The Enterprise Growth Group at American Express was created to do exactly what its title alludes to, grow the American Express enterprise.  One of the group’s first ventures is a business called Serve. Their take on a digital wallet, Serve is a new way to send money virtually via a website or smart phone.  Cox went on to discuss the business case for why American Express is moving into online payments, what Serve’s business model is, and Serve’s newly announced plans and partnerships.  Enterprise Growth Group’s proposal and development of Serve was the biggest career risk Cox said he had taken to date. The story of Serve’s development and launch led into the main reason for Cox’s appearance in class, to share with aspiring HR leaders what it is really like to be a CHRO.

Cox talked about being a CHRO in terms of their relationships and roles.  He shed light on the many matrixed relationships a CHRO has with the CEO, the fellow C-suite members, the board, the HR department, and all other company employees.  The importance of being objective, having a strong moral compass, and using sound judgment when dealing with various stakeholders were also presented as key skills.  He then broke the CHRO position into four key roles: Architect, Troubleshooter, Culture Cop, and Coach, and discussed the importance of fulfilling each.

The Architect.  Cox openly shared his views on how important talent is to any organization.  One of his core beliefs is “great talent trumps great strategy, every time.”  The architect role is not just about hiring the right people; it is about designing a workforce that can achieve the company’s goals.  A CHRO must do this by linking the talent strategy to the business strategy.

The Troubleshooter. Quoting Michael Feiner, Cox stated, “Organizations fundamentally don’t work.”  This leaves a lot of work for the CHRO to do and Cox categorized the major problems a CHRO will have to trouble shoot into eight buckets: leadership, roles, goals, capability, communication,  standards, structure, and of course, compensation.

The Culture Cop.  A company’s brand and culture are sacred. This is especially true of historic companies such as American Express, which has been in operation since 1850.    Cox discussed the importance of first understanding the essence of a culture and then how important it is to protect it. He shared how every decision and action impacts the culture, thus making it critical to understand what behaviors to accentuate, minimize, or eliminate to keep the company’s value system and culture aligned. He also stressed that every deviation from tradition must be a well thought out, conscious decision.

The Coach.  In his role, Cox is a coach to many.  He emphasized again the importance of staying objective, but also discussed what “tough love” means in the CHRO role.   He spoke about the importance of being a good listener and not becoming part of the story, and lastly, knowing when to coach and when to substitute.

To close his lecture, Cox shared some lessons he has learned from his experiences.  He told the class that HR should always be driving change, not impeding it.  He explained why it is important to become a harsh evaluator of talent and also why students should chose optimism over cynicism.  In the last minutes of his presentation, Cox imparted some wisdom that every aspiring leader should keep in the back of their mind when beginning their career, “Don’t just stand there. Do something. Engage.”ℵ

Lisa Chen is a student at Cornell University, pursuing an MILR at the School of Industrial & Labor Relations. She is president of Cornell’s Human Capital Association and serves on the editorial board of the Cornell HR Review. Ms. Chen held HR roles at The Walt Disney Company and Macy’s prior to matriculating at Cornell, and will be taking a position in Cisco’s HR Leadership Development program upon graduation.

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Today, HR departments are faced with the retirement of Baby Boomers, the mindset of Millennials, and the economic pressures to reduce costs. After analyzing research done in the field of HR and current business trends, we believe the next strategic step for HR is the implementation of internal contingent workforce pools to ease the generational transition from Baby Boomers to Millennials.

I.             Introduction

Our research highlights the emergence of work and family balance issues throughout the United States beginning in the 1960s and the importance of the work/life balance in today’s workplace. We have examined four areas: the history of work and family balance, the changing requirements of the current and future employees, new challenges companies are facing, and programs companies have implemented to deal with these challenges. Technological innovation has provided a more informed and efficient way to do business, but these changes have also produced a new generation of remote workers. Like technology, companies also have to be creative when designing policies and procedures for this work style. We chose to research flexible work schedules, remote workforces, and contingency workers because of the growing need for companies to implement these practices. Aligning flexible staffing policies to employees can immensely affect the strategic objectives of the organization.

II.           History

Starting in the 1960s the emergence of two-income earning households presented the need for a change from the traditional 9-5 workplace to a more flexible work schedule that allowed employees to address both their home and professional needs. As the rate of women entering the professional workforce increased, and with the economic crash in 1971, personnel managers started creating policies that allowed for flexible work schedules in terms of the hours worked. The creation of a flexible work schedule allowed for the creation of a new work style and redefined “work/life” balance, ensuring that later generations focus not only on the growth of their careers but also on the important roles they play within the family. The following quote summarizes how the present workforce differs from that of the mid-1970s and how these changes have only increased the need for a flexible workforce:

Since 1975 to present, the labor force participation of U.S. women with children under 18 years of age has increased from 47% to 78%. Nearly 40% of all professionals and managers who work at major U.S. companies are now women, many who simultaneously juggle caregiving. The U.S. Census Bureau reports that 83% of U.S. families are dual earners or single parents with children under 18 years at home. A third of all workers (equally men and women) provide elder care. Fifty percent of all children will live in a single parent family before reaching 18 years. Fathers play a greater role in caregiving and value flexibility more than those of previous generations.^[1]

As the data shows there is a need for flexible work conditions to serve the home/work balance of today’s society with its increasing number of single parents, new roles of fathers as caregivers, and the expectations of Millennials and employers for a line between work and home.

The dot com boom of the 1990s presented new technology which made telecommuting possible; as a result more companies began offering the ability to work from home. Cisco Systems, Inc., along with other technology companies, have found that using a remote workforce not only allows people to better manage their work and family balance, but it also drives innovation and creates a harmonized work environment. Cisco Systems—whose tagline is “The Human Network” – has had 70% of their workforce telecommuting since 2007.^[2]

Citrix Systems, Inc. has a “Work Better, Live Better” philosophy, which encourages a remote workforce. Mark B. Templeton, Citrix System’s CEO, explained the benefit of a flexible workforce stating: “At Citrix, we help people work better. That’s what we do, but it’s not why we do it. We do it because as work gets better, life gets better. As people’s work life improves, their personal life improves, and as their personal life improves, their community improves, and the effect continues to ripple outward. The tie between work and well-being has always been at the core of our company.”^[3]

In order to further understand the work environment at Citrix, we interviewed Nichole Rhodes, an HRIS Analyst at Citrix Systems, about her experience with the company’s flexible work polices and the ability to work remotely. She summarized her experience in this way:

Working from home is part of the Citrix culture. We refer to it as “remote.” The company has an established policy for this. The policy is for people that primarily work from home. It outlines work equipment, company expenses, home office, expectations, etc. The nice thing about Citrix is office employees can also take advantage of remote access on a casual basis with their manager’s approval. If I have a doctor’s appointment or want to work from home for any reason all I have to do is clear it with my manager. Our VP of HR lives in Idaho and works remotely. She visits the office about once per quarter. All members of my specific department (HRIS) have at least 1 day a week where they can work from home. Work/Life balance is an important part of our culture. I would say the number one reason for remote work is the products we sell. Our products promote and enable remote access. So we practice what we preach! I also think allowing employees to work remote promotes higher productivity. Management trusts their employees to get the job done, regardless of where or when. We have higher expectations than companies who force a ‘9-5’ office environment. It’s a rewarding and fun work environment – work hard, play hard.^[4]

The progress made in the last half of the century will only be developed further as changes in business demands dictate the need for a more flexible and mobile workforce. The Bureau of Labor Statistics (“BLS”) forecasts that in the next ten years the ratio of traditional workers to contingent workers will shift from the 90-10 ratio of the 1990s and move towards a 60-40 ratio.^[5]

III.         Outcomes of Flexible Workforce Programs

The implementation of flexible work policies has successfully contributed to the performance of organizations. Outcomes include, but are not limited to, increased employee engagement, productivity, and job satisfaction. Firms are realizing that in order to remain competitive in the market it is essential that they implement a flexible work environment.

A recent survey by SHRM (see Figure 1) demonstrates the reasons why 330 medium sized companies decided to incorporate flexible work arrangements.[^6] The United States Department of Labor also recently recommended that flexible work arrangements be made for all government employees who would be eligible (i.e. this would not include educators, road crews, military, or construction workers). Congress agreed with these suggestions and passed the H.R. 1722 Telework Enhancement Act which President Obama signed into law on December 9, 2010. This will make roughly 1.2 million government employees eligible for telecommuting by June 2011, according to the Office of Personnel Management’s estimates.^[7]

Research has shown that when employees are allowed to select their own hours and/or work environments the employees are more satisfied with both their positions and employers. The flexible setting allows employees to work during their “peak” hours of performance while minimizing domestic stressors that often distract employees on a fixed schedule. Flexible scheduling also enables employees to set their work around their clients’ needs. As businesses are becoming more globally centered, this scheduling can accommodate multiple time zone differences.

Employees who engage in flexible scheduling feel that they are trusted by their employer to complete their tasks. Employees who work from home tend to concentrate more on value-adding activities during the workday, as their employer does not sense their physical presence in the office making the results more important than the process and the employee is performing in an environment with fewer distractions. Employees who are able to telecommute often report feeling more productive and entrepreneurial than when they were working on-site. Allowing employees to work from home enables the employee to construct an environment that is conducive to their particular work needs and style. The connection between productivity, flexibility, and work environment was first demonstrated by Google, Inc. who found that their employees needed to have games, different color schemes, and even different office furniture to work at their highest potential. Google went on to create “zone” working environments for employees on-site and allotted funds for “zone” environments at home.

A recent SHRM article stated that exempt employees enjoy better mental and physical health than their counterparts.^[8] While the article did not express the reasoning behind this finding, it can be inferred that flexible employees have more time for their physical health if they do not have to commute to work and if they can accommodate activities to better fit around their work schedules. Psychologically, employees enjoy being able to adjust their work schedules without feeling like they have to report to management. For some employees, altering their schedule can be mentally stimulating, while other employees may simply enjoy the freedom of not having to stress if something goes wrong on their way to work as they know they can easily make up the time at the end of the day. Employees are also provided with more autonomy in setting their own schedules—selecting when and how they work—which in turn empowers employees and makes them feel more accountable.

Through the advocacy of flexible work policies, the field of human resources has been able to address the societal demands for a work/life balance while strategically addressing the needs of businesses to increase employee satisfaction, motivation, and productivity. Over the past forty years, the idea of a flexible work environment has come to be one of the main factors that both attracts and retains employees throughout the entire organization. Jill Evans-Silman, Vice President of Meador Staffing Services, stated: “…Organizations are seeking to attract a quality workforce, engage our best and brightest employees, and retain our workforce. There is no argument that flexible work arrangements are a distinct advantage for the savvy employers that have created such employee-friendly practices.”^[9]

 IV.           New Challenges

The top challenges facing organizations today are the down economy and rising operational costs. As businesses are competing on a global platform—and as the U.S. is continuing to invest in service-based industries—companies are forced to cut costs. Approximately 60% of all costs incurred by a company are tied to human capital. In addition, the aging workforce—particularly the Baby Boomer generation—poses a threat to companies in terms of knowledge and leadership loss.

The Baby Boomer generation (“BBG”) is also threatened by the economic fallout. With the recent crash of the stock market, increased life expectancy, depletion of Social Security, and increased dependents (children staying home longer and approximately one-third of all BBG’s report caring for their parents)^[10], most BBG’s do not feel that they can or should retire. According to the Bureau of Labor Statistics, 77 million BBGs will be reaching retirement age in the next decade and by 2012 20% of the U.S. workforce will be fifty-five or older. Of these Baby Boomers, 8 in 10 say they expect to work into retirement. Of this 80%, two-thirds of those surveyed say they would like to work in a different field/industry than they are currently in.^[11]

There are numerous options available to the Baby Boomers when they look to continue their employment. Some independent companies, such as YourEncore, are hiring high-skilled workers (i.e. engineers, architects, and scientific researchers) on a contingency basis. These companies then sell this labor pool back to companies such as General Electric, Boeing, General Mills, Eli Lilly, and Procter & Gamble on an as-needed basis. Retirees are also returning to college to obtain educational certificates/licenses that will enable them to teach at the collegiate level. Another popular option for retirees is to work for temporary agencies, such as Aerotek and Kelly Services or to simply take up part-time jobs in their community. Still other professional retirees become independent contractors often providing consulting services to firms. Unless firms explore different employment options for BBGs, a tremendous amount of experience could be lost or transferred to competitors.

HR professionals are able to lead their organizations by merging the needs of both the company and the BBGs through the creation of internal contingent labor pools. Currently 1.8% of the entire American workforce (approximately 2.5 million workers) volunteer to work on an as-needed basis for their employer.^[12] For the purposes of this paper, we are only focusing on individuals who have extensive experience working for their company and volunteer to be in the contingent workforce pool within that organization. We are not looking at external temporary agencies or companies that recruit in the labor market to fill the internal contingent workforce pool.

The movement towards creating internal contingent labor pools has been slowly gaining momentum in the U.S. The Staffing Industry Analysts Group, who supports flexible staffing departments, currently provides technical and professional support to nearly 1,000 staffing companies in the United States: “Including more than 70% of all U.S. staffing firms with $100 million or more in annual revenue, and hundreds of independent, owner-operated companies.”^[13] Out of these companies, the most notable contingent labor pool we found is that of Hallmark Cards, Inc. On April 15, 2011 we interviewed Susan Chamberlain, the current Flexible Staffing Manager for Hallmark, regarding the operations of the pool, impact of the pool on employment relations, and the strategic advantages that Hallmark has gained since its creation from a company perspective.^[14]

V.             Contingent Workforce Illustration

In the early 1970s, Hallmark noticed a need to establish a contingent workforce policy. Individual departments and/or plants would keep in contact with workers from their units who chose to leave the labor force and when there was a need they would call on those individuals. The issue with this system was that filling a position for another department was based on word of mouth. For example, if Accounting had someone on maternity leave and did not have a recent Accounting person enter their pool, then the department would either have to go to other departments (such as Finance) to find temporary labor or look outside the company.

In the 1990s, Hallmark overhauled their contingent labor program and centralized the operations within the Flexible Staffing Department. Professional, administrative, and other corporate positions are grouped into one flexible labor pool that can be dispersed to any Hallmark location. Currently there are approximately eighty active contingent workers serving the corporate/administrative needs. Plants within Hallmark still maintain their own pools for manufacturing positions as these require a higher level of familiarity and a specialized skill set. Approximately 200 contingent workers are under the individual plants’ staffing pools. Out of the approximate 300 total employees, 200 are retirees and the rest of the pool consists mainly of parents who desire the flexible schedules and the ability to stay in the workforce while raising their families.

To be part of the flexible labor pool, an individual has to have worked for Hallmark in the past and must be considered a “top-performer” (determined by looking at past performance evaluations). If the pool is lacking a specific type of skill, the HR department may recruit from outside current employees, but again the candidate has to have past Hallmark work experience. This guideline provides Hallmark’s flexible labor pool a strategic advantage over searching for temporary workers in the labor market or using an outside placement agency. Any flexible worker at Hallmark knows the culture of the company, the structure of the company, and has been trained in the “Hallmark-way” of doing things. It is also costly to train and on-board individuals for temporary assignments, so by utilizing former employees, Hallmark’s HR leaders are able to attain a higher return-on-investment per training dollar.

Employees enjoy being in the pool because it allows them to establish a more favorable work/balance, keeps them up to date in their field, and they can easily transition back into Hallmark as full time staff if they so choose. Currently most members of the flexible staff have been in the pool for at least five years and some have been members since the early 1990s. The employees are compensated based on their past pay levels. The employees also receive a limited benefit package that mainly consists of a stock option plan (granted to any employee who works 1,000 hours in a year) and non-retirees can invest in the company’s matching 401(k) plan after they have completed 31 days at Hallmark. Fringe benefits include a store discount, on-site gym membership for those working out of the corporate headquarters, and Hallmark-provided office equipment (including laptops) which employees can use to work from home.

The HR department treats flexible employees the same as traditional employees in terms of employment policies. The flexible work staff is evaluated annually by the flexible staffing management teams and on a project basis by the managers the individual temporally works for. Temporary employees must work at least one assignment in a six-month period to remain an active member of the pool. There currently is not a limit on the number of individuals allowed in the labor pool as it costs Hallmark very little to maintain pool membership. As Hallmark only pays flexible employees when work needs to be done, the cost of maintaining the pool is offset by the savings from not having to recruit, on-board new staff, or lose productivity while waiting for a position to be filled. The use of flexible labor has also prompted cultural changes within Hallmark. Managers are now looking at work for all employees in terms of what can and cannot be done at home and flexible working arrangements are becoming more and more common for all staff levels.

As Hallmark demonstrates, companies—along with employees—value the benefits of contingent workforce labor. The primary benefit to both parties is that with the creation of workforce pools employees are able to stay with their current employer through transitional periods in their lives. Employees benefit from this relationship by being able to stay abreast to changes in their field, develop workforce skills, and maintain current business relationships while bringing in a supplemental income. Employers benefit by being able to reduce labor costs until the employees are needed for a specific project, retain top talent (both in terms of knowledge and leadership skills), and address changing business needs while not increasing permanent headcount.

The Baby Boomer generation now makes up a majority of mid-level and executive management positions in the majority of corporations throughout the United States. Losing that level of experience and knowledge could be detrimental to the success of any organization. The BBG’s not only want to be active members within the workforce, but are also seeking new challenges and desire to gain new skills. The BLS reports that approximately 40.7 million Baby Boomers want to change the type of work/industry that they are currently in.^[15] As HR leaders, designing a contingent work process aligns not only with the organizational goals but also with the employees’ needs which is necessary to ensure that the BBG’s knowledge is kept within the firm for as long as possible. Allowing the BBG’s to work in a different field will present a new challenge for the employee while also stimulating new perspectives on the work process in that specific area. It provides the organization with a new viewpoint on the department and new ideas on how to improve shortcomings. This arrangement allows BBGs to continue to make valuable contributions to their organization while exploring new projects and developing new skill sets.

VI.           Summary

The HR leaders of yesterday saw the challenges employees faced with work/life balance. They implemented the policies and processes that provided greater scheduling flexibility for workers to successfully balance the challenges of home and work. These methods have since been modified and redesigned to offer the employees a greater range of options. With the increased use of technology and the ease of communication, many companies allow employees to work remotely from home or from an offsite office location. These tactics allow both the firm and the employee to adapt to business demands and changing societal demands. Technology not only makes communication more efficient but it allows any worker to telecommute globally. The HR policies on flexible scheduling have evolved since the 1960s to serve the changing demands of not only the American society but also cultures around the world.

As history has shown, proactively seeking out new alternatives to allow employees to have greater flexibility with work/life balance is necessary in succeeding in the changing business climate. Employees are able to work during their peak hours of productivity and in an atmosphere in which they feel more comfortable and perform with more efficiency. The major issue that will soon affect most businesses is retaining top talent/leadership. Allowing flexible schedules, telecommuting, and implementing a contingent workforce process will demonstrate an understanding by the organization of the challenges we all face with work/life balance. Employees at firms that offer greater flexibility will create an environment in which they are satisfied and willing to work to help the organization succeed—thus ensuring talent/leadership is kept in-house and not lost to a competitor.

Designing and redesigning policies/processes to manage remote workforces, along with the ever-changing use of technology, is a focus for many HR professionals. Ensuring that employees have the option to work remotely and managing the remote workers appropriately will add tremendous value to the strategic goals of the organization. Reinventing these remote worker procedures will help keep the more talented employees satisfied and challenged. A contingent workforce system, which allows the BBG’s to remain with their current employers while serving in a new capacity will add value to the corporation by strategically transitioning the knowledge and leadership qualities from the previous generations to the new generation of organizational leaders. It also provides employees with the flexibility and work life balance they desire as they transition out of the workforce and into fulltime retirement. HR has the responsibility of strategically aligning the flexible workforce with the goals of the organization. The flexible scheduling of yesterday established the foundation for the telecommuting of today and is the groundwork that will continue to change tomorrow’s meaning of the words: “workday,” “office,” and “retirement”. ℵ

Adriane L. McGraw is a student at the University of Illinois Urbana-Champaign where she is pursuing a Master’s degree in Human Resources and Labor Relations. She obtained her Bachelors of Business Administration from Indiana University of Pennsylvania where she served as president of the school’s Society for Human Resource Management club from 2007-2010. Upon graduation, she will join Ingersoll Rand as an Accelerated Development Program HR participant.

Matthew Burr is a student at the University of Illinois, pursuing a Master’s degree in Human Resources and Labor Relations at the School of Labor & Employment Relations.  He previously served as Vice President of External Relations for the Student Society of Human Resource Management at the University of Illinois. Upon graduation, he will join New Page as a Human Resources Manager.

Figure 1.

Reasons that Prompted Organizations to Offer Formal Flexible Work Arrangements (Percentages)

Source: SHRM (2009). Workplace Flexibility in the 21st Century.

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1. Kossek, E. & Michel, J.  In press. Flexible Work Schedules.  In S. Zedeck (Ed.), APA Handbook of industrial and organizational psychology. Vol. 1, Washington, DC: American Psychological Association. Page 6.
2. Applegate, Jerry. “What We’ve Learned About Telework at Cisco.” Inside Cisco IT. Cisco, 31 Jan. 2011. Web. 17 Apr. 2011. <http://blogs.cisco.com/ciscoit/what-we%E2%80%99ve-learned-about-telework-at-cisco/>.
3. Templeton, Mark B., CEO. “Reaching Out to the Community.” Citrix Systems. Citrix Systems, Inc., 2011. Web. 17 Apr. 2011. <http://www.citrix.com/English/aboutCitrix/outreach/index.asp>.
4. Nichole, Rhodes. E-Mail interview. 11 Apr. 2011.
5. Goldsmith, Marshall. “The Contingent Workforce.” BusinessWeek Online (24 May 2007): 31-32. Business Source Complete. EBSCOhost. University of Illinois. 17 April 2011. <http://www.epnet.com>.
6. Victor, Justina, dir. “Workplace Flexibility in the 21st Century: Meeting the Needs of the Changing Workforce.” Society for Human Resource Management. Society for Human Resource Management, Nov. 2008. Web. 17 Apr. 2011. <http://www.shrm.org/Research/SurveyFindings/Articles/Documents/09-0464_Workplace_Flexibility_Survey_Report_inside_FINALonline.pdf>.
7. Leonard, Bill. “President Signs Federal Employee Telework Legislation .” Society of Human Resource Management. 10 Dec. 2010. Web. 17 Apr. 2011. <http://www.shrm.org/hrdisciplines/staffingmanagement/Articles/Pages/FederalTelework.aspx>.
8. Miller, Stephen. “Workplace Flexibility Valued by Low-Wage Workers.” Society for Human Resource Management. 23 Feb. 2011. Web. 17 Apr. 2011. <http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/LowWageFlex.aspx>.
9. Victor, Justina, dir. “Workplace Flexibility in the 21st Century: Meeting the Needs of the Changing Workforce.” Society for Human Resource Management. Society for Human Resource Management, Nov. 2008. Web. 17 Apr. 2011. <http://www.shrm.org/Research/SurveyFindings/Articles/Documents/09-0464_Workplace_Flexibility_Survey_Report_inside_FINALonline.pdf>.
10. Kossek, E. & Michel, J.  In press. Flexible Work Schedules.  In S. Zedeck (Ed.), APA Handbook of industrial and organizational psychology. Vol. 1,  Washington, DC: American Psychological Association.
11. DeVaney, Sharon A, and Sophia M Chiremba. “Comparing the Retirement Savings of the Baby Boomers and Other Cohorts.” Bureau of Labor Statistics. 16 Mar. 2005. Web. 17 Apr. 2011. <http://www.bls.gov/opub/cwc/cm20050114ar01p1.htm>.
12. Contingent and Alternative Employment Arrangements. Washington, D.C.: Bureau of Labor Statistics, Feb. 2005. Print.
13. “About Us.” Staffing Industry Analysts. Crain Communication, Inc., 2011. Web. 17 Apr. 2011. <http://cwsconference.com/>.
14. Chamberlain, Susan. Phone interview. 15 Apr. 2011.
15. DeVaney, Sharon A, and Sophia M. Chiremba. “Comparing the Retirement Savings of the Baby Boomers and Other Cohorts.” Bureau of Labor Statistics. 16 Mar. 2005. Web. 17 Apr. 2011. <http://www.bls.gov/opub/cwc/cm20050114ar01p1.htm>.

Until recently, Australian disability discrimination law was similar to that of the United States and much of the rest of the world: it defined disability relatively narrowly, its penalties for noncompliance were relatively paltry, and it depended on enforcement of lawsuits brought by aggrieved private citizens.  In 2009, however, Australia adopted the Fair Work Act 2009 (FW Act).  The FW Act defined disability much more broadly, increased substantially the penalties for noncompliance, and created a state institution to enforce disability rights.  This article analyzes the FW Act, compares it to the workplace disability law in the United States, and argues that the FW Act is a transformational development in the struggle to achieve workplace equality and is an approach that should attract significant international interest.

II. Background: Australian Anti-Discrimination Laws

A. The General Statutory Scheme

The Australian approach to regulating anti-discrimination through general civil rights statutes is similar to that in the United States.  As in the United States, Australian antidiscrimination law prohibits discrimination based on several prescribed attributes (such as race, sex, and disability), and traditionally has relied on private complainants to bring civil suits to enforce these rights.

The Australian anti-discrimination statutes divide discrimination into two categories: direct and indirect.  The distinction is similar to the prohibitions against disparate treatment and disparate impact found in some United States antidiscrimination statutes.  Direct discrimination exists where a discriminator treats, or proposes to treat, a person with a disability less favorably than people without the disability because of that person’s impairment.^[1] Indirect discrimination occurs where a policy that appears on its face not to discriminate (a facially neutral policy) contains a condition or requirement that a person with a disability cannot satisfy because of that person’s disability. ^[2]

Traditionally, when a federal (or state) anti-discrimination law is breached, the burden of proof is on the aggrieved party to prosecute a claim by filing a formal complaint. Under the Disability Discrimination Act of 1992 (Commonwealth of Australia) (DDA),^[3] the first step in bringing a complaint of disability discrimination is to file a complaint with the Australian Human Rights Commission (AHRC) ^[4] (the AHRC is the rough equivalent of the United States Equal Employment Opportunity Commission).  The AHRC will investigate and attempt to conciliate the complaint. If conciliation is unsuccessful, then the President of the AHRC will issue a termination notice, which enables the complainant to bring proceedings either in the Federal Magistrates Court or the Federal Court of Australia.  Court proceedings are complex and onerous on the complainant.  Although the AHRC can provide procedural assistance to the complainant in filing a claim, the complainant has the primary role in prosecuting the claim.^[5]

B. The Fair Work Act Reforms

The Australian statute governing workplace disability discrimination is the amended FW Act, enacted in 2009, which is a general industrial relations statute with 6 chapters, 800 sections, and associated regulations.  This statute governs a wide range of employment issues, including trade union activities, strikes, national employment standards, unfair dismissals, and, most critically for this discussion, workplace disability discrimination.

FW Act Chapter 3 deals with the rights and responsibilities of employees, employers, and organizations.  Part 3-1 protects against various types of discrimination, such as disability, race, or sex.  This Part also prohibits breaches of workplace rights, including freedom of association and involvement in lawful industrial activities.^[6]

The protection against disability discrimination in FW Act Part 3-1 has three elements.[^7] First, the employee, or prospective employee, must have a workplace right. Second, the employee, or prospective employee, must have suffered adverse action, such as a discharge or demotion.  Third, the adverse action must have been “because of” the employee’s workplace right.  Part III will describe these elements in detail, drawing upon existing case law.  Because these provisions have not been used to enforce disability discrimination rights, part III will draw from case law pertaining to the workplace right to engage in trade union activities.

III. Key FW Act Reforms

The FW Act expands workplace disability discrimination protection in three significant ways.  First, it defines much more broadly who is protected against discrimination, what constitutes an adverse action, and how causation may be shown.  Second, it increases the penalties for noncompliance.  Third, and most importantly, it creates a state institution to enforce disability rights.

A. Definitions

1.  Who Is Protected?

The FW Act § 341 applies to include any person who can make a complaint or inquiry under a workplace law.^[8] The drafters of the FW Act gave the term “workplace right” a very broad meaning.  Section 351 explains that an employer must not take adverse action against employees, or prospective employees, of that employer because of a person’s “race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin.”  The inclusion of “physical or mental disability” potentially provides significant protection to employees with impairments.  Unlike the United States judicial history surrounding the Sutton Trilogy,^[9] Australian courts have not narrowed the definition of “disability”, and the judicial trend has been to define “disability” broadly to provide the maximum protection.  Because of this broad definition, Australian employees with impairments can generally overcome the threshold issue of satisfying the definition of “disability” in anti-discrimination statutes.^[10] The disadvantage of this approach is that it makes it relatively easy for nondisabled persons to falsely claim disability.  Nonetheless, as described below, this area of discrimination law has had its difficulties as a result of the Purvis v State of New South Wales (Department of Education and Training) High Court decision (the Australian High Court is equivalent to the U.S. Supreme Court).^[11]

2.  What Is Adverse Action?

Previous Federal industrial relations legislation protected employees from dismissal only on narrowly proscribed grounds.^[12]  Today, under the FW Act Part 3-1, nearly any negative conduct will be regarded as adverse action.  Adverse action includes injuring an employee in employment, altering the position of the employee to the employee’s detriment, and discriminating between the employee and other employees of the employer.^[13]  The employee need not prove he or she has suffered any compensable harm.  Accordingly, adverse action under the FW Act should be read to include any negative treatment, even if this treatment is not quantifiable.  Recent court decisions have confirmed this broad interpretation of adverse action.^[14]

3.  Causation

Section 340 provides that adverse action is unlawful where the action is “because of” the employee’s workplace right.  The FW Act Part 3-1 reverses the usual burden of proof in a way favorable to employees.  The duty upon employees is to prove that they have suffered conduct amounting to adverse action and that they have a workplace right.  FW Act § 361 then reverses the burden of proof and requires employers to prove that they did not take the adverse action because the employee exercised a workplace right.

The DDA uses a “comparator test” to determine whether adverse employment action is “because of” an employee’s exercise of a protected right.  This test compares how the complainant was treated to how the complainant would have been treated had he or she been a hypothetical employee without a disability.^[15]

In the United States, courts also use comparators to measure discrimination.^[16]  Unlike in Australia, however, in the United States, comparators are actual (rather than hypothetical) employees who do not share the same protected characteristic or protected conduct as the plaintiff but who otherwise are similarly situated.  If the plaintiff can show that that the employer treated the comparator differently than the plaintiff, and the employer cannot show that the comparator was treated differently because of a reason other than the protected characteristic or conduct, then the fact finder may infer that discrimination was the true cause of the adverse employment action.

In one sense, the Australian use of comparators is more favorable to employees than the American use.  It can be difficult to find comparators who are similarly situated to a plaintiff-employee in every conceivable respect, such as years of service, rank, disciplinary history, performance evaluations, etc.  Charlie Sullivan, for example, points out that American “plaintiffs tend to lose when they cannot point to a comparator”,^[17] and that “[i]n nearly every case in which the plaintiff has lost out to a competitor, the employer will claim that the competitor is different….”^[18] The Australian model obviates the need for finding actual comparators by permitting the use of hypothetical comparators.  Nonetheless, even under the Australian model, some complainants have found it difficult to identify hypothetical comparators that courts will accept.

B. Penalties

Workers who have been discriminated against under the FW Act can obtain compensation.^[19]  Workers also can seek reinstatement where the adverse action has resulted in termination of employment.  Perhaps most importantly, under § 539, employers found to have discriminated against employees can be fined – i.e., levied a “pecuniary penalty order” – up to $33,000 (Australian dollars, which at the time of writing is roughly at parity with the U.S. dollar) for each act of discrimination.

The FW Act has substantially expanded the situations where pecuniary orders – fines – can be made.  Previously only dismissals could be fined; now, any adverse action will justify a fine.  The FW Act thus has substantially increased the likelihood that employers discriminating against an employee with a disability will be investigated and prosecuted by the state, ordered to compensate the employee, and pay a fine.

C. Public Enforcement

Perhaps the most important innovation in the FW Act is public enforcement.  Public enforcement has the potential to significantly enhance workplace disability protection in Australia.  If used to anywhere near its full potential, it will be unique in the international community.

Under the FW Act §§ 365 and 367, employees can bring private suits for a breach of their workplace rights similar to the existing victim enforcement model under the ADA or DDA.  The FW Act, regards discrimination as a public concern and accordingly has empowered the Fair Work Ombudsman (FWO) to act as a state enforcer of workplace civil rights.

Critically for the enforcement of disability discrimination, the powers of the FWO include a focus upon monitoring, inquiring into, and investigating breaches and commencing prosecutions where the FW Act is breached.^[20] The FWO has power to enter a workplace without any requirement that it suspects or believes a breach has occurred.^[21]

Once the FWO has detected unlawful adverse action, and if in its discretion it regards the breach as sufficient to warrant any further action, the FWO then has two main options.  First the FWO can accept an “enforceable undertaking” from the employer.  An enforceable undertaking is a written deed executed between an employer and the FWO in which the employer (1) admits wrongdoing, (2) agrees to perform specific actions to remedy the wrongdoing (e.g. create a payment plan to rectify underpayments, make an apology, print a public notice), and (3) commits to future compliance measures (e.g. regular internal audits, training for managers and staff, implementing compliance measures, future reporting to the FWO).^[22]  If the undertaking is breached, the FWO retains the power to prosecute the employer or obtain an order from the Federal Court forcing the employer to comply with the undertaking.^[23] The second option available to the FWO is to prosecute the employer in the Federal Court.^[24]

IV. The Impact of Public Enforcement

Australian antidiscrimination law, like antidiscrimination law in the United States, traditionally has relied on victims to act as “private attorneys general” to enforce their rights by bringing civil suits.  As discussed above, the FW Act provides for public enforcement by the FWO.  We believe this will significantly enhance enforcement of antidiscrimination disability laws in Australia.

Reliance upon individual victim enforcement of workplace antidiscrimination laws has at least three problems.  First, for some members of the disabled community, their disability itself might make it difficult for them to understand that they have been discriminated against, or to understand what they should to do remedy the discrimination.  For example, persons with disabilities restricting their ability to articulate legal arguments in court, or with mental and intellectual impairments, will struggle to represent themselves in court proceedings.

Second, persons with disabilities may not have the economic resources to pursue legal claims.  Recent decisions reveal that the initial cost of a first hearing for one party involved in anti-discrimination proceedings in Australia is an estimated outlay of $20,000 to $30,000.^[25]  For many employees, outlays of this magnitude may preclude them from taking any action to fight discrimination.

Third, some discrimination is “systematic”, affecting multiple persons.^[26]  This type of discrimination is unlikely to be effectively remedied by individual prosecutions.  For example, as in the United States prior to the passage of the ADA, many Australian employers place a requirement to drive a work vehicle in the job description in positions where most employees seldom need to drive.  It can be difficult for an applicant to ascertain whether driving is an essential element of the job for which the applicant is applying, because the only basis for the applicant’s determination of this is the employer’s own job description.  The FWO, with its statutory investigative powers, is in a much better position to identify the most egregious cases of discrimination of this kind.

By contrast, under the FW Act, an aggrieved employee is required only to lodge a complaint and respond to questions from the FWO.^[27]  Once the FWO has decided to prosecute a case, it can use its resources and powers to ensure an alleged breach of the FW Act is investigated, sufficient evidence is collected when available, and then where appropriate, prosecute the matter. The power of the FWO to prosecute claims is a significant step that, if utilized, has the potential to significantly reduce employment-related disability discrimination in Australia.

V. Conclusion

The 2009 Australian FW Act improves workplace disability discrimination laws in three significant ways.  It defines disability discrimination much more broadly, it increases substantially the penalties for noncompliance, and it creates a state institution to enforce disability rights.  Of these, this article argues that the latter is the most important.  The FW Act’s creation of the FWO turns the enforcement of workplace civil rights from a private issue enforced by under-empowered complainants to a public issue enforced and punished by the state.  If used to anywhere near its full potential, the FWO would be unique in the international community.  Empowering a state institution to enforce disability workplace rights is a transformational development in the struggle to achieve workplace equality and an approach that should attract significant international interest.ℵ

Paul Harpur is a solicitor of the High Court of Australia and a Post Doctorate Research Fellow and lecturer in labour and occupational health and safety law, TC Beirne School of Law, The University of Queensland. BBus (HRM), LLB (Hons), LLM, PhD.   

Ben French is a lecturer of Employment Relations & Equal Employment Opportunity Law & Practice, Griffith University Business School, Griffith University Centre for Work, Organisation and Wellbeing. B.Laws (Hons), BBus (IR Major), Grad Dip Legal Prac. 

Richard Bales is a Professor of Law and Director of the Center for Excellence in Advocacy, Northern Kentucky University, Chase College of Law. B.A. Trinity University; J.D. Cornell Law School.

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1.  DDA § 5.

2.  DDA § 6.

3.  http://www.austlii.edu.au/au/legis/cth/consol_act/dda1992264.

4.  Australian Human Rights Commission 1986 (Cth) §§ 46P – 46PO. Available at: http://www.austlii.edu.au/au/legis  /cth/consol_act/ahrca1986373

5.   Australian Human Rights Commission 1986 (Cth) §§46PR, 46PT – 46PV.

6.  FW Act Part 3-1 – Division 4.

7.  This presumes the employee is a national system employee or their employer is a national system employer and accordingly bound by the FW Act generally.  See for discussion, FW Act §§ 13 and 14.

8.  FW Act, § 341(1)(c).

9.  In the Sutton Trilogy, the United States Supreme Court significantly narrowed the definition of disability under the ADA.  Sutton v. United Airlines, 527 U.S. 471 (1999); Murphy v. United Postal Service Inc., 527 U.S. 516 (1999); Albertsons, Inc. v. Kirkingburg, 527 U.S. 555 (1999).

10.  Neil Rees, Katherine Lindsay, &Simon Rice, Australian Anti-Discrimination Law 263-265 (Federation Press 2008).

11.  (2003) 217 CLR 92.

12.  The first Federal unlawful dismissal provisions were introduced in 1993 in the Industrial Relations Reform Act 1993.

13.  FW Act, § 343.

14.  See, e.g., Barclay v The Board of Bendigo Regional Institute of Technical and Further Education, [2011] FCAFC 14: http://www.austlii.edu.au/au/cases/cth/FCAFC/2011/14.html.

15.  See Purvis v State of New South Wales (Department of Education and Training, (2003) 217 CLR 92.

16.  See generally Charles A. Sullivan, The Phoenix from the Ash: Proving Discrimination by Comparators, 60 Alabama L.              Rev.191 (2009); Ash v. Tyson Foods, Inc., 546 U.S. 454 (2006) (rejecting the “slap-in-the-face” test for whether a comparator is sufficiently similarly situated to an employment discrimination plaintiff).

17.  Sullivan, id., at 208.

18.  Id. (footnote omitted).

19.  FW Act, Chapter 4 Civil remedies Part 4-1 Orders Division 2.

20.  FW Act § 682(1)(d) – (f); The FWO also has the functions of an inspector (see section 701).

21.  FW Act § 708.

22.  FW Act § 715(1); see also http://www.fairwork.gov.au/about-us/investigations/pages/enforceable undertakings.aspx (last visited Sept. 26, 2011).

23.  FW Act § 715(6) and (7).

24.  FW Act § 682.

25.  Assessment of $30,000 in Clack v Collins (No 1) [2010] FCA 513 http://www.austlii.edu.au/au/cases/cth/FCA/2010/513.html; $20,000 in Croker v Department of Education and Training (NSW) [2009] FCA 350: http://www.austlii.edu.au/au/cases/cth/FCA/2009/275.html.

26.  Tristin K. Green, Discrimination in Workplace Dynamics: Toward a Structural Account of Disparate Treatment Theory, 38 Harv. C.R.-C.L. L. Rev. 91 (2003); Susan Sturm, Second Generation Employment Discrimination: A Structural Approach, 101 Colum. L. Rev. 458 (2001).

27.  Fair Work Ombudsman, ‘Making a Complaint’: <http://www.fwo.gov.au/Make-a-complaint/pages/default.aspx> at 2 November 2009.

Recently, George H. Cohen, Cornell alumnus and Director of the Federal Mediation and Conciliation Service (FMCS), lectured on the role of the FMCS in facilitating public school reform and student achievement through effective labor-management relations. Cohen began with an overview of the state of public education in the United States and drew a specific reference to the intervention of the FMCS in a highly publicized case that took place in Rhode Island. Early in the spring of 2011, Rhode Island school officials issued termination notices to nearly 2000 teachers in the face of budget pressure and, primarily, deteriorating student achievement and test scores. Due to the national acclaim and press attention of this case, government officials intervened and called upon Cohen to enact FMCS involvement.

Cohen then facilitated a consortium that included FMCS officials, Rhode Island state school representatives, and the American Federation of Teachers union (AFT). After several weeks of integrative problem solving catalyzed by the involvement of the FMCS, the Rhode Island state school officials agreed to curtail the teacher dismissals. Instead of making broad and deep teacher cuts, the group devised a set of novel solutions to address teacher performance and student achievement. The vitality of the solution was largely contingent on a new teacher performance evaluation system that utilized fair, comprehensive, and rigorous measures to gauge teaching acumen and delivery. Teachers that were already considered among the best were directed to evaluate other teachers through classroom audits on an increased frequency; the prior evaluation model was based on infrequent and inconsistent classroom audits and was largely ineffective. Finally, several other innovative initiatives emerged from the FMCS involvement: teachers would eat in the lunchroom with students one day per week to spur student engagement, underachieving students and teachers would receive mentors aimed at improving performance, and school day length and school year duration was examined to determine fitness for optimum student achievement.

After the large scale, unprecedented FMCS intervention in Rhode Island was deemed successful, the FMCS offered to act on a state level with other schools to implement labor-management solutions to optimize student achievement. To undertake this broad initiative, Cohen embarked on a goliath planning and brainstorming endeavor that began with a survey of over 14,000 school districts to determine the schools that were “doing things right”. Cohen and the FMCS were able to funnel down the list to 150 schools that were exemplars in the instrumental use of collaborative and effective school administration policies. These schools were then invited to Denver for a conference to share best practices and take applicable methods back to their own schools to test them out. Items discussed included teacher evaluation methods, teacher career development initiatives, student learning schemes, and standard testing as a means of evaluating learning and achievement. Cohen remarked that the conference was a value added, enlightening learning experience for all in attendance. According to Cohen, the conference was a success due to the fact that it was built on two foundational principles: putting student achievement and learning above all other concerns, and discussing integrative solutions in an open manner with school, union, and FMCS officials all present.

Three months after the conference, the FMCS reviewed the results of each school’s implementation of ascertained best practice policies and administrative procedures. The aggregate data was compiled and all parties were invited back for a second conference lasting two days. This conference, built on the same foundational principles as the first, resulted in a 25 page instructional framework for public school labor-management collaboration and best practices. The framework, endorsed by all three attending parties, focuses on employing fair, comprehensive, and rigorous teacher evaluation methods; setting meaningful and impactful goals for teacher behavior modification; and utilizing essential teaching methods aimed at student achievement. According to Cohen, the successful implementation of the framework on an extensive scale will hinge upon the acceptance of school districts and, most importantly, their commitment to execute on the objectives enumerated in the framework.

Cohen drew the lecture to a close by speaking about the many challenges that lay ahead. Issues such as teacher pay, benefits and tenure, teacher and student assignments based on competencies and need, standardized testing as a means of evaluation, and teacher transfers all weigh heavy on the educational system and present monumental challenges looking onward. However, despite these obstacles, Cohen believes moving forward through the use of collaborative problem solving committees represented by all parties involved will always result in the best outcome. While the United States’ labor-management relations in public education is facing an unprecedented uphill climb, an integrative approach with the underpinning goal of advancing student achievement presents the clearest path to the top. ℵ

Josie J. Trine is a student at Cornell University, pursuing a MILR at the School of Industrial & Labor Relations. He is a Lawrence K. Williams Fellow and currently serves as the Vice President of Operations of the Cornell HR Review.

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Abstract: This article explores the common problems associated with ineffective diversity initiatives and what steps a firm can take to cultivate a successful plan.Diversity dilemmas in the workplace have long frustrated advocates who desire not only to see greater representation of minorities and women in firms, but also that those people are integrated across the firm and accepted as valued, productive members, of the firm’s culture. Knowing how an initiative fails to achieve diversity goals and learning from successful examples will enable firms to create a better work environment, capitalize on market opportunities, and enjoy many other benefits

Introduction

Over the last 15 years there has been a notable increase in the number of diversity initiatives for firms in both the private and public sector.¹ Virtually every large company now employs diversity consultants to aid the firm in promoting diversity values and to identify cultural and structural barriers in the office that make it difficult for diverse people to succeed.² Many firms also adopt diversity programs to improve recruitment and retention, foster a more supportive office environment and better evaluate workers on their diversity aptitude.

Despite the clear increase in diversity efforts across a variety of industries, those efforts do not seem to consistently effectuate the major changes advocates want to see. While the lack of a strong diversity presence throughout firms remains a major problem that needs to be remedied, it is not the only concern for diversity advocates. Diversity initiatives themselves should also be treated as a source of concern. Part I of this article discusses several of the most common problems related to diversity planning. How the plan is framed and sold to the firm’s constituencies, the type of leadership scheme put in place, which mistakes are made during hiring and promotion, and what policies commonly risk legal setbacks are addressed in detail. While some of these practices may appear startling to advocates, firms should be able to find solutions and prove to skeptics that diversity planning is worthy of the firm’s resources.

Part II explores what measures to take during the creation and execution of a sound diversity plan. It attempts to outline the initial steps, including soliciting leadership involvement and empowering a committee, up until the creation stage where firms start articulating their policy plans for issues such as diversity training and conflict resolution. Several case studies in a variety of industries are then analyzed in an effort to pin down successful practices and make general recommendations.

I. Why Do Diversity Initiatives Fail?

There are numerous reasons why firms fail to deliver on their diversity strategies. For some firms the challenge is about hiring or promotion mechanisms. For others, perhaps the failure is due to branding the diversity plan in a certain way, not securing a commitment from their leaders, or using ineffective training techniques. These pitfalls are examined below.

A. Shortcomings in Selling the Plan to Constituencies

Firms often meet resistance to diversity initiatives when equating a change in strategy to an affirmative action or equal employment opportunity program. This mistake is due primarily to the idea that, for many of today’s business leaders, the concept of diversity “originally sprang from concern over compliance with EEO laws, Affirmative Action regulations and the associated emphasis on race and gender.”³ If diversity initiative craftspeople think of their plan as merely a way for the firm to be in compliance with the law, it means they are likely failing to recognize a broader meaning of diversity and the powerful upside it can provide.

Two major problems arise when a firm makes diversity synonymous with law or regulation. First, it often leads to white males feeling excluded.⁴ This encourages them to view diversity as simply “a new, politically correct term for special treatment,” which in turn promotes bad morale and cynicism.⁵ Discounting how the plan affects white males may also lead to the development or reinforcement of forms of bias that a diversity initiative should aim to eliminate. Excluding this group also undermines the goal of becoming an inclusive setting.

Second, framing a diversity initiative only in terms of legal or regulatory compliance tends to focus the firm’s attention improperly. Instead of combating institutional racism and sexism or maximizing employee output, equating the plan to legal guidelines signals that the firm is only interested in meeting a metric objective associated with hiring or retaining diverse people. Once those metrics are met, leaders often think the program can come to an end prematurely before any positive effects manifest themselves. The firm’s broader business agenda also suffers when substantive policy decisions like installing promotional opportunities or providing conflict resolution training are discounted in favor of reaching an arbitrary number of diversity employees.

B. Questionable Leadership and Governance

Initiatives that aim to change the governance structure of a firm may raise a red flag. Similarly, how a firm decides to monitor its employees may impact the effectiveness of a diversity plan. If the leadership structure is not conducive towards accomplishing the goals of an initiative, either because the leaders are not committed to the plan or because their decisions do not address deep-rooted diversity dilemmas, then the firm is left with two problematic options: It can either change its governance, which is an expensive and time-consuming process, or it can face the consequences that come when a company is not investing in diversity.

One example of poor governance comes from S.C. Johnson & Son, a premier manufacturer of household cleaning supplies and other consumer chemicals.⁶ The company decided to implement a self-governing team approach where decisions over daily operations were made as a group.⁷ The strategy was developed in part to allow the company to respond faster to internal problems in the workforce, including diversity concerns.⁸

For S.C. Johnson, the ubiquitous and shifting nature of team-based leadership resulted in many challenges to race and gender in the workplace.⁹ Some of those challenges were put on display when four black workers sued the company, claiming that the team-based system systematically disadvantaged African-Americans in opportunities for advancement, pay increase and day-to-day working conditions.¹⁰ While the team-based leadership scheme is not illegal per se, it serves as an example of a faulty strategy that lead to contentious litigation.¹¹

C. Problems with Hiring

Several hiring practices may signal a poor diversity plan. One of the seminal examples in bad hiring comes from Abercrombie & Fitch, a national retail clothing seller. The company was accused of discriminating against diversity applicants by refusing to hire qualified minorities as Brand Representatives to work on their sales floors.¹² Further allegations were made that Abercrombie recruited, hired and maintained a disproportionately white sales force, and that their policies discouraged minority applicants from seeking Brand Representative positions.¹³ Abercrombie also circulated a “Look Book” to store managers that explained the importance of this policy and how to regulate the appearance of its sales staff.¹⁴

Once the Abercrombie case was picked up by the media, the company faced a serious public backlash. Coupled with another lawsuit brought by the EEOC, Abercrombie was motivated to enter into a settlement where they announced several new measures aimed at addressing diversity, including establishing an Office of Diversity, providing diversity training, instituting an internal complaint mechanism, and amending its job criteria.¹⁵ While the changes marked a turning point for the clothing company, Abercrombie’s prior insensitivity to diversity resulted in two costly lawsuits, negative publicity, and a loss in customer loyalty, all of which could have been avoided had the company considered diversity issues in its original hiring scheme.

D. Problems with Promoting

Firms can also suffer legal, economic and social defeats when trying to accomplish their diversity agendas related to promotion. One illustrative example comes from Alcoa, the world’s leading producer of primary aluminum. A human resource manager at the corporation insisted that a promotion be given to a female even though the hiring manager wanted to hire the top-ranked candidate (a male) and was unaware of the female applicant’s qualifications, hiring team scores, or interview results. The initiative in place called for promoting women because they were “underutilized” in high-ranking positions, and if female candidates were minimally qualified Alcoa would still “seriously have to look at hiring one.” In holding that the plan was discriminatory, the Southern District of Indiana relied on evidence that Alcoa’s human resources department routinely ignored candidate information and neglected the importance of a fair interview process.¹⁶

Too often, firms equate competence to worthiness without considering whether the employee will succeed in a new role.¹⁷ Characteristics like good communication, fair personnel management, and being a team player can be overlooked. Promoting diversity candidates cannot be seen as a byproduct of only their race, and firms must make a bigger effort to clearly understand why it is they choose to promote one worker over another.

II. Creating and Implementing a Successful Diversity Plan

Successful initiatives include many elements that require companies to be honest with themselves in terms of where they are and what goals they wish to accomplish. Regardless of the industry, there are several points that firms should consider carefully.

A. Involvement of the Firm’s Leaders

Implementing a promising plan requires executive commitment at the onset. As committees and task forces begin to focus on diversity, they need the help of a broad-base membership that is made up of “visible, powerful, highly credible individuals” who are well-linked with employees.¹⁸ By engaging a group of leaders, the odds of receiving adequate funding and influential advice for the initiative improves. This is especially true if high-ranking decision-makers are involved, as they are not only closest to a company’s purse strings, but likely have an ability to tap into constituencies outside the firm who may be of assistance.¹⁹

Part of the reason to secure leadership involvement has to do with how a diversity program will be received. Many constituencies of a firm will likely have a skeptical attitude about any endeavor that creates a change in operation or culture. By placing powerful, credible leaders at the helm of the process, the transition is made easier in a number of ways. It speaks strongly about the company’s commitment to the program. It makes the leaders themselves appear accessible to the workforce, which increases the likelihood of employees accepting new policy decrees. Active leaders are also often in the best position to prepare employees for the involvement of outside consultants or human resource practitioners brought on for the project.²⁰

B. Conduct Internal Research to Assess the Firm’s Cultural Climate

Before a plan is formulated, it is important to know where the workforce stands on diversity. This includes knowing the racial, ethnic, and gender breakdowns of the employee base. It also means that the firm should conduct research to ascertain the current diversity concerns of their employees.

There are a few different tools that a firm could utilize for this purpose. Open-ended questionnaires that aim to gather the opinions of employees are a good way to capture unique perspectives. Focus groups are another initial step that could yield an important selection of views. It is important that the firm not only make their employees feel their opinions are valued, but actually take the time to contemplate what those opinions mean about the firm’s culture and whether it is in the best interest of the company to implement a change.²¹

Firms will have to wrestle with the decision of whether or not to make participation in surveys and focus groups mandatory. One suggestion is to make the first round of inquiries optional to participate in. This will give firms a chance to gauge the level of concern over diversity without appearing to impose on the private lives of their workforce. Furthermore, questions relating to race and gender are sensitive subjects for many people, and it is crucial that the firm carefully design its polling so as not to appear to be implying favoritism or bias. Depending on how the materials are received, it may be wise at this stage for the firm to consult trained diversity consultants who have experience in designing inquiries.

To clarify what obstacles the firm will have to confront, opinion and statistics from all levels of employees should be sought, including low-level staff. This sends a message that the firm values the input of everyone who could be affected. It may also insulate the firm from risks that come with narrowing the selection pool. For instance, if only middle managers are polled, and there is a disproportionately low number of minorities who serve in those roles, that could skew the opinions in a way that does not reflect the general concerns of a majority of employees.

C. Empowering a Diversity Committee

Many successful firms dedicate resources towards the creation of diversity committees or task forces. The composition of the committee is of great importance, and successful teams appear to include members from different departments, professional backgrounds and managerial levels.²² This affords the firm the ability to conduct their diversity inquiries across multiple departments. It also brings a breadth of opinions and concerns to the discussion table, which the firm can then take into account when deciding what issues need to be prioritized.

Forming the committee is only the beginning. How a firm empowers their committee to act plays a vital role in determining whether or not the entire initiative will be a success. The committee itself may be charged with designing the initiative in addition to being tasked to perform other functions such as brainstorming remedies and monitoring progress.²³ It may also be wise to allow the committee to delegate responsibility to other groups. For example, the diversity committee of consulting and accounting firm Deloitte & Touche created several sub-groups charged with analyzing minority and gender gaps at different levels within their workforce.²⁴ Deloitte also empowered the committee to monitor those results and design steps to ensure accountability.²⁵

D. Designing Conflict Resolution and Training Plans

One of the goals of good diversity planning is to develop skills and techniques that can be used to solve diversity-related workplace dilemmas. A strong plan also seeks to avoid potential legal challenges and promote a healthy work environment. For those reasons, effective training and conflict resolution procedures are a key part of good diversity planning.

1. Effective Conflict Resolution

Discrimination and harassment are serious problems regardless of what the firm specializes in. Fortunately, there are procedures that firms can put in place to reduce the number of workplace conflicts or solve them in a healthy way. It is important to keep in mind that issues of discrimination and harassment are sensitive subjects, and many victims may be unwilling to file formal complains because of fear of stigma or retaliation.²⁶ Plans should be devised with these concerns in mind.

A two-track approach seems particularly popular and effective.²⁷ First, the firm should begin with informal counseling and private mediation for the victim and alleged abuser. The informal system essentially treats the conflict as a private matter between two individuals, and if resolutions are made they are kept confidential. Overall workplace culture, institutional policies and general patterns of discrimination are not considered a focal point of the mediation. Rather, the emphasis is placed on working out a solution that is acceptable by both parties and obviates the need for intervention by other actors.²⁸

If the issue cannot be resolved during the informal stage, then the conflict should be addressed through a second process that is significantly more formal.²⁹ At this stage there are often adversarial hearings in the presence of authority figures. Firms also tend to conduct formal investigations that result in the inclusion of other actors besides the victim and the abuser, such as witnesses or supervisors. To the extent that the firm’s handling of a complaint is an issue, part of the investigation should inquire about whether the firm’s conflict resolution procedure was accessible, if the investigation was thorough, and if any sanctions imposed on the abusive party are appropriate given their behavior.

2. Effective Diversity Training

Firms need to provide employees with skills for operating in a diverse setting. Values, beliefs, attitudes, strengths, and cultural norms of people from different backgrounds cannot be ignored if the training is to be effective. Employee education on diversity should be about more than just sensitivity to differences between genders and race; the best training will help employees understand the need for valuing diversity and teach how to maximize the strengths that diverse individuals bring to the firm.

A training program geared towards diversity education will be heavily influenced by the firm’s definition of “diversity.” Most agree that the definition needs to be sufficiently broad. For example, Roosevelt Thomas believes that a firm’s definition should go beyond race and gender in order to create an environment that maximizes potential and appreciates the diversity of every employee, not just women and minorities. Thomas’ definition is broad, but simple: diversity is “all the ways in which we are similar and all the ways in which we differ.”³⁰

Once the firm establishes a definition of diversity, the next step is to identify specific needs. Organizations can differ greatly depending on location, workforce composition, function, and size. For example, a multinational corporation with employees from all around the world, such as Microsoft, will likely have different needs and concerns than a small, regional law firm. Similarly, an office located in a heavily diverse area like Sacramento, California may need a different program than an office in Lincoln, Nebraska.

Some characteristics of good diversity training appear to be universal. For instance, many plans call for ongoing evaluations of the effectiveness of the training. All levels of the firm, including top-level managers, should participate. Good training is presented as part of the firm’s general education and training system, rather than treated as a separate enterprise.³¹ Finally, most firms with good training do not limit it to only a handful of lessons, but instead require employees to attend regular sessions throughout the course of their employment.³²

E. Case Studies in What Works

Studying successful companies has many benefits. First, implementing strategies used by peers can bring the firm up to date with the industry’s best practices. Second, it affords the firm a chance not only to see what works for the competition, but also what does not work, which creates less risk of implementing the wrong policy. Third, using a blueprint from a peer should cut down on the transaction and start-up costs associated with implementing a new or amended initiative.³³ Finally, following the practices of peers may help legitimize the firm in the eyes of external constituents such as business partners and customers.

One case study comes from Hewlett-Packard (HP), a company that implemented numerous effective strategies. In an effort to increase diversity, the technology company began actively recruiting from historically black colleges. They also began hosting diversity leadership summits in countries like India, Costa Rica and Bulgaria. In addition, annual talent reviews, succession planning, and identifying key talent to be offered developmental experience has put HP in a stronger position relative to other tech companies and helped solidify it as a diversity role model in the eyes of advocates.³⁴

Similar strategies have proven beneficial in other industries. Home Depot, a home improvement retailer considered a pioneer in do-it-yourself homemaking, created a robust diversity plan in hopes of transforming from a close-knit, family-oriented company to one of America’s leading craft corporations.³⁵ In response to a class-action lawsuit brought by a group of disenfranchised women, Home Depot decided to implement a new automated hiring and promotion system called the Job Preference Process.³⁶ The purpose of the automated system was to eliminate potential bias by managers by filtering candidates through a neutral process. The individualized information is used to assist in matching candidates to positions they favor, identify race and gender gaps and increase the overall effectiveness of the personnel system.³⁷

Some firms have used aggressive diversity plans to help them emerge from challenging times stronger than ever. McDonalds, who serves 56 million customers a day across 118 countries, is considered a leader in diversity hiring and retention.³⁸ But in the early 2000s, McDonalds was at the center of a nationwide debate over America’s obesity epidemic. McDonalds underwent a “complete cultural change” in response to the intense scrutiny.³⁹ They implemented a diversity training and development program that called for mentoring entire restaurant crews, emphasizing leadership development and identifying employees with the most potential for advancement. They also created academic-style learning labs in order to conduct internal studies to uncover which tactics were working and which ones were underperforming. These tactics helped transform McDonalds into a strong example for the business case rationale.⁴⁰

Conclusion

Diversity in the workplace will increase significantly in the coming years, and it will be important to have a diverse employee population as businesses become more global and complex. This article attempts to draw out some of the common mistakes firms make when crafting diversity programs, but also suggest practical strategies firms can adopt which will help in recruitment, retention, and office environment.

The challenge for diversity advocates is to continue to apply pressure, but towards the right measures. Simply having an idea of diversity is not enough; both the firm and its employees need the plan to work. The initiative process demands flexibility and continual re-evaluation because diversity is never finished. ℵ

Evan M. Roberts is a third-year student at the University of California, Berkeley School of Law, where he serves as Senior Submissions Editor for the Berkeley Business Law Journal. Prior to law school he worked as a diversity management consultant at The GilDeane Group.

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1.  The word “firm” is used throughout this article to represent any possible employment scenario, including a company, corporation (public or privately-held), partnership or public entity such as a government agency.

2. Elisabeth Lasch-Quinn, Race Experts: How Racial Etique, Sensitivity Training and New Age Therapy Hijacked the Civil Rights Revolution, W.W. Norton & Company (2001).

3. Terrance R. Simmons and Peggy Hazard, The Changing Landscape: Ten Red Flags in a Diversity Initiative, Greater Rochester Diversity Council, available at http://www.workforcediversitynetwork.com/docs/ArticleTenRedFlags.pdf.

4.  Id.

5. Id. at 2

6. Timothy D. Schellhardt, Race Bias Suit at S.C. Johnson raises Some Worker-Team Issues, Wall St. J., Feb. 13, 1997, at B7.

7.  Id.

8.  See Susan Sturm, Race, Gender, and the Law in the Twenty-First Century Workplace: Some Preliminary Observations, 1 U. Pa. J. Lab. & Emp. L. 639, 646.

9. This problem is not unique to S.C. Johnson. The team-based leadership approach requires workers to interact effectively with one another on a regular basis. Research indicates that these communications are especially prone to influence by relationships and perceptions about race and gender that exist within the firm prior to implementing the new form of governance. See Annelise Goldstein, Who’s on Top: Unchanging Demographic Patterns, Organizations, (Aug. 1995).

10. Susan Sturm, Race, Gender, and the Law in the Twenty-First Century Workplace: Some Preliminary Observations, 1 U. Pa. J. Lab. & Emp. L. 639, 649.

11. Timothy D. Schellhardt, Race Bias Suit at S.C. Johnson raises Some Worker-Team Issues, Wall St. J., Feb. 13, 1997, at B7.

12. Brief for Petitioners, Gonzalez v. Abercrombie & Fitch Co., No. 03-2817, 2008 WL 3540205, at *2 (N.D. Ca. 2008). Abercrombie’s image goal centered on the “A&F Look” which was “a virtually all-white image that Abercrombie uses not only to market its clothing, but also to implement its discriminatory employment policies and practices.”

13. Id.

14. Id.

15. Settlement Agreement at 22-28, Gonzalez v. Abercrombie & Fitch Co.

16. White v. Alcoa, Inc., No. 3:04-CV-78 RLY/WGH, 2006 WL 769753, at *11 (S.D. Ind. 2006).

17. Jeff Wuorio, Promoting Employees: How to Get it Right, Microsoft Business, available at http://www.microsoft.com/business/en-us/resources/management/employee-relations/promoting-employees-how-to-get-it-right.aspx?fbid=sV037nMZM5W#Promotingemployeeshowtogetitright.

18. Lynn Hecht Schafran & Norma J. Wikler, Gender Fairness in the Courts: Action in the new Millennium at 20, available at http://womenlaw.stanford.edu/pdf/genderfairness-strategiesproject.pdf (2002).

19. See Cindy-Ann L. Thomas, A Theoretical Framework for Implementing Workplace Diversity, Federal Lawyer at 6.

20. The importance of involving firm leaders is something that successful diversity firms recognize themselves. Pat Harris, the Global Chief Diversity Officer at McDonald’s, says that “the first requirement [in formulating a diversity strategy] is a commitment from senior leadership to diversity as a core value of the organization. Top management must be determined that diversity [is to become] a cornerstone of how you do business.” Patricia Harris, The McDonald’s Diversity Story, available at http://views.washingtonpost.com/leadership/guestinsights/2009/11/diversity-as-a-business-driver.html (Nov. 25, 2009).

21. Randy Wilson, Assessing Organizational Culture Through the Context of Diversity: Determining the Influences that Primary Dimensions of Diversity Have on Organizational Development, available at http://prtl.uhcl.edu/portal/page/portal/HSH/HOME/HSH Programs/Cross Cultural Studies/Theses_Projects_Internships/Content/WILSON_2007.pdf (2007).

22. Alexandra Kalev, Frank Dobbin and Erin Kelly, Best Practices of Best Guesses? Assessing the Efficacy of Corporate Affirmative Action and Diversity Policies, American Sociological Review, Vol. 71 at 589, 594 (Aug. 2006).

23. Id.

24. Susan Sturm, Second-Generation Employment Discrimination: A Structural Approach, 101 Colum. L. Rev 458. This tactic helped to “dramatically [increase] women’s advancement in the company and [reduce] the turnover rate of women in particular and employees in general.” The task forces that the committee designed paid close attention to the nature and causes of the gaps and made recommendations back to the committee. Those recommendations were then implemented with the support of regular data gathering and analysis.

25. Id. at 492.

26. Margaret S. Stockdale, What We Need to Learn About Sexual Harassment, Sexual Harassment in the Workplace 3, 17 (Margaret S. Stockdale ed, 1996).

27. Thomas L. Pfister, Recent Developments in Employment Discrimination Class Actions, American Bar Association Section of Labor and Employment Law, Equal Opportunity Committee (Mar. 23. 1999).

28. Id. at 25.

29. Id. at 27.

30. R. ROOSEVELT THOMAS, BEYOND RACE AND GENDER, Amacom (1992).

31. For similar and other trends on diversity training, see Rose Mary Wentling, Diversity Initiatives in the Workplace, available at http://vocserve.berkeley.edu/CW82/Diversity.html.

32. See generally The GilDeane Group’s “Cultural Diversity at Work Archive,” available at http://www.diversityhotwire.com.

33. Cost-cutting measures may influence how a firm approaches diversity. See generally Rita McGrath, A Better Way to Cut Costs, Harv. Bus. Rev. Blog Network, available at http://blogs.hbr.org/hbr/mcgrath/2009/03/a-better-way-to-cut-costs.html.

34. Diversity/Careers in Engineering and Information Technology, Diversity in Action: Hewlett Packard keeps on evolving new diversity initiatives, available at http://www.diversitycareers.com/articles/pro/08-octnov/dia_hewlett.html (Oct. 2008).

35. Chris Roush, Inside Home Depot 1-2, McGraw-Hill (1999).

36. Butler v. Home Depot, Inc., 984 F. Supp. 1257, 1258 (N.D. Cal. 1997).

37. Sturm, supra note 10, at 515.

38. Aman Singh, McDonald’s Makes Diversity About the Bottom Line, Forbes, available at http://blogs.forbes.com/csr/2010/09/08/mcdonalds-makes-diversity-about-the-bottom-line/ (Sept. 2010).

39. Id.

40. Id.

Keynote: Creating a Climate of Innovation

J. Randall MacDonald, Senior Vice President of Human Resources at IBM, delivered the keynote address at the 9^th Annual Human Capital Association Symposium. The theme of the event this year was “Driving Innovation During Times of Growth”.

MacDonald began by suggesting that innovation is a mindset that emerges out of a particular climate. This environment is created by leaders who constantly challenge the status quo and welcome new ideas. IBM is a prime example of a company that has been innovative since its inception; its first products were cheese slicers and commercial scales, but they soon expanded and have since grown into a company with nearly $100 billion in revenue in 2010. MacDonald likened this culture of change as being hardwired into IBM’s DNA.

Innovation is also spurred by crises. Moments of failure require both introspection and thinking openly. Inquiry, regardless of its perceived absurdity, is also necessary to generate thinking in others. According to MacDonald, no question is out of the question because often times it makes one think from a new perspective. Bluntly put, if you want to make something of yourself, you have to be comfortable with rejection and be used to looking ridiculous.

The conversation then narrowed in on the evolution of HR at IBM. When MacDonald first came to IBM, HR was mostly administrative and transactional. He noticed administrative redundancies that no one questioned because that was the way it had always been done. Specifically, IBM had 37 payroll systems across the world. MacDonald looked for the simplest and most efficient system, found that the Belgian system was a good prototype, and integrated all payrolls into one system modeled after the one in Belgium. This example highlighted his point that “bigger is not always better, bigger is just big”. MacDonald then reemphasized the importance of not being complacent. Red flags should be raised when processes are not being reevaluated because it is easy to fall into the trap of maintaining the status quo. A company should always be looking to increase its efficiency and performance through constant changes.

While it is continuously stressed that HR needs to add value by going beyond a service function and into a more strategic role, MacDonald warns that HR should not always be focused on creating new strategies. Instead HR needs to focus on supporting and executing current business strategies effectively. Also, the temptation often exists to implement current fads within one’s own company, but it is important to first evaluate the trending practice to see if it fits with the business. Beyond innovating the overall enterprise, it is important for HR to be self-innovative and drive changes and progress within its own function. MacDonald summarized the important characteristics of an innovative HR function through the acronym FAACT: Functional, Aggressive, Accountability, Continuous learning, and Team.

MacDonald then introduced the framework of IBM “HR ThinkFuture”. It includes several specific ideas that move beyond the conventional ways of practicing and thinking about HR. The first idea is that of thinking of talent as a cloud. MacDonald suggests that we should think of talent as mobile, rather than static or proprietary, because it has the potential to be widely accessible through technology. For example, MacDonald proposed that it may not be unreasonable in the future for high quality individuals to contribute to IBM’s talent pool in the morning hours via virtual tools and work for another company in the afternoon. Second, multicultural leaders are seen as increasingly vital in the more global world. We cannot continue with the notion of superior performance being achievable through utilization of Western leaders in foreign contexts. MacDonald sees the need to innovate through increased sensitivity and through the hiring and development of multicultural leaders. Third, social media can be a tool for HR; it can replace periodic performance reviews and enable daily, continuous feedback, thereby creating a new level of accountability. Finally, HR can implement predictive analytics tools to drive further transformation.

MacDonald concluded by returning to his initial proposition that leadership is the key driver of all transformation. He made several suggestions for what leaders should keep in mind as they push for change within their organizations.

1. Groups think big, but must convey ideas into actions
2. How leadership evolves
• Lead through influence, not through bullying or power
• Learn from leaders
3. Characteristics of the best senior leaders
• Mental and physical stamina
• Courage to go against the norm
• Persistence
4. The most important lesson to consider
• “How do I add value?”
• “Have I made a difference today?”

The address ended with the suggestion that each individual ask themselves how to further add value to their current environment and evaluate whether they have had an impact. MacDonald believes that if the answer to either of those questions is “no” then “it is time for you to hang up your shoes”. The necessity for innovation is constant and requires that everyone involved be dedicated to that venture.

Panel One: Leading a Culture of Innovation     

How can human resources enable, construct, and support a culture of innovation? This challenge served as the focal point for Cornell University’s 9th Annual Human Capital Association Symposium: Driving Innovation During Times of Growth. After a keynote address by J. Randall McDonald, SVP of Human Resources at IBM, the event launched its first discussion on the role of human resources in fostering an innovative culture within organizations. Professor Risa Mish of the Johnson School moderated the panel featuring participants Marc Chini (VP of Human Resources, Corporate at General Electric), David Clark (VP of Human Resources & Sr. Relationship Leader, Enterprise Growth at American Express), and Craig Hurty (Head of HR Shared Services at Aetna). These three leaders established the following framework within which HR can build talent, processes, and culture that would enhance an organization’s capacity to innovate.

• Innovation manifests itself in various forms. Organizations should constantly strive towards securing additional revenue streams through investing in new ideas. However, organizational innovation can span beyond breakthrough products and brand recognition. Other methods by which companies can drive innovation include producing continuous improvement in areas such as customer service, or adopting a fast follower role of integrating best practices into internal processes. Innovation can be simple, easy to implement, and user-friendly, while still contributing to heightened productivity and profitability.

• HR should serve as the guardian of an innovation culture that promotes a sense of urgency, appropriate risk-taking, and a comfort with ambiguity. Finding talent who are comfortable in an innovative culture, and with piloting and modeling initiatives on a small scale, will allow HR to facilitate idea generation within the organization. HR should assume a proactive role in eliminating structural or policy impediments to innovation. Furthermore, HR initiatives should be created for, or in collaboration with, business leaders, not served to them.

• Employee champions of innovation and diversity of thought need to be protected. Organizations tend to rely on a key group of risk-takers who help drive innovation through their company-orientation and advocacy for cognitive diversity. In addition to setting accountability frameworks, HR needs to actively empower and safeguard these employees within change-resistant cultures to prevent backlash and discouragement.

• Failure and smart risks are fine but be iterative. HR leaders cannot exempt employees from repercussions of risk-taking, but they should encourage intelligent risk-taking in spite of the potential consequences. Taking chances does not preclude rational thinking because employees should always be able to soundly justify their choices. Within a longer-term perspective, mistakes can also facilitate eventual success as long as the organization consistently improves on its failures.

• Change agents should focus on relationship building. To assist change agents within the organization, HR should emphasize the importance of stakeholder priorities. Instead of focusing on their own agendas, these innovation champions need to realize the imperatives of building alliances, generating early wins to establish credibility, and being strategically pragmatic in goal-setting. Incremental modifications may be more suitable than drastic overhauls.
  

• Strike a balance between an innovative culture that is neither too exploratory nor overly restrictive. Though funding and budgetary guidelines dependent on progress and baselines are necessary, organizations should also reward innovation champions with greater trust and oversight. HR should consider generational differences in compensating and motivating these employees as well.

• Benchmarking can be strategic, but only in moderation. A strong focus is necessary when examining best practices for driving innovation. The overwhelming spectrum of options from other companies can lead to HR strategies with a scattered mission and lack of risk control. HR should tailor best practices to organizational needs or use benchmarking to simply facilitate idea generation and rely on analytics to derive customized solutions instead.

The insights from this panel discussion reinforce the key role of HR professionals in setting the foundation for innovation within organizations. In addition to securing talent who thrive in environments of risk and uncertainty, HR holds the challenging responsibility of encouraging and rewarding these individuals through building supportive cultures and leadership. HR needs to serve as a proactive ally to the business through reconfiguring old processes and ideas. Only by modeling innovation and adapting to new contexts as a function itself, can HR truly promote innovation throughout all levels of an organization.

Panel Two: Building a Talent Pipeline

Creating a culture of innovation is met with the challenge of finding the right talent that can contribute fresh ideas to the organization. Attendees gained insight on ways HR leaders are building their talent pipeline to allow for sustainable innovation during the second panel discussion. Moderated by Kathleen O’Connor (Associate Professor of Management and Organizations), the panel included Michelle Boyea (VP of Talent Acquisition at McKesson), Alice Davison (VP & Sr. Manager of Talent Management at The Capital Group), and Bala Sathyanarayanan (Sr. Director and Head of HR for Enterprise Business in America at Hewlett-Packard). The participants shared several themes to building an innovative workforce for today’s landscape.

• Firms must create flexible career paths to foster innovation. The notion that professional growth is highly based on one’s management skills has evolved. When companies offer technical career paths they send the message that employees are rewarded for creating ideas regardless of managerial status. Many employees have a desire to focus more on their technical expertise and less on becoming a manager. These individuals can greatly benefit the company and have a roadmap for successful careers.

• The level of desired innovation is based on context. When an organization seeks talent it needs to assess how much innovation is needed. HR leaders should always ask themselves, “How much innovation does the business aim for, and how will we appropriately staff that need?” A technology firm may desire more innovation than an investment firm, which must be more prudent in its decision over others’ accounts. One should also examine different positions within the firm, as levels of innovation may vary. For example, software engineers should be given more latitude for creativity than an account manager, as financial responsibility is most important for the latter position. The latest context for this is social networks. Facebook and LinkedIn are prime examples of social media avenues for connecting with innovative talent. Companies may capitalize on this by seeking individuals who demonstrate expertise in social media.

• Seek individuals willing to learn over those who fear making mistakes. The aim for perfection may lead a company to be risk-averse, thereby hindering innovation. Recruiters should turn their attention to talented individuals who are willing to learn from failure. Development programs expose individuals to various facets of the organization and offer them immediate responsibility. This early development stimulates the capacity to think creatively as new recruits get the chance to learn from shortcomings and breed new ideas for the organization.

• Innovators must articulate their value to the business. When an employee makes innovative contributions he or she must be able to convey this to the company in order to be recognized for their efforts. That is, employees must take ownership for their stellar performance. By doing so, a dialogue between the company and the employee opens. The result is that employees feel engaged and valuable to the company while the company benefits from the new ideas. These mutual gains are conducive for a culture of innovation.

It will behoove organizations to keep these principles in mind in order to achieve a long-term talent pipeline that is rich with innovation. This panel reminds us that our people drive the business. To create innovative cultures companies must start by seeking the right individuals who will fulfill these challenges. ℵ

Meghana Komati is a student at Cornell University, pursuing a MILR at the School of Industrial & Labor Relations. She serves on the editorial board of the Cornell HR Review.

Winnie Kwan is a student at Cornell University, pursuing a MILR at the School of Industrial & Labor Relations. She serves on the editorial board of the Cornell HR Review and also works as a research assistant for the Center for Advanced HR Studies (CAHRS).

Wesley Au-Yeung is a student at Cornell University, pursuing a MILR at the School of Industrial & Labor Relations. He is a Tillman Military Scholar and currently serves on the editorial board of the Cornell HR Review.

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Ethical Decision Making

We make ethical decisions every day, but few of us stop to reflect on just what this familiar activity involves. Here are some proposals about what such reflection reveals.^[2]

(i) An ethical decision is the act of an individual, grounded in his unique personal perspective.^[3] Decisions are mental acts guided by our mental states, especially certain beliefs and desires, which serve as the decisions’ “reasons” or “grounds.” Normally, when someone seeks to influence our decision making, they do so by trying to produce in us beliefs and desires that will lead us to make the hoped-for decisions. For example, a politician intends to motivate people to vote for her by getting them to believe she is the best candidate and to desire her victory. Thus, our ethical decisions too are guided by and grounded in our beliefs and desires, and influencing our ethical decision-making requires influencing the reasons for our choices. On ethical issues, as rational agents, we want such efforts at persuasion to rely on arguments rather than psychological manipulation.

(ii) Ethical decisions are choices that could harm the interests of others—one’s stakeholders. We tend to think of ourselves as facing an “ethical” decision when our choice in a given situation could harm someone else. Anyone who has an interest that could be hurt by the decision is a stakeholder in it. When an ongoing relationship exists between a decision maker and others affected by his actions, the latter can be described as stakeholders of the former. The stakeholders of an employee, for instance, include (among others) shareholders, superiors, subordinates, teammates, and customers—as well as his family and friends.

(iii) Ethical decision situations are marked by obligations tied to the individual’s roles and relationships. A basic fact of our lives in society is that we occupy diverse roles and have many relationships of various kinds. Attached to those roles and relationships are assorted obligations we have to others whose welfare is affected by what we do. Some of these obligations we place on ourselves, as when we make promises or enter into contracts. There are others we don’t choose, such as the duty to take care of one’s elderly parents. Moreover, our roles—including our jobs—and relationships are defined, at least in part, by the obligations connected with them. Being a corporate manager, for example, carries the obligation to serve the best interests of shareholders (within limits).

(iv) Obligations derive from numerous social norms, which sometimes results in conflicting obligations for the decision maker. A person’s having obligations to others is due to the existence of applicable norms that require or prohibit certain types of behavior. In today’s world, individuals usually fill a number of roles and form relationships of widely varying types and durations. Hence, our social interactions are circumscribed by myriad obligations stemming from a multiplicity of norms. These include laws, regulations, contracts, codes, and policies. Inevitably, we encounter moral choice situations in which we confront competing obligations. These cases can be painful, and deciding which obligation should trump the others in the circumstances can be exceedingly difficult.

(v) Ethical decision making in business, as in other areas of life, is governed by general ethical principles. The norms that determine our obligations also include common ethical principles—norms that represent deeply entrenched intuitions many people, in different cultures and communities, have about how we should treat each other. While these principles often guide decision making, they generally do so as tacit, unquestioned assumptions. Notable examples are the injunctions to be truthful, to keep one’s word, and not to expose others to serious risk without their consent. These norms can be seen as the “glue” that holds society together or, alternatively, as provisions of the social contract which makes business and all other organized cooperation and competition possible.

(vi) Ethical issues are often hard to recognize. All too often, people fail to grasp that they are making decisions that affect others in ways that warrant evaluation from a moral point of view. Thus, key executives at Bridgestone/Firestone were slow to recall defective tires because they saw the growing number of claims only as a financial concern for the company, not as a safety issue for their customers.^[4] Such ethical blindness is not unusual. According to Harvard ethicist Lynn Sharp Paine, “Many leaders of corporate ethics programs say the vast majority of the problems they must deal with originate with decision makers who simply didn’t see the issues, or didn’t see them clearly enough.”^[5] A host of factors can contribute to individuals’—and groups’—failing to perceive the ethical significance of their choices. In recent decades, this has become a fertile area of research in psychology and organizational behavior, part of a broader scientific quest to understand the influences that lead people to act unethically.^[6]

Some Implications

The preceding observations have some practical upshots for employee development:

(1) Ethics training should engage employees as decision makers, facilitating extensive dialogue among session participants, prompting them to examine critically their own and others’ responses to ethical issues posed by real-world cases. Ethical issues call for careful evaluation of different courses of action from a variety of perspectives, with participants actively assessing—and debating—possible grounds for the decision makers’ alternatives. Citing Socrates and Confucius as exemplary moral teachers, Lynn Paine observes that they “sought to guide behavior not by issuing directives but by engaging their listeners in a collaborative process of discussion and deliberation. . . . These masters knew that moral insight is more apt to come from live interchange among informed and inquiring minds than from lists of abstract principles.”^[7] This ancient truth still holds today.

(2) The dialogue should be driven by decision-oriented questions. As good teachers well know, the best way to stimulate thoughtful, probing discussion is through questions, particularly questions that invite participants to take the point of view of a decision maker and explore—through vigorous exchanges—what the decision maker should do and why. Equally important, such discussion demonstrates to employees what Paine calls “the power of questions to engage people’s moral faculties” and helps habituate them to asking incisive questions in ethical decision making.^[8] Of course, rules and principles are important, but their greatest value is in helping decision makers identify and frame ethical issues, which can then be scrutinized using trenchant questions.^[9]

(3) Discussion questions should focus on decision makers’ obligations to stakeholders. For the most part, ethical deliberation is a matter of deciding what we “owe” our sundry stakeholders—what our obligations to them are, given our own roles and our relationships to those stakeholders. Consequently, in-class dialogue—setting a pattern for employees’ post-training decision making—should be informed by such questions as “Who are my stakeholders?”, “How will my decision affect them?”, and “What do I owe them?”

(4) Instructors should emphasize that the norms that govern business decision makers include not only laws and policies but also common ethical principles that apply to social interactions generally. People in business are frequently tempted by the idea that, if an action is “technically legal” and doesn’t violate explicit company policies, it’s ethical.^[10]  Another popular canard is that an employee’s overriding obligation is to maximize profits for shareholders, regardless of the impact on other stakeholders. Ethics trainers should, through dramatic examples and analogies, impress on employees that business activities are not exempted from evaluation in light of general ethical principles that hold in every domain where the actions of some people could harm others.

(5) Instructors should devote considerable class time to ethical choice situations in which decision makers have conflicting stakeholder obligations. Ethical dilemmas—choice situations in which we have competing obligations—are a fact of life. When we experience them in the workplace, the stakes—for ourselves and for others—can be quite high. Furthermore, often it is not at all clear which of the conflicting obligations should take priority. To resolve ethical dilemmas in ways that are publicly defensible, we have to give close attention to the facts, rely on our imagination to envision options and consequences, and employ as best we can our skills in logical analysis. Employees will be much better prepared to handle ethical dilemmas when they have had ample practice in the classroom.

(6) A main goal of ethics training should be to enable employees to recognize ethical issues when they arise, including making them aware of psychological and organizational factors that can prevent such recognition—and how to counter them. Throughout the training, when the instructor introduces a new case study, she should ask, “What are the ethical issues here?” and “What makes them ethical issues?” Also, some training time should be used to acquaint employees with research findings on psychological and organizational phenomena that often keep people from seeing the ethical import of their choices.^[11] This should include discussion of measures that can be taken to avoid ethical “blind spots.”^[12]

Conclusion

The health of a company depends in no small part on the quality of the decision-making by its employees, from top to bottom. Because a firm’s operations affect the interests of an array of stakeholders, it is vital—to the company and its stakeholders—that employees can be trusted to identify ethical issues and resolve them responsibly. Achieving that result should be the primary aim of corporate ethics training, whose design should align with that end. ℵ

Dana M. Radcliffe is the Day Family Senior Lecturer of Business Ethics at the S.C. Johnson Graduate School of Management at Cornell University. He has taught at Cornell since 2000 and teaches classes in business ethics, corporate responsibility, and leadership. In addition, he is the School’s coordinator for ethics-related events and initiatives. He holds concurrent adjunct faculty appointments at Syracuse University, teaching ethics courses in the Maxwell School of Citizenship and Public Affairs and the L. C. Smith College of Engineering and Computer Science. Previously, Radcliffe worked in strategic real estate consulting for Deloitte & Touche in Los Angeles and San Francisco. He earned his BA in philosophy from Fort Hays State University, M. Phil. in philosophy from Yale University, MBA from the University of California, Los Angeles, and PhD in philosophy from Syracuse University.

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1. This is in line with the Federal Sentencing Guidelines’ stipulation that an effective compliance and ethics program “promote[s] an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” 2010 Federal Sentencing Guidelines Manual, §8B2.1.(a)(2). http://www.ussc.gov/guidelines/2010_guidelines/Manual_PDF/Chapter_8.pdf

2. As will be readily evident to the reader, my analysis of ethical decisions is philosophical rather than scientific. For a comprehensive summary of recent empirical research on the topic, see Ann E. Tenbrunsel and Kristin Smith-Crowe, “Ethical Decision Making: Where We’ve Been and Where We’re Going,” Academy of Management Annals, Vol. 2, No. 1, 2008, 545-607. See also Linda Klebe Treviño and Gary R. Weaver, Managing Ethics in Business Organizations: Social Scientific Perspectives (Stanford University Press, 2003).

3. Of course, we speak of organizations’ and groups’ making ethical decisions, but, ultimately, even corporate decisions trace back to the ethical choices of individuals, apart from which the corporate choices don’t occur.

4.  Lynn Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance (McGraw-Hill, 2003), 199.

5. Ibid., 206.

6. On psychological traps, see the now-classic article by David M. Messick and Max H. Bazerman, “Ethical Leadership and the Psychology of Decision Making,” Sloan Management Review, Vol. 37, No. 2, 1996, 9-22. For a recent overview of the psychological research, see Max H. Bazerman and Ann E. Tenbrunsel, Why We Fail to Do What’s Right and What to Do about It (Princeton University Press, 2011). A penetrating study of organizational influences on ethical misconduct that fueled the 2008 financial crisis is presented by Donald Langevoort in “Chasing the Greased Pig: A Gatekeeper’s Guide to Psychology, Culture and Ethics Risk-taking in Financial Services,” 96 Cornell Law Review 1209, 1246 (2011).

7. Paine, 201-202.

8. Paine, 201.

9. Paine, 202.

10. Perhaps the most famous—and most notorious—articulation of this view appears in Albert Carr, “Is Business Bluffing Ethical?”, Harvard Business Review, Vol. 46, January-February 1968, 143-153.

11.  See especially Ann E. Tenbrunsel and David M. Messick, “Ethical Fading: The Role of Self-Deception in Unethical Behavior,” Social Justice Research, Vol. 27, No. 2, 2004, 223-236. In this seminal article, the authors argue that self-deception comes about through various “enablers,” including language euphemisms, the slippery-slope of decision making, errors in perceptual causation, and constraints induced by representations of the self.

12.  Valuable resources here include Bazerman’s and Tenbrunsel’s Blind Spots: Why We Fail to Do What’s Right and What to Do about It and Ann E. Tenbrunsel, Kristin Smith-Crowe, and Elizabeth E. Umphress, “Building Houses on Rocks: The Role of Ethical Infrastructure in Organizations,” Social Justice Research, Vol. 16, No. 3, 2003, 285-307.

Increased adoption of contingent labor strategies serves as proof that the benefits of hiring contingent workers outweigh the costs, at least from an employer’s perspective. Three such benefits are explored in the paragraphs that follow: the reduction of fixed costs, increased flexibility, and increased productivity. Since accompanying each of these benefits are actual and potential costs that pose a real threat to human resource professionals if not carefully managed, a brief discussion of costs is also included. In response to the increasing popularity of contingent workers among businesses, tips for effective tracking of costs conclude this analysis.

Fixed Costs

All things being equal, it is cheaper for organizations to hire one additional contingent worker than to hire one additional full-time worker because they are not obligated to provide benefits to employees in the former category. In a 2005 Bureau of Labor Statistics study, only 18 percent of contingent workers had employer-provided health benefits, compared to 56 percent of regular workers; only 12.4 percent of contingent workers were included in pension plans, versus 48 percent of regular workers.[iv] Leased workers are employees of the staffing agencies from which they are sourced, so the agencies shoulder the burden of paying for employees’ benefits. Furthermore, staffing agencies absorb the costs associated with recruiting, screening, hiring, disciplining, and firing workers. This is especially attractive to human resource professionals seeking workers for short-term projects, as they can immediately capitalize on workers’ specialized skills and knowledge without heavily investing in them.

Although the reduction of fixed costs is often seen as a benefit of hiring contingent workers, businesses incur other costs when they utilize the services of staffing agencies, such as commission or finders’ fees. Moreover, if the job descriptions that human resource departments provide agencies are not accurate or explicit, it is difficult for agencies to fill positions with the right candidates. The costs associated with lost productivity while miscommunications are resolved may partially offset the benefits of using agencies in the first place.

Employers should also be concerned about the legal ramifications of misclassifying permanent workers as temporary to save on benefit costs and taxes. For example, in 2000 Microsoft Corp. settled for $97 million when a group of long-term independent contractors claimed they were entitled to the corporate stock-purchase plan because they did the same work as permanent employees.[v] The “distinction line” between permanent and temporary workers may be fuzzy, but one thing is crystal clear: the line is costly to cross and one that HR cannot ignore.

Flexibility

One of the most touted benefits of hiring contingent workers is that it enhances workforce flexibility. Few companies have emerged from the recent recession unscathed, and employers are hesitant to hire permanent workers because they do not want to lay off new hires should the economy recover more slowly than anticipated. Contingent workers can act as a buffer for businesses in this situation, as they are the first to be hired following a recession and the first to be released in times of trouble. Cyclical industries and businesses that call for seasonal workers also benefit immensely from having this numerical flexibility.[vi]

Human resource professionals also have the flexibility to transition high-performing temporary workers to full-time positions, but they have no contractual obligation to do so. If it is discovered that a contingent worker brings new knowledge or specialized skills to the company, it may be beneficial for HR to establish a more stable employment relationship with the worker. Contrarily, if the contingent worker’s skills become obsolete or are only needed for a short period of time, the relationship can be easily ended.

However, temporary employees also reap the benefits of workforce flexibility, often at a cost to their employers. Just as companies “audition” contingent workers for full-time positions, the contingent workers also assess organizations with a critical eye. An exceptional temporary worker who had an unpleasant experience during his/her short stint with a company will be more difficult to attract and retain. In addition, businesses risk losing contingent workers’ knowledge and expertise when they leave, which may be costly or impossible to replace. Even worse, firm-specific knowledge might be disseminated out to competitors.[vii] The potential costs associated with lost expertise may be difficult to quantify, but they merit attention as possible downsides to the oft-praised flexibility argument.

Productivity

As for the effects of contingent labor strategies on workers’ productivity levels, the jury is still out. One study found that temporary workers who have opportunities to transition to standard employment arrangements actually outperform their permanent counterparts.[viii] Although it may seem counterintuitive, temporary workers may exert exceptional effort in hopes of securing a full-time position, whereas permanent workers are less incentivized to demonstrate their worth to the business. Contingent workers also jump between jobs and employers more frequently, so they may not have sufficient time in any one job to become as burned out as permanent workers. In businesses where increased productivity leads to greater profitability, this body of research may help to validate the benefits of contingent workers.

Unfortunately for human resource professionals, research highlighting the negative effects of hiring contingent workers is much more prevalent. Some scholars argue that temporary workers do not feel the same level of dedication or possess the same depth of knowledge as permanent workers, lowering their productivity.[ix] Plus, contingent workers are not the only population to worry about. Negative effects on permanent workers’ productivity may also prove costly. Permanent employees may be less productive if they must regularly train temporary employees. If permanent employees are constantly afraid that their own positions are no longer secure, the problem will only be compounded.

A host of other issues that directly impact workers’ well-being may also indirectly impact their productivity. The lack of job security—coupled with the potential for social isolation—is a significant source of stress for temporary or contract workers, putting them at greater risk of developing mental health problems.[x] Research also finds that the presence of temporary employees in the workplace leads to lower level of job satisfaction among permanent employees.[xi] Some permanent employees resent skilled contingent workers who are paid more or win better projects.[xii] Any productivity gains associated with contingent labor strategies can be quickly lost if either subset of workers is unhappy, stressed, or compelled to seek work elsewhere.

Tracking Tools

The use of contingent labor is on the rise. Does this mean that every business should adopt a contingent labor strategy rather than invest in permanent hires? Absolutely not. Human resource professionals must undergo careful analysis to weigh the benefits against the costs for their respective companies, particularly with regard to fixed costs, flexibility, and productivity. Fortunately, for companies who already engage in the hiring of contingent workers, vendor management systems can help track the volume and costs of these employees, as well as ensure compliance with all regulations. They range from simple tools that focus on process automation to sophisticated systems that help companies learn more about their temporary labor force. For example, IBM’s workforce analytic software can be used to monitor the performance of contingent workers and track their tenure.[xiii] Once HR is armed with a closer approximation of the costs of contingent workers, they will be better positioned to make decisions about who to hire. ℵ

Chelsea E. Vandlen is a student at Cornell University, pursuing an MILR at the School of Industrial & Labor Relations. She works as a research assistant for the Center for Advanced HR Studies (CAHRS) at Cornell and served previously as vice president of the university’s Human Capital Association. Upon graduation, she will join General Mills as an associate HR manager. This essay received the first place prize in the Cornell HR Review 2011 Essay Competition.

The main reason that the role of HR has become so misunderstood is because when HR is done well it is easy to give the credit for the overall success of the company, program, or individual to other parties. HR ensures that the parties that will be able to bring the most to the table are there and prepared when business strategy is being created through the training and development of leadership. Through succession planning, HR makes certain that the company will not experience loss in profitability when the leaders of the company retire or leave the company. By designing leadership development programs, recruiting, on-boarding, retaining, and deploying the company’s talent, HR leads the way in building the company’s talent pool for the future. HR attracts and retains the most talented professionals in the field through well-thought-out and researched compensation strategies, and it owns and manages the culture of the company, which contributes significantly to each employee’s decision to remain with the company. In many regards, members of the HR department are the unsung heroes of the corporate world because the vast majority of the population only notices when HR is not doing its job.

On the macro level, HR practitioners need to put more effort into trumpeting the success of programs they have designed or initiatives they have implemented citing the cost savings that they have brought about for the company. This can be done by highlighting accomplishments throughout their careers in the form of publications in scholarly and business journals, in more mainstream forms of media such as interviews with large newspapers and national news channels, and in various social media outlets (e.g., LinkedIn, Twitter). There are often articles and books published by experts in other fields such as marketing, finance, general management, etc. If HR wants to receive the same kind of recognition, it needs to put forth the same amount of effort to be heard. More and more readers are turning to the Internet and to social media as their primary source of information—having a strong presence in social media to promote the usefulness of HR would help to change antiquated perceptions. Providing people unfamiliar with the function a clearer picture of the job responsibilities, like actively promoting career possibilities in HR via college and career prep forums and other sources that younger people are tapping into as resources for help with career path decisions, would also help.

Attempting to change the perceptions of people who have been in the workplace for an extended period of time is difficult and has little upside. On the other hand, focusing efforts on the minds of those that have less work experience and helping them to see the current situation as well as the currently underutilized potential of HR will bear a much sweeter fruit. There are HR practitioners in nearly every location around the world, but little is being done to encourage young students to look in to HR as a potential career option. Having a stronger relationship with junior high, high school, and undergraduate institutions and being available to students to provide information about the wide variety of career opportunities that are available in the human resources field will help strengthen the brand image of HR on the micro level. There are not as many applicants to HR programs and people interested in becoming HR professionals solely because they do not know the great deal of variation that can be found while remaining within one department in a company as well as the respectable compensation that can be attained while pursuing this career.

By having the many successful professionals make a national effort to promote the function and the local professionals play a more active role in their communities promoting their career, the brand equity of the HR function will be significantly increased at both the macro and micro level. It is the belief of the author that effective management of a company’s human resources will become increasingly more important over time. The companies that recognize the importance of their human capital will be the ones that are able to gain a competitive advantage over the rest through strategic planning with the HR department. ℵ

Samuel D. Merkley is a student at Cornell University, pursuing an MILR at the School of Industrial & Labor Relations. Upon graduation, he will join oilfield services company Schlumberger as an HR generalist in Houston, Texas. This essay received the second place prize in the Cornell HR Review 2011 Essay Competition.

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Important Nuances of Trade Secret Law

To contextualize HR’s role in trade secret protection, a brief walk through the law of trade secrets is in order. At the broadest level, trade secrets are a form of intellectual property that protect confidential business information. The Uniform Trade Secrets Act is the operative trade secret law in 46 states and the District of Columbia. To qualify as a protectable trade secret under the UTSA, three principal elements must be established: (1) the information must have value, either actual or potential, (2) the information must not be generally known to the public or readily ascertainable, and (3) the information must be protected by reasonable efforts.[2] The nuanced legal meanings of these elements warrant further explanation.[3]

The secrecy element requires only that information not be “generally known” or “readily ascertainable.”[4] Popular examples of trade secrets that involve heavily guarded information, such as the Coca-Cola formula, tend to create the misleading impression that top-secrecy is a requirement of trade secret law. Although the Coca-Cola formula is known by only a few Coca-Cola employees,[5] that level of absolute secrecy is not required by law.[6] Next, the information’s value must be “derived” from the fact that the information is more valuable because it is unknown to others.[7] Then, the secret valuable information must be protected using efforts “reasonable under the circumstances to maintain [its] secrecy.” In this context, the requirement that protection efforts be “reasonable” means that more valuable information must be afforded a higher level of protection.[8] The word “maintain” is used because protection must be ongoing and continuous[9]—because secrecy once compromised cannot be restored. A momentary lapse in protection can destroy the trade secret status of information, so sustained protection is critical.[10]

Trade secret protection therefore involves four basic steps: (1) identifying secret information, (2) valuating the information, (3) assessing the risks associated with the information, and (4) implementing security measures that confer a level of protection commensurate with the information’s value and risk exposure.[11] Following these steps helps to prevent the incidence of leaks and also serves to establish the track record of protection that is necessary to enforce to trade secret rights through litigation.

The Limited Role of Attorneys in Trade Secret Protection

To obtain a legal remedy for trade secret misappropriation, the trade secret owner must establish the secrecy, value, and protection elements discussed previously. Courts often look to human resource policies such as employee training and termination procedures to determine whether the information has been adequately guarded to justify legal protection.[12] For that reason, a documented, demonstrable history of human resource practices that exhibit such protections is crucial to the plaintiff’s case in trade secret litigation. Conversely, a history of inadequate protections can be found as partially to blame for the leaked information and ultimately prevent a plaintiff from securing a remedy.[13]

The first step in establishing such a record of protections is to have an attorney draft job-specific appropriate non-disclosure agreements (NDAs) for all workers with access to confidential information. However, note that NDAs are not the be-all end-all of trade secret protection. NDAs only initiate what should be an ongoing trade secret protection effort. NDAs subject workers to confidentiality obligations but do so in broad, abstract language that is not translatable into clear guidelines for behavior. Protecting trade secrets requires more than eliciting from workers a promise to refrain from intentionally making unauthorized disclosures. After NDAs are in place, special policies and procedures must be adopted to provide special procedures for the handling of sensitive information and to reduce the likelihood of inadvertent disclosure. HR must ensure that these measures are enforced and taken seriously by workers. When trade secrets go to trial, the quality of such protections can be determinative.

Computer Security Risks in Perspective

The perspective of computer hackers is worth considering with regard to the relationship between technological security and information security. Kevin Mitnick is an expert hacker who is famous for the unprecedentedly restrictive conditions of his release from prison. The terms of Mitnick’s release included a complete prohibition of operating any electronic equipment that has the capability to act as or access any form of network or computer system. Since his release under those conditions, Mitnick has provided expert testimony on computer security before the House and the Senate. In that testimony, he has emphasized that the most effective methods for circumventing technological security are of a less technological character than one might expect.[14] His attack strategy focuses heavily on psychologically manipulating people into voluntarily divulging sensitive information that they do not recognize has application to the exploitation of vulnerabilities in their computer systems.[15]

Mitnick’s emphasis on the human factors of information security helps to explain the WikiLeaks fiasco that has brought information security to the forefront of public consciousness. The WikiLeaks breach was not the result of a technologically sophisticated attack. The 21-year-old U.S. Army intelligence analyst who allegedly supplied the documents to WikiLeaks obtained the files through a network he was authorized to access, downloading them onto his local machine and simply burning them onto a CD. The attack vector, as security analysts would term it, was enabled by a shortcoming of human resource policy at his facility. Presumably, the policy that should have prohibited the use of removable media either did not exist or was not enforced. The WikiLeaks scenario demonstrates the continuing relevance of Mitnick’s view that security is primarily a matter of people, even in ostensibly technology-specific breaches.

Trade Secret Protection Policy and HR Considerations

In order to preserve the confidentiality of information, workers throughout the organization must be attuned to the importance of information security. To develop that awareness, many companies institute a trade secret protection plan as part of company policy. Trade secret protection plans provide concrete, specific procedures for safeguarding secret information and help to engender information security awareness. They typically provide special procedures for confidential information designation, physical facility access control, employee training programs, and computer security.

Procedures for the designation and distribution of confidential information should be established in company policy. When designating information as confidential, specifically identify exactly what pieces of information are confidential, when they were conceived, and what persons or groups have been authorized to access them. In describing the information, be explicit and avoid overbroad designations. Confidential documents in physical or digital forms should be watermarked and distributed on a strictly need-to-know basis.

Physical access to offices and facilities should be regulated for both employees and visitors. The purpose of such regulations is to limit access to authorized personnel and escorted visitors only, and to prevent unescorted visitors from overhearing, viewing, or otherwise accessing sensitive information. Physical security measures vary substantially across industries. For example, pharmaceutical companies that perform expensive scientific research might require biometric authentication to enter their facilities. Their employees would likely be required to wear photo identification badges at all times, and visitors would probably need to be escorted. For companies with budgetary constraints or lower security requirements might simply implement a visitor sign-in sheet that includes a brief confidentiality clause might be appropriate.

Digital document storage and transmission also warrant special procedures. Although elementary, digital files that contain particularly valuable confidential information should be protected with secure passwords of at least eight characters. If office computers that store confidential information are internetworked, each machine should be password-protected. Highly sensitive information should only be loaded onto computers that are physically located on company premises and specially configured to meet high security requirements. Finally, newly hired employees and contractors should be trained on these policies upon hire and be periodically re-trained where applicable. Periodic re-training on such procedures has been found by courts to be evidence to show the required “reasonable” protection efforts.[16] If confidential information is being handled on a routine basis or as part of a long-term project, consider issuing periodic memoranda to remind personnel of the importance of compliance.

These procedures are merely illustrative examples, and every company needs to conduct its own inquiry to determine the specific level of protection warranted on the basis of the value and risk exposure of its trade secret information. However, in every circumstance the objective is to effectuate a level of security commensurate with the value of the trade secrets under protection.

Conclusion

HR professionals play a critical and continuous role in trade secret protection that is at least as important as those of attorneys and IT professionals. Although information security and trade secret protection are technological and legal concepts, respectively, they boil down to proper people management. The biggest threat to the security of trade secret information in the contemporary business environment remains the people who possess it. That risk can be managed with trade secret protection policies that establish internal controls for sensitive information. This reinforces to workers that confidentiality preservation requires not just an abstract promise but also concrete action. Once trade secret protection policies have been formally adopted, employee compliance must be continually monitored and enforced in order to prepare a track record of diligent protection that legal counsel can present in court if litigation unfolds.

It is easy to forget that the law requires continuous protections efforts. Only a brief moment of oversight is needed for a secret to inadvertently leak. ℵ

Dan Elbaum is a student at Florida International University, pursuing a juris doctorate at the university’s College of Law. He also holds an M.S. in Management from the Warrington College of Business Administration, University of Florida.

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