The aim of this essay is to focus on whether legal and ethical compliance is necessary for competitive advantage.

Major Assignment

By Ognjen Zec

Executive Summary

The aim of this essay is to focus on whether legal and ethical compliance is necessary for competitive advantage. It will also discuss the factors affecting the HR functions of Selection and recruitment and how they interrelate with legal and ethical compliance and competitive advantage. Patrick Stevedores will be used as the main example, however other examples have been used where necessary.

The research has been based on both written and oral sources found readily available in the public.

The report found that Legal and ethical compliance is necessary for competitive advantage. Furthermore it found that Patrick Stevedores did not increase its competitive advantage due to its poor implementation of change in its HR factions.

“ Legal and Ethical compliance in managing HR functions is necessary for competitive advantage.”

The most sustainable competitive advantage between companies today is the quality of its people. Most organizations are in search of the able people to work for them and it is often a never-ending search. Human Resource Management today focuses on the enhancing better performance in the work force and sustaining peak performance. It is the quality of its people that is the competitive advantage of an organization (McBride et al. 2002, 290 – 304). However, as clear and easy as this sounds, it is the way in which firms handle their legal and ethical compliance in managing HR functions that determines their level of competitive advantage. This essay will use the wharf company of Patrick Stevedores as an example in describing how legal and ethical compliance affects the HR functions of Recruitment and Selection.

Firstly let us define the terms used in this essay. Competitive advantage is defined as a special edge that allows organizations to better deal with business challenges (Stone et. al., 2002, p.838). Ethical behaviour deals with what is good and bad, right or wrong, or with moral duty and obligation. Ethical behaviour may require higher standards than that established by the law. For example although it is not illegal to use cyanide in some countries for mining, an Australian firm may choose not to use it because of the ethical issues involved. Although many large corporations now have formal programs for managing ethical behaviour and legal compliance, human resources departments often play only a minor role in companies' ethics management efforts. It is a wide belief that the human resources departments should play a more prominent role in ethics or compliance management (Linda K. Trevino, 2001). She notes that fairness issues are important to employees, and the involvement of HR staff and departments in ethics and compliance programs could be important to the real and perceived fairness of those programs. Therefore, HR staff and departments need to play a more central role in ethics management initiatives if those initiatives are to provide real benefits for both organizations and their members.
HR offices are likely to be viewed as representing employee's concerns. In addition, HR offices can play a key role in developing ethics programs with a proper balance of values and compliance orientations, and in integrating ethics programs into important organizational activities, such as the design of performance appraisal systems, management training, and disciplinary processes (Gary R. Weaver et. al, 2002). HR departments should not attempt to manage ethics initiatives on their own. Multiple functions and departments-including legal, audit, the top management team, and board of directors-need to work together in a coordinated effort aimed at fostering ethical behaviour in the organization.
Research has shown that a values orientation in company ethics programs is more likely if the highest levels of management are committed to the intrinsic value of ethics. So even though HR's involvement in ethics programs is important to their success, HR should not expect to accomplish the task alone (Linda K. Trevino, 2001).
If HR departments adopt a higher profile role in ethics management, employees may perceive more fairness in the ethics program. Employees who see an organization's ethics program as unfair may reject the program. On the other hand, Trevino claims that when employees perceive that the organization treats the employees fairly, commitment to the organization and to the ethics program is higher.
Research on this topic also has shown that employees are more aware of ethical issues, more likely to ask for ethical advice within the organization, more likely to think that it was all right to deliver 'bad news' to management, more likely to report an ethical violation, and more likely to believe that decision making was better in the organization as a result of the ethics program if they perceive that the organization treats employees fairly. Employees' belief in a just organization may be necessary for ethics/compliance management effectiveness.
Although issues of ethics in organization encompass much more than questions of fairness or justice, failure to foster justice in the organization can undermine organizational efforts to encourage ethical behaviour generally. Ethics management, in short, though not the same as fairness management, depends on careful handling of fairness issues within an organization. Consequently, the HR function should play a crucial role in organizations' efforts to deal with ethical issues, because HR's role is central to the management of fairness in contemporary organizations.

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Let us now introduce Patrick Stevedores. Patrick is a Stevedoring company that is based in Australia. It has built an integrated network of freight logistics operations that deliver transport solutions across all modes - rail, road, sea and air. Patrick is Australia's largest operator of container terminals, with state-of-the-art facilities in all major ports. Patrick is also Australia's largest stevedore, with origins dating back to 1919 (Patrick Stevedores website, 2003). However Patrick s was faced with numerous problems. Cargo rates in Australia were almost one third higher than for foreign ships, and the Maritime union was accused of holding the Australian economy to ransom (N. Bita et. al.1997). It was claimed that there is no purpose in trying to develop manufacturing export systems that require sea transport due to the inefficiency of the Australian waterfront (R Gottliebsen, 1996, page 6). On Tue 7th April 1998, with the support of the Federal Government, Patrick Stevedores sacked its workforce, and planned to replace current waterside workers with new, non-union affiliated contractors. The Government at the time supported the perceived right of the company to restructure its business. Workplace Relations Minister, Peter Reith, called on the Maritime Union and ACTU not to over-react, and to consider the generous redundancy packages that will be made available to the redundant workers. The Maritime Union of Australia (MUA) however urged its members to remain united and claimed that Patrick stevedores would attempt to divide its workforce by offering individual contracts.

Consequently the workers at Patrick's Port Botany terminal in Sydney began a seven-day strike, after rejecting the company's latest pay offer. At a mass meeting on the same day, Port Botany workers unanimously endorsed the seven-day stoppage. Massive stoppages and delays were caused by these sensational events (D. Spence, 1998). The purpose of this restructuring of the workforce was the craving for greater efficiency, higher stock turnover and lower labour costs. Basically Patrick Stevedores tried to improve its competitive advantage over its competitors and maximise its profits. There are other political issues involved in this case but they are beyond the scope of this essay. Additional readings will be listed in the bibliography section.

The two HR functions discussed in this essay are recruitment and selection. They are basically the main HR issues in the IR dispute at Patrick Stevedores. As mentioned earlier the basic problem arose when Patrick sacked its unionistic workforce in order to replace them with non-unionised labour. As we know, an organization’s recruitment policy provides the framework for recruiting action and reflects the organization’s recruitment objectives. It details the overriding principles to be followed by management in general and by the HR manager in particular (Stone, 2002). Patrick decided with government backing to change its recruitment objectives in order to make its workforce more flexible. Patrick mainly wanted individual bargaining agreements with its workers rather than the one for all unionistic approach that was in place at the time. Patrick however was not the first stevedore company to implement such an approach of trying to destabilize union labour. Other organizations have tried the same approach only to realise than in order to achieve competitive advantage; a more ethical approach was needed.

For example, in the early 1990s, a shipyard at Hebburn, on the Tyne, was taken over by Shields Ship repairers. Initially, Shields Ship repairers decided to continue the previous owner's policy of not recognizing trade unions. But as workers began to circulate between different branches of the company, they started to demand the same employment rights that existed in other yards. The resulting industrial action, along with impending recognition procedures in the Employment Relations Act (1999), led the company to acknowledge that unionisation for manual workers was unavoidable. In 1999, a ballot was taken among the group's workforce nationally for recognition of trade unions. But the result was challenged by the trade unions. Following the overwhelming result of a second ballot, an agreement was reached for hourly-paid workers in the group's UK engineering production facilities to be represented by either the AEEU or the GMB unions. Eventually a partnership agreement between the company, the GMB and the AEEU was achieved, with union leaders and employers supporting the initiative. Traditional industrial-relations concerns were dealt with in the agreement - such as trade-union recognition and representation, job flexibility, disciplinary and grievance procedures, working time, health and safety. There were repeated references to the commercial needs of the company and the trade unions' role in supporting these. Forums for joint consultation were established, with employee membership handled through the unions. But agenda setting remained in management hands. A key feature of the agreement was the "no-strike" clause and the introduction of binding arbitration, which reflected the desire for a public acknowledgement of the commitment to solving disputes (McBride at. al., 2002).

Patrick could also have used such an ethically appropriate approach. Instead its new HR recruitment and selection policies were somewhat unethical in its implementation. Through the sacking of the workforce and subsequent external recruitment Patrick may also have broken the law. The cancellation of the labour supply contract and the appointment of administrators on 7th April 1998 were made possible by a complex inter-company transaction that occurred in September 1997. By dividing the functions of employing workers and owning the business between two companies, the Patrick group put in place a structure that made it easier to dismiss the whole workforce. It is arguable, based on the evidence that this was done because the employees were members of the Union. So there is an arguable case that the Patrick employers acted in breach of s 298K(1) of the Act. As we know s 298 K states that an employer must not, for a prohibited reason, or for reasons that include a prohibited reason, do or threaten to dismiss an employee, injure an employee in his or her employment or alter the position of an employee to the employee's prejudice ((ACN 003 621 645) & Others [1998] 378 FCA (21st April 1998). Furthermore in some industries it is customary to use union labour. Trade unions can be a recruiting service for certain types of labour (Stone, 2002, page 187). In industries such stevedoring, the unions have traditionally been involved in supplying workers to employers. For example the union covering mineworkers in Australia used a list of retrenched employees from which the companies had to hire (P. Maher, 1993, page 69). Hence even if the sacking of the work force was legal, it is unethical in the context of the industry. Furthermore the selection of new employees under the pretext that they do not belong to any union is also illegal and unethical.

Now that we have identified the key factors of the discussion; Legal and ethical compliance, HR functions (Recruitment and Selection) and competitive advantage, we must explain how they all interrelate with each other. As noted earlier Patrick wanted to replace its unionised workforce in order to achieve greater competitive advantage due to current inefficient practices. The HR functions of Recruitment and Selection would be most affected through this. Since Patrick Stevedores perceived the unions as the biggest threat in competitive advantage it could have implemented a form of non union representation and hence make trade unions unnecessary. Instead of sacking its entire workforce Patrick Stevedore should have de unionised its workforce by following the example of what Euro tunnel achieved. Euro tunnel, which has a 50-year lease to operate the Channel Tunnel link between the UK and France, employs 2,300 people, 1,300 of whom are based at Folkestone, Kent. On the UK side of the tunnel, the firm recognizes only the company council for negotiation purposes. Employees may become trade-union members, but will have no formal representation from their union. The UK company council, which is broadly similar to the enterprise committee set up on the French side of the tunnel, consists of employees who are democratically elected every two years. It is the only form of official employee representation, and carries out bargaining over pay and conditions. The council gives information and consults on matters of common concern to employees and manages the social and welfare budget, which equals 1 percent of payroll. All representatives must be permanent employees with at least one year's service, and on permanent rather than temporary contracts. They may, however, be full-time or part-time employees. The company council has Industrial Society membership. This means that representatives can go on courses and get access to advice about working practices, dismissal procedures, employment contracts, maternity and paternity rights and health and safety (P. J. Gollan, 2001). Through such a system the selection and recruitment of non-union members would be encouraged. However since employees belonging to a union are not discriminated against, this approach would be both legally and ethically compliant. This approach would also have limited industrial action as opposed to the drastic step of dismissing all of Patrick’s employees. This in turn would have lead to no industrial action and overall improvement in efficiency since that was the goal of the new recruitment and selection procedures. The competitive advantage of Patrick’s would have been drastically increased and no negative publicity created. Basically it is safe to say that Patrick's new polices of recruitment and selection were seriously flawed and that the new method of managing these HR functions did not contribute to competitive advantage.

In conclusion a much more subtle approach to changing the HR functions of selection and recruitment could have been used. It is important to remember that ethical compliance is not the same as legal compliance. Legal compliance is the law and it must be abided by. Ethical compliance however is much harder to measure and even harder to control. Even defining what is ethical and what is not can be difficult since people have different opinions of right and wrong. What Patricks did in its selection and recruitment policies is widely considered unethical. It was also found to be illegal ((ACN 003 621 645) & Others [1998] 378 FCA (21st April 1998)) and clearly in breach of the workplace agreement act. Hence the goal of achieving competitive advantage was not achieved by Patricks due to its poor implementation of new strategies. It has been found that both legal and ethical compliance is necessary for competitive advantage.

By Ognjen Zec 18222994

Bibliography

McBride, J., Stirling J. 2002, “Partnership and process in the maritime construction industry”, Employee Relations, Human Resource Management International Digest 24, 3, pages 290 – 304

“HR Departments Should Play A More Prominent Role in Ethics Management”, Linda K. Trevino, professor of Organizational Behaviour and Chair of the Department of Management and Organization in Penn State's Smeal College of Business, published in Human Resource Management Review, 2001.

Human resource Management, 4th edition, Raymond J. Stone, published in 2002 by John Wiley & sons Australia Ltd.

“The Role of Human Resources in Ethics/Compliance Management: A Fairness Perspective," L. Trevino, Gary R. Weaver, Human Resource Management Review 2002.

Patrick Stevedores Website, , date last updated April 2003.

“Shipping plan clears decks to save $150 million”, by N. Bita and S. Marris, The Australian, 2nd May 1997, page1.

“Arm yourself for the waterfront war”, by R Gottliebsen, Business Review Weekly, volume 1, number 31, 12th August 1996, page 6.

“Patrick Stevedores sacks workforce”, D. Spence, ABC News, 7th April 1998 available at

Maritime Union of Australia & Others v Patrick Stevedores No.1 Pty Ltd (under administration) (ACN 003 621 645) & Others [1998] 378 FCA (21st April 1998)

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA (4th May 1998)

“Coal strike sparks reform tussle”, P. Maher, The Bulletin, vol 115, no. 5889, 29th September 1993.

"Tunnel vision: non-union employee representation at Euro tunnel", Paul J. Gollan, Employee Relations, Vol. 23 No. 4, 2001.

“Australians’ Rights are on the line, say world unions” – ITF Press release, 24th April 1998

The aim of this essay is to focus on whether legal and ethical compliance is necessary for competitive advantage.

Major Assignment

This is a preview of the whole essay

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