to pending military
leave.
• Require employees or an appropriate representative of the military to provide
oral or written notice of the need for leave (according to Department of
Defense regulations cited in the USERRA regulations, 30 days when feasible).
• Allow an employee to take military leave for up to five years (extenderl in
some circumstances, such as an order to remain on active duty because of a
war or national emergency that is umelated to training).
• Clarify the types of military service covered by USERRA.
• Give employees on military leave the same non-seniority'based benefits and
rights generally provided (by contract, agreement, policy, practice, or plan) to
other employees with similar seniority, status, and pay on other types of leaves.
• Give employees on military leave the same seniority-based benefits they would
have received if they had not taken military leave.
• Require that military leave not create a break in service for retirement plan
purposes, including participation, vesting, and accrual of benefits.
• Establish specific time frames for employees on military leave to apply for
reemployment.
• Define employers' reemployment obligations, including timing of
reemployment, reemployment position, and discharge restrictions.
• Provide additional protection for disabled veterans.
Employees giving notice of the need for military leave are not required to state
their intention to return to work following military leave at the time they take
leave. Moreover, USERRA regulations specify that an employee may not
prospectively waive his or her right to reemployment.
In 2011, the Veterans Opportunity to Work (VOW) to Hire Heroes Actamended

USERRA to recognize claims of a hostile work environment on account of an
individual's military status generally. By amending USERRA to prohibit
discrimination with respect to the "tenns, conditions, or privileges of
employment," the VOW to Hire Heroes Act establishes the same standard for
hostile environment claims on account of military status as that governing Title
VII and other employment discrimination laws.
© 2015 SHRM 423

)
)
)
Employers must provide employees with notice of their rights and obligations )
under USERRA whether or not the employer has employees serving in the )
military. To assist in meeting the requirement, the DOL has developed a model )
poster that may be accessed at www.dol.gov/vets/programs/userra/poster.htm.
The poster should be displayed where the employer customarily posts employee
notices.
Patient Protection and Affordable Care Act;

Amendment, and Case Law
Patient Protection and Affordable Care Act and Amendment
.-.·.···
. The Patient Protection ~nd Affordable Care Act (PPACA) .of2010, .... )
. amended by the Health Care and Education Reconciliation Act, is one of the
largest U.S. health'Clire refonns since Medicare legislation in 1965. PPACA
provisions are cl(tensive and include a rolling time line of events. Starting in
2014, virtuallyall citizens and legal residents of the U.S. are required to have .
''affordable, minimum health coverage'' (an cx,ception is made for lower-
income individuals). failure to.do so results in an excise ta.x penalty,
A key PPACA provision pcrtnining lo employers (starting in 20 15) requires

·· employers with more than 50 full-time employees to provide health coverage
·... that mcetscmininium bctl'etitspccifications (}f pay a $2,000 per employee " .·
penalty.
PP ACA is commonly called the Affordable Care Act (ACA) or "Obamacare,"

since the federal legislation was signed into law by Barack Obama.
Virtually all health-care plans are subject to some or all PPACA provisions.
Plans in place as of March 23,2010, are "grandfathered" and can avoid some
(but by no means all) ofPPACA's mandates so long as they do not substantially
increase plan participants' out-of-pocket expenses.
Additional PPACA events are summarized in Figure 15 on the next page. (Note:
Assume that the events described in Figure 15 apply to both grand fathered and
nongrandfathered plans unless exceptions are described.)
424 © 2015 SHRM

i maximum benefltlimits .on essential Plans beginning on or

maximum benefit health benefits. * after September 23,
limits 2010
Preexisting Eliminates all preexisting condition limitations for Plans beginning on or
conditions participants and plan beneficiaries under the age of 19. after September 23,
2010
Eliminates all preexisting condition limitations for all Plans beginning on or
and beneficiaries. · after 1,2014
Small employer Provides a health-care tax credit (up to 35%) for certain Effective 2010-2013;
health-care tax small employers. increases to 50%
credit beginning 2014
Preventive care For nongrandfathered plans only. Provides first-dollar Plans beginning on or
coverage (with no deductible or employee payment co- after September 23,
shares) for certain preventive care services.'* 2010
Dependent For nongrandfathered plans-requires coverage of Plans beginning on or
coverage employees' adult children until age 26. after September 23,
For grandfathered plans (until January 1, 2014)-plan 2010
sponsor may optionally decline to cover any adult
children who have group coverage available through
their own employer.
Uniform Requires employers to provide participants and plan Effective March 23,
explanation of beneficiaries a summary of benefits and coverage (not 2012
coverage to exceed four pages) prior to enrollment, reenrollment,
or I of the certificate of coverage.
Summary of Requires employers to provide a SMM at least 60 days Plans beginning on or
material in advance of the effective date of change. after March 23, 2012
modifications
Annual benefit Eliminates all annual limits on essential health benefits. Plans beginning on or
limits after 1,2014
State health Creates state-run health-care marketplaces allowing Plans beginning:
marketplaces both individuals and employers the ability to purchase • January 1, 2014 (for
standardized plan designs for health coverage. small employers)
• January 1, 2017 (for
large employers)
"Cadillac plan" Places an excise tax on "high value" health plans- Effective in 2018
tax where the value of family coverage and coverage for
retirees and employees · exceeds
specified limits (to
Essential benefits are broadly defined and include ambulatOI)' patient services, emergency services, hospitalization, maternity
and newborn care, mental health and substance abuse disorder services, prescription drugs, laboratory setvices, preventive
and wellness services, and pediatric services.
Required preventive benefits include items labeled types A and B by the U.S. Preventive Services Task Force; childhood and adult
immunizations recommended by the Centers for Disease Control; preventive care for infants, children, and adolescents
recommended by the Health Resources and Services Administration; and additional preventive care and screenings for women.
Figure 15: Key PPACA Provisions and Time Line of Reform Changes
© 2015 SHRM 425

'I
There are many more PPACA provisions beyond those summarized in Figure 15
that will impact employers, their plans, and their employees. This chatt is ]
intended only to provide an overview and be a quick reference tool and, as such, ·;
does not include enough information to be used as a definitive reference.
-)
PPACA was enacted with broad mandates that will require regulators to provide
more comprehensive and detailed rules and guidance. HR professionals should
monitor the issuance of regulatory rules and guidance documents in this area.
The discussion of COBRA coverage amendments (earlier in this section)

provides additional infmmation about dependent care.
Note: PPACA content is current as of the publication date ofthis module. It is,
however, subject to change. Visit the SHRM website on a regular basis for any ·
additional information and changes to PPACA.
National Federation of Independent Business v. Sebelius (2012)
In Nadanll/Fedl!ratlon oflntlepettdl!nfBflsiness v. &:heliu~· (20 12), the u.s.

Sup~rne Court c~~aide~edtwo kcyP(l:ACAprovisions: .
• · Medicaid expansion~whethcr a requirement for states to choose between
complying with the PPACA or IQSe federal funding forMedicaidis
· c0nstitutionally valid
• The individual mandate-'--whcthcr the PPACA requirement that most.
Americans maintain ''minimum essential'' health insurance or pay apenalty
is unconstitutional
Medicaid Expansion
Medicaid offers federal funding to states to assist pregnant women, children,
needy families, the blind, the elderly, and the disabled in obtaining medical care.
PP ACA proposed to expand the scope of the Medicaid program and increase the
number of individuals states must cover. Provisions were to increase federal
funding to cover some ofthe states' costs in expanding Medicaid coverage. But
PPACA stipulated that if a state did not comply with PPACA coverage
requirements, the state could lose not only the federal funding for those
requirements but all of its federal Medicaid funds.
426 © 2015 SHRM

The Court ruled that the state requirement to expand Medicaid was
unconstitutional because it threatened the states with taking away their existing
Medicaid funding for noncompliance. As a result of the Court striking down the
Medicaid expansion, states can avoid providing insurance for low-income
individuals who cannot obtain insurance by themselves.
Individual Mandate
For most individuals who are not exempt and who do not receive health
insurance through an employer or government program, the individual mandate
requires them to purchase private health insurance coverage. With limited
exceptions, those who do not comply with the mandate must pay a penalty to the
Internal Revenue Service for noncompliance.
The Court held that the individual mandate was constitutional and that Congress
had the power to assess a tax against those who did not purchase insurance.
Job Safety and Health Laws

One important way in which HR professionals can help their organizations
protect human capital is by awareness of and ensuring compliance with laws that
relate to managing safety and health in the workplace. This content describes the
fundamentals of the following federal legislation:
• Occupational Safety and Health Act (OSH Act) of 1970
• Drug-Free Workplace Act of 1988
Organizations must comply with state and local laws and regulations related to
these two laws. Such regulations vary among states and municipalities and
often impose additional burdens on employers. A good starting point to learn
more are the resources available on the SHRM website, at www.shrn1.org/
I legalissues/stateandlocalresources/pages/default.aspx.
)
Occupational Safety and Health Act
The Occupational Safety and Health Act (OSH Act) ofl970 cstablisl{ed the
first national poljcyfo~ workplace safety and health; This federal law requires
em]'loyers to pmvide safe and healthl\tl working conditions for emplqyees:; ·
© 2015 SHRM 427

)
I
Coverage
The OSH Act covers virtually all workers in the country, with a few exceptions,
such asfamil)'farrns worked only byfamily members and seJfcemployedworkers.
Administration
The Occupational Safety and Health Administration (OSHA) was created
within the federal DOL to administer and enforce the act. OSHA's mission is to
help employers and employees reduce on-the-job injuries, illnesses, and deaths.
Several objectives for OHSA are included in the act. Key ones are to:
• Encourage employers and employees to reduce safety and health hazards.
• Encourage employers and employees to perfect safety and health.programs.
• Authorize the secretary of labor to establish mandatory occupational health
and safety standards.
• Create an Occupational Safety and Health Review Commission (OSHRC) to
hear appeals under the act.
e Provide health and safety research through the National Institute for
Occupational Safety and Health (NlOSH).
• Discover the causal connections between diseases and work and establish
appropriate standards to eliminate industrial disease.
• Establish medical criteria to ensure that no employee will suffer diminished
health, functional capacity, or life expectancy.
• Implement training programs to improve the quantity and quality of people
engaged in the safety and health field.
• Provide an effective program of enforcement of safety and health standards.
• Encourage the states to assume responsibility for the administration and
enforcement of safety and health regulations.
• Provide appropriate reporting procedures with regard to safety and health.
e Encourage joint labor-management efforts to reduce injuries and disease.
In tum, OSHA has set forth a variety of responsibilities and rights for both
employees and employers.
Employee Responsibilities
Although OSHA does not cite employees for violations of their responsibilities,
it does stipulate that each employee "shall comply with all occupational safety
428 © 2015 SHRM

and health standards and all rules, regulations, and orders issued under the act"
that are applicable.
Employee Rights
The overarching employee right under the act is covered by the General Duty
Clause. Under the General Duty Clause, each employee has the right to ''a place
of employment which [is] free from recognized hazards that are causing or are
likely to cause death or serious physical harm."
OSHA also provides employees with a number of specific tights, including the
following:
• The right to demand safety and health on the job
• The right to request inspections
• The right to have an authorized employee representative accompany an
inspection
• The right to file a complaint
• The right to be informed of workplace hazards
• The right to request action from the employer to correct hazards or violations
• The right to file a discrimination complaint
• The right to receive training
According to OSHA, employees can expect OSHA representatives to:

• Respond promptly to their requests for correction of serious hazards at work.
• Advise employees of their safety and health rights and responsibilities.
• Complete, within 90 days, investigations of charges of employer
discrimination against employees who repott unsafe conditions to OSHA.
• Promote employee participation in health and safety programs.
• Issue a citation and proposed penalty within six months of a violation's
occurrence.
Employer Responsibilities
)
Basically, employers must keep employees informed, healthy, and safe.
Figure 16 summarizes some of the key responsibilities employers have under

OSHA.
© 2015 SHRM 429

• Display the OSHA poster in a conspicuous place • Correct. cited violations.withinthe.period

where it can be seen and read by all employees. prescribed or agreed to by OSHA.
• Make copies of the act and relevant OSHA • Allow employees to refuse abnormally
rules and regulations available to employees dangerous work when faced with an
upon request. imminent danger of death or serious
• Post OSHA citations at or near the work site injury. (Some state laws also provide a
procedure for employees to follow when
involved until the alleged violation has been
abated or for three working days, whichever is protesting unsafe working conditions.)
!onger. • Provide employees with personal
• Notify any employee who has been/is being protective equipment required for the
exposed to hazardous agents at levels exceeding job, at the employer's expense, except
those in a mandatory OSHA standard and inform for footwear that can be used off the job
exposed employees of corrective action being and prescription eyewear.
taken. • Provide medical surveillance of
• Maintain accurate records of and periodically employees when required by OSHA
report on work-related deaths and injuries and standards.
illnesses beyond first aid; permit employees to • Provide training mandated under specific
review records. OSHA standards.
• Permit an authorized employee representative to • Ensure that persons directing work
accompany the OSHA compliance officer during understand and enforce all applicable
any physical inspection of the workplace. safety laws, rules, and regulations.
Figure 16: Key OSHA Employer Responsibilities
An organization's senior leadership has asked HR to review its safety policies

and practices and assess the overall effectiveness of workplace safety. At
present, the responsibilities to protect employer property and keep employees
safe are spread across several business units. Some of the units have direct
Relationship responsibilities related to safety concerns and issues; others have tangential
Management tasks and accountabilities. There are multiple individuals involved in the
Competency
organization's workplace safety initiatives: senior leadership and human
in Action
resources as well as safety, benefits, and workers' compensation
professionals. Line and staff managers and supervisors are also involved.
The human resource practitioner (HRP) overseeing the review process
recognizes that the various constituents may have competing and perhaps
conflicting concerns and interests. The HRP methodically and diplomatically
coordinates and expedites the internal review oflhe current working
conditions. Findings and recommendations identify areas in which workplace
safety is adequate and areas where safety can be improved; those findings
and recommendations are communicated to all stakeholders.
The HRP's actions demonstrate relationship management by reviewing the
safety policies and practices across the organization, coordinating the input
from multiple stakeholders, and managing all the interactions to achieve the
overarching goal of a safe workplace for all employees.
430 © 2015 SHRM

The General Duty Clause covers only serious hazards for which OSHA has not
yet promulgated a specific standard; OSHA cannot cite an employer for a
violation of the ·General Duty Clause· if there is· a· speCific· stiill.dard.covering the
condition or practice in question.
However, an employer still could be cited under OSHA's General Duty Clause
for employee injuries and fatalities where:
• The employer failed to keep the workplace free of a hazard.
• The hazard was recognized either by the cited employer individually or by
the employer's industry generally.
o The recognized hazard was causing or was likely to cause death or serious
physical harm.
o There was a feasible means available that would eliminate or materially
reduce the hazard.
Employer Rights
Generally, employers may:
• Monitor OSHA's announcements of its intent to propose new regulations and

participate in the rule-making process by attending public hearings on the
proposed rules and submitting comments on the rules to the extent that they
affect their workplace.
• Be active in their industry association's involvement in job safety and health

and take an active role in developing safety and health standards through
participation in OSHA Standards Advisory Committees, through nationally
recognized standards-setting organizations, and through evidence and views
presented in writing or at hearings.
• Apply to OSHA for a temporary variance from a standard if unable to

comply because of the unavailability of materials, equipment, or personnel
needed to make necessmy changes within the required time.
• Apply to OSHA for a permanent variance from a standard if the employer

can furnish proof that the facilities or method of operation provide employee
i protection at least as effective as that required by the standard.
)
I
)
© 2015SHRM 431
Employers also have a number of rights during and after OSHA inspections.
These rights are discussed later in this section.
Key OSHA St;mdards

Employers are regulated by OSHA standards. OSHA currently publishes six volumes
of standards in the. Code ofFeder<Jl Regulations (CFR). These standards cover four
major categories: general industry, maritime, construction, and agriculture.
The fundamental provisions of the best~known OSHA standards are summarized

in Figure 17.
Emergency Exit Provides guidelines for preparing an emergency action plan and
Procedures includes specifications regarding exits and maintenance of
emergency systems; also known as Means of Egress standard.
Occupational Noise Requires employers to provide for effective engineering or
Exposure administrative controls to reduce unsafe noise levels in the workplace;
also known as Hearing Conservation standard.
Machine Guarding Provides general requirements for all machinery to protect operator
and other employees.
Hazard Communication Requires use of labeling, Material Safety Data Sheets, training,
orientation for new and transferred employees, and written hazard
communication programs to inform employees of hazardous
chemicals in the workplace; also known as Employee Right-to-Know
Law.
Control of Hazardous Requires action so equipment cannot be activated (lockout) and signs
Energy or labels (tagout) are attached to dangerous equipment that should
not be activated.
Bloodborne Pathogens Requires employers to protect employees from potentially infectious
materials; Needlestick Safety and Prevention Act revised the standard
to require employers to minimize employees' exposure to blood from
sharps injuries through annual reviews and employee input.
Confined Space Entry Addresses concerns over adequate oxygen content in the air, toxic or
flammable substance exposure, and physical exposures for workers
in confined spaces. Requires space-entry restrictions, rescue
procedures, and written safe-entry program.
Personal Protective Protects employees from environmental, process, chemical,
Equipment mechanical, or radiological hazards capable of causing injury or
impairment and sets criteria for acceptable equipment designs.
Process Safety Aimed at preventing or minimizing the effect of catastrophic releases
Management of toxic, reactive, flammable, or explosive chemicals.
Figure 17: Key OSHA Standards
432 © 2015 SHRM

WORKPLACE U ,S. Employment Law and Regulations
The Federal Register, available in many college and public libraries, regularly
publishes all new and proposed OSHA standards and amendments, as does the
OSHAWebsite,www:osha:gov:
Record-Keeping Requirements
OSHA has specific record-keeping requirements. Some of the key posting
requirements were noted in Figure 16, "Key OSHA Employer Responsibilities."
Additionally, all organizations with more than ten employees, except for low-
hazard businesses, musl report aii employee occupational injury and iiiness data.
• An occupational injury is an injury such as a cut, fracture, sprain, or
amputation that results from a work-related accident or exposure involving a
single incident in the work environment.
• An occupational illness is a medical condition or disorder, other than one
resulting from an occupational injury, caused by exposure to environmental
factors associated with employment.
OSHA has one set of criteria for recording both work-related injuries and work-
related illnesses.
To access OSHA information related to recordable incidents, go to

. www.osha.gov\recordkeeping\index.html to view frequently asked questions and
a link to OSHA regulations.
OHSA Forms
Employers must use specific OSHA forms to report illnesses and injuries:
• OSHA's Form 300: Log of Work-Related Injuries and Illnesses
• OSHA's Fonn 300A: Summary of Work-Related Injuries and lllnesses
• OSHA's Form 301: Injury and lllnesses Incident Report
Forms 300, 300A, and 301 and directions for completing them are located online
at www .osha.gov/recordkeeping/new-osha300form l-l-04.pdf.
Incidence Rates
Each year OSHA collects work-related injury and illness data from employers
,, within specific indush·y and employment size specifications. This data collection
' ' is called the OSHA Data Initiative (or ODI). The data provided is used by OSHA
)
to show the relative level of injuries and illnesses among different industries,
firms, or operations within a single fitm.
© 2015 SHRM 433

Incidence rates take on more meaning for an employer when the injury and
illness experience of the organization is compared with that of other employers
doing similarworkwith workforces ofsimilar size. For an individual employer,
these rates can help determine both problem areas and progress in preventing
work-related injuries and illnesses.
Information compiled by the Bureau of Labor Statistics (BLS) in a searchable

database permits detailed comparisons by industry and size of fi1m. The BLS
website provides step-by-step instructions for employers to calculate incidence
rates and evaluate their firm's injury and illness record. For more information,
see www.bls.gov/iif/osheval.btm.
OSHA inspections
Unlike other federal agencies, where an initial notice of investigation is given in
writing, OSHA does not normally give advance notice. Inspections may be
conducted at random or in response to complaints of unsafe conditions.
Employers must submit to an inspection if the inspector has a warrant. In the

absence of a warrant, the employer has two choices: consent to the inspection or
refuse and require OSHA to provide a search warrant before allowing access to
the organization's premises.
OSHA has protocols for both inspection priorities and inspection procedures.
OSHA Violations, Citations, and Penalties

After an OSHA inspection, a report listing probable violations is prepared.
Normally, citations are issued and sent by certified mail. However, citations may
be issued at the work site immediately following the inspection in cases where
immediate protection is necessary. Penalties may be assessed based on the severity
of the violations, the size of the business, the good-faith eff01ts of the employer to
abate the cited violations, and the employer's previous violations, ifany.
An employer has the right to challenge a citation. OSHA has specific procedures
to do so, including a hearing with an administrative law judge, appeal to the
Occupational Safety and Health Review Conunission, and appeals to courts of
appeals (e.g., circuit comts or the Comt of Appeals for the District of Columbia
Circuit).
434 © 2015 SHRM

Drug-Free Workplace Act
The requirements under the Drug-Free Workplace Act include:

• Developing a policy that prohibits the unlawful manufacturing, distribution,
possession, or use of a controlled substance in the workplace.
• Specifying the actions that will be taken against those who violate the policy.
o Providing a copy of the policy and the consequences of violating the policy to
employees, including employees having to inform the employer within five
days if they are convicted of a criminal drug offense occurring in the workplace.
o Establishing a drug-awareness program that informs employees about the
dangers of drug use in the workplace, the availability of drug treatment and
counseling, and the employer's drug-free policy and penalties for drug
violations.
In addition, action by the employer is required in the case of drug-related

convictions, including: .
• Notifying the federal contracting agency within ten clays of receiving notice of
any employee conviction of a criminal drug offense occurring in the workplace.
• Imposing a sanction on a convicted employee or requiring satisfactory
participation in a rehabilitation program.
Many states have laws related to a drug-free workplace that affect all employers
in that state, including those who do not do business with the federal
government.
Employee Relations Laws

This content clesclibes the fundamentals of the National Labor Relations Act as
well as two cases affecting employee rights: NLRB v. Weingarten and Lechmere,
Inc. v. NLRB.
© 2015 SHRM 435

)
National Labor Relations Act and Amendments
The National Labor Relations Act (NLRA) of' 1935 was passed with the ..
;
purpose of protecting and encouraging the growth of the union movement. Tite
act established workers' right$to or~nize and bargain collectively with
._ employers. The NLRA also established a new indePendent agency-the
· · National Labor Relations Board (NLRB). ,,. · .>
The Labor-Management Relations Act (LMRA) of' 1947 significantly

' amended the NLRA and imposed several restrictions and requirements on
unions.
The Labor Management Reporting and Disclosure Act (LMRDA) of 1959 · ·

further amended the NLRA and imposed regulations on internal union affairs
and the relationship between union officials and union members.
.i
All of the above legislation has common names. The NLRA is also known as the
Wagner Act, or the Wagner-Connery Act for the two legislators who sponsored
the law. Similarly, the LMRA is also known as Taft-Hartley Act and the
LMDRA is also called the Landrum-Griffin Act.
As originally passed, the NLRA provided strong support for the rights of
employees to join a union. For that reason, in most people's minds, the NLRA is
associated with union activity. However, it would be a mistake to think that the
provisions of the NLRA apply only to union members. The rights granted by the
law apply to all workers-whether or not they are members of unions and
whether or not specific organizing activity has occurred.
Coverage
The NLRA applies to all employers participating in interstate commerce, with
the exception of governments, religious schools, agricultural employers, and the
railroad and airline industries.
The NLRA generally protects all the employees of a covered employer. The
NLRA does not protect certain types of workers (such as agricultural workers,
436 © 2015 SHRM

domestic laborers, and independent contractors as well as managers and

supervisors).
Enforcement
The NLRB was created to enforce the self-organization rights of employees to:
• Form, join, or assist labor organizations.
• Bargain collectively through representatives of their own choosing.
I!' Engage in concerted activities for the put pose of collective bargaining or
other mutual aid and protection.
• Refrain from any or all such activities.
While beyond the scope of this discussion, the NLRB is also integrally involved
in the union election process. Activities range from the petitioning process to
start an election process to representation elections as well as decertification
elections.
The NLRB also determines standards for unions and investigates charges of
unfair labor practices.
Unfair Labor Practices

An unfair labor practice (ULP) occurs when a union or an employer violates
Section 8 of the National Labor Relations Act. Labor organizations and
employers may engage in activities that constitute a ULP singularly or in
combination.
Union members commonly file ULPs against the union because the union failed
to fairly represent its members (e.g., refusing to bargain in good faith with the
employer). Employees also file ULPs against union leaders for intimidation,
coercion, violence, and many other labor law violations if they exercise their
rights to refrain from concerted activity.
Common employer ULPs include:

)
• Interfering with employees as they engage in concerted activity.
• Dominating or assisting a labor union.
' )
• Retaliating against any employee because of union activity.
• Retaliating against an employee for filing charges with the NLRB.
)
© 2015 SHRM 437
o Refusing to bargain collectively in good faith with a union.

o Promising or giving benefits to employees who oppose a union (e.g.,
rewarding employees who infiltrate or spy on union meetings or question
other workers about their support for a union).
To a lesser degree, a ULP may result from the combined activity of employers
and labor organizations.
Remedies for unfair labor practices. If an employer or a un10n commits a

ULP, the NLRB will order the guilty party to cease and desist from the unlawful
behavior. In the event that an employee is injured by a ULP, the NLRB may
order the employer to compensate the employee (e.g., reinstatement, payment of
lost wages and benefits, seniority credits). The NLRB also regularly orders
I
I. parties guilty ofULPs to post a notice informing workers of the board's decision.
!I
!I
I Employers.should remember that, evert ifthere is no organizing campaign

II
· under way or contract in place, they must abide by the provisions of the NLRA
and respect covered activities. These activities may include:
I!
• Objections to harassment.
• Refusing to work under dangerous condit.ions.
• Protected concerted activity, such as honoring a picket line, retusing
I .· voiiJntary on-call work, filing grievances, or protesting discrimination.
• Filing for unemployment as a group(three or more employees).
• Petitioning the employer for resolution of some issue.
In addition, employees have the right to discuss with others the terms and
conditions of their employment. Accordingly, requirements that employees keep
their salaries confidential are prohibited.
NLRB v. Weingarten
. )
NLRB v. Wei,garteh ( 1975) is a landmark labor relations ease. The case dealt
with the right. ofa unionized employee to have anotherperson present during
certain investigatory interviews-.· the so~ealled Weingarten rights.
438 © 2015 SHRM

An investigatory interview occurs when a supervisor questions an employee to

obtain information that could be used as a basis for discipline or asks an
employee to deft:>nd his or her conduct. InNLR!J v. Weingarten, the u.s.
Supreme Court held that unionized employees had the right to have a union
representative present during such investigatory interviews.
When an employee requests the presence of a union representative, management

must:
• Stop questioning until the representative arrives.
• Give the employee the option of continuing without a representative or
foregoing the interview and having disciplinary decisions made on the basis
of other information, without employee input.
The U.S. Supreme Court ruled that:

• Management must inform the union representative of the subject of the
interview.
• The representative must be allowed to speak privately with the employee
before the interview.
• The representative can inteJTupt to clarify a question or to object to confusing
or intimidating tactics.
• The representative cannot tell an employee what to say but may advise the
employee as to how to answer a question.
• At the end of the interview, the representative can add information to support
the employee's case.
It is also important to appreciate the limits of the Weingarten ruling:

• An employee's right to have a union representative present applies only to an
investigatory interview--one conducted to gather facts that may lead to a
disciplinary action. This right does not apply to other types of meetings, such
as where the employer is merely informing the employee of a decision it has
already made to impose discipline.
• The person attending the investigatory interview must be affiliated with the
union that represents the employee. An employee can be prohibited from
having an attorney or a relative present.
• If the interview proceeds, the employer is not required to bargain with the
representative or to permit him or her to disrupt the proper conduct of the
interview.
© 2015 SHRM 439

l Over the years, the NLRB has vacillated on the applicability of Weingarten to
II nonunion employ~:es:
• ln2000;the NLRB extended these rights to nonunion employees, .

I - Nomltlion employees who were not supervisors were able to bring along a
I -coworker to an investigatory meeting with an employer.
' I
"· "'-.,
." . ln 2004, the NLRB ruled that the Weingarten rights app!yon!y to unionized·
employees, reversing the 2000 decision.
Lechmere, Inc. v. NLRB

The National Labor Relations Act guarantees employees "the right to self-
organization, to form, join, or assist labor organizations," and makes it an
II unfair labor practice for an employer "to interfere with, restrain, or coerce
i
'j,I
employees" as they exercise their rights.
IId
!i Lechmere, Inc., owned and operated a large retail store located in a shopping
•I
!!i plaza. Lechmere was also part owner of the plaza's parking lot.
Nonemployee union organizers campaigned to organize the store employees
il by enterjng the company's parking lot and placing handbills on car
i
I windshields.
I
!
Lechmere prohibited solicitation and literature distribution on its property.
I The union organizers persisted in their leafleting campaign despite continued
I objections from Lechmere. The union also filed an unfair labor practice
charge with the National Labor Relations Board, alleging that Lechmere had
violated the NLRA by barring the organizers from its property.
In Lechmere, Inc. v. NLRB (1992), the U.S. Supreme Court ruled that
Lechmere did not commit an unfair labor practice by barring nonemployee
union organizers from its property. The court cited another related ruling and
noted that the NLRA confers rights only on employees, not on unions or
their nonemployee organizers. Thus, as a rule, an employer cannot be
compelled to allow nonemploycc organizers onto the business property.
440 © 2015 SHRM

Miscellaneous Protection Laws

In this final section on key laws, we look at the fundamentals of the following
legislation and amendments:
• Fair Credit Reporting Act of 1970 and Fair and Accurate Credit Transactions
Act of2003
• Immigration Reform and Control Act of 1986
• Employee Polygraph Protection Act of I 988
• Worker Adjustment and Ketrammg Notification Act of I 988
• Genetic Information Nondiscrimination Act of 2008
Fair Credit Reporting Act and Fair and Accurate

Credit Transactions Act
Fair Credit Reporting Act
The .Fair Credit Reporting Act (FCRA.) of1970 regulates the .collection and
usc of consumer credit infortTialion. The FCRA 's purpose is to protect the
privacy or background information and toensure that the inthrmation supplied
is aecurute. FRCA calls for full disclosure of consumer reports (including credit
reports, criminal background ~;hecks, motor vehicle history, employment
verifications, and reference checks) by eonsumcrrepmiing agencies (CRAs) so
..... that individuals subject to them can dispute the wrongful use or interpretation .
of the infonnation.
~\ The legal obligations that the FCRA imposes on CRAs also apply to employers
who p(lll credit cons11mer reports, run criminal background ch(!Cks or conduct
(
. detailed background checks on applicants, employees, and independent·
contractors. ·
I FCRA Requirements
Where an employer obtains a consumer report (broadly defined) for employment
purposes, the following FCRA provisions generally apply (depending on, among
other factors, when in the process the report is requested).
I
I
)
• Written notice and authorization. An employer must clearly and
conspicuously notify the individual in writing, in a document consisting
© 2015 SHRM 441

solely of that notice, that a report may be used. The notice cannot be
incorporated into an employment application. The employer must also get
the person's written a.uthotizatibti before asking aCRA fora report
• Pre-adverse action. If an employer decides not to hire an applicant or to

take some other adverse action based in whole or in pmt on the consumer
report, the applicant or employee must be provided with a copy of the report
and given a reasonable period of time, as defined by the FCRA, to present
evidence challenging the information contained in the report. The employee
or applicant must also be provided with a copy of"A Summary of Your
Rights Under the Fair Credit Reporting Act." The employer should receive a
copy of this document from the . consumer reporting agency generating the
consumer report, but it can also be found at the Federal Trade Commission's
website, at www.ftc.gov/news-events/media-resources/consumer-finance/
credit-reporting.
• Adverse action procedures. After the employer has taken adverse action
based in whole or in part on the consumer report (as well as any information
that the individual submitted in response to the pre-adverse action notice),
the employer must give the applicant or employee notice that such action has
been taken. FCRA provisions stipulate several inclusion requirements
regarding this notification.
e Certifications to credit bureaus. Credit bureaus will require employers to

certify that they are in compliance with the FCRA and that they will not
misuse any infmmation in the report in violation of federal or state laws.
• Penalties. Plaintiffs who prove willful noncompliance with the act can
recover actual dmnages (between $100 and $1 ,000), punitive damages, and
costs-including attorneys' fees. Negligent noncompliance subjects an
employer to actual damages, costs, and attorneys' fees.
Amendment to FCRA-FACT
Since April1999, the Federal Trade Commission, which oversees
implementation of the FCRA, had taken the position that the FCRA consent and
disclosure requirements were triggered when a third party such as a law firm or
outside human resources consultant conducted a workplace misconduct
442 © 2015 SHRM

investigation on behalf of an employer. Under this interpretation, an employer

was required to obtain the consent of an employee under investigation for
alleged misconduct prior to the investigation.
. -
The Fair and Accurate Credit Transactions Act (FACT Act) of2003
.jl)Ueod$ the. Fair Credit Reporting Act and provides some relief!~ employer~ ...
· using third partiesto cnndm1f workplace itwcstigations; ·
Under the FACT Act, an employer who uses a third party io conduct a .
workplace Investigation no longer needs to follow the consentanddisclosure ··
requi~ritents of til~ .f/CRA. before commencing the investigation if the
investigation involves suspected misconduct, a violation. of laW or regulations,
or a violation of any preexisting written policies of the employer.
The amendment frees employers to hire outside consultants, investigators, or law

firms to investigate and report on a variety of workplace issues without first
notifying targets of the investigation or obtaining their consent. However, the
employer must subsequently disclose to the employee a "summary construing the
nature and substance of the communication upon which any adverse action is
based." The employer need not disclose its source of information in the summary.
The FACT Act also requires employers requesting medical information about an
applicant or employee to obtain a specific Wiitten consent describing in "clear and
conspicuous language" the use of the infommtion.
Finally, the FACT Act has issued directives aimed at uncovering and preventing
incidents of identity theft or unauthorized use of the information, including
specific disposal rules for destroying the information.
Amendment to FCRA by Dodd-Frank Wall Street Reform and Consumer

Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the
FCRA in 20 II. Employers who take adverse action against a prospective or
current employee or an independent contractor based on information contained
in the individual's consumer report have additional disclosures to make to the
affected individual.
.I
© 2015 SHRM 443

Based on the Dodd-Frank amendment, whenever any adverse action is taken

against an individual, either pmtly or wholly because of infonnation contained in
a consumer report, the employer must provide the individual with oral, written,
or electronic notice of the adverse action as well as specific credit score
infmmation used and the name of the consumer reporting agency or person that
furnished the credit score.
All of these new requirements Hre in addition to the existing notification FCRA
requires employers to provide applicants, employees, or independent contractors.
Immigration Reform and Control Act
Tb¢ Immigration Reform and Control Act (IRCA) of1986.is designed to

accomplish two somewhat divergent purposes. IRCA prohibits discrimination
against job npplicnnts on the basis of national origin or citizenship and, at the
·. $arne time, establishes.pennUies fQr hiring illegal aliens, with certain
ex<:cptions._Employcrs who knowinglyhire.somconcwho is not entitled to
wptk in this countryfac.e both civil and criminal penalties, !RCA is enforced by
·the U.s, Citizenship w.J.dfmmigration Serviccs(USCIS),·!I spccialbranchofthc
Department.ofJusticc.
The burden of verifying that a new employee is eligible to work in the U.S. falls
on the employer. Generally, on the first day of employment, the new hire must
I
i
!
fill out Section One of Fmm I-9, Eligibility Verification Form, which is kept in
the employer's files. The employer must complete Section Two no later than the
third day the employee is at work. Form 1-9 verifies two facts about the
r
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employee: identity and right to work in the U.S. It must be kept separate from
II other employee records.
II
II
The employee selects which document(s) he or she wishes to present as patt of
i
I the I-9 verification process; the employer may not specify which documents
must be presented. Employers are prohibited from accepting expired documents.
Form 1-9 is updated periodically. Employers are required to usc the version of
Fonn 1-9 that is valid at the time the form is used for an initial verification using
Section Three of the fmm.
444 © 2015 SHRM

For additional information, and to ensure that you are using the current version
of Form I-9, check the USC!S websit~; see www.uscis.gov/i-9.
E-Verify
E-Verify is an Internet-based verification system operated by the USC IS in
partnership with the Social Security Administration. The system allows
employers to verify the employment eligibility of their employees regardless of
citizenship. E-Verify electronically checks the information provided by the
employee on his or her Form l-9 against records contained in Department of
Homeland Security and Social Security Administration databases.
While participation in E-Verify is voluntary for most businesses, some

companies may be required by state law or federal regulations to use it.
Additionally, an executive order requires that federal contractors use E- Verify to
check the employment eligibility of employees.
1 The USCIS has published extensive infonnation on its website regarding E-

Verify, including the details about the federal contractor requirements. See
www.uscis.gov/e-verify.
Employee Polygraph Protection Act
The Em.piiiYI!tl Polygraph Protectlml Act(EPPA) of 1988 generally prevents

most private employers fro111 requiring ~JppUcants orcmployces to take a
poly~ph testfor preemployment screening or during the course of
cmployJ!ient. Thel'l.)l!te vcrylit).)ited eXC!lPHPnS.
Definitions
Lie detectors include polygraphs, deceptographs, voice stress analyzers,
psychological stress evaluators, or similar devices (whether mechanical or
electrical) used to render a diagnostic opinion as to the honesty or dishonesty of
an individual. A polygraph is an instrument that records continuously, visually,
) permanently, and simultaneously changes in cardiovascular, respiratory, and
electrodermal patterns.
© 2015 SHRM 445

)
EPPA Exemptions
Federal, state, and local governments are excluded. In addition, lie detector tests ·;
administered by the federal government to employees of federal contractors
engaged in national security intelligence or counterintelligence functions are
exempt.
The act also includes limited exemptions where polygraph tests (but no other lie .;
detector tests) may be administered in the private sector, subject to certain
restrictions:
• To employees who are reasonably suspected of involvement in a workplace

incident that results in economic loss or injury to the employer's business
and the employee had access to property
• To prospective employees of armored car, security alann, and security guard

firms who protect facilities, materials, or operations affecting health or .'
safety, national security, or currency and other like instruments
• To prospective employees of pharmaceutical and other firms authorized to

manufacture, distribute, or dispense controlled substances who would have
direct access to such controlled substances as well as current employees who
are involved in an ongoing investigation of related criminal or other
misconduct
Even. in tbll abov~: <;ll,S!IS..(ot)l~r*an with tl,lS,.peqt loW: .detectors a.qtninjstered

by the federal g~vernment to ell:lployees offederalcontractors engaged in
oa\in.nal.seqt,~r,it)• in!~ll!&enc"f·()J; l::ol!nterillt(llljgelll::l:: function~), ll,f\ e!llployer
inay not discriminate against prospective or current employees and may not
discharge any cQrrent employee based solely upon refusal to take a polygraph
test or analysis ofa test. Ifan employee voluntarily agrees to take the test, the
employee may ternlinate the test at anY titne.
An employer who violates the statute may be fined and can be sued by an
employee or prospective employee to recover lost wages and benefits, attorneys'
fees, and court costs as well as possible equitable relief such as reinstatement and
promotion.
446 © 2015 SHRM

Some states impose restrictions that are greater than those set forth under federal
Jaw. Accordingly, even if a polygraph test is lawful under federal law, it may be
prohibited under state law.
Worker Adjustment and Retraining Notification Act

··.··<:.
·v · The Worker Adjustmcntan:d Retraining Notification (WARN) Aci"of
1988 requires some employers to grve a rrtinimum of 60 calenda~ days of
advance written notice if a plant is to close or if mass layoffs will occur.
This act allows displa~ed workers. adequate time tqsearch_fora n~w job and
· allows government entities to dctennine whether any assistance inay be
available for affected workcni; therefore, it potentially reduces the impact of
allY mass layoff or plant closing.
The 60 days' advance written notice must be given to affected workers or, if
unionized, their local and international union representatives; state dislocated
worker units where the affected facilities are located; and the chief elected
official of the local government where the closing or layoff will occur.
Coverage
WARN applies to employers who employ I 00 or more:
• Full-time employees, or
• Full-time and part-time employees who, in the aggregate, work at least
4,000 hours (exclusive of overtime hours) per week at all employment
sites.
"Part-time" means either employees whose average workweek is less than 20

hours per week or those who have been employed for fewer than six of the
preceding 12 months as of the date WARN notices are due.
Exceptions to 60-Day Notice

There are limited exceptions to the 60-day notice requirement. The three
exceptions noted below do not excuse WARN notices. They simply permit
)
)
provision of fewer than 60 days advance notice, provided the employer satisfies
)
© 2015 SHRM 447
specific criteria. The employer bears the burden of proof to show that its
situation falls within a WARN exception.
• Faltering company. This exception covers certain situations where an

organization has actively sought new capital or business in order to stay open
and where giving notice would min the opportunity to get the new capital or
business. The falteting company exception is narrowly construed and applies
only to plant closings.
• Unforeseeable business circumstances. This exception applies to closings

and layoffs that were sudden and were not reasonably foreseeable at the time
notice would otherwise have been required (such as the sudden and
unpredicted loss of a key business client that severely impacts the
organization's financial stability).
• Natural disaster. This exception applies where a closing or layoff is the direct
result of a natural disaster, such as a flood, earthquake, drought, or storm.
If an organization faces a financial crisis, an unanticipated business event, or a

business intenuption due to a natural disaster that results in a mass layoff or a
plant closing, it should consult legal counsel before relying on an exception.
Downsizing at a faltering company is imminent. During a meeting of the

executive management team, the chief operating officer (COO) asks the HR
senior vice president (HR SVP) to oversee a reduction in force (RIF) of 60
employees. The COO also inquires if they qualify for a WARN Act exception.
Communi· The HR SVP tells the COO that HR can manage a variety of RIF·related
cation
issues (such as potential attendance and morale issues) but that appropriate
Competency
in Action legal counsel must be involved in to ensure WARN compliance.
In this exchange, the HR SVP (who is not an attorney and is not functioning
in an attorney capacity) recognizes that HR cannot render legal advice and
diplomatically explains that to the COO and other members of the
management team.
·Employers must cheekstatc and localla~v. Some states have state WARN acts
· ' . that have stricter criteria. A number of states and some municipalities have
"mini WARN" laws that may apply even when fcdct<tl WARN docs not.
448 © 2015 SHRM

The DOL's Employment and Training Administration offers a basic WARN fact
sheet. For more information about the act and WARN exceptions, see
www.doleta.gov/programs/factsht/warn.htm.
Genetic Information Nondiscrimination Act
The Genetic Information Nondiscrimination Act (GINA) ~f2008 prohibits ..

discrimination against Individuals on the ba&is of.their genetic informa!iim in ·_· ... ·
both employment and health insurance. Employment decisions based on
· genetic information are inappropriate because genetic information does not tell
· ·the employer anything about an individual's current ability to work.
Coverage
GINA prohibits an employer from discriminating against an individual in any
aspect of employment, including hiring, firing, pay, job assignments, promotions,
layoffs, training, fringe benefits, or any other term or condition of employment, on
the basis of genetic information about the individual or a family member of the
individual. Family members are not limited to biological relatives. For example,
GINA considers an adopted child as a family member. Covered employers arc
those with 15 or more employees and include state and local governments. Many
states also prohibit employment discrimination on the basis of genetic information.
Some state laws may apply to employers with fewer than 15 employees.
Exceptions
Under GINA, it is unlawful for an employer to get genetic information on the
individual or family member, with narrow exceptions such as the following:
• Inadvertent acquisitions of genetic information. Scenarios where a

manager overhears an employee talking about a family member's illness or
the manager receives an unsolicited e-mail indicating that an employee's
family member has cancer are valid exceptions.
• For health or genetic services offered by the employer on a voluntary

basis, if certain specific requirements are met. In cettain circumstances,
family medical history may be obtained for patticipation in a wcllncss
program.
© 2015 SHRM 449

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i • For purposes of complying with the FMLA (or leave under similar
I state/local laws or pursuant to an employer policy). An employer can

· collectinforrru'ltion as part ofthe Certification process When an employee
asks for medical leave to care for a family member with a serious health
condition.
• Where the employer purchases documents that are commercially

available (such as newspapers) or accesses sources (such as websites) as
long as the employer is not searching those sources with the intent of
finding genetic information. An employer might acquire genetic
information that appears in a commercially purchased newspaper but should
not search online discussiongroups that focus on genetic testing of
individuals and genetic discrimination issues with the intent of profiling
employees.
·GINA does allow for genetic monitoring of the biological effects of toxic
substances in the workplace where the monitoring is required by law or,
under carefully defined conditions, where the program is voluntary. The act
also has provisions regarding health-care coverage protections, exceptions
for genetic testing for health-care treatment, and confidentiality of genetic
health-care information.
The EEOC enforces Title II of GINA (dealing with genetic discrimination in

employment). The EEOC "Equal Employment Opportunity Is the Law"
poster covers the GINA Title II employment provisions. The poster (or the
"EEO Is the Law" poster supplement) can be found at www.eeoc.gov/
employers/poster.cfm.
The Departments of Labor, Health and Human Services, and Treasury have
responsibility for issuing regulations for Title I of GIN A, which addresses
the use ofgenetic information in health insurance.
EEOC Complaint Process

In cases of alleged discrimination, an individual must first file an administrative
charge with the EEOC (the federal agency responsible for enforcing
antidiscrimination laws) or with the state agency responsible for handling such
charges. The individual who files the charge is referred to as the charging party
450 © 2015 SHRM

or plaintiff, and the entity accused of the discrimination (typically the employer)
is referred to as the respondent.
'. ·.-
The EEOC has field offices nationwide. Charging parties who beUeve that they
have been discriminated against can fife a charge in any field oflice.
As a general rule, a claim under Title VII of the 1964 Civil Rights Act must be
filed within 180 days after the commission of the alleged discriminatory practice.
However, an exception to the 180-day rule is provided in states and localities
that have their own agencies that process and/or investigate charges of
discrimination. In these states and localities (referred to as deferral states), a
charge of discrimination may be filed with the EEOC within 300 days of the
alleged discriminatory conduct. The state agency must be given the opportunity
to investigate and/or close its file p1ior to the expiration of the 300 days.
To handle the growing number of complaints filed in recent years, the EEOC has
instituted a system of prioritizing them. Depending upon the initial priority
assessment, the EEOC may ask an employer to initiate a mediation process with
the charging party (if this has not already been done) before fonnally
investigating the complaint.
HR professionals should be aware of the process used for complaints to the

EEOC since they may be directly involved in gathering information, working
with attomeys and negotiating remedies. The employer has certain rights and
obligations, including time frames for action.
The flow of the EEOC process for discrimination charges is shown in Figure 18
on the next page.
The complaint process outlined here is intended to provide an overview. It is not

intended as a substitute for legal advice or exact EEOC h:gal requirements. You
may also want to visit www.eeoc.gov for the EEOC's information sheets about
the EEOC process for discrimination charges.
© 2015 SHRM 451

~---· . ----······------"
· EEO charge filed. 1.
. ,//
( EEOC notifies respondent

charge via a letter.
-··c·;;;r· - _,,·
(EEOC sends respondenla copy\

\ of the -charge. __ ,_., _,_j :
. ;,.;~i~i:.e,,;~;:,~,,;.~,·-'·
If reasonable cause is found. . . If the EEOC does not make a If reasonable cause is not found . ..
determination ...
r··--------------- -------------
fchargin~ party has right to... ' ;.-EEoc~otiti~~-b~ih-p;r!i~~:--,
' • EEOC attempts conciliation.'
! • Respondent required to ! request right-to-sue letter after Charging party is notified of
!\ provide remedies to settle. '180 days. right to sue.
'-~~- '---..,..._="""""'""' · • EEOC involvement ends.
fcharge is settled or may go (Cha';gi~-party must file suit in

!litigation with EEOC or private \2ourt within 90 days. (ch;,gl~g party may file suit
'{OUrt within 90 days.
;_~ourt.
Figure 18: EEOC Complaint Process
Retaliation
HR should also remind involved managers and supervisors that, under Title VII
of the Civil Rights Act, the National Labor Relations Act, the Fair Labor
Standards Act, the Occupational Safety and Health Act, the Unifonned Services
Employment and Reemployment Rights Act, and other statutes, employers are
prohibited from retaliating against employees engaged in "protected activities."
A protected activity includes actions such as filing a complaint, threatening to
file a complaint, refusing to obey an order that can be reasonably believed to be
discriminatory or unsafe, engaging in concerted activity with other employees to
obtain changes in employment terms or conditions, or picketing to protest the
terms and/or conditions of employment.
452 © 2015 SHRM

Acts of retaliation can be any adverse employment action, inclnding:

• Firing, demoting, or disciplining the employee or treating the employee in a
discriminatmy manner.
• Threatening action against the employee.
• Criticizing the employee.
• Discussing the complaint with the employee.
• Discussing the complaint and the employee with any external parties.
• Discussing the contplaint and the etnployee with any internal parties that do
not have a business "need to know."
J
)
453
© 2015 SHRM
Progress Check
I. What type of discrimination or harassment occurs if a manager always hires young,

attractive women as receptionists?
( ) a. Disparate treatment
( ) b. Disparate (adverse) impact
( ) c. Reverse discrimination
( ) d. Sexual harassment
2. What practice does a psychological exam that tends to eliminate African-American

applicants demonstrate?
( ) a. Disparate treatment
( ) b. Disparate (adverse) impact
( ) c. Present effects of past discrimination
( ) d. Outmoded selection practices
3. Which statement describes the key principle of Title VII of the Civil Rights Act of 1964?
( ) a. It prohibits discrimination based on race, color, religion, sex, or national origin.
( ) b. It removes the limits, or "caps," on damages awarded for intentional
disctimination on the basis of gender, religion, or disability.
( ) c. It prohibits employers from giving temporary preference to any underrepresented
protected class.
( ) d. It prohibits discrimination based on race, color, national origin, religion, and age.
4. Which legislation prohibits mandatory retirement based on age?

( ) a. Age Discrimination in Employment Act
( ) b. Employee Retirement Income Security Act
( ) c. Older Workers Benefit Protection Act
( ) d. Title! oftheAmericanswith Disabilities Act
5. Under the Pregnancy Discrimination Act, how should an employer treat pregnancy?
( ) a. Under the provisions for protected classes
( ) b. The same as any other temporary disability
( ) c. Under existing provisions for a long-te1m disability
( ) d. As a reasonable ADA accommodation
454 © 2015 SHRM

I
6. Which statement describes how the ADA Amendments Act changed the Americans with
Disabilities Act?
( ) a. Current drug users are considered disabled under the ddill!tion in the AbA.AA.
( ) b. Employers can no longer claim "undue hardship" to escape making the workplace
accessible to disabled workers.
( ) c. Employers could ask job applicants about the existence, nature, or severity of a
disability.
( ) d. It became easier for an individual seeking protection under the ADA to establish
that he or she has a disability within the meaning of the statute.
7. Under the FLSA, which employee must be paid overtime?

( ) a. A janitor who worked 30 hours during the workweek and was paid for 12 hours of
vacation time
( ) b. A vice president in charge of operations who worked 50 hours in a week
( ) c. A nonexempt employee who worked 45 hours in a week
( ) d. A security guard who worked 40 hours, including I 0 hours on a holiday
8. When calculating overtime, the employer must include the time for an employee who
( ) a. spends two hours at home, waiting for a call to report to work.
( ) b. arrives one hour early for the shift and waits in the employee waiting area.
( ) c. arrives at 8:00 as scheduled but cannot begin work because the needed delivery
doesn't atTive until I 0:00.
( ) d. must commute one hour each way from home to the plant.
9. Which legislation deters discriminatmy compensation practices in the workplace and ensures
that when discrimination does occur wronged employees can receive fair compensation?
( ) a. Equal Pay Act
( ) b. Lilly Ledbetter Fair Pay Act
( ) c. Employee Retirement Income Security Act
( ) d. Age Discrimination in Employment Act
I 0. An employer can request that a polygraph test be taken by which of the following
individuals?
( ) a. An employee applying for a public relations position
( ) b. A clerical employee who has entered treatment for substance abuse
( ) c. An accountant whose department is under scrutiny for embezzlement
( ) d. A recovering alcoholic who is seeking a post as a newspaper reporter
) © 2015 SHRM 455

11. According to provisions of the Fair Credit Reporting Act, an organization may obtain credit
)
information about an employee before offering a promotion if the individual
( ) a. is a rehabilitated drug offender.
.
.
I
.;
( ) b. is provided written notice and gives authorization.
- )
( ) c. refuses to take a polygraph test.
( ) d. volunteers information about being in arrears for child support.
12. Which legislation protects workers displaced in the merger of two corporations?
( ) a. Worker Adjustment and Retraining Notification Act
( ) b. Unifonn Guidelines on Employee Selection Procedures
( ) c. Dodd-Frank Wall Street Reform and Consumer Protection Act
( ) d. Immigration Reform and Control Act .J
I 3. Which federal agency was established to investigate charges of discrimination under Title VII?
( ) a. NLRB .'
( ) b. Workers' Compensation Board
( ) c. EEOC
( ) d. ADA Board
14. What is the MOST likely outcome if the EEOC finds no reasonable cause during the
complaint process?
( ) a. A recommendation for private legal action.
( ) b. A dismissal of all charges.
( ) c. The EEOC ends its involvement.
( d. The EEOC mediates conciliation eff01ts.
456 © 2015 SHRM


1. a (p. 363)
2. b (p. 364)
3. a (p. 365)
4. a (p. 375)
5. b (p. 369)
6. d (p. 381)
7. c (p. 400)
8. c (p. 406)
9. b (p. 414)
10. c (p. 446)
11. b (p. 441)
12. a(p. 447)
13. c (p. 450)
14. c (p. 452)
)
)
)
I
)
)
)
)
© 2015 SHRM 457

i
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I Section 4:
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Employee Records Management
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II • Establishing or positioning HR technology approaches for compliance and reporting.
II
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Complexities and Criticality of Records Management

HRpractitioners face numerous challenges in complying with the legal
requirements for employer record keeping and the retention of employee files
and other employment-related records. Challenges often result from the
complexity and variety of record-keeping requirements:
• Employer record-keeping obligations arise under many federal and state
laws.
• Some requirements apply to most employers; others apply to government
contractors and subcontractors.
• Some requirements depend on the number of employees or the purposes of
record keeping.
• Some requirements depend on the industry, the location, and/or the business
customers.
• The same or similar records are often required by more than one law, but the
periods of retention may vary.
Although record retention is complex and time-consuming, it is a critical HR

task. In addition to complying with vmious federal and state laws and
regulations, thorough and accurate record keeping is important to:
• Document and support an organization's employment actions.
• Demonstrate the effectiveness of policies and procedures (e.g., through
records of actions).
• Provide documentation to defend employment decisions.
Records retention and compliance can be daunting, but a methodical approach can
help. To start with, an HR practitioner needs to understand the fundamental
requirements:
• What records mnst be kept nnder each federal law.
• Retention period for those records.
• Ap]Jlicabilit)'for eachfedenlllaw.
Implementing good practices for records retention (such as but not limited to the
following) is also prudent:
• Keep well-organized records.
• Establish and implement a record retention policy.
e Investigate federal requirements.
© 2015 SHRM 459

• Investigate applicable individual state requirements.

• When the same or similar records are required by more than one law but the
period of retention varies, retain the infonnation for the longer period of time.
• Determine ifthere are laws regulating employees' access to their personnel
files in the state(s) in which the organization has business operations.
• Establish a system for auditing the organization's record keeping (including
personnel files) as well as a consistent program for record destmction.
~ Keep in mind that in the event of a discrimination chare;e or lawsuit, all
relevant records must be kept until the final disposition.
An employee submits a medical doctor's (MD) statement to his supervisor,

attesting to his recent absences from work. The supervisor puts the MD
statement in his desk file and does not share the document with HR. Not
long after this situation, the employee approaches HR and requests a
Human reasonable accommodation. This leads to HR's discovery that the supervisor
Resource neglected to share the original MD statement. The supervisor's negligence
Expertise
Competency
(albeit inadvertent) is inconsistent with the ADA's record-keeping
in Action requirements.
To remedy this situation, HR immediately communicates with the employee's

supervisor as well as other supervisors to discuss that the practice of holding
on to MD statements in inappropriate and noncompliant. HR takes the
following additional actions to prevent any future reoccurrence:
• Develops a policy regarding record-keeping requirements
• Designs and delivers requisite training to appropriate staff (e.g.,
supervisors, HR staff)
Collectively, all the actions HR takes to remedy the situation help to improve
the organization's record-keeping practices and better ensure that they are
compliant with federal record-keeping requirements.
A tina! key point about records retention: Record keeping begins long before a
job candidate is hired and extends long after an employee leaves the
organization.
HR Technology Implications
In general, employers are free to maintain their employment records either on
paper or electronically. However, technological advances have greatly facilitated
460 © 2015 SHRM

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) maintaining employment records in an electronic format. Electronic document
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) retention can relieve the employer of having to provide physical storage space
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I) The following are notable provisions of the DOL electronic guidelines that
? \
employers should consider when opting for an electronic system:
• The record-keeping system must have reasonable controls to ensure the
I; integrity, accuracy, authenticity, and reliability of the records kept in electronic
I
) form.
I
) • The electronic records must be maintained in reasonable order, in a safe and
) accessible place, and in such manner as they may be readily inspected or
examined (for example, the record-keeping system should be capable of
indexing, retaining, preserving, retrieving, and reproducing the electronic
records).
• The electronic records must be able to be readily converted into legible and
readable paper copy as may be needed to satisfy reporting and disclosure
requirements or any other obligation under Title I of ERISA.
• Adequate records management practices must be established and implemented
(for example, following procedures for labeling of electronically maintained or
)
retained records; providing a secure storage environment; creating backup
)
electronic copies and selecting an off-site storage location; observing a quality
I
assurance program evidenced by regular evaluations of the electronic record-
)
keeping system, including periOdiC checks of eleCtronically maintaitied or
)
retained records; and retaining paper copies of records that cannot be clearly,
accurately, or completely transferred to an electronic record-keeping system).
)
The "Final Rules" may be found on the DOL website, at www.dol.gov/
ebsa/rcgs/fedreg/final/2002008499.htm.
© 2015 SHRM 461

An electronic storage system should have appropriate security features, such as

firewalls and passwords that will protect the data and allow access only to those
who have a need to know. The system should also be backed up often to ensure ' }
that data is not lost in the event that the original system and files are destroyed.
Backup is extremely important to ensure that an organization has access to
records and is able to respond to any employment-related litigation. If a third-
party vendor is chosen for document storage, the vendor should have a proven ·- }
track record of providing reliable safety and security for employment records.
The same federal record-keeping requirements and time frames that apply to
paper records also apply to electronic records.
Record-Keeping Legal Compliance

As was noted at the start of this section, employers face several layers of laws
requiring them to maintain employment records for extended periods of time. It
cannot be over-emphasized that requirements are spread throughout numerous
federal and state statutes and regulations and that not all requirements apply to
all employers.
Employers should consider not only the mandatory record retention requirements
but also the statutes of limitations under state law with regard to employee
claims that potentially may be brought against them. For example, contract, tort,
and fraud claims increasingly are being brought against employers. In some
cases, the statutes oflimitations for these common-law claims are longer than the
statutory record retention requirements. Although not required by law,
employers are well advised to consider relevant statutes of limitations in
establishing their record retention schedules.
HRalso.needs. to ensure
. that, in the event a claim is asserted or filed or a
government investigation is i11itiated or threaleried, ·documertts even arguably
related to the claim or irtvestigati!>n are retairted for the duration ofthe elaim or
investigation until final disposition (including appeals), evert if longer than the
retention guidelines ordinarily applied.
462 © 2015 SHRM

WORKPLACE U.s. Employment Law and Regulations
In terms of the scope of documents (including e-mail) that must be retained, a

number of courts have imposed extremely rigorous obligations on employers and
their counseL· Do not tJy to detem1ine the scope of this obligation on· your 0\VIl.
When a claim or investigation is initiated or threatened, immediately ask your
counsel to help you determine the scope of your obligation with regard to
preserving documents.
Simply but emphatically stated: A conscientious HR practitioner must undertake

considerable due diligence to help ensure organizational compliance with record-
keeping requirements.
j
)
© 2015 SHRM 463

Progress Check
1. What should an employer do if the requirements for the same record differ between three
laws?
( ) a. Keep duplicates of each record in multiple files according to the different
requirements.
( ) b. Make a judgment about maximum retention based on the most important law.
) c. Retain the information for the longest period of time required.
( ) d. Keep the· records for the shortest time required unless they involve a federal
contractor.
2. Which of the following is the BEST reason to maintain employment records electronically?
( a. Stronger demonstration of corporate social responsibility
( ) b. Better document security because of firewalls
( ) c. Improved alignment with voluntary DOL guidelines
) d. Easier storage and access for records that span many years
464 © 2015 SHRM


I. c (p. 460)
2. d (p. 460)
You have.\ com.plcted the Wtlfkplace domain ln. the SHRM Learrihlg System'®
for SHI}M-5~/SHI}j\1.SC~. Ne~t, check your understanding by completing
) .· t.hc onlh1e ltlodule t~t to help you identify any concepts that need . . .
) additional study.
. )
)
)
)
)
)
© 2015 SHRM 465

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Mendenhall, and Hal B. Gregersen. Inter-
9 "Intemational Assignment: Taxes: How
national Assignments, An Integration of
Do We Handle Taxes for Expatriates?"
© 2015 SHRM 473

Strategy, Research and Practice. New York: U.S. Department of Labor, www.dol.gov.
Routledge, 2004. • "Compliance Assistance." www.dol.gov/
stisb:ti!lability-repoiis.com ·(portal· for ebsa/compliance~ assistance. html.
sustainability repmts). www.sustainaability- • "EBSA Final Rule." www.dol.gov/ebsal
reports.com. regs/fedreg/final/2002008499.htm.
• "An Employer's Guide to Group Health
Taleb, Nassim Nichollls. Antifragile: Things Continuation Coverage Under COBRA"
That Gain from Disorder. New York: www.dol.gov/ebsa/publications/
Random House, 2012. cobraemployer.html.
Troklus, Debbie. BStrategies to Evaluate the ~ "Fact Sheet# 17 A: Exemption for
Effectiveness of Your Compliance Program" Executive, Administrative, Professional,
Healthcare Compliance Association, Computer and Outside Sales Employees
October 10,2012, www.hcca-info.org/ Under the Fair Labor Standards Act
Portals/0/PDFs/Resources/Conference (FLSA)." www.dol.gov/whd/regs/
Handouts/Regional Conference/20 12/ compliance/fairpay/fs17a_overview;htm.
Hawaii/Troklusprint2.pdf. • "Family and Medical Leave Act."
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Trompcnaars, Fons, and Charles
Hampden-Turner. Riding the Waves of • "The Worker Adjustment and Retraining
Culture: Understanding Diversity in Notification Act." www.doleta.gov/
Global Business, 3rd ed. New York: programs/factshtlwarn.htm.
McGraw Hill, 2012. • "Your Rights Under USERRA."
www.dol.gov/vets/programs/userra/
"The UAE Court System." Consulate poster.btm.
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dubai.usconsulate.gov/cmergency_uae __ www.dol.gov/dol/topic/youthlabor/.
court.html.
U.S. Equal Employment Opportunity
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Santiago Times, September 16, 2013, Amendments Act of2008." www.ccoc.gov/
santiagotimes.cllun-chile-is-south- laws/statutes/adaaa info.cfm.
americas-most-appealing-country-for-
• "Chapter 3: Employee Benefits." eeoc.gov/
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Development (UNCTAD). "World www.eeoc.gov/employers/poster.cfm.
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"New CFT Guide on Sustainability and
publicationid=937.
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United Nations Global Compact. ''The Ten cft-guide-on-sustainability-and-
Ptinciples." www .unglobalcompact. org/ pedagogy/ven-sus/.
abouttheGc/TheTenprinciples/index.html.
Walsh, Declan, and Salman Masood.
U.S. Citizenship and Immigration Services. "Facebook Under Fire for Temporarily
e "E-Verify." www .uscis.gov/e-vetify. Blocking Pages in Pakistan." New York
• "1-9, Employment Eligibility Times, June 6, 2014, www.nytimes.com/
Verification." www.uscis.gov/i-9. 20 14/06/07/world/asia/pakistan-face book-
474 © 2015 SHRM

blocked-users-from-political-pages-and- 2004, cch.com/press/news/2004/

outspoken-rock -band-laal-against-taliban- 20040329h.asp .
.html?J=O. "Working with Companies." The Nature
Wolf, Martin. Why Globalization Work>. Conservancy, www.nature.org/about-
New Haven, Connecticut: Yale University us/working-with-companies/companies-we-
Press, 2004. work-with/index.htm.
Willamette University. "Global Human World Economic Forum.
Resource Management in Action- "Hyperconnectivity and the World
Instructional Vignettes." Economic Forum." www.weforum.org/
www.willamette.edu/mba/global hr. issues/hyperconnected-world.
Williford, Kwamina, and Daniel Small. Yip, GeorgeS. Total Global Strategy:
"Establishing an Effective Compliance Managing for Worldwide Competitive
Program: An Overview to Protecting Your Advantage, 2nd ed. LOCATION: Prentice
Organization" Association of Corporate Hall, 1992.
Counsel, www.acc.com/legalresources/
Zakaria, Farced. The Post-American World
quickcounsel/eaecp.cfm.
New York: W. W. Norton, 2008.
"With New Ove1iime Rules Looming, CCH
Helps Employers Gear Up For the Change."
)
)
© 2015 SHRM 475

Glossary
ADA Amendments Act (ADAAA)- Civil Rights Act of 1991-Act that expands
Amendments to Americans with Disabilities the possible damage awards available to
Act covering the definition of individuals victims of intentional discrimination to
regarded as having a disability, mitigating include compensatory and punitive
measures, and other rules of construction to damages; gives plaintiffs in cases of alleged
guide the analysis of what constitutes a discrimination the right to a jury trial.
disability.
Code of conduct-Principles of conduct
Adverse impact-Type of discrimination within an organization that guide decision
that results when a neutral policy has a making and behavior; also. known as code of
discriminatory effect; also known as ethics.
disparate impact.
Common law-Legal system in which each
Age Discrimination in Employment Act case is considered in terms of how it relates
(ADEA)---Act that prohibits discrimination to legal decisions that have already been
in employment for persons age 40 and over. made; evolves through judicial decisions
Americans with Disabilities Act (AD A)- over time.
Act that prohibits discrimination against a Comparable worth-Concept that states
qualified individual with a disability because that jobs requiring comparable skills, effort,
of his/her disability. responsibility, and working conditions filled
Assignees-Employees who work outside primarily by women should have the same
their home counh·ies. job classification and salary as similar jobs
filled by men.
Bona fide occupational qualification
(BFOQ)-Situation in which religion, sex, Compliance program-System for
or national origin is reasonably necessary to ensuring that policies and procedures
carrying out a particular job function in the addressing issues identified in the code of
normal operations of an organization. conduct are presented to and understood and
acted on by everyone in the organization and
Burlington Industries, Inc. v. Ellerth- for evaluating the results of those efforts.
Conrt ruling that distinguished between
supervisor harassment that results in Conflict of interest-Situation in which a
tangible employment action and supervisor person or organization has the potential to
harassment that does not. be influenced by two opposing sets of
incentives.
Civil law-Legal system based on written
codes (laws, rules, or regulations). Consolidated Omnibus Budget
Reconciliation Act (COBRA)-Act that
Civil Rights Act of 1964-First provides individuals and dependents who
comprehensive U.S. law making it illegal to may lose medical coverage with opportunity
discriminate on the basis ofrace, color, to pay to continue coverage.
religion, sex, or national migin.
476 © 2015 SHRM

WORKPLACE Glossary
Contingency plan-Protocol that an Diversity council-Task force created to

organization implements to respond to an define a diversity and inclusion initiative
unplanned but identified risk event. and guide the development and
implementation process.
Corporate social responsibility (CSR)-
Recognition of the impact a corporation has Diversity dimensions-Framework for
on the lives of its stakeholders (including understanding the range and complexity of
shareholders, employees, communities, diversity; includes four layers (personality,
customers, and suppliers) and the internal dimensions, external dimensions,
environment; can include corporate and organizational dimensions); also known
governance, corporate philanthropy, as identity group.
sustainability, and employee rights and
Diversity of thought-Concept describing
workplace safety.
the presence of different types of cognitive
Cosourcing-Situation in which an processes in a workplace; opposed to
enterprise outsources only one part of a "groupthink," or similarity of thought
tunction, often collocating it at the processes and opinions.
organization's workplace.
Drug-Free Workplace Act-Requires
Cultuml relativism-Concept that argues federal contractors with contracts of
that ethical behavior is detennined by local $I 00,000 or more as well as recipients of
culture, laws, and business practices. grants from federal government to certify
they are maintaining a drug-free workplace.
Culture---Set of beliefs, attitudes, values,
and behaviors shared by members of a group Due process-Concept that laws are
and passed down from one generation to the enforced only through accepted, codified
next. procedures.
Dilemma reconciliation-Process of Duty of care---Principle that organizations
charting a course through cultural should take all steps that are reasonably
differences. possible to ensure the health, safety, and
well-being of employees and protect them
Disability-Physical or mental
from foreseeable injury.
impairment that substantially limits major
life activities. Emotional intelligence (EI)-Quality of
being sensitive to and understanding of
Disparate impact-Type of discrimination
one's own and others' emotions and the
that results when a neutral policy has a
ability to manage one's own emotions and
discriminatory effect; also known as adverse
impulses.
impact.
Employee Polygraph Protection Act
Disparate treatment-Type of
(EPPA)-Act that generally prevents
discrimination that occurs when an applicant
employers engaged in or affecting interstate
or employee is treated differently because of
commerce from using lie detector tests
his or her membership in a protected class.
either for preemployment screening or
Diversity-Differences in characteristics of during the course of employment, with
people; can involve personality, work style, certain exemptions.
race, age, ethnicity, gender, religion,
Employee Retirement Income Security
education, functional level at work, etc.
Act (ERISA)-Act that established uniform
minimum standards for employer-sponsored
© 2015 SHRM 477

WORKPLACE Glossary
retirement and health and welfare benefit ethical business standards, typically beyond
programs. the letter of the law.
Employee resource group (ERG)- Exempt employees-Employees who are
Voluntary group for employees who share a excluded from FLSA minimum wage and
particular diversity dimension (race, ove1time pay requirements.
religion, ethnicity, sexual orientation, etc.);
Extraterritoriality-Extension of the power
also known as affinity group or network
of a country's laws over its citizens outside
group.
that country's sovereign national boundaries.
Emp!oy~C'es-lnclividuals who exchange
Fair Labor Standards Act (FLSA)-Act
work for wages or salary; in the U.S.,
that regulates employee status, ovmtime
workers who are covered by Fair Labor
pay, child labor, minimum wage, record
Standards Act regulations as determined by
keeping, and other administrative concerns.
the IRS.
Fair and Accurate Credit Transactions
Employment practices liability insurance Act (FACT Act)-Act that provides some
(EPLI)---Type of liability insurance
relief to employers using third parties to
covering an organization against claims by
conduct workplace investigations.
employees,formeremployees,and
employment candidates alleging that their Fair Credit Reporting Act (FCRA)-Act
legal rights in the employment relationship that protects privacy of background
have been violated. information and ensures that information
supplied is accurate.
Equal Employment Opportunity Act-
1972 act that amended Title VII and gave Family and Medical Leave Act (FMLA)-
the Equal Employment Opportunity Act that provides employees with up to 12
Commission authority to implement its weeks of unpaid leave to care for family
administrative findings and conduct its own members or because of a serious health
enforcement litigation. condition of the employee.
Equal Pay Act (EPA)-Act that prohibits Faragher v. City of Boca Raton--Court
I wage discrimination by requiring equal pay mling that distinguished between supervisor
harassment that results in tangible
~
for equal work.
employment action and supervisor
II Essential functions-Primary job duties harassment that does not.
il that a qualified individual must be able to
]!
~ perform, either with or without Gender-Refers to the socially constructed

accommodation; a function may be roles, behaviors, activities, and attributes
II that a given society considers appropriate for
considered essential because it is required in
I
II
a job or because it is highly specialized.
Ethical universalism-Concept that argues
men and women.
General Duty Clause--Statement in
that there are fundamental ethical principles Occupational Safety and Health Act that
1 that apply across cultures. requires employers subject to OSHA to
provide employees with a safe and healthy
Ethics-Set of behavioral guidelines by work environment.
which all directors, managers, and
employees of an organization are expected Genetic Information Nondiscrimination
to behave to ensure appropriate moral and Act (GINA)-Acl that prohibits
discrimination against individuals on the
478 © 2015 SHRM
I
WORKPLACE Glossary
basis of their genetic information in both with an individual's perfonnance; creates an

employment and health insurance. intimidating, threatening, or humiliating
work enviromnent; or perpetuates a situation
Global integration (GI) strategy-
that affects the employee's psychological
Globalization strategy that emphasizes
well-being.
consistency of approach, standardization of
processes, and a common corporate culture HR audit-Process to confirm compliance
across global operations. with laws and regulations and measure the
effectiveness and efficiency of HR programs
Global mindset-Ability to take an
and processes.
international, multidimensional perspective
that is inclusive of other cultures, Identity alignment-Extent to which
perspectives, and views. diversity is embraced in management of
people, products/services, and branding.
Global remittances-Monies sent back
home by migrants working in foreign Immigration Reform and Control Act
countries. (IRCA}--Ad that prohibits discrimination
against job applicants on the basis of
Globalization-Growing national origin or citizenship; establishes
interconnectedness and interdependency of penalties for hiring illegal aliens and
countries, people, and companies. requires employers to establish each
Glocalization-Characteristic of an employee's identity and eligibility to work.
organization with a strong global image but Independent contractors-Self-employed
an equally strong local identity. individuals hired on a contract basis for
Governance---System of rules and specialized services.
processes an organization puts in place to Inclusion-Extent to which each person in
ensure its compliance with local and an organization feels welcomed, respected,
international laws, accounting rules, ethical supported, and valued as a team member.
norms, and its own codes of conduct.
Insourcing-TransfeiTing a previously
Griggs v. Duke Power--1971 case that outsourced function back in-house.
recognized adverse impact discrimination. Intercultural wisdom---Capacity to
recognize, interpret, and behaviorally adapt
Hazard-Potential for harm, often to multicultural situations and contexts; also
associated with a condition or activity that, called cultural intelligence.
if left uncontrolled, can result in injury or
illness. Jurisdiction-Right of a legal body to exert
authority over a given geographical ten'itory,
High-context culture-Society or group subject matter, or persons or institutions.
where people have close connections over a
long period of time and where many aspects Key risk indicators (KRis)-Metrics that
of behavior are not made explicit, because provide an early warning of increasing
most members know what to do and think levels of uncertainty in a particular business
from years of interaction. area.
Hostile environment harassment-Occurs Labor-Management Relations Act

when sexual or other discriminatory conduct (LMRA}--Act that provides balance of
is so severe and pervasive that it interferes power between union and management by
designating certain union activities as unfair
© 2015 SHRM 479

WORKPLACE Glossary
labor practices; also known as Taft-Hartley Nutional Federation ofIndependent

Act. Business v. Sebelius-Supreme Court
ruling that PPACA requirement that
Labor-Management Reporting and
individuals purchase health insurance was
Disclosure Act (LMRDA)-Act that
constitutional but that requirement that
protects the rights of union members from
corrupt or discriminatory labor unions; also states expand Medicaid was not.
known as Landmm-Griffin Act. National Labor Relations Act (NLRA)-
Act that protects the rights of employees to
Ledbetter v. Goodyear Tire & Rubber
organize unhampered by management; also
Co.-2007 case in which the U.S. Supreme
knov,:n as \Vagner Act.
Court mled that claims of sex discrimination
in pay under Title VII were not timely National origin-Refers to the country
because discrimination charges were not (including those that no longer exist) of
filed with the EEOC within the required one's birth or of one's ancestors' birth.
180-day time frame.
NLRB v. Weingai'teii-Landmark 1975
Lechmere, Inc. v. NLRB-1992 case in labor relations case that dealt with the right
which the U.S. Supreme Court mled that an of a unionized employee to have another
employer cannot be compelled to allow person present during certain investigatory
nonemployee organizers onto the business interviews.
property.
Nonexempt employees-Employees
Lilly Ledbetter Fair Pay Act-Act that covered under FLSA regulations, including
creates a rolling time frame for filing wage minimum wage and overtime pay
discrimination claims and expands plaintiff requirements.
field beyond employee who was
Occupational illness-Medical condition or
discriminated against.
disorder, other than one resulting from an
Local responsiveness (LR) strategy- occupational injury, caused by exposure to
Globalization strategy that emphasizes environmental factors associated with
adapting to the needs of local markets and employment.
aliows subsidiaries to develop unique
Occupational injury-Injury that results
products, structures, and systems.
from a work-related accident or exposure
Low-context culture--Society in which involving a single incident in the work
people tend to have many social connections environment.
but of shorter duration and where behavior Occupational Safety and Health (OSH)
and beliefs may need to be described Act-Act that established the first national
explicitly so that those coming into the policy for safety and health and continues to
cultural environment know how to behave. deliver standards that employers must meet
Moral hazard-Situation in which one to guarantee the health and safety of their
party engages in risky behavior knowing employees.
that it is protected against the risk because Occupational Safety and Health
another party will assume any resulting loss. Administration (OSHA)-Agency that
National Defense Authorization Acts administers and enforces the Occupational
(NDAA)-Acts that expanded FMLA leave Safety and Health Act of 1970.
for employees with family members who are
covered members of the military.
480 © 2015 SHRM
I
WORKPLACE Glossary
Offshoring-Situation in which a company pregnancy, childbirth, or related medical

relocates processes or production to an conditions.
international location by means of Principal~agent·problem-· Situation in
subsidiaries or third-party affiliates. which an agent (e.g., an employee) makes
Older Workers Benefit Protection Act decisions for a principal (e.g., an employer)
(OWBPA)-Act that amended ADEA to potentially on the basis of personal
include all employee benefits; also provided incentives that are not aligned with the
terminated employees with time to consider agent's incentives.
group termination or retirement programs
Process alignment-Extent to which
and consult an attorney. underlying operations such as IT, finance, or
Outsourcing-Situation in which a HR integrate across locations.
company contracts with a third-party vendor
Protected class-People who are covered
for the supply of products, services, or
under a particular U.S. federal or state
component parts.
antidiscrimination law.
Overtime pay-Required for nonexempt
Prudent person rule--States that an
workers under FLSA at 1.5 times the regular
ERISA plan fiduciary bas legal and financial
rate of pay for hours over 40 in a workweek.
obligations not to take more risks when
Patient Protection and Affordable Care investing employee benefit program funds
Act (PPACA)--2010 law that requires than a reasonably knowledgeable, prudent
virtually all citizens and legal residents of investor would under similar circumstances.
the U.S. to have minimum health coverage
Quid pro quo harassment-Type of sexual
and requires employers with more than 50
harassment that occurs when an employee is
full-time employees to provide health
forced to choose between giving in to a
coverage that meets minimum benefit
superior's sexual demands and forfeiting an
specifications or pay a penalty.
economic benefit such as a pay increase, a
Pension Benefit Guaranty Corporation promotion, or continued employment.
(PBGC)-Set up by ERISA to insure
) Reasonable accommodation--Modifying
payment of benefits in the event that a
) job application process, work environment,
private-sector defined benefit pension plan
or circumstances under which job is
) terminates with insufficient funds to pay the
performed to enable a qualified individual
i benefits.
with a disability to be considered for the job
Phillips v. Martin Marietta Corporation- and perfonn its essential functions.
1971 case that stated that an employer may
Redeployment-Process by which an
not, in the absence of business necessity,
organization moves an employee out of an
refuse to hire women with preschool-aged
international assignment; can involve
children while hiring rnen with such .
moving back to the home country, moving
children.
to a different global location, or moving to a
Portal-to-Portal Act-Act that defines new location or position in the current host
what is included as hours worked and is country.
therefore compensable and a factor in
Repatriation-Process of reintegrating
calculating overtime.
I employees back into the home country after
) Pregnancy Discrimination Act-Act that an assignment; includes adjustment to the
prohibits discrimination on the basis of
© 2015 SHRM 481

WORKPLACE Glossary
new job and readjustment to the home customers, suppliers, regulators, and local
culture and conditions. communities.
Residual risk~·AmoUnt of uncertainty that Sustaillability=Ptactices ·that balance
remains after all risk management efforts economic, social, and environmental
have been exhausted. interests to secure the interests of present
and future generations.
Reverse innovation~Innovations created
for or by emerging-economy markets and Totalization agreements~Bilateral
then imported to developed-economy agreements entered into by many countries
markets. to eliminate double taxation for individuals
on intemational assignment.
Risk~The effect of uncertainty on
objectives; outcomes may include Triple bottom line~Economic, social, and
opportunities or threats. environmental impact metrics used to
determine an organization's success.
Risk appetite~Amount 0frisk the
organization or function is willing to pursue Uniform Guidelines on Employee
or accept to attain its goals. Selection Procedures~Procedural
document designed to assist employers in
Risk controi~An action taken to manage a
complying with federal regulations
risk. prohibiting discrimination.
Risk management~Identification, Uniformed Services Employment and
evaluation, and control of risk that may Reemployment Rights Act (USERRA)-
affect an organization, typically Act that protects the employment,
incorporating the use of insurance and other reemployment, and retention rights of
strategies. persons who serve or have served in the
Risk position~An organization's desired uniformed services.
gain or acceptable loss in value. Vesting~Process by which a retirement
Risk scorecard~Tool used to gather benefit becomes nonfmfeitable.
individual assessments of various Vicarious liability~Legal doctrine under
characteristics oftisk (e.g., frequency of which a party can be held liable for the
occmTence, degree of impact/loss/gain for wrongful actions of another pmiy.
the organization, degree of efficacy of
current controls). Weingarten l'ights-~Union employees' right to
have a union representative or coworker
Risk tolerance--Amount of uncertainty an present during an investigatory interview.
organization is willing to pursue or to accept
to attain its risk management goals. Worker Adjustment and Retraining
Notification (WARN) Act~.Actthat
Rule of Iaw~Concept that stipulates that no requires some employers to give a minimum
individual is beyond the reach of the law and of 60 days' notice if a plant is to close or if
that authority is exercised only in mass layoffs will occur.
accordance with written and publicly
Workweek~Any fixed, recurring period of
disclosed laws.
168 consecutive hours (7 days times 24
Stakeholders~ All those affected by an hours= 168 hours).
organization's social, environmental, and
economic impact~shareholders, employees,
482 © 2015 SHRM

Index
B
accepting risk, 230, 231 B Lab certification, 267
achieved culture, in Trompenaars's and benefits, and diversity/inclusion initiatives,
Hampden-Turner's cultural dilemmas, 81 157
ADA (Americans with Disabilities Act), BFOQs (bona fide occupational
378-380 qualifications), 368
ADA Amendments Act, 381-386 bill, 344
ADAAA (ADA Amendments Act), 381- Bloodborne Pathogens standard, under
386 Occupational Safety and Health Act, 432
ADEA (Age Discrimination in Employment blue-collar workers, and nonexempt status
Act), 375-377 under Fair Labor Standards Act, 399
adjustment pbase in global assignment, 102 bona fide occupational qualifications, 368
adverse impact, 364, 371-373 branding, and diversity/inclusion initiatives,
affective culture, in Trompenaars's and 158-159
Hampden-Turner's cultural dilemmas, 80 breaks, and compensation, 407
affirmative action plans, 368 bribery, 313
after-action debriefs, 247-249 Burlington Industries, Inc., v. Ellerth, 389
age, 141,178 business acumen competency, 205
Age Discrimination in Employment Act, business continuity, 235-240
375-377
agency guidelines, 342 c
alcohol/drug abuse, 380, 434
career development, and diversity/inclusion
allegiances ln global assignments, 94-95
initiatives, 157
amendment, 344
Caux Principles, 285-286, 291
Americans with Disabilities Act, 378-380
child labor, 311-312,314,402-403
anaiytics, 21-22
civil law, 110
antidiscrimination
Civil Rights Act of 1964, Title VII, 365-368
laws. See equal employment opportunity
Civil Rights Act of 1991, 374-375
and antidiscrimination
COBRA (Consolidated Budget
laws/regulations/cases
Reconciliation Act), 415-418
policies, 315
codes of conduct, 325, 326-331
asctibed culture, in Trompenaars's and
cognitive barriers to risk management, 193
Hampden-Turner's cultural dilemmas, 81
collectivism, in Hofstede's dimensions of
assessment step in corporate social respon-
culture, 78
sibility strategic process, 292, 293-295
common law, 110-111, 343
assessment/selection step in global
communication competency, 71, 136, 247,
assignment process, 98-99
448
assignment plans, 99-1 00
communitarian culture, in Trompenaars' s
attorney-client privilege, 356
and Hampden-Tumer's cultural dilemmas,
at-will employment, 110
80
audits, 349, 351
commuting time, and compensation, 407
avoiding risk, 228
comparable worth, 410
© 2015 SHRM 483

WORKPLACE Index
compensation, and diversity/inclusion corporate culture, 73

initiatives, 157 corporate social responsibility, 256-257,
compensation laws/cases 259-260,275-277
Employee Retirement Income Security forces shaping, 278-279
Act, 411-413 frameworks, 284-291
Equal Pay Act, 409-41 0 strategy, 284-299
Fair Labor Standards Act, 393-405 See also compliance; ethics; governance;
Ledbetter v. Goodyear Tire & Rubber sustainability
Co., 413 CO!TUpti on, 3 13
Lilly Ledbetter Fair Pay Act, 414 COSO Enterprise Risk Management
Pmial-to-Portal Act, 406-409 Framework, COSO, 190-191
compensatory damages, 374-375 cosourcing, 54
compensatory time, 402 cost pressures, and globalization, 29-30
competition, and globalization, 29-30 Council of the European Union, 118
completion of assignment step in global counseling, cross"cultura1, I 02
assignment process, 103-1 04 Court of Auditors (European Union), 119
compliance, 303, 304-305, 306-316 Court of Justice (European Union), 119
checklists, 349-350 creativity, as benefit of diversity, 137
with Consolidated Budget critical evaluation competency, 231, 420
Reconciliation Act, 416 cross-cultural counseling, I 02
with Fair Labor Standards Act, 394-395 CSR. See corporate social responsibility
with Family and Medical Leave Act, cultural barriers to risk management, 193
419-420 cultural determinism, 83
programs, 325,331-334 cultural dimensions, 75-82
with laws/regulations, 340, 349-358 cultural intel! igence, 66
record keeping, 462-463 cultural relativism, 83 307-308
with risk policies, evaluation of, 249- cultmal stereotypes, 82-83
250 cultural synergy, 84-86
concluding activities, and compensation, culture
406 challenges of, 82-86
confidentiality, 315-316 definition, 71-72
Confined Space Entry standard, under dimensions of, 75-82
Occupational Safety and Health Act, 432 layers of, 73-7 5
conflict oflaws, 113 shock, 102, 103
conflicts of interest, 204-205, 313-314 stereotypes, 82-83
Consolidated Budget Reconciliation Act, types, 72-73
415-418 customer relations, and diversity/inclusion
Constitution (U.S.), 342 initiatives, 158-159
consultation competency, 33,274, 401
consultation with experts, in risk D
identification, 212
data mining, 21-22
contingency plans, 235, 237-240
data privacy, 21
continuous improvement of risk
decreasing/increasing effect, as risk
management, 250
response, 227, 229-230
Control of Hazardous Energy standard, under
demographic dichotomy, 15-17, 133
Occupational Safety and Health Act, 432
developed economies, 13-18
484 © 2015 SHRM

WORKPLACE Index
diaspora, 15, 134 Emergency Exit Procedures standard, under

diffuse culture, in Trompenaars's and Occupational Safety and Health Act, 432
Hampden-Turner's cultural dilemmas, 80 emergency preparedness, 235-240
dilemma reconciliation, 83-84 emerging economies, 13-18
dimensions of culture, 7 5-82 emotional intelligence, 66, 167-169
direct observation, in risk identification, 213 employee management, 314-315
direct threat standard, 385 Employee Polygraph Protection Act, 445-
directives, in European Union, 119-120 447
disabilities, 378-385 employee relations laws/cases, 435
discoverability, 356 Lahor-Mana<>emi'nt
. --o~-------
Rehtion' Ar.t 4ili
-- --'-~---- ---
----~
discrimination, 363-364. See also equal Labor Management Reporting and

employment Disclosure Act, 436
opportunity/antidiscrimination Lechmere, Inc. v. NLRB, 440
disparate impact, 364, 371-373 National Labor Relations Act, 436-438
disparate treatment, 363-364 NLRB v. Weingarten, 438~440
diversity, 126--127, 129-131,132-133 employee resource groups, 154-155
benefits of, 136--137,138 Employee Retirement Income Security Act,
costs of, 137-138 411-413
councils, 152-153 employee value proposition, 274-275
and globalization, 133-136 employees, as defined under Fair Labor
layers of, 139-142 Standards Act, 395-396
legal requirements for, 134-136 employment equity (Canada), 135
strategy, 146-161 employment practices liability insurance,
ofthought, 130-131 353-354
See also inclusion enhancing risk, 229, 230
Dodd-Frank Wall Street Refmm and enterprise perspective on risk, 196
Consumer Protection Act, 443-444 Enterprise Risk Management Framework,
downstream strategies, 40 coso, 190-191
drug/alcohol abuse, 380, 434 environmental concerns, and corporate
Drug-Free Workplace Act, 434 social responsibility, 278-279
due diligence EPA (Equal Pay Act), 409-410
for offshoring, 53 EPLI (employment practices liability
I for outsourcing, 55 insurance), 353-354
'
due process, 113 EPP A (Employee Polygraph Protection
duty of care, 21 I Act), 445-447
Equal Employment Opportunity Act, 369
E equal employment opportunity and
antidiscrimination laws/regulations/cases,
economic pressures, and corporate social
362-364
responsibility, 279
ADA Amendments Act, 381-386
economies, developed/emerging, 13-18
Age Discrimination in Employment Act,
EEOC (Equal Employment Opportunity
375-377
Commission) complaint process, 450-453
Americans with Disabilities Act, 378-
EI (emotional intelligence), 66, 167-169
380
elimination of uncertainty, as risk response,
Civil Rights Act of 1964, Title VII, 365-
227-228
368
© 2015 SHRM 485

WORKPLACE Index
equal employment opportunity and executive orders, 342

antidiscrimination laws/regulations/cases exempt employees, 396-400
(continued) expatriates, 92-93
Civil Rights Act of 1991, 374-375 external culture, in Trompenaars 's and
Equal Employment Opportunity Act, Hampden-Tumer's cultural dilemmas, 81
369 external diversity dimensions, 140
Equal Employment Opportunity external risk, 196
Commission complaint process, 450- extraterritoriality, 115
453
Griggs v. Duke Power, 373 F
Older Workers Benefit Protection Act,
FACT Act (Fair and Accurate Credit
375,377-378
Transactions Act), 442-443
Phillips v. Martin Marietta Corporation,
Fair and Accurate Credit Transactions Act,
374
442-443
Pregnancy Discrimination Act, 369-370
Fair Credit Reporting Act, 441-442
Uniform Guidelines on Employee
Fair Labor Standards Act, 393-405
Selection Procedures, 370-373
fair treatment of employees, 3 I 5
Equal Employment Oppmtunity
Family and Medical Leave Act, 418-420
Commission complaint process, 450-453
family status, 178
Equal Pay Act, 409-410
Faragher v. City of Boca Raton, 389
equal work, 409-41 0
FCRA (Fair Credit Reporting Act), 441-442
equity, 135
FDI (foreign direct investment), 14
ERGs (employee resource groups), 154-155
federal laws, when differ from state laws,
ERISA (Employee Retirement Income
405
Security Act), 411-413
femininity, in Hofstede's dimensions of
essential job functions, 380
culture, 79
ethical practice competency, 117, 176,241,
FLSA (Fair Labor Standards Act), 393-405
310,349
FMLA (Family and Medical Leave Act),
ethical universalism, 307
418-420
ethics, 304-305,306-316
focus groups, in risk identification, 212-213
ethnicity, 177
foreign direct investment, 14
ethnocentric headquarters orientation, 48, 49
forum shopping, 114
ethnocentrism, 82
4 Ts (travel, teams, training, transfers), 170-
EU (European Union), 117-120
173
European Commission, 118-119
frameworks for corporate social
European Parliament, 118
responsibility, 284-291
European Union, 117-120, 135
functional culture, 73
E-Verify, 445
evolution and integration step of
diversity/inclusion strategic process, 161 G
EVP (employee value proposition), 274-275 gender, 140-!41, 177,365
executive commitment step gender identity, as defined in Title VII of
in corporate social responsibility Civil Rights Act of 1964, 365
· strategic process, 292-293 General Duty Clause of Occupational Safety
in diversity/inclusion strategic process, and Health Act, 429, 431
148-151
486 © 2015 SHRM

WORKPLACE Index
Genetic Information Nondiscrimination Act, high-context cultures, 76-77

449-450 HIP AA (Health Insurance Portability and
geocentric headquarters orientation, 49 Accountability Act), 418
GI (global integration), 23-24, 33-36, 37-39 hiring, and diversity/inclusion initiatives,
GI-LR matrix, 41-48 156-157
GINA (Genetic Information Hofstede's dimensions of culture, 77, 78-79
Nondiscrimination Act), 449-450 honeymoon phase in global assignment, 102
global and cultural effectiveness hostile environment harassment, 388
competency, 94, 172 HRQOL (health-related quality of life)
global assignments surveys, 21-22
allegiances in, 94--95 human resource expertise competency, 190,
guidelines for, 95-97 460
process, 98-104 human resources
strategic role of, 91-92 audits, 349, 351
types of, 92-94 and corporate social responsibility,'' 277,
global integration, 23-24, 33-36, 37-39 296-297
global mindset, 65-70, 166-167 global, 24, 120
global remittances, 15 and risk, 196-197
global strategy, in GI-LR matrix, 42, 44-45, role in code of conduct development, 328
48 role in globalization, 57-60
global warming, 19-20 role in litigation process, 354--356
globalization, 4--5, 8-10 skills required for global organization,
definition, 10--11 59-60
and diversity, 133-136 and sustainability "sweet spot," 276-277
forces shaping, 11-22 hyperconnectivity, 20-22
global interconnectedness, 12-13
organizations, 22-24
"pull" factors, 31-32
identity alignment, 40-41
"push" factors, 29-31
identity groups, 139
strategic approaches to, 32-49
ignoring risk, 230, 231
global-local strategy models, 40-49
Immigration Reform and Control Act, 444-
governance, 305-306,325-334
445
government policies, and globalization, 30--
incident investigations, 247-249
32
inclusion, 131-133. See also diversity
GRI G4 Sustainability Reporting
increasing/decreasing effect, as risk
Guidelines, 269, 287-289
response, 227, 229-230
Griggs v. Duke Power, 373
independent contractors, as defined under
I Fair Labor Standards Act, 395-396
!
H individual attitudes/behaviors, and
) Hall's high-/low-context cultures, 76-77 organizational change, 166-170
Hazard Communication standard, under individual mandate, under Patient Protection
Occupational Safety and Health Act, 432 and Affordable Care Act, 427
headquarters orientations (Perlmutter), 48-49 individualism, in Hofstede's dimensions of
Health Insurance Portability and culture, 78
)
Accountability Act, 418 individualist culture, in Trompenaars's and
health-related quality oflife surveys, 21-22 Hampden-Turner's cultural dilemmas, 80
)
© 2015 SHRM 487

WORKPLACE Index
industly culture, 73 Kaplan and Mikes's risk categories, 195-196

information sources, for risk identification, 212 key risk indicators, 220-222
infrastmcture creation step known unknowns, 195
in corporate social responsibility KPMG Survey of Corporate Responsibility
strategic process, 292, 296-297 Reporting, 289-291, 291
in diversity/inclusion strategic process, KRis (key risk indicators), 220-222
152-155
innovation L
as benefit of diversity, 13 7
Labor-Management Relations Act, 436
reverse, 17-18
Labor Management Reporting and
insourcing, 54
Disclosure Act, 436
intercultural wisdom, 66, 169-170
Landrum-Griffin Act, 436
intemal culture, in Trompenaars's and
laws
levels of, 114-120
internal diversity dimensions, 139
rule of, 112-113
Intemal Revenue Service "20 factor" test,
sources of, 342-343
395-396
U.S. See under names of specific laws
internal risk, 196
layers
international laws, 116
ofculture, 73-75
International Organization for
of diversity, I 39-142
Standardization
leadership and navigation competency, 390
ISO 26000, 286-287, 291
leave and benefits laws/cases
ISO 31000, "Risk Management:
Consolidated Budget Reconciliation Act,
Principles and Guidelines," 190-191,
415-418
197-200
Family and Medical Leave Act, 418-420
international strategy, in GJ-LR matrix, 42-
Health Insurance Portability and
43,48
Accountability Act, 418
interviews, in risk identification, 212-213
National Defense Authorization Acts,
investigations
421-422
in litigation, 357-358
National Federation of Independent
of workplace incidents, 247-249
Business v. Sebelius, 426-427
IRCA (Immigration Reform and Control
Patient Protection and Affordable Care
Act), 444-445
Act, 417-418,424-426
IRS (Internal Revenue Service) "20 factor"
Uniformed Services Employment and
test, 395-396
Reemployment Rights Act, 422-424
ISO 26000, 286-287, 29 I
Lechmere, Inc. v. NLRB, 440
ISO 31000, "Risk Management: Principles
Ledbetter v. Goodyear Tire & Rubber Co., 413
and Guidelines," 190-191, 197-200
legal requirements for diversity, 134-136
legal services, 351-353
J, K legal systems, 108-1 09
job safety and health laws, 427 due process, 113
Drug-Free Workplace Act, 434 jurisdiction, 113-114
Occupational Safety and Health Act, levels oflaw, 114-120
427-434 rule of law, 112-113
judicial decisions, in European Union, 120 sources oflaw, 342-343
jurisdiction, 113-114 types of, 109-112
488 © 2015 SHRM
I
WORKPLACE Index
legislative environment, monitoring, 345 N

letter of assignment, 99-100
Lilly Ledbetter Fair Pay Act, 414 national culture, 72
National Defense Authorization Acts, 421-
litigation process, human resources
involvement in, 354-356 422
National Federation of Independent
LMRA (Labor Management Relations Act),
Business v. Sebe/ius, 426-427
436
National Labor Relations Act, 436-438
LMRDA (Labor Management Reporting and
national laws, 114
Disclosure Act), 436
national origin; as defined in Title VII of
local responsiveness, 23-24. 34. 36-39
Civil Rights Act of 1964, 365-366
long-term orientation, in Hofstede's
nationality, 141-142, 178
dimensions of culture, 79
natural resources, shortfall in, 30
low-context cultures, 76-77
NOAA (National Defense Authorization
LR (local responsiveness), 23-24, 34, 36-39
Acts),421--422
neutral culture, in Trompenaars's and
M Hampden-Turner's cultural dilemmas
Machine Guarding standard, under '
80
Occupational Safety and Health Act, 432 NLRA (National Labor Relations Act), 436-
management/assignee decision step in global 438
assignment process, 99-100 NLRB v. Weingarten, 438-440
managerial skills/practices, and nonexempt employees, 396-397
organizational change, 170-173
marketing, and diversity/inclusion 0
initiatives, 158-159
markets, need for new, and globalization, 29 occupational illnesses, 433
masculinity, in Hofstede's dimensions of occupational injuries, 433
Occupational Noise Exposure standard,
culture, 79
mastery phase in global assignment, I 02 under Occupational Safety and Health Act,
maturity curve, sustainability, 265-267 432
meals, and compensation, 407 Occupational Safety and Health Act, 427-
measurement and evaluation step of 434 '
diversity/inclusion strategic process, 159-- Occupational Safety and Health
Administration, 428
160
measurement, reporting, and evaluation step OECD Guidelines for Multinational
Enterprises, 285, 291
in corporate social responsibility strategic
offshoring, 49, 50-53
process, 292, 297, 299
Older Workers Benefit Protection Act 375
Medicaid, 426-427 ' '
medical examination, 380 377-378
on-assignment step in global assignment
military caregiver leave, 421-422
process, 102-1 03
Millennia! generation, I 0
onboarding, and diversity/inclusion
minimum wage, 403
initiatives, !57
mitigating risk, 229, 230
on-call time, 406
moral hazard, 203-204
opinions, in European Union, 120
multicultural ethics decision tree, 308-309
multi domestic strategy, in GI-LR matrix, 42, optimizing risk, 228
)
organization function/level, 178
43-44,48
© 2015 SHRM 489

WORKPLACE Index
organizational change, 166 positive action (European Union), 135

individual attitudes/behaviors, 166-170 positive discrimination (U.K.), 135
managerial skills/practices, 170-173 power distance, 78
organizational values/policies, 173-178 PPACA (Patient Protection and Affordable
organizational culture, 73 Care Act), 417-418, 424-426
organizational diversity dimensions, 140 pre-deparhtre preparation step in global
OSH Act (Occupational Safety and Health assignment process, I 00-1 02
Act), 427-434 Pregnancy Discrimination Act, 369-370
OSHA (Occupational Safety and Health preliminary assessment step of
Administration), 42R diversity/inclusion strategic process, 151-
outsourcing, 49, 53-56 152
overnight travel, and compensation, 408 preparatory activities, and compensation,
overtime pay, under Fair Labor Standards 406
Act, 400-402 preventable risk, 196
OWBPA (Older Workers Benefit Protection principal-agent problem, 204
Act), 375, 377-378 privacy, 315-316
ownership redefinition, as risk response, process alignment, 40-41
227,228-229 process analysis, in risk identification, 213
Process Safety Management standard, under
p Occupational Safety and Health Act, 432
professional culture, 73
PAPA model of risk prioritization, 219-220
promotion, and diversity/inclusion
parochialism, 82
initiatives, 157
pmticularist culture, in Trompenaars's and
protected classes, 363
prudent person rule, 412
Patient Protection and Affordable Care Act,
public comment period, 344
417-418,424-426
"pull" factors for globalization, 31-32
PBGC (Pension Benefit Guaranty
punitive damages, 375
Corporation), 411
"push" factors for globalization, 29-31
PDA (Pregnancy Discrimination Act), 369-
370
Pension Benefit Guaranty Corporation, 411 Q,R
Perlmutter's headquarters orientations, 48- qualified exigency leave, 421
49 quid pro quo harassment, 388
Personal Protective Equipment standard, race, 177
under Occupational Safety and Health Act, reasonable accommodation, 383-385
432 reassessment and revision step in corporate
personality, as diversity dimension, 139, 177 social responsibility strategic process, 292,
philanthropy, 316-318, 320 299
Phillips v. Martin Marietta Corporation, 374 recession of2008-2009, 19-20
physical ability, 178 recommendations, in European Union, 120
plan implementation step in corporate social record keeping, 459-460
responsibility strategic process, 292, 297, compliance, 462-463
298 for Fair Labor Standards Act, 404
policies, 173-178 for Occupational Safety and Health Act,
polycentric headquarters orientation, 49 433
Portal-to-Pottal Act, 406-409 and technology, 460-462
490 © 2015 SHRM
I
WORKPLACE Index
recruitment, and diversity/inclusion risk management, 185, 189, 236-237

initiatives, 156-157 baniers to, 193-194
redefining ownership, as risk response, 227, benefits of, 192-193
228-229 context for, establishing, 200-205
redeployment, I 03 continuous improvement of, 250
regiocentric headquarters orientation, 49 definition, 192
regional laws, 115 evaluation of, 246-250
regulations, 119, 342, 344 objectives, 232-233
regulatory environment, monitoring, 345 plan, 232-235
relationship management competencv. 170, responses to risks, 227-231
218,295,430 - . . rule of law, 112-113
religion, 177 rule-making process, 344
religious law, 111-112
'
repatriation, 103-104 s
' "reservation" laws (India), 135
SA8000, 287, 291
residual risk, 230
SAl (Social Accountability International),
retaliation, 452-453
287,291
retention, and diversity/inclusion initiatives
157 ' Schein's layers of culture, 73-75
security briefings, I 01-1 02
reverse innovation, 17-18
seniority systems, 368
risk, 184--186
sequential culture, in Trompenaars's and
analysis, 214-217
Hampden-Turner's cultural dilemmas 81
appetite, 202 . '
senous health condition, definition of, 420
assessment, 21 0-222
sex, as defined in Title VII of Civil Rights
categmies of, 194--196
Act of 1964, 365
control, 192
sexual harassment, 387-393
criteria, 202-205
sexual orientation, 177, 390-391
definition, 190-192
shared value, 264-265
enterprise perspective, 196
Shari a law, 111-112
evaluation of, 218-220
sharing risk, 228-229
extemal, 196
short-term orientation, in Hofstede's
and human resources, 196-197
dimensions of culture, 79
identification, 210-213
SHRM Body of Competency and
internal, 196
Knowledge behavioral competencies
level, 214
business acumen, 205
management. See risk management
communication, 71, 136, 247,448
matrix, 215-216,217
consultation, 33, 274, 401
) mitigation, 351-354
c1itical evaluation, 231, 420
position, 202
) ethical practice, 117, 176, 241, 310, 349
preventable, 196
) global and cultural effectiveness, 94, 172
register, 222
human resource expertise, 190, 460
residual, 230
leadership and navigation, 390
responses to, 227-231
relationship management, 170, 2 J 8, 295,
scorecard, 215, 216, 217
430
strategy, 196
) Social Accountability International, 287,
tolerance, 202
291
)
I
© 2015 SHRM 491

WORKPLACE Index
social audits, 270-271 synchronic culture, in Trompenaars's and

social partnerships, 273 Hampden-Turner's cultural dilemmas, 81
socioeconomic status, 178 system changes step of diversity/inclusion
sociopolitical forces, and corporate social strategic process, 155-159
responsibility, 279
sourcing T
and diversity/inclusion initiatives, 156-
tactical-reactive approach to global
157
assignments, 91
global, 49-56
Taft-Hartley Act, 436
specific culture, in Trompenaars's and taking no action, as risk response, 227, 230-
231
stakeholders, in sustainability, 271-275,
talent supply, and globalization, 30
294-295 taxation, and global assignments, 101
standby time, 406
. . teams, as one of 4 Ts, 171
state laws, when differ from federal Jaws, 405 technology, and corporate social·
statutes, 342
responsibility, 278
stereotypes, 82-83
Title VII, Civil Rights Act of 1964, 365-368
strategic alliances, 155 totalization agreements, 116
strategic control in businesses, 31 trade agreements, 31, 32
strategic social partnerships, 273
training
strategic-systematic approach to global
as one of4 Ts, 172-173
assignments, 91 step of diversity/inclusion strategic
strategy, diversity, 146 process, 159
process for development of, 148-161
time, and compensation, 409
reasons to have, 146-148
transferring risk, 229
strategy risk, 196 transfers, as one of 4 Ts, 173
structural barriers to risk management, 193
transnational strategy, in GI-LR matrix, 42,
subcultures, 73
46-47,48
subnationallaws, I 14
travel
supply chains, 31, 157-158, 310-312 as one of4 Ts, 171
supranational laws, 115, 117-120 time, and compensation 407-408
surveys, in risk identification, 213
treaties, in European Union, 119
sustainability, 259-263 triple bottom line, 267-269, 275
GRI G4 reporting guidelines, 269
Trompenaars's and Hampden-Turner's
and human resources, 276-277, 296-297
cultural dilemmas, 77, 80-81
maturity curve, 265-267
scorecards, 297, 298
shared value, 264-265
u
social audits, 270-271 ULPs (unfair labor practices), 437-438
stakeholders, 271-275, 294-295 uncertainty
"sweet spot," 263-264, 276-277 avoidance, 78
triple bottom line, 267-269, 275 elimination of, as risk response, 227-228
See also compliance; corporate social unfair labor practices, 437-438
responsibility; ethics; governance Uniform Guidelines on Employee Selection
"sweet spot," sustainability, 263-264, 276- Procedures, 3 70-3 73
277
492 © 2015 SHRM

WORKPLACE Index
Uniformed Services Employment and Wagner-Cannery Act, 436-438

Reemployment Rights Act, 422-424 waiting time, and compensation, 406-
United Nations Global Compact, 285, 291 407W ARN (Worker Adjustment and
universalist culture, in Trompenaars's and Retraining Notification Act), 447-449
Hampden-Turner's cultural dilemmas, 80 Weingarten rights, 438-440
unknown unknowns, 195 whistleblowing, 249
upstream strategies, 40 work/life balance, 20--21
USERRA (Uniformed Services Employment work permits, 100-1 01
and Reemployment Rights Act), 422-424 workday travel, and compensation, 407
Worker Adjustment and Retraining
V, W, X, Y, Z Notification Act, 447-449
workforce
vesting, 412
demographics of, 15-17
Veterans Opportunity to Work (VOW) to
nationalization, 135
Hire Heroes Act, 423
workplace harassment laws/cases, 367, 386-
veterans, status, 178, 400
393
veto, 344
workplace safety, 311, 314
vicarious liability, 389
work-related requirement, 368
visas, 100--1 01
workweeks, 40 I
volunteerism, 316-317, 318-320
Wagner Act, 436-438
)
© 2015 SHRM 493
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HR in tile Global Context

Diversity & Inclusion

A~i<:>!::;:;;,::> YOUR CURRENT KNOWLEDGE

STUDY YOUF\ WAY TO SUCCESS

Read a learning module in print or on an e-reader.

[] Complete the post-test i)

SOCIETY FOR !-lU/'AN~

Subject matter experts

Functional Area #1 0: HR in the Global Context.. ................................................................2

Introductioi1 ........................................................................................................................... ... 4

Section 1: The Global Context ................................................................................................ 7

Section 2: Creating a Global Strategy .................................................................................. 28

Section 3: Becoming a Multicultural Organization ............................................................ 64

Section 5: Navigating the Global Legal Environment ..................................................... ! 07

Introduction .......................................................................................................................... 126

Section 1: Defining Diversity and Inclusion ...................................................................... 128

Section 2: Developing a D&I Strategy .............................................................................. 145

Section 3: HR's Role in the D&I Strategic Process ......................................................... 165

lntroduction .......................................................................................................................... 184

Section 1: Establishing the Context ofRisk ...................................................................... .188

) Section 2: Identifying and Analyzing Risk ....................................................................... .209

Section 4: Evaluating Risk Management ........................................................................... 245

Introduction .......................................................................................................................... 256

) Section 2: Creating a CSR Strategy .................................................. ................................ 283

Section 3: Compliance and Ethics ...................................................................................... 302

Section 4: Governance ......................................................................................................... 324

Introduction .......................................................................................................................... 340

Section 1: HR and the Legislative and Regulatory Environment ................................... 341

Section 2: Organizational Compliance ............................................................................... 348

Section 3: U.S. Laws and Regulations ............................................................................... .361

) Uniformed Services Employment and Reemployment Rights Act and

.., ...... ··.

• Speed-and constancy-of communication. Just a few hundred years ago,

• Degree---and breadth--of impact. The clment era may also be considered

• Omnidirectionality of operations. 20th-century outsourcing and offshoring

Every organization today-whether it knows it or not-is competing globally. That

Functional Area Overview

• Section 1, "The Global Context":

• Section 2, "Creating a Global Strategy":

• Section 3, "Becoming a Multicultural Organization":

• Section 4, "Managing Global Assignments":

• Section 5, "Navigating the Global Legal Environment":

This section is designed to increase your knowledge of:

Globalization in the 21st Century

Butlhe roots of 21st-century globalization-what Thomas L. Friedman calls

2004 Tech companies: Facebook's formation, Google's IPO, and Apple's

Figure 1: Globalization Timeline

That same paradox operates on a generational level. There is an entire

The inevitable integration of markets, nation-states and technologies to a

Mariangela Battista, writing in Going Global, makes a similar point more

Mmtin Wolf, in Why Globalization Works, views globalization purely in

But globalization must be understood as more than an economic phenomenon. It

The increasing integration of economies around the world, particularly

One final definition focuses on another critical aspect of globalization-that it

Forces Shaping Globalization

with which they are promoting-and are promoted by-globalization. It becomes

Or consider an event that, initially, would be labeled as environmental: the

Th ree-P-recepts.of--Giobal Force Interconnectedness

I. While the various forces shaping globalization can be labeled as

3. It is important for HR to distinguish between large-scale forces and trends

An HR professional's goal in considering any aspect of globalization is to

A leading indicator of that continuing shift, and a major feature of globalization,

There were also notable new developments: