Santa Clara University


Business Ethics in the News

A discussion on the week's top business ethics stories by Professor Kirk O. Hanson, Executive Director of the Markkula Center for Applied Ethics, and Patrick Coutermarsh, Fellow in Applied Ethics and recent graduate of Santa Clara University.

The following postings have been filtered by category Labor Regulations. clear filter
  •  AUTOZONE: Employee Theft, Coercion, and False Confessions

    Tuesday, Mar. 11, 2014

    Take the suspect to an isolated place. Make sure the conversation isn’t being recorded. Engage in small talk to build rapport. Commence interrogation. These steps, outlined in a manual used by loss prevention specialists to question employees expected of theft, are a common practice in the retail space. Employee theft costs American retailers $16 billion a year, and it’s difficult to stop. Rarely is there any physical evidence, only an imbalance in the books or missing merchandise. To address this, retailers are increasingly turning to internal investigations headed by specialists trained in police interrogation techniques. These interrogations include insisting that the company knows the suspect is guilty, pointing to “bulging files or videocassettes,” and an array of psychological tricks to get the confession. But these techniques are often too effective, resulting in a false confession from the employee. The interrogations are often held while the employee is “on the clock,” meaning leaving could result in losing their job, and the retailers don’t allow them to be videotaped. A slew of recent lawsuits brought against AutoZone have shined light on this problem, even revealing that one of the loss prevention specialist received confessions in 98% of his cases. Given the growing evidence of this problem, should retailers abandon the use of police interrogation techniques in their investigations?

      Kirk: We’ve always known there was a danger of false confessions when employees, criminals, or preschoolers are browbeaten by an overzealous questioner. Criminal investigators have addressed this by videotaping every interview with clear consequences for misconduct. Corporate investigations still operate in the dark with few protections for suspected employees. It’s time to bring the process to light and build in employee protections. Beware the investigator who finds fraud in 98% of his cases.

      Patrick: I understand the reluctance of retailers to acknowledge this problem. Employee theft results in significant losses, and having no other recourse, it’s easy to see why they defer to strong-arming their employees. But these interrogations aren’t addressing the problem, and the resulting lawsuits aren’t doing the retailers any favors. The losses in productivity from employee dissatisfaction and resentment are enough for these practices to be sidelined. Not to mention, happy employees don’t steal.

    When Employees Confess, Sometimes Falsely (NY Times)

    Framework for Thinking Ethically (Markkula Center)


    NEXT STORY: Are Tech Firms Responsible for the Misuse of Their Products?

  •  KELLOGG: Is the Two-Tier System Ethically Problematic

    Wednesday, Feb. 12, 2014
    Image Source: Flickr
    Image Source: Flickr

    The 226 workers at Kellogg’s Memphis plant have been “locked-out” from their jobs producing Frosted Flakes and Froot Loops for over 3 months. Company management and the union representing the workers — the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union — reached a stalemate in negotiations in October, resulting in the lockout. The primary issue is Kellogg’s demand of dramatically increasing the amount of temporary workers, who would earn $6 less and be entitled to much fewer benefits: effectively creating a two-tier system at the plant. Under the current agreement, Kellogg has the right to use temporary workers for up to 30% of the workforce, but the union claims Kellogg is now pushing for 100%. The workers, who have had their health insurance suspended by Kellogg, fear that their jobs will either be replaced entirely by temporary workers, or they will be forced to take lower wages. Kellogg, in the midst of a 4-year cost reduction effort labeled, “Project K,” claims that the change is necessary to remain competitive and that current employees will be unaffected by the change. Are two-tier systems ethically problematic?

      Kirk: Kellogg has ignored lessons learned by the airline industry that dividing employees into two classes of citizens won’t work for very long. American Airlines, with a host of others, started a plan in 1983 that instituted a two-tier system separating current employees from future hires into different pay scales. By 1987, the company had to significantly overhaul the program. Two-tier systems create tension between the employees, resentment of management, higher turnover, and further complicate union relations. In the long run, these programs are not sustainable. They undermine the concept of shared sacrifice, shared reward, and make development of a strong corporate culture exponentially more difficult.

      Patrick: I don’t think tiered systems are inherently unethical, although it is largely a matter of fairness. In the case of American Airlines, and most likely the Kellogg lockout, new hires will be doing the same job as existing employees but will get paid significantly less. “Treat similar cases similarly” goes a long way here. Anything else will create an imbalance and undermine the company in the long run. On the flip side, Google famously uses a tiered system, assigning different color “badges” for full-time employees, contractors, and interns. Yes, they create divisions between the groups, but they also strengthen the group identity of the subgroups and incentivize employees to “climb the ladder.” It’s Darwinian, but fair.

    Labor Battle at Kellogg Plant in Memphis Drags On (NY Times)

    A Framework for Thinking Ethically (Markkula Center for Applied Ethics)



  •  IMMIGRATION REFORM: Retraining vs. Hiring Abroad

    Friday, Jun. 28, 2013

    Thursday, the Senate passed a comprehensive immigration bill, which among other effects will allow Silicon Valley companies to hire more foreign engineers. Tech firms have long been voicing concerns about the shortage of skilled workers in America, and have lobbied for the ability to import more foreign talent by increasing the cap on H1-B visas. Labor groups have been pushing back by arguing that equally qualified Americans be offered jobs before firms look abroad. They also argue that firms should retrain current employees before looking abroad for the most up-to-date workers. Some studies, such as one published by the Brookings Institution, have found that the presence of high-skilled guest workers does not have a negative impact on the employment levels of college educated-Americans of that area. Do tech firms have an obligation to hire Americans over foreign talent?

      Kirk: I believe companies should commit to some level of retraining. Too many Silicon Valley companies see foreign engineers as the solution to all hiring needs, and even as low-cost temporary labor. At minimum companies ought to be working with academic institutions, including online learning companies, to prepare American engineers for the latest technologies.

      Patrick: Companies should invest in their people, but those people do not necessarily have to be American. While Americans do not have a special claim to jobs at American firms, the rate at which American employees are being left in the dust by new technology is problematic. Firms must embrace that there is a dual responsibility in keeping employees up-to-date: it’s on the firm to offer the opportunity for continued training, and on the employee to take them up on it.

    A Bill Allowing More Foreign Workers Stirs a Tech Debate

    A Framework for Thinking Ethically



  •  INTERNSHIP SWAPPING: Is It Unethical to Trade Internships?

    Thursday, May. 30, 2013

    Small business owners and corporate executives have long faced the problem of whether to hire their children for summer internships and entry-level positions. On one hand, executives know the importance of gaining “real-world” experience at an early age, but on the other, hiring direct family raises many concerns of favoritism and conflict of interest. In response, a recent trend has emerged: “internship swapping.” The quid pro quo arrangement works something like this; “I’ll hire your daughter for the summer at my law firm, if you give my son an internship at your accounting agency.” Taken at face value, it appears to be an elegant solution as neither firm has a familial connection to the new hire. Still, some argue that this is just another way of protecting the special opportunities for the well-connected. Should top executives be engaging in internship swapping?

      Patrick: Internship swapping is unethical as it involves manipulating company resources for personal gain. The company misses out on hiring the best available candidate, or worse, the position is created solely for the sake of “the swap” adding to bloat and inefficiency at the company. Hiring based on reputation and personal endorsements will always have a place in business, but internship swapping crosses the line.

      Kirk: Every company with a limited number of internships should develop a way of allocating those spots without favoritism. There is little difference between a top executive telling the head of internships to "hire my son" and "hire my friend's son." Either grants special treatment to the sons and daughters of the wealthy and well-connected. This is but a fig leaf to disguise the exercise of privilege.

    The Great Internship Swap

    A Framework for Thinking Ethically



  •  AMAZON: Should Labor Practices of Multinationals be Judged by the Standards of their Home Country or the Country of its Operation?

    Friday, Mar. 8, 2013

    Last Thursday, a group of representatives from ver.di, one of Germany's largest labor unions, marched on one of Amazon's eight German distribution centers. Armed with 37,000 petition signatures, the group demanded a meeting with Amazon executives to negotiate a union wage contract for its German workforce. Amazon, which employs 8,000 people in Germany, has refused to communicate with union officials, emphasizing that it already pays above the union rate. The union has protested the "Big Brother" atmosphere where "everything is measured, everything is calculated, everything is geared toward efficiency." The union is also protesting the treatment of the 10,000 temporary workers that Amazon buses in from Spain and Romania to meet Christmas demand, citing German legislation, introduced in 2005 that lowered labor regulations, as a main contributor to the problem. Amazon is quickly becoming despised for personifying the qualities of American-style management that Germans despise: "People want to be treated with respect," argues the union leader. Should Amazon operate by more generous worker policies than it does in the US?

      Kirk: Amazon and other multinationals must operate with sensitivity to local standards and expectations. They cannot just operate by their home country practices. In this case, however, the union seems unhappy with recent German legislation as with Amazon. Nonetheless, Amazon needs to resist the temptation to "race to the bottom," and should refrain from enacting more aggressive policies towards workers and the union. But in this case, refusing to negotiate with the union may be the only way to retain enough flexibility to operate profitably in Germany.

      Patrick: While I agree that Amazon and other multinationals must operate under local standards, demanding that they adhere to local expectations has too many problems associated with it. The union is by no means an objective measure of cultural expectations as they have both political and economic interests; which leads to the question: Where can Amazon turn to decipher the expectations it should meet? The labor laws and regulations of the country. Legal code offers a clear set of rules for multinationals allowing them to know what they are getting into before they invest, as well as ensure that their current operations are compliant.

    Amazon's Labor Relations Under Scrutiny in Germany

    A Framework for Thinking Ethically