Why Ethical HR Decisions Will Reduce Reputational Risk
Making ethical decisions is essential for the reputation of any business, and ethical behavior is of particular concern for human resources departments because they are directly responsible for dealing with employees. Therefore, developing and maintaining an ethical practice framework can help ensure a company’s reputational and financial success.
Recent developments in the recruitment landscape have propelled ethics in HR to a position of paramount importance for companies hoping to attract and retain top talent. The Great Resignation has caused significant recruitment and retention issues in many industries. According to a Resume Genius review of HR trends for 2023, around 20% of workers plan to change jobs within the next six months. Now more than ever, employees will likely have higher ethical expectations of their current or prospective employers.
Understanding your role as a leader in promoting an ethical HR culture is crucial to protect your business’ reputation. Below, we’ll expand on the importance of HR ethics and share some effective strategies for building your reputation as an ethical company.
The importance of proactive HR strategies
Taking steps to prevent a culture of reactive HR decisions can help your business avoid the reputational risk of an ethical blunder.
Companies that use reactive HR strategies put off making decisions until a situation forces them to act. A reactive HR culture can save time and expense while everything’s running smoothly, but it puts HR departments under much greater pressure when faced with an ethical decision. Therefore, functioning reactively increases the risk of making suboptimal moves that will negatively impact the business in the long run.
Proactive HR strategies, on the other hand, involve anticipating problems before they occur and creating robust, well-thought-out procedures for handling ethical decisions. For instance, a proactive HR department will identify potential ethical issues during the hiring process and generate a recruitment framework that deals with those concerns fairly and consistently.
While proactive practices take more time and effort to design and implement, they protect companies against reputational damage. Prevention is better than cure — avoiding ethical pitfalls altogether is better than trying to repair a damaged reputation through crisis management.
Statistics clearly illustrate the importance of a decent reputation for building trust with both employees and the public. An astonishing 82% of American workers said they would accept lower pay if it enabled them to work for a company with an ethical workplace culture, according to an LRN ethics study.
The rise of social media makes it harder than ever for employers to escape the reputational damage of an HR ethics scandal, and the most egregious examples can even find their way into the local and national press. For example, Urban Outfitters made headlines for all the wrong reasons when it asked salaried warehouse workers to carry out unpaid volunteer work over weekends back in 2015.
The role of leadership in creating an ethical HR culture
As a business leader, you can set the tone for ethical HR practices by providing a powerful example of moral leadership. Practicing what you preach helps inspire your employees to center ethics in their decision-making processes and protect your reputation as a leader.
Therefore, creating an ethical HR culture begins with examining your practices as an employer and ensuring you behave in ways that encourage ethical decisions across your business.
Dealing honestly, transparently, and respectfully with your employees is essential for building trust and integrity and creates a trickle-down effect, enhancing your entire company’s culture.
5 Strategies to promote your reputation through ethical HR decisions
The moral challenges facing HR departments can vary from company to company. However, the following strategies can create the ideal conditions for ethical decision-making in any industry.
1. Have a clear code of ethics
Creating an easy-to-understand company code of ethics provides an excellent springboard for encouraging ethical decisions and working methods. Before writing your own, consider what your organization stands for and what values you want to communicate and promote.
Because brand values alignment is crucial for many consumers, it could also be worth considering the values of your customer base when deciding what to emphasize.
Certain values should be present in any robust HR code of ethics. HR professionals are responsible for representing every worker, particularly members of protected classes, so it’s essential to promote equality and avoid workplace discrimination.
For instance, your code of ethics should require your HR department to:
- Follow fair hiring practices that create a positive candidate experience so your company doesn’t earn a reputation that will discourage top candidates from applying to future openings
- Conduct unbiased investigations into disputes and grievances
- void favoritism when dealing with employees.
Accountability is another crucial element of any HR framework. HR professionals are responsible for ethically implementing company policies and procedures that comply with employment laws to prevent illegal and discriminatory practices.
As a leader, you can support your HR professionals by providing regular professional development opportunities to help them maintain and update their knowledge. Your HR team should also be proactive about keeping abreast of the latest legal developments and changes to your company policies.
Finally, your code of ethics should underline the importance of dealing with employees and outside agencies with integrity and honesty. Your HR department must follow confidentiality procedures carefully and understand how to protect the company’s information.
2. Be transparent
Building transparency into your company culture promotes communication between leaders and employees and can help build trust and commitment. What optimal transparency looks like can vary from business to business, but it usually involves being open about expectations, performance, company growth, and setbacks. Transparent cultures can also make employees feel more comfortable sharing feedback and asking for help with challenges.
Transparency is particularly pertinent to HR departments because they are responsible for dealing fairly with employees. Explaining how and why decisions are made can help prevent misunderstandings and encourage employees to share issues before they snowball into major problems.
Using a progress tracking program such as Monday.com or Trello can help set out performance KPIs for an employee’s development. Transparency also promotes fairer recruitment practices. For example, you could consider using a diverse recruitment panel or blind skills tests to prevent biased hiring decisions.
3. Invest in security
Your employees and customers rely on you to keep their confidential information safe. Data breaches can have a disastrous impact on a company’s reputation, and the financial consequences could also be severe. In 2022, the average cost of a data breach was $9.44 million in fines and other expenses.
HR departments hold a lot of sensitive employee data, from employee records to payroll information. Safeguarding this data becomes even more challenging when HR professionals work remotely on potentially unsecured networks, and vulnerabilities in HR systems can increase the risk of a breach.
Investing in robust security systems and implementing clear security guidelines for employees can help protect sensitive information and maintain your position as a trustworthy business.
Ensure all HR professionals understand cybersecurity best practices and know how to report any vulnerabilities they notice while using HR systems, such as weak passwords or access control issues. Companies using automated technologies such as recruitment chatbots should consider how to mitigate the risks of data breaches through these channels.
4. Closely monitor the health of your company culture
Promoting an ethical company culture isn’t a ‘set it and forget it’ exercise— it’s important to diligently monitor factors such as:
- Employee relations
- Satisfaction
- Work-life balance
Employee engagement and your company’s reputation are intrinsically linked. Engaged, satisfied employees are more likely to perform well and provide outstanding service to your customers. Furthermore, keeping tabs on company culture and employee satisfaction allows you to spot and rectify minor issues before they become bigger problems that could damage your reputation and workers’ well-being.
One of the simplest ways to gather a snapshot of the culture in your workplace is to conduct regular employee engagement surveys. Keeping the responses confidential can help employees feel more comfortable sharing their opinions. However, sharing the overall results — and explaining how you will use the insights to improve working practices — improves transparency and shows employees that you care about their thoughts and ideas.
Using the same scoring system for responses makes it easier to monitor changes over time. Examples of areas to cover could include:
- Work/life balance
- Whether employees enjoy coming to work
- How valued employees feel
- Availability and quality of professional development opportunities
- Experiences of performance management
- Quality of leadership communication
- Quality of performance feedback
5. Address issues when they’re still small
Addressing issues promptly is a cornerstone of any proactive HR department. While proactive decision-making can prevent many ethical dilemmas before they occur, planning for every eventuality is impossible. Using the tips above can provide you with the data you need to identify problems in the early stages, allowing you to rectify them before they develop into potentially reputation-damaging issues.
Final thoughts
Leading by example and designing proactive HR practices and policies won’t only help you avoid reputational damage. It will also position your company as an ethical business, boosting your profile with employees and consumers. Abiding by a code of ethics emphasizing transparency, accountability, and fairness provides the framework for making ethical HR decisions that allow your business to thrive.
