Reduction of People as a Violation of Contract - Term Paper Example

Lucinante Academia Research Downsizing (Order 121143) 18 April 2006 Is Downsizing unethical? When top management makes the strategic decision to downsize, two ethics-related issues arise. The first concerns the moral obligation of top management to act in the best interest of the firm. The second concerns the legal obligation of the firm not to violate the rights of employees (Hopkins and Hopkins 1999). The inherent conflict in these two issues, as they relate to downsizing, will become apparent. Friedman (1990) arguments that managers have a direct responsibility to the firm’s owners (shareholders). According to Friedman, that responsibility is to conduct the firm’s business in accordance with owners’ desires, which generally is to ensure the firm’s financial health. Insofar as the actions that managers take are in accordance with their moral and legal obligations toward the firm’s owners, any decisions resulting from those actions would not necessarily be perceived by them as unethical. Based on this reasoning, decisions made by top management to adopt and implement the downsizing alternative, with the objective of ensuring the financial health of the firm, would be in the best interest of the firm’s owners. Subsequently, the ethics of downsizing is not likely to be a conscious consideration as top management formulates downsizing decisions. According to Kantian theory, employee rights are irreducible – that is, they are not to be abridged arbitrarily. This theory also suggests that employees are legally entitled to free and equal access to any rights guaranteed them by law. Legally, employees are entitled to information (i.e., advance notice) concerning layoffs (Cabot, 1988). The concept of rights suggests that employees have the right to as much information as possible about the organization they work for, their job, possibilities of continued employment, and any other information necessary for job enrichment and development (Werhane, 1985). In downsizing situations, particularly during the process of communicating to employees aspects of the downsizing that will affect them and their job, violations of this concept often occur. Pompa (1992) suggests that less than full disclosure of information concerning the downsizing represents the most blatant violation of employee rights. He states that “Deontologically, if withholding information constitutes deception which limits employees’ informed choice about their work status, then it violates the Kantian imperative to treat others as ends in themselves, not merely as means” (pp. 148–149). With respect to downsizing, the concept of rights would argue that employees have rights that must not be violated during the formulation and implementation of the downsizing alternative. When these rights are denied, employees are likely to perceive that ethical violations have occurred. Downsizing and the violation of implied contracts What makes a discussion of the ethical implications of downsizing problematic is that there are (save for situations in which collective bargaining is in force) no explicit contractual, legal, or regulatory violations involved. Because employment-at-will is the dominant paradigm for workplace relationships in the United States, recourse to specific legal remedies is limited for employees who have experienced downsizing. There is, in short, no statutory or common-law “right” in American jurisprudence to have continuous employment with a particular employer, although workers in statutorily-protected classes (like women, older workers, and African-Americans) may have claims if they can demonstrate that their individual dismissals were due to unlawful bias (Lee, 1995). A discussion of the ethics of downsizing that focuses on contractual claims will therefore necessarily rely on psychological and social contract theory rather than a legal analysis. In short, the fact that many societal (and for that matter, personal) expectations of employers are neither codified into law nor included in a formalized contract is not necessarily fatal to their use in a theory of corporate responsibility in downsizing (Van Buren III 2000). This said, it is necessary to demonstrate why implied agreements, like psychological and social contracts, can be binding – and more critically, how they should be binding. Psychological contracts The psychological contract can be defined as a set of “individual beliefs, shaped by the organization, regarding terms of an exchange agreement between individuals and their organization” (Rousseau, 1995, p. 9). The psychological contract permits individuals and groups in organizations to enforce the agreement via automatic processes that levy penalties upon the latter – thus using penalties similar to reliance losses to bring the employment relationship back into balance. The psychological contract is a first step toward moving an analysis of employment relationships away from reliance on formal, written contracts. An ethical analysis of downsizing, therefore, permits the discussion to include perceptions of fairness and morality. The individual-level equilibration of employees’ and employers’ obligations is expressed in the psychological contract (Van Buren III 2000). Social contracts In an environment in which employment-at-will is the dominant paradigm for labor-management relationships, psychological contracts add much to our understanding of what employees (and to a lesser degree, employers) believe. Social contract theory proposes the idea of consent to a hypothetical social contract that governs relationships in society. The macro-social contract is “the set of principles regarding economic morality to which contractors would agree” and are meant to ensure procedural fairness (Donaldson and Dunfee, 1994, p. 260); this social contract “defines the normative ground rules” for determining a second kind of social contract (Donaldson and Dunfee, 1994, p. 254). This second kind of social contract (called an extant local social contract) is implicit; it is concerned with how communities (whether societies, organizations, or corporations) actually govern themselves. Because corporations are members of the societies in which they operate, they are subject to local social contracts. The concept of “hypernorms” has been developed to signify the idea that local micro-social contracts cannot be created without any boundaries or limits. Hypernorms function as essential “ethical facts” of human existence. Through socialization processes, they are communicated to successive generations. To make both psychological contracts and social contracts binding upon organizations and their managers, one further step is needed: the creation of a normative contract that serves to bind employers to commonly-held expectations of organizational behavior. Corporate Social Responsibility as a final Remark Stone (1975) notes that Friedman’s inclusion of adherence to “ethical customs” provides space for proponents of corporate social responsibility to argue in favor of obligations that go over and above adherence to the law. Based on the concept of corporate chartering, businesses are considered to be members of their communities (Kaufman, Zacharias and Karson, 1995). If corporations are members of their communities, what kinds of responsibilities do they have beyond making a profit? Certainly following the law is a primary (and codified) ethical norm. Fortunately, the literature on corporate legitimacy, for example, focuses on social judgments of whether a business is in accord with societal values and mores (Ashforth and Gibbs, 1990). The literature on stakeholder management models, for example, is based on the premise that a corporation has constituencies that affect it and that it affects. Although it is considered to be in a corporation’s self-interest to take the needs of its stakeholders (communities, employees) into account in its decision making, there is also a moral dimension beyond the pursuit of profit (Van Buren III 2000). The moral free space of firm managers is not unbounded. Because downsizing adversely affects employees and communities, arguably the two most important stakeholders of any organization, it follows that an ethical theory of downsizing will try to equilibrate the rights and responsibilities of the organization, its employees, and society at large. Many people who have lost their jobs wonder how firms making substantial profits can lay off thousands of employees. The employment relationships have public dimensions. Only by thinking of employment as a public good can downsizings be made both more rare and more humane. REFERENCES Ashforth, B. E. and B. W. Gibbs. 1990. The Double-Edge of Organizational Legitimization. Organization Science 1: 177–194. Cabot, S. J. 1988. Plant Closing Bill Will Give Many Employers Their Day in Court. The Human Resource Professional 1: 116–126. Donaldson, T. and T. W. Dunfee. 1994. Toward a Unified Conception of Business Ethics: Integrative Social Contracts Theory. Academy of Management Review 19: 252–284. Friedman, M. 1990. The Social Responsibility of Business is to Increase its Profits, in P. Madsen and J. M. Shafritz (eds.), Essentials of Business Ethics. New York : Penguin Books. Hopkins W.E., and S.A. Hopkins. 1999. The Ethics of Downsizing: Perceptions of Rights and Responsibilities. Journal of Business Ethics 18: 145-156. Kaufman, A., L. Zacharias and M. Karson: 1995, Managers vs. Owners: The Struggle for Corporate Control in American Democracy. New York: Oxford University Press. Lee, B. A. 1995. Legal Pitfalls of Downsizing. Human Resource Management Review 5: 1–23. Pompa, V. 1992. Managerial Secrecy: An Ethical Examination. Journal of Business Ethics 11: 147–156. Rousseau, D. M. 1995. Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. California: Sage Publications, Thousand Oaks. Stone, C. D. 1975. Where the Law Ends: The Social Control of Corporate Behavior. Illinois: Waveland Press, Prospect Heights. Toward a Theory of Social Responsibility in Downsizing. Journal of Business Ethics 25: 205–219. Van Buren III, H.J. 2000. The Bindingness of Social and Psychological Contracts: Werhane, P. H. 1985. Persons, Rights and Corporations. New Jersey: Prentice-Hall, Englewood Cliffs. Read More