Chapter 6. Ethical Issues in Human Resource Management – Business Ethics and Corporate Governance


Ethical Issues in Human Resource Management


At different points of time in the history and evolution of modern management, different management functions such as marketing, finance, production, etc., have hogged the limelight. For a very long time marketing function had ruled the roost. Financial management too has been considered as the kingpin of organizational strength. However, in recent times, with increasing globalization and integration of global economies with one another, the growing importance of knowledge management, and the need to find and put in place cutting-edge brainpower, has placed human resource management (HRM) on a high pedestal. Human resource with the requisite qualification, managerial expertise and experience is increasingly becoming scarce visa-vis the growing demand for it. You can organize and manage successfully industries without natural resources, as the Japanese have demonstrated. Capital can be procured without a problem if you offer safe return with high interest rates. But to manage all these resources successfully you need an intelligent, efficient and committed human resource without which land will be barren, capital unused and the organization rudderless. There is a virtual talent hunt today to man the sunrise industries with compensations rising almost every quarter. Blue-chip companies like IBM and Infosys are entrusting HRM to trusted senior-most executives, as they consider the function the most important for their organizations’ future organic growth. That is why on a global level, there is a demand for superior human resource. That is also the reason why HRM as a managerial function has acquired an enviable and coveted status. In a nutshell, HRM has come on its own today.


What is HRM? To define it formally, HRM is engaged in the process of identification and development of suitable manpower resources within the parameters of the socio-legal framework of the organization. Differently stated, HRM refers to the principles, policies, practices as well as the systems that influence employees’ behaviour, attitudes and performance. In other words, it is a management function involving the recruitment of suitable human resources, training, developing and sustaining their competencies, motivating them, offering them rewards on a rational and equitable basis, and ensuring their continued commitment to the organization for achieving its overall objectives.


Fig. 6.1 HRM’s Multifaceted Management Functions


Broadly, HRM functions include recruitment, selection, training and development, handling of compensation issues, personnel performance appraisal, staff welfare, business law, industrial and labour relations. Therefore, it incorporates such management functions as manpower forecasting, recruiting, selecting, training, evaluating, compensating, and, of course, facilitating conducive employee-employer relations.

The main aim of HRM is to develop an understanding and appreciation of how management functions can affect the performance of a business, as shown in Fig. 6.1.


HRM as a management function and as a tool of corporate administration has gone through an eventful evolutionary process over time. Prior to the 1970s, this managerial function was referred to by its traditional nomenclature namely, Personnel Management or Personnel Administration. After 1990, it has been referred to as Human Resource Management since it covers a much wider and at the same time more inclusive areas of people management, that is, the energies, skills, knowledge, talent and imagination of people in enterprises. The growth and evolution of HRM is traced as follows:

  • 1890–1910: It was during the late 19th century that Frederick W. Taylor formulated scientific management. This scientific management included a careful selection of employees; finding out the best method of doing the job; systematic training of workers; provision of suitable implements; and giving adequate rewards for good performance.
  • 1910–30: These two decades witnessed greater importance being given to the welfare of workers. Industrial psychology and improvements in the mode of recruitment procedures also emerged during this period.
  • 1930–45: The underlying principle of Hawthorne studies started gaining momentum in personnel management in an industrial organization during this period. These studies took cognizance of the positive change in the performance of a group of persons taking part in an experiment or study, due to their perception of being singled out for special consideration. Greater emphasis was given to motivating factors affecting worker productivity.
  • 1945–65: More emphasis was placed during these two decades on collective bargaining and labour relations. Compensation and benefits started gaining importance, as unions negotiated for and obtained paid vacations, paid holidays and insurance coverage.
  • 1965–85: Equal employment opportunity and affirmative action became crucial human resource management responsibilities, especially in the United States. The enhanced employee rights during the period were the result of legal battles over the interpretation of the rule book.
  • 1985–2005: Three trends impacted HRM during this period. The first trend was the increased diversity of the labour force, in terms of age, gender, race and ethnicity; the second was the globalization of business and the accompanying technological revolution; while the third trend focused on HRM as a ‘strategic function’, which called for the integration of the overall strategic planning of the firm in order to cope with rapid changes, intense competition, and pressure for increased efficiency in a fiercely competitive environment.

During this period, new employment rights and legal decisions tried to ensure the balance of power between employer and employee. HR professionals welcomed this development as a means to provide an impetus to the relationship between the employer and the employee by providing an ideal opportunity to revisit and apply enlightened managerialism in employment practice.

Parallel to this global evolution of HRM, there were certain transformatory changes in the organizational management function in India too. In the 1990s, for instance, the emphasis of HRM showed a definite shift to human values and productivity through better management of human resources in India.


The vast scope of HRM can be summarized to include the following seven functions:

  1. determining human resource needs;
  2. attracting potential employees;
  3. choosing employees;
  4. teaching/preparing;
  5. rewarding;
  6. evaluating performance; and
  7. creating a positive work environment.

The various aspects of human resource management are as follows:

  1. Attempts to forecast organizational demand and labour force supply of potential employees.
  2. Recruitment: The aim of recruitment practices is to identify a suitable pool of applicants quickly, cost-effectively, and legally. Selection involves assessing and choosing the best among job-related candidates. To be effective, the selection processes must be both legal and technically sound, accurately matching people’s skills with available positions.
  3. Training and development practices are designed to improve organizational performance by enhancing the knowledge and skill levels of employees. A firm must first determine its training needs and then select/develop training programmes to meet these needs. It also must take steps to ensure that workers apply what they have learnt on the job.
  4. ‘Learning organizations’: By definition, learning organizations refer to agencies whose employees, on an on-going basis, attempt to learn new things and apply this learning to improve product or service quality. Key features of a learning organization are: employees share learning with one another; the existence or creation of procedures for gaining and sharing knowledge; employees being encouraged to think critically and to test their assumptions in the organizational environment; a system of rewards existing within the organization and supported by the management as employees learn new skills; the encouragement of flexibility and innovation among employees in the development of new products and services; and, a focus on ensuring the development of every employee.
  5. Performance management: It determines rewards for, and the compensation of employees.
  6. Pay is a powerful tool for furthering the organization’s strategic goals. Employees will often evaluate their pay relative to those of other employees and among industry competitors. As such, employee satisfaction with pay is influenced by perceptions of fairness and equity.
  7. Team work: What makes a good team? A good team consists of people with different skills, abilities and characters. A successful team is able to blend these differences together to enable the organization to achieve its desired objectives.
  8. Motivation: An important part of the retention of staff, reducing staff turnover and minimizing absenteeism at work, is ensuring that staff are properly motivated. This is not as easy as it sounds. Merely increasing wages is not the only way to motivate. It is a far more complex issue than merely compensating through ‘money’.

The HR department plays a vital role in the smooth functioning of the various activities held in the functional areas. Figures 6.2 and 6.3 illustrate the role of HRM in different functional areas of management of an organization.


HRM is one of the management functions that is undergoing dramatic changes in the new millennium. Some of the challenges that confront HR professionals and their roles in organizations and the industrial scenario are (i) the increased globalization of markets and intensification of competition has made employers and employees conscious of their changing and strategic roles in organizations; (ii) corporate restructuring has become an absolute necessity for organizations to shed extra flab and to look lean and competitive resulting in discharge of workers with attendant problems; (iii) Mergers and acquisitions that are apace to consolidate competencies and to enjoy economies of scale in the global arena bring their own problems of culture shocks and the need for reconciling to multiple work ethos; (iv) newer organizational designs and strategies pose their own challenges to workforce; (v) increasing emphasis on total quality management and the need for everyone in the organization to get attuned to the rules of the game; (vi) changing job profiles and the need for and ability to get adjusted to them; (vii) changing workforce profile consequent on structural changes that have to be adopted to be part of the global industrial scenario; (viii) increasing role of women employees in organizations even in developing countries that is questioning many traditional HRM practices hitherto followed; (ix) increasing use of information technology that is altering the very nature of work delivery in organizations; and (x) increasing emphasis on knowledge management and the need for acquisition and use of knowledge to keep pace with the fast changing world.


Fig. 6.2 Different Functional Areas of Human Resource Management


Fig. 6.3 Human Resource Management—All Its Dimensions


These are all important challenges HR professionals face today and to succeed in overcoming them, they have to equip themselves in terms of education and training. Besides, most of these challenges are impregnated with ethical dilemmas. For instance, corporate restructuring and increasing use of information technology may result in reduced need for manpower at least in the immediate present. This will create an ethical dilemma as to how this issue could be solved with the least suffering to workers and their dependants. All these challenges, therefore, call for a clear understanding and appreciation of the relevant issues, along with the ability to work out strategies to solve them by creating a win-win situation for all concerned.

Box 6.1 shows how India’s premier industrial house, the Tata’s, follow internationally accepted HR norms in their work spots.


The salt-to-software Tata group has drawn up a six-point initiative to retain and grow talent in a furiously competitive environment for people with the right set of skills and attitude. These include making mergers and acquisitions (M&A), work beyond business, getting closer with Gen Y, creating an internal job market and in building a global talent pipeline. More and more Indian companies are taking the M&A route.

Tatas have acquired 24 companies since 2000. M&As get derailed for two reasons—you lose on performance and people. Tatas have done fairly well. Attrition across all acquired companies have been very low. Most senior management, including Daewoo Motors and NatSteel have stayed back. ‘Non-intrusive yet respectfully inclusive way of managing the acquired companies and their employees worked for us,’ says R. Gopalakrishnan, Executive Director.

Get to know Gen Y: In the next 15 years, there will be a significant shift in the kind of people companies are going to hire. On the face of it, these young people may look crazy and wayward but they bring in a new way of thinking which companies will need to understand and tap well in future. Tatas are trying their best to understand them. Internships are being offered to students from HBS and Wharton.

Create internal job market: The rationale being it’s better to lose to a group company rather than to an outsider. Allow employee mobility, within group, within company. The flexibility and openness to make that happen is important. Tata’s internal job market allows employees to get access to internal vacancies and apply for it—it’s a beginning, no doubt with just 50–60 jobs being listed right now.

Think global, hire global: Tatas have over 30,000 employees overseas through organic growth and M&As; ‘Our companies abroad should have the look and feel of a company in that country, not a country that is filled with expatriates from India’: Ratan Tata laid bare the group’s global HR policies in his speech last year at the AGM. In all its HR initiatives the group’s efforts will be in that direction.

Global alliances to groom staff: At a time when India Inc is reaching out to global giants for technical and business tie-ups, they also need to build global partnerships and collaborations to groom their employees, one of their biggest assets today. Tatas have tied up with a variety of institutes globally—the Institut European d’Administration des Affaires (INSEAD), Ross Business School. Nanyang Technological University, professors from HBS, Wharton, Kellogg, and MIT.

Build talent pipeline: Invest in identifying and honing tomorrow’s leaders. Throwing more money to manage talent shortage in this supply-starved market is never going to be a good solution. Tatas have plenty of leadership programs lined up already—Tata Management Training Centre (TMTC) holds a variety of leadership programmes. In the last five years it covered 500 senior and high potential leaders. It also has a young leaders development programme.


Source: Courtesy Malini Goyal, Economic Times, Chennai edition, 21 July 2006.


In a knowledge-based economy such as the one India has inherited in recent times, the HR function is not only gaining considerable ground in industry, but also undergoing a metamorphosis. Its very profile is undergoing a transformation. Gone are the days when HR persons had to deal with the problem of plenty to choose from. Though there is still the paradox of excessive availability of educated jobless youth while an equal number of jobs go abegging, there is a lot of mismatch found everywhere. Most of those educated jobless youth lack the requisite skills. Most of them are unsuitable because of a lack of soft skills, which are essential for the sunrise industries such as information technology.

Though over the past couple of decades HRM has moved from its primarily back-office status of being just a staffing function to a position, where it is expected to play a crucial role in building and shaping the organization,1 it still has a long way to go in the context of the acute paucity of trained skilled manpower.

From focus on recruitment and in-service training, human resource professionals now need to broaden their horizons and be outward rather than inward focussed (see Box 6.1). The transition from locating talent to retaining talent has now moved to creating talent.2 It has become the responsibility of HR persons to identify and constantly review the industry requirements of skill sets for employees and find ways and means of imparting them through close liaison with educational and training institutions. Attitudes, values and motivation of employees have become more important now than ever and it is necessary that our prospective employees imbibe them early in life. The HR professionals can play an invaluable role in this direction by not only gauging these, but also by getting them integrated in college curricula through industry-institute partnerships. Such partnerships may result in fruitful evolution of new learning modules and courses that are beneficial to the industry.

Human resource is India’s biggest assets. Considerable time and effort need to be spent in developing our work force to achieve significant results. HR professionals should use them to the country’s advantage. They can carve out a major role for themselves and face the challenge of harnessing the human resource for the speedier development of the country. ‘From a useful service function, they can now occupy the centre stage and be the key drivers that create business value for their company, and economic gain to the nation. Making our large population base an asset and adding value to excellent raw material; this should be the new role for HR professionals.’3


The ethics of HRM revolve around those ethical issues arising out of the employer-employee relationship, such as the rights and duties owed between them. Before we go into specific issues concerning those arising out of HR function, let us understand the responsibility of HR executives in an organization. There is no denying the fact that HR executives have to play an active role to provide ethical leadership in the organization. Such leadership arises not only out of their responsibility to keep the organization out of trouble and away from labour welfare departments of government, but also to be seen as having a major stake in ensuring fair and equitable treatment of employees without any bias or discrimination. To achieve this fairness, HR executives should, apart from having an ethical conscience, follow a well-laid system of procedures that address the range of human resource issues in the pursuit of organizational justice. ‘Achieving a balance between avoiding rule violation and developing interactional justice or ‘felt fairness’ at the level of the individual is, however, no simple matter. In the context of the present well-established employment rights, employers may focus their attention too much on the system of defending their decisions within organizations, who with a view to continuing to be competitive, opt to follow strategies that would optimise workforce leanness and flexibility.’4

At the same time, when one swears by procedural justice, HR executives may face an acute ethical dilemma with an increase in employment regulation. When an organization tries to be an equal opportunity employer in accordance with the law and in response to the need to ‘demonstrate equal rights in all employment practice, the scope for adjusting the rules to accommodate individual needs and circumstances can be diminished’.5 Notwithstanding such dilution, authorities on the subject who have researched into different ethical frameworks inform that HR practices now suggest an ethics of care with a shift in emphasis from formal systems to a more personalized approach.

There is another aspect to this approach. Adopting a more personalized and humane approach may run the risk of eroding a legally acceptable equality of treatment approach. However, for the majority of employees, the sympathetic approach of traditional personnel department with a greater sensitivity to their individual needs may lead to a greater tolerance when things go wrong. The possibility of employees seeking remedies outside the organization for alleged injustices could reduce considerably if they are convinced that their own bosses are making genuine attempts to solve their personal concerns.

Though most of the ethical issues concerning HRM policies and activities are universal in nature, we will deal with some of them that have greater relevance in the Indian context.

Discrimination Issues

Most of the discrimination issues centre around discrimination on the bases of age, gender, race, religion, disabilities, weight and attractiveness. These discriminations are clearly exhibited by Indian corporations in matters of recruitments and promotions. By seeking only ‘experienced’ persons, corporations tend to weed out youthful candidates, though they may have the requisite qualification. There are companies that do not recruit lady candidates as they are likely to resign their jobs after marriage, or when married may seek maternity leave to which they are legally entitled. There are several companies that choose to employ only candidates belonging to a particular caste or community. But most of these practices are carried out covertly for fear of litigation. Though the threat of litigation and the attendant costs have made them deny publicly that they discriminate against minorities, women and the disabled in matters of employment, remuneration and growth prospects, the poor representation of these categories of people in most of the promoter-family organizations is a clear evidence to the contrary.

There are several issues relating to the discrimination of women in the work place such as sexual harassment that never comes to the limelight. The culprits are seldom pulled up because in a male-dominated environment the issue is never taken seriously, and also due to the fact that women subjected to sexual harassment at the workplace may be reluctant to press charges for fear of gossip and adverse publicity.

Suppression of Democratization in the Workplace

Corporations often suppress the democratic rights and representation of employees in bodies that would promote the latter’s collective interests. Tempting and bribing pliable union leaders, union busting and strike breaking are normally used by them to defeat the purpose of collective bargaining and other democratic rights of workers.

Privacy Issues

In recent times, privacy issues are being viewed as being increasingly important in organizations, especially where people work long hours together and share official secrets. Privacy refers to protecting a person’s private life from intrusive and unwarranted action by others; in this context, employers. Employees may want their religious, social and political beliefs, and their personal lifestyles to be private matters and be safe-guarded from public gaze or from being analysed. There may be few exceptions where employees may grudgingly accept such analysis only when it is an absolute necessity in the matter of job requirement.

There are a few areas that pose ethical dilemmas to employers pertaining to matters of privacy of their employees or any prospective employee. For instance, a firm’s need for personal information of an employee may militate against his desire for privacy. Workplace surveillance through viewing them on close-circuit TVs, tapping of phones, reading of computer files without the consent of the affected employees are all breaches of the privacy of employees. There could be other contentious areas such as drug-testing, AIDS-testing and also concerns in matters of whistle-blowing, which is now being increasingly advocated as one of the means to promote corporate governance.

Employee privacy is assailed today by increasing internet usage, e-mail at work, data security, employee thefts and electronic surveillance at place of work. In countries like the United States, invasion of privacy is considered to be a major infringement of individual rights that is guaranteed against under law. But in countries such as India, the focus is more on employee surveillance to protect company interests, rather than on protection of the employee’s privacy.

In the context of an organization, it would be difficult to segregate what level of information can be demanded which is required for business purposes and how could this be obtained. In HRM, practices such as recruitment, performance appraisal, employee discipline management, adherence to code of conduct, performance monitoring and exit interviews are some of the areas where employee vulnerability can be very much misused.

Recruitment and Selection   Taking advantage of their vantage position in the organization and the vulnerability of job seekers, a lot of questions are asked by HRM personnel from prospective employees which breach their privacy such as requiring them to disclose confidential information about the past employer, wanting to know whether he or she has a close friend among the opposite sex, seeking to know his or her financial status, caste and family matters, showing undue interest in knowing from a prospective mother when she intends to have a baby, asking unwanted details of personal nature in job application forms and sharing personal information of the employee to a third party for background/reference checking.

Performance Tracking   Performance tracking is another area where the privacy of employees is often intruded. Though there may be some justification for the employer to do this, in several cases it is overdone. ‘In case of new age industries like BPOs, call monitoring, desktop tracking, and other electronic monitoring mechanisms are widely used to track on-job performance, work habits and client management. These activities clearly restrict any possible misuse of organizational resources, but also give the possibility of tracking personal conversations and messages of employees.’6

Privacy Issues of Computerized Employee Records   With increasingly large number of employee records stored in computers, it is a worrisome factor that unauthorized persons could access employee information of a confidential nature such as home addresses, salary data, performance appraisals, drug test results, etc. Another employee records issue is accuracy of information. It will be ideal if employees are permitted occasionally to view their personnel records to make sure that they are timely and accurate.

Electronic Surveillance   Surveillance of employees using a broad range of electronic tools by the employer is increasingly becoming a menace to privacy even in advanced countries like the United States. With no relevant legislation, technologies are exposing the individual worker to scrutiny as opposed to the earlier prevalent group evaluation. Hence, what separates the traditional from the new age monitoring is that ‘earlier people usually knew when the boss was there; electronic monitoring can be there all the time’.

More often than not, the employee is either unaware of being under surveillance, or in certain cases is oblivious to how the data gathered about his activities is going to be used7.

Legally speaking, there is little a person can do when his or her privacy has been breached in the absence of a specific privacy law. To HRM executives, privacy management poses significant questions and dilemmas, just as it does to employees.

Safety and Health

One of the characteristics of labour as a factor of production is that it has to be delivered in person. To ensure that it is done productively, HRM executives have the responsibility to provide a safe and conducive atmosphere at the workplace. However, in actual practice this is hardly done. It is well known that much of the industrial work is hazardous. This is due to the extensive use of high-speed and noisy machinery, production processes requiring high temperature, an increasing reliance on chemical compounds, and the nature of works such as construction, underground and underwater tunnelling, drilling and mining. Accidents, injuries, and illnesses are very common in the very nature of such jobs. Often these are not even taken seriously, but dismissed perfunctorily as ‘occupational hazards’. Over the past two decades, new types of accident and illness have emerged, including the fast-growing job-safety problem of office injuries. Stress from the rising productivity pressure and mounting job demands can cause cumulative trauma and disorder, such as wrist pain experienced by super-market cashiers, meat cutters, or keyboard operators. The number of health problems attributed to the use of video display terminal and computer key boards, and to tasks requiring repetitive motion has increased enormously in the last decade. Stress on job has risen exponentially in new emerging industries such as BPOs. Psychological and mental disorders too are rising. There are several reported cases of suicides in these stress-prone industries.

Over the past few decades, several legislations have been enacted requiring managers and the government to compensative victims of accidents and occupational hazards. Ethical dilemmas of managers, HR practitioners in particular, come into focus when justice is denied to the victims. For instance, though it has been over 25 years since the tragedy took place at Bhopal in which thousands died inhaling poisonous gas and many more maimed and disabled for life, we are nowhere near rendering justice to the victims. Dow Chemical and the Indian government have shown very little sympathy to the miseries of the victims.

Performance Appraisals

Another area which generates unethical practices from the HRM executives relates to performance appraisal. Even though it is difficult to quantify an employee’s performance where a number of value judgements are involved, the evaluators should have an ethical bent of mind to evaluate their personnel. The overall objective of performance review is not only to offer to the top management an honest and ethical assessment of employees, but also to help the latter improve their efficiency and effectiveness to the organization. To ensure a fair assessment, therefore, calls for a keen observation and judgement of employees. But then, this is rarely, if at all, done. In many cases, performance review is done based on extraneous factors such as the assessee’s personal relationship with the assessor, what his or her colleagues have to say, and sometimes even based on caste, community or religion.


It is well known that ethical dilemmas and issues abound in HR activities. Areas of unethical conduct revolve around issues relating to employment, remuneration and benefits, labour relations, health and safety, training and development. Though there are professional codes of conduct for HR persons, most professionals contend that it is difficult to adhere to these codes because of pressures from political, economic and social groups. Unethical practices such as giving and receiving gifts, hiring people recommended by influential bureaucrats and politicians, falsifying records to impress stock market analysts, alcohol abuse, sexual harassment, cheating on expense accounts, lying about sick and casual leave, greasing the palms of government inspectors, accepting bribes and kickbacks have all become part of organizational life everywhere.

However, professionals who guide organizations cannot afford to lose sight of the eternal truth beautifully expressed by Daniel Defoe8 in the following lines:


Wherever God erects a house of prayer
The devil always builds a chapel there
And it will be found upon examination
The latter has the largest congregation.


HR management at all times should be guided by the highest principles of integrity and devotion to the welfare of the people, only then can they succeed in creating organizations which are humane, affluent and civilized. HR managers must be realistic in their approach. They must be aware of the existence of the mud without losing sight of the stars, that is, the grandeur of human life. The art of management is probably the greatest of all the arts for this reason. It has to create order and coherence out of chaos. It has to be an instrument to create economic growth and banish poverty. It has to uphold the dignity of man.


Every institution has a distinct culture. Institutional culture reflects the core values of the institution and forms the basis of how people work together. Institutional or corporate culture is a blend of ideas, conventions, customs and practices, company and shared ethical values that define accepted behaviour for every employee in an organization. Culture reflects the informal procedures that emerge in the organization’s operations. Culture is determined by the institution’s vision and core values. The CEO and senior management heavily influence culture. Last but not the least, human resource system and tools are important factors that influence work culture. For developing an ethical culture and shaping an organization’s ethical conscience, the HRM professionals should play an active role. Instead of being a set up that echoes the CEOs dictates, it should play a proactive role. In companies like Infosys and Wipro one can easily feel the ethical standards permeating to every employee. People pick up suitable hints and clues that tell them what kind of behaviour is acceptable and what is forbidden. This unarticulated understanding among employees, reinforced sometimes by codes of employees’ behaviour, constitutes the ethical climate in the company. It is that part of corporate culture that sets the ethical tone and forms the ethical conscience of the organization. Corporate culture and ethical climate can put pressure on employees to channel their actions in the directions desired by the company.


As we have seen, HR professionals confront several ethical dilemmas in their day-to-day work. The solutions to these are often difficult, but are not insurmountable. There are ways of managing ethics at the work place. First and foremost the top management should be committed to ethical behaviour and should be the role models to their employees in this respect. The organization should evolve codes of ethics for managers, executives and employees, and enforce them. Ethics committees should be formed with top executives as members to advice on ethical issues. These committees should have such important responsibilities such as fielding questions from employees, helping the organization in establishing policies in new, emerging and undefined areas, advising the board of directors on ethical issues and ensuring the enforcement of the codes of ethics. It is also important that an ethical atmosphere is created in the organization. Company journals may publish articles on ethical issues and pose hypothetical ethical dilemmas and discussions on how to resolve these dilemmas. An ethics office with ethics officers can be created to oversee the process, and to help communicate policies to employees. Ethics officers have now formed a professional association in the United States. Another important step to create an ethical climate in the organization is to organize employee ethics training, which can play an integral role in ensuring compliance with the ethics code. Training programmes help to emphasize the need for and the importance of ethical behaviour, identify major ethical issues, specify forms of ethical conduct, enhance awareness of pressures that may lead to unethical conduct, alert employees to the need for avoiding unethical behaviour, and where necessary to blow the whistle. Apart form these, there should also be a disciplinary system to deal with ethical violations promptly and decisively. In case it is not done, ethical workers may feel let down. This would threaten the entire social system that supports ethical behaviour in the organization. Employees expect unethical behaviour to be dealt with severely. Double standards should be dealt with a firm hand. All these measures, to a great extent, create an atmosphere in which unethical conduct will be unacceptable in the organization.


The Constitution of India, in its various Articles, gives a prominent place to the development of the human factor. The Preamble of the Constitution itself is a recognition of this fact. The Articles of the Constitution relating to ‘Fundamental Rights’ and ‘Directive Principles of the State Policy’ inter alia lay down that the State shall make an effective provision for the development of human resource.

The Constitution lays down that the State shall within the limits of its economic capacity and development make an effective provision for securing all children the right to education. It also makes a provision for free and compulsory education for children until they complete the age of 14 years. Since 1951, all out efforts have been made by the Indian government to achieve the Constitutional directive, though with less than satisfactory results. The Planning Commission in its report on the First Five Year Plan indicated the following lines of direction:1

  1. Reorientation of educational system and integration of its different stages and branches.
  2. Expansion in various fields especially in the basic and social education, remodelling vocational education.
  3. Consolidation of the existing secondary and university education and devising a system of higher education suited to the needs of rural areas.
  4. Expansion of facilities of women’s education especially in rural areas, training of teachers—especially women teachers and teachers of basic schools—and improvement in the pay scales and conditions of service.
  5. Helping backward States by giving a preferential treatment to them in the matter of grants.

According to United Nations’ Development Programme (UNDP), ‘Economic growth contributes most to poverty reduction when it expands the employment, productivity and wages of poor people and when public resources are channelled to promoting human development. A virtuous cycle of economic growth and human development arises when growth is labour using and employment generating and when human skills and health improve rapidly’.2 HRD is expected to perform the following functions in developing countries such as India.

  1. Help to discard outdated technology and adopt the latest technology in every sphere of human endeavour over a period of time.
  2. There is now a paradigm technology shift to knowledge-based segments in industries. This shift is very much discernable, especially in the Information Technology (IT) and IT-enabled services (ITeS), pharma and such sunrise industries. These industries which originally were located in crowded cities are getting gradually dispersed to second-tier and third-tier cities and towns too, thereby spreading knowledge, education, employment and several other external economies throughout the country.
  3. In the knowledge economy, people are getting to know, and more importantly realizing increasingly, the significance of learning soft skills and other skill sets. This promotes the growth of intangible assets, appropriate organizational culture and core competencies for people to measure up to the needs of a growing knowledge economy.
  4. Modern physical technology that is becoming increasingly complex with the passage of time is to be buttressed by advances in social technology, i.e., skills being acquired by individuals and groups. Unless social technology matches physical technology and soft skills, there will not be cohesive and inclusive growth in society.
  5. All innovations in physical technology were always preceded by advances made in social technology, especially in terms of higher education in sciences, social and fundamental sciences. But for the investment and growth of these basic sciences of all kinds, innovation in physical technology would not have been possible.
  6. Higher education has brought about in the educated persons independence and initiative, a rational and questioning attitude, an inquisitive mind, all of which are highly regarded intellectual resources for creating and disseminating knowledge. All these are the basic requisites in a knowledge society.
  7. There is positive empirical evidence amongst people of developing countries to suggest that education helps in the eradication of poverty, that high literacy amongst the girl children considerably reduces birth rate and that longer are the years of schooling the greater is the farm production.
  8. There is a close inter-relationship between growth in human development and success at poverty eradication. Poverty is both a cause and a consequence of deficiencies in human development. When governments spend much to enhance aspects of human development, there is every likelihood that it will have greater impact on poverty alleviation, which will in turn improve human development.

To conclude, HRD is a necessary condition to improve productivity and to raise the quantum of production, which in turn accelerates economic growth. Once governments in poor countries invest heavily on various aspects of human development so as to improve their human capital, they can then use this cheap and skilled labour along with cheap and cost effective capital and technology of the West to produce goods that could be exported. Many of the South East economies of Asia and China have been doing this to their advantage for quite some time now.


The concept of human capital and its development are being studied scientifically since the UNDP published the Human Development Report in 1997. The UNDP report defined the human development thus: ‘It is the process of widening people’s choices and the level of well being they achieve are at the core of the notion of human development. Such theories are neither finite nor static. But regardless of the level of development, the three essential choices for people are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living.’3 The report further speaks about other choices that many people highly value such as social, political and economic freedoms, opportunities made available to be creative and productive apart from being allowed to enjoy one’s self-respect and human rights. The report further emphasized the fact that apart from income, which is definitely an important option for people, there are other equally important issues such as gender equality and poverty alleviation to deal with as part of the human development.

Human development index (HDI) measures the average achievement in three basic parameters of human development. These are as follows:


Table 6.1 Maximum and Minimum Values for Calculating HDI

Parameter Maximum value Minimum value
Life Expectancy at Birth 85 25
Adult Literacy Rate 100 0
Gross Enrolment Ratio 100 0
GDP per capita (PPP US$) 40,000 100


Table 6.2 Human Development Index


1. UNDP Human development Index, UNDP 2005.

2. Tata Services Ltd. Statistical Outline of India, 2006–07 and 2007–08, Mumbai: Tata Services Ltd.

3. UNDP The 2008 HDI represents statistical values for the year 2006. Available online: Human Development Reports (HRD)—United Nations Development Programme (UNDP).

  1. A long and healthy life as measured by life expectancy at birth;
  2. Acquisition of knowledge or educational qualification as measured by a combination of adult literacy (two-thirds weight) and enrolment ratios at primary, secondary and higher levels (one-third weight); and
  3. A decent living standard as measured by real GDP per capita, in terms of purchasing power parity in US dollars For working out the HDI, an index for each of these basic parameters is calculated, by taking the maximum and minimum values for each parameter as shown in Table 6.1.

Performance in each parameter is expressed as a value between 0 and 1. The following formula is used to get the result



Table 6.2 gives the trends in the HDI for ten selected countries for the years 1970, 2002 and 2006. A close reading of the HDI values between 1970 and 2008 shows that all the ten countries have been making attempts in varying degrees to improve their human development indices.

In addition to the HDI, two other indices were developed by the UNDP under the expert guidance of the well-known Pakistani economist, Mahbul-ul-Haq. These are the gender-related development index (GDI) and the human poverty index (HPI).

  1. Gender-related development index (GDI): GDI measures the average achievement reflecting the inequalities between men and women, taking into account (i) life expectancy of women; (ii) adult literacy and gross enrolment ratio of women; and (iii) per capita income of women. However in the unlikely case of zero gender inequality, the value of HDI and GDI would be the same. But where there is a gender inequality, GDI value would be below HDI value. If there is greater difference between the two values, there is definitely a great gender inequality. From the data provided by the UNDP, it is seen that there is near gender equality in most developed countries such as Norway, United States, Canada, United Kingdom, Japan and the Russian Federation. Even among some low income countries such as Malaysia, Venezuela, the Philippines, Sri Lanka, China, Vietnam and Indonesia, there is considerable degree of gender equality, whereas countries like India, Egypt, Pakistan, Iran, Nigeria and Saudi Arabia exhibit considerable degree of gender inequality.
  2. Human poverty index (HPI): The Human Development Report of 1997 introduced the concept of HPI. HPI lists three parameters of human development—longevity, educational attainment and a reasonable living standard, all of which have already been covered in HDI. However, HPI lists certain deprivations relating to these three parameters. For instance, (i) the first deprivation suffered by some people explains their vulnerability to death at a relatively early age, say, at 40 years; (ii) deprivation relating to education in HPI is measured by the percentage of illiterate adults; and (iii) the deprivation relating to living standards in HPI is measured in terms of (a) poor health services, (b) lack of access to safe drinking water, and (c) the percentage of malnourished children under five years of age9.

In recent times, with increasing globalization and integration of global economies, and the need to find and put in place cutting-edge brainpower there is an increasing demand for superior human resources. There is a virtual talent hunt today to man the sunrise industries. To define it, HRM is engaged in the process of identification and development of suitable manpower resources within the parameters of the socio-legal framework of the organization and refers to the principles, policies, practices as well as the systems that influence the employees’ behaviour, attitudes, and performance. It incorporates such management functions as manpower forecasting, recruiting, selecting, training, evaluating, compensating, and, of course, facilitating conducive employee-employer relations.

These challenges call for a clear understanding and appreciation of the relevant issues, along with the ability to work out strategies to solve them by creating a win-win situation for all concerned. From focus on recruitment and in-service training, human resource professionals now need to broaden their horizons and be outward—rather than inward—focussed. The transition from locating talent to retaining talent has now moved to creating talent.

HR management at all times should be guided by the highest principles of integrity and devotion to the welfare of the people, only then can they succeed in creating organizations which are humane, affluent and civilized. The ethics of human resource management revolves around those issues arising out of the employer-employee relationship, such as the rights and duties owed between them. Most of the ethical issues concerning HRM policies and activities are universal in nature, while some of them that have greater relevance in the Indian context. These are discrimination issues; suppression of democratization in the workplace; privacy issues; safety and health; and performance appraisals. Areas of unethical conduct revolve around issues relating to employment, remuneration and benefits, labour relations, health and safety, and training and development.

In creating an ethical organization, the HR department plays a crucial role. It has to develop an institutional culture that helps in the evolution of an ethical organization. Every institution has a distinct culture that reflects the core values of the institution, and forms the basis of how people work together. Institutional culture is a blend of ideas, conventions, customs and practices, company and shared ethical values that define accepted behaviour for every employee in an organization. It sets the ethical tone and forms the ethical conscience of the organization. Corporate culture and the ethical climate can put pressure on employees to channel their actions in certain directions as desired by the company. All these create an atmosphere in which unethical conduct will be unacceptable in the organization.

  • HRM
  • Recruitment
  • Selection
  • Training
  • Development
  • Genesis and growth
  • Hawthorne studies
  • Scope of HRM
  • Emerging challenges
  • Retaining talent
  • Ethical issues
  • Discrimination
  • Privacy issues
  • Safety and health
  • Performance appraisals
  • Institutinal culture
  • Ethical organization
  1. Explain the genesis and growth of HRM. What is the significance of HRM in the present days of tremendous paucity of quality human resource?
  2. How do you account for the vastly changing profile of HR professionals in recent times?
  3. Discuss in brief, the ethical issues involved in Human Resource Management.
  4. Assume that you are the Vice President of a large very profitable public limited company, not known for a strong ethical culture. How would you convert it into an ethical organization?

Aswathappa, K., Human Resource and Personnel Management, Text and Cases (3rd ed., New Delhi: Tata McGraw-Hill, 2002).

Fisher, C. D., Schoenfeldt, L. F., and Shaw, J. B., Human Resource Management (5th ed., Indian Adaptation, New Delhi: Bizantra, 2004).

Prasad, L. M., Human Resource Management (2nd ed., New Delhi: Sultan Chand, 2005).

Rao, V. S. P., Human Resource Management, Text and Cases (2nd ed., New Delhi: Excel Books, 2005).

Srinivas, R. K., Human Resource Management in Practice: 300 Models, Techniques and Tools (New Delhi: Prentice Hall, 2003).

(This case is based on report in the print and electronic media. The case is meant for academic purpose only. The writer has no intention to sully the reputations of the corporate or the executives dicussed.)

For company so revered by the entire Indian and foreign business community for having set the highest ethical standards, it seemed to be only a matter of time before someone tried to pull it down. But to their credit, the company honourably resolved the issue and came back much stronger and surer of its values than ever before. Infosys became entangled in a scandal between October 1999 and December 2000, which dented its reputation as a company that had the best corporate governance structure in the country. The Hindu Business Line reported on 7 August 2002, ‘Since its inception, this is probably the first piece of negative news about Infosys’.1

In December 2001, former Infosys employee Reka Maximovitch filed a complaint in the Alameda Superior County Court, Oakland, USA, alleging verbal sexual harassment, unwanted sexual advancements and unlawful termination of employment against Phaneesh Murthy, the highest-paid employee of Infosys. The complaint further alleged that the defendants (Phaneesh Murthy and Infosys) failed to take reasonable steps to keep harassment from occurring and recurring. It created ripples in business circles and in the eyes of the public, when he abruptly resigned from Infosys in June 2002 to ‘devote time and attention to pursue a successful defence of the suit’.2

Initially, Phaneesh Murthy refused to participate in the settlement initiated by Infosys on the terms specified by it. However, later on, he voluntarily signed the settlement and agreed to every condition that Infosys had set. As the company retained its right to sue Phaneesh for his actions and lack of contributions, it went ahead with the settlement without any contribution from Phaneesh.

The stand taken by Infosys in this case seemed to go against its image of a company considered to be a model of good corporate governance. Media reports blamed Infosys for having kept the issue under wraps for a long time, neglecting to put in place a structured policy concerning sexual harassment, and for compromising on moral values. The company’s share price declined by 6.6 per cent soon after Phaneesh left it. This news and the issue of sexual harassment at the workplace were heatedly debated in corporate and media circles, in India as well as abroad.

Infosys Technologies maintained a studied silence on the episode on the ground that the matter was subjudice. On 11 May 2003, Infosys finally announced the amicable settlement with Maximovitch by agreeing to pay US$ 3 million as compensation. The company contributed US$ 1.5 million and the balance US$ 1.5 million was contributed by the insurers under the company’s Directors and Officers Liability Insurance Cover. Infosys refused to give more details about the manner in which the settlement was arrived at, and whether Infosys conducted any internal enquiry before Phaneesh Murthy submitted his resignation.

A crisis brings out the best and worst in any organization or in any person. It is also true that a crisis provides a learning opportunity for them. Infosys also learnt its lesson and put in place principles of work ethics to be followed by its employees and a whistle-blower policy. Infosys chairman and chief mentor, N. R. Narayana Murthy, said later, ‘The litigation with the plaintiff is behind us. We have taken further steps to strengthen our internal processes and improve the checks and balances to handle similar situations’.3

  • Ethical standards
  • Corporate governance structure
  • Verbal sexual harassment
  • Entangled in a scandal
  • Unlawful termination of employment
  • Ripples in business circles
  • Compromising on moral values
  • Amicable settlement
  • Learning opportunity
  • Whistle-blower policy
  • Checks and balances
  1. Even in organizations known for the best ethical culture, ethical infractions could happen, if proper, adequate and acceptable work practices are not put in place, anticipating human frailties. Discuss this in the context of Phaneesh Murthy case at Infosys.

Complaint filed by Reka Maximovitch in the Alameda Superior Country Court, Oakland, USA in December, 2001, cited by G. Ursula in the unpublished report on Relevance of Business Ethics in Indian Context (2006), Chennai: LIBA.

(This case is based on report in the print and electronic media. The case is meant for academic purpose only. The writer has no intention to sully the reputations of the corporations or the executives involved.)


The fairly well-paid—and by industry standards—better-off employees of Honda Motorcycles and Scooters India Limited (HMSI) had a few genuine grievances against the management and wanted to form a Trade Union to represent their interests. There was stiff resistance to this workers’ move from the management. It resorted to several unhealthy means such as lobbying with the Haryana Government to help prevent union formation and its registration, and adopted a carrot and stick policy with the workers to wean them away from the idea. The management thought that the workers forming a union, that too under the aegis of Communist Party of India (CPI) will place a spoke in their ambition to increase the company’s production of vehicles. The Registrar of Trade Unions at Chandigarh was said to have denied registration of HMSI Union on grounds that the workers’ action was initiated in ‘bad tastes,’ that it would result in disharmony in relations between workers and industry in the region, and that it would be detrimental to the growth and development of the industrial belt in Gurgaon. However, at the intervention of Gurudas Dasgupta, M.P. and General Secretary of the All India Trade Union Congress (AITUC), to which the workers held affiliation, the HMSI union was registered as a trade union. The new Union raised further demands while adopting the ones risen earlier. Since the management was not conceding the demands, conciliation proceedings were initiated by the Deputy Labour Commissioner, Gurgaon, which failed after six meetings, ‘due to the uncompromising stand of both the parties’. This industrial dispute between the workers and the management of HMSI finally snowballed into an unsavoury battle during which hundreds of hapless workers were surrounded and hounded by the Haryana policemen. The unprotected workers were brutally beaten up on 25 July 2005. In full glare of the electronic media, police brutality resulted in more than 700 workers being injured, 70 of whom suffered severe injuries and had to be hospitalized. Scores of workers including the legal counsel of the HMSI Union were arrested and charged under different sections of Indian Penal Code. The media reported that the police brutality was reminiscent of the savagery let loose by General Dyer at Jalianwala Bagh.1


HMSI is a wholly owned subsidiary of Honda Motor Company Limited (HMCL), Japan, the largest manufacturer of two-wheelers globally. HMSI was established in Gurgaon, Haryana, on 20 October 1999. The HMSI factory is a state-of-the-art plant spread over 52 acres. The company aimed to produce 0.6 million world-class scooters and motor cycles by the end of 2005. The company’s employee strength was 3000 of which 1300 were confirmed workers, 700 contract workers and 1000 supervisory and managerial staff. The company was, and still is, a good paymaster. In October 2005, an unskilled worker was paid INR 8,150 per month, while a skilled worker received INR 11,200, in addition to generous perquisites that included subsidized food and transport, free uniforms, and a generous hospitalization reimbursement for all employees. It was a well-known fact that compared to the region-cum-industry standards, the HMSI employee was well taken care of compensation-wise.


The inspiration for HRM policies of HMSI emanated from the philosophy of its Japanese parent company, HMCL which advocated two basic beliefs for all its members: (i) respect for individual differences; and (ii) three joys—the joy of using world-class products, the joy of selling world-class products and the joy of manufacturing world-class products. In HMSI, the HR department was responsible to conduct training programmes and to promote among its employees the ‘Honda Way’—a kind of unspoken philosophy that emphasized primarily on safety and quality in all aspects. The HR department also organized training programmes to promote quality and team leadership. Under the aegis of the HR department, there was a works committee as envisaged under the Industrial Disputes Act, 1947 consisting of 15 workers and five executives representing the management. There were other committees too with one each for canteen, transport, health and sports. The department also brought out a quarterly newsletter called ‘Dream Team’. However, it carried very few employee-related write-ups. The HR department was to be functioning under an assistant manager, but the post was lying vacant for quite sometime.


For about two years since production commenced at the HMSI factory, things were quite normal, though there were a few minor hiccups. Then arose a series of problems: (i) In November 2004, 90 per cent of the workers refused to accept the Diwali gift of INR 600 which they felt was too meagre; (ii) Soon thereafter, they protested against the Japanese VP for his alleged ill treatment of a worker at the factory; (iii) The line managers’ practice of denying them even nature-breaks, leave or work flexibility infuriated the workers; (iv) The attitude of Indian managers at the factory to prevent any mutually beneficial contact between the Japanese bosses and the workers, their autocratic, and employee abusive behaviour, and their threatening of workers with dismissal too frequently added fuel to the fire; (v) The flagrant discrimination shown at the work place by managers in favour of their ‘blue-eyed boys’ alienated a large section of the workforce; and (vi) The persistent refusal of the management to let the workers form a union accentuated the divide between the workers and the management. For reasons best known to them, HSMI management seemed to believe that high salary, attractive perquisites and the use of some make-believe idioms such as ‘Honda Way’ and ‘Three Joys’ would make the workers highly satisfied. But from the workers’ standpoint, the high workload, stressful work schedule, rampant discrimination, militarization of shop-floor discipline, lack of communication channels with the top management and hard personnel policy practised by the company, militated against their interests. All these sowed seeds of discontent and ‘the invisibility and inaccessibility of the top management’ to the workers added further strains in the brittle relationship between the workers and the management.


The reign of terror let loose by the Haryana Police against HMSI workers was so severe, and its televised reach and impact so heart-rending that every viewer, whether a journalist, politician or the worker, was appalled at the intensity of violence. The high-handedness and the most reprehensible manner of the police action were seen on television by the entire world and evoked enormous sympathy for the agitating workers. There was, no doubt, to the fact that the policemen were provoked by being beaten up by the mob, though the union claimed that it was done by outsiders. Whatever be the cause of provocation, the large-scale violence let loose on the workers, the visuals of which the whole nation viewed with great discomfort, caused irreparable damage to the reputation of the company. ‘It is difficult to completely erase the events of July 25, 2005 from the public memory and, at any rate, it is a long and hard process.’2


Professionals and academicians alike point out to a few lessons that the HMSI episode of violence and a total breakdown of industrial relations has brought to the notice of the industrial community: (i) Industrialists and managers should realize the fact that even if the workers are paid attractive salaries and generous perquisites, managements should not take workers for granted and ignore their legitimate grievances. It is a poor understanding of human psychology to assume that workers would sign away their freedom, dignity and self respect for a fat pay packet; (ii) Managements have a responsibility to develop trust and confidence among workers in their own interest. When they express a desire to articulate their problems to protect their interests, managements should view it as workers’ legitimate right. They cannot adopt a carrot and stick policy as was done by the HMSI management. For example, the management offering the workers a compensation package on condition that they would not form a union, and also the suspension/termination of services of workers who took active part in getting the union organized are gross violations of the provisions of the Indian Trade Union Act, which ‘permits a worker to become a member of the union of his/her choice’.3 (iii) By adopting a participative type of administration in which workers are made to share leadership with managers and by ensuring their empowerment, managements will stand to gain and be able to have a smooth functioning of the organization; (iv) Managements that fail to communicate with employees their concerns on issues that affect them and seek their cooperation are only asking for trouble. When the workers are in the dark about the proceedings in the organization that affect them, and with a lot of rumours spreading in the absence of verifiable information, it is likely to cause dissatisfaction and disturbance. One of the reasons why HMSI workers refused to accept their Diwali gift of INR 600 was said to be the rumour that Hero Honda, a joint venture of the parent company had given a refrigerator each to its workers as Diwali gift. Had HMSI scotched this unfounded rumour by communicating business reality with its employees on time, the workers would have been more appreciative of the company’s reward system and competitive realities. Had there been an open channel of communication and conflict resolution, much of the unsavoury events that occurred on that fateful day of 25 July 2005 could have been avoided.


An agreement was arrived at on 30 July 2005 between the workers and the management of HMSI. This was a conciliated settlement brought about by the Haryana Chief Minister. As per the agreement: (i) the striking workers were to resume work effective from 1 August 2005; (ii) workers agreed not to raise any new demands during the next one year; (iii) the trade union would continue to operate; (iv) the suspended workers numbering 50 and the four terminated union leaders were to be reinstated after submitting an unconditional letter of apology; (v) the management retained the right to conduct an enquiry into the reasons for the termination of four union employees, and if found guilty, to transfer them to any department, other than the production department; (vi) any court convicted worker involved in the 25 July agitation could be dismissed by the management; (vii) the workers would get full salary for the months of May and June while it would be ‘no work, no pay’ effective from 27 June onwards; and (viii) injured workers who were not able to resume duties due to their treatment or convalescence would be given paid leave.

Post-violence, there has been a perceptible change in the management’s attitude towards the workers and the union. It discussed all worker-related problems with the union. It also strengthened the HR department with a senior manager to head it and intensified the training programmes. It also tried to build up internal cohesion within the management and improved the managers’ sensitivity towards employees through training. The company also nominated a committee of seven representatives of workers to bring to the notice of the management, the union workers’ grievances.

The union on its part responded well to the worker-friendly ways initiated by the management. They tried their best to diffuse any build-up of workers’ grievance before it became a conflict. They tried to improve worker-manager relations on their own volition. Whenever workers tried to stop work due to some friction with line managers, Union leaders exhorted them to resume work immediately.

On 9 September 2005, workers of ‘A’ shift achieved their target of 1000 scooters for the first time after the union was formed. Coming to know of this welcome development, the VP, Manufacturing and the GM, Production came to the shop floor to congratulate the workers on their commendable achievement. The next day, sweets were distributed to all the workers.

  • Increasing globalization
  • Integration of global economies
  • Managerial function
  • Performance appraisal
  • Affirmative Action
  • Strategic function
  • Learning organization
  • Organizational environment
  • Human resource management
  • Procedural justice
  • Ethics of care
  • Performance tracking
  • Occupational hazards
  • Falsifying records
  • Institutional culture
  • Unarticulated understanding
  1. Explain in the context of HMSI case how better wages and perquisites alone cannot suppress forever, the workers’ demands for the exercise of their legitimate rights.
  2. Discuss briefly the HMSI case and the reasons for the failure of the strategy adopted by the management to contain the workers’ agitation to secure their rights.

Kuriakose, M., “HMSI Case Analysis,” VISION—The Journal of Business Perspective (Vol. 9, No. 4, October-December 2005): 84–85.

Rao, E. M., “Case Analysis,” VISION—The Journal of Business Perspective (Vol. 9, No. 4, October-December 2005): 87–88.

Sengupta, A. K., “Case Analysis,” VISION—The Journal of Business Perspective (Vol. 9, No. 4, October-December 2005): 90–91.

Varkkey, B., “Case Analysis,” VISION—The Journal of Business Perspective (Vol. 9, No. 4, October-December 2005): 85–87.


Rourkela Steel Plant is an integrated steel plant located in the state of Orissa with an employee strength of around 24,000 and a production capacity of 1.67 million tonnes of saleable steel per year. Started in the year 1959, the plant is a unit of Steel Authority of India Limited (SAIL), a public sector holding company consisting of seven manufacturing plants contributing to the nation a total of 12 million tonnes of steel and having a turnover of INR 19 billion per annum. The company has a country-wide marketing network, a cluster of ore mines providing the raw materials, a Research and Development Centre and a Management Development Centre, besides the Training and Development Centres operating in each of the plants. Rourkela Steel Plant is a major producer of a diversified range of sophisticated steel products such as plates, coils, sheets, pipes, etc. The plant concentrates its efforts always on giving its best output through cost-effective and quality-centric processes. A positive work culture prevails in the plant and a close people-orientation is evident in the various managerial initiatives taken from time to time for effective performance of the plant.

During the 1990s, Rourkela Steel Plant incurred heavy losses every year due to various factors such as market slump, stiff competition from other steel producers in the market, high input cost, interest burden on the investments made for modernization of the plant and other factors. However, since 2001, the dynamic CEO of the plant launched a series of initiatives for involving people in a turnaround drive. The major initiative was focused on regular communication exercises on the priorities of the plant’s performance, involving a direct interaction of the CEO with grass-root employees, batch by batch, covering the entire workforce. Building upon the motivating climate created through the involvement of employees in these mass-scale communication exercises, the top management further launched specific improvement-oriented interventions which gave results leading to the company’s revival within a period of two years.


One major initiative taken at Rourkela Steel Plant against this backdrop was the launching of a plant-wide intervention for a unique Quality Improvement Process through active participation of employees in building a culture of continuous improvement. Keeping in view the importance of quality as a vital success factor for winning competitive advantage, the plant had already adopted the Quality Assurance System under ISO 9001 Certification. However, in the wake of the turnaround initiatives, the plant identified the need for this new initiative of Quality Improvement Process for bringing about core changes in the work culture and sustaining quality improvements in all the productivity-related areas of performance.


The plant associated with a consultant organization reputed for its specialization in quality management and having a track record of serving its client organizations in initiatives for achieving culture change, reducing cost, improving business process and building strategic management systems. The objectives for the intervention were formulated keeping the organizational needs in view and communicated across the organization. The priorities to be addressed were to create a common language and understanding of quality in the company, to identify areas of quality stages, and to bring all improvements under one common organization-wide project by involving people as quality improvement teams working on various micro-level improvements.

Training was the first step initiated to ensure an effective implementation process. Since ownership of the initiative by top leadership was essential for achieving the objectives, a special programme was organized for the CEO and the senior executives heading the different functions. A series of training programmes on the Quality Improvement Process was also organized for the key managers, supervisors and employees working in the areas identified for improvement. The basics of the envisioned Quality Improvement Process were explained in the programmes. It was emphasized that people should demonstrate commitment to the achievement of quality efficiency, learn to work as effective teams, and exhibit a zeal for innovation and improvement. The inputs were focused on identifying the areas of quality deviations, calculating the losses due to deviations, selecting projects for improvements to arrest the loss, constituting the project teams and methodology of implementation. The programmes were conducted by a faculty team from the consultant company. In addition, managers from the different departments were selected and trained as trainers who in turn conducted training on Quality Improvement Process for employees of their respective areas.

These training efforts enabled the human resource preparedness for the intervention undertaken by the organization. The employees got acquainted with the concepts of quality as needed for the strategic initiatives and learnt how to identify the elements of Quality Improvement Process, develop plans for quality improvements, relate their responsibilities to the plans and participate in the process of implementation effectively. For building a quality culture, inculcating the right beliefs in the commitment layers on the minds of employees is essential. The training facilitated this process by emphasizing that quality is the responsibility of everyone in the organization and that for successful implementation of Quality Improvement Process, a sense of commitment should be demonstrated through individual and team actions for quality improvements. The training further helped in building necessary competencies required for the participants in working as quality improvement teams, identifying quality-related problems, exploring solutions/improvements and implementing these for concrete results in the areas of productivity and profitability.

The top management appreciated the need for monitoring by suitably structured internal committees as a prerequisite for ensuring effective implementation. A three-tier monitoring set-up was provided by constituting the following:

  • Quality improvement teams in the different work areas;
  • Committee at the level of the Works Head; and
  • Apex Steering Committee at the CEO’s level.

The training activities were carried out by the HRD Centre of the Plant and the functioning of the teams/committees was coordinated by the Total Quality Management department. The momentum of day-to-day implementation at the workplace was kept up by the continuous support and guidance of the line managers and heads of departments.

In each of the departments, the quality improvement teams included employees from production, maintenance and services sections. The heads of department guided and supported the teams. The teams met every week and deliberated on the specific issues/problems causing high price of quality non-conformance. Based on the solutions identified through the discussions, the teams launched quality improvement projects in the problem areas of high non-conformance cost. The projects were aimed at achieving tangible productivity gains on various fronts such as the techno-economic parameters related to a steel plant (e.g., improving yield of output, reducing demurrage incurred in transit of materials within the plant through railway wagons, reducing consumption of power, steam, gas and energy resource utilized in the plant activities), quality norms of process and output (e.g., reducing diversions and down-gradations in respect of products such as coils and sheets) and equipment health/upkeep (e.g., proactive maintenance modifications for reducing downtime of machines). The quality improvement teams took the suggestions of the grass-root employees connected with the area of project and involved them in the process of implementation.

The committee chaired by the Works Head along with the senior zonal-level in-charges as members met every fortnight and reviewed the performance of the departmental teams. The committee discharged the responsibilities of supporting the teams with necessary resources and cross-functional assistance for implementation of the projects, suggesting priority areas for new projects and recognizing the performance of successful team projects.

The Apex Level Steering Committee headed by the CEO along with the functional executive directors as members, provided overall direction to the organization-wide initiative and undertook macro-level assessment of activities and results. The committee suggested the roadmap for the Quality Improvement Process and key improvement parameters for measuring the progress of the Process. It reviewed progress of the process deployment in the organization through the quality improvement projects, identified roadblocks and extended support to the teams, and monitored return on investment in the whole process. The committee met every month, devised strategies for cascading the quality culture widely across the company and gave directions for focusing improvement efforts in key areas such as increasing capacity utilization, reducing cost of production, improving maintenance systems and practices, improving housekeeping and quality of work-life, enhancing customer satisfaction, and addressing further scope areas for reducing cost of quality non-conformance.


The efforts of the employees were suitably recognized through group awards for the successful projects. The achievements were highlighted in the house journal. The steering committee provided a motivating platform for the quality improvement teams to make presentations on their successful projects before the CEO and senior executives.

An illustration of a specific improvement project can drive home the dimensions of this intervention. In the captive power plant of the company, the diversion of high-pressure steam generated as energy resource was high and resulted in a heavy loss to the tune of INR 11.6 million per year. The quality improvement team of the department took up the project of reducing diversion of high-pressure steam, identified the root causes (e.g., coal jamming, leakage of boilers etc.), explored and implemented the corrective actions/modifications in the equipment concerned. This improvement brought down the steam diversion to almost nil.

In another instance, the team at the steel producing shop identified that the frequent tripping of industrial fans was causing considerable production delay and diagnosed the root causes such as dust deposits causing high vibrations in fans, poor quality flux material used as input adding to the dust overload, erosion and corrosion of fans. The project by the team enabled execution of necessary corrective actions such as regular cleaning, using improved quality flux and reducing its retention in bunkers to avoid dust accumulation. This improvement initiative had a direct, conspicuous impact on the reduction of production delay on account of fan tripping.

The success of the various projects triggered off a series of more initiatives in new areas and simultaneously training efforts were continued for involving more people in this improvement culture. Quality culture gained momentum and challenges were accepted to pursue improvements with a high degree of motivation. The very activity of getting involved in accomplishing improvements was itself a developmental measure. The top leadership was keen on making it a people-wide movement.

Customer-orientation was inbuilt into the systems and practices of the Quality Improvement Process. The priority of achieving zero-defect in every process/product/service was uppermost in the minds of everyone. Only for the purpose of initial facilitation, was external assistance taken from the consultant. During the course of the intervention, the project teams developed self-reliance, and the process was maintained by internally available expertise and strength built through the training/developmental initiatives and onside experiences in the execution of projects.

The results have reinforced that people involvement in the challenges targeted towards specific improvements can make a big difference in any organization. This whole experiment was taken up not as an isolated initiative but as a part of the core change interventions launched by the top leadership to achieve turnaround of the company in a systematic manner. This integration of the quality culture with the organizational performance was a decisive factor for leading the intervention towards long-term results. People in the process developed a sense of pride that they had a role in making their organization a better place to work in by their improvements.

  • Integrated steel plant
  • Holding company
  • Cluster of ore mines
  • Quality-centric-positive work culture
  • Market slump
  • Grass root employees’
  • Plant-wide interventions
  • Turnaround initiatives
  • Culture change
  • Quality improvement process
  • Strategic management systems
  • Quality deviations
  • Inculcating the right beliefs
  • Quality nonconformance
  • Quality flux
  • Initial facilitation
  1. Illustrate with suitable examples how the HR strategy of the judicious involvement of workers in the turnaround of Rourkela Steel Plant worked wonders. Do you think this kind of strategy can be replicated in the cases of other loss making public sector enterprises?





The author thankfully acknowledges the inputs provided by Mary Rajesekaran for writing this chapter.

The author is indebted to Prof. Pilavendran, former executive of Rourkela Steel Plant, for permission to reproduce this case study.