Contribution of HR Systems in Development of Ethical Climate at Workplace: A Case Study

Abstract

This article elucidates the relationship between HR systems and ethical climate at workplace with primary focus on the procedure adopted for development of ethical climate, using case study of an Indian power distribution company (Tata Power Delhi Distribution Limited [TPDDL]). The study categorizes TPDDL’s endeavours undertaken into two categories, explicit and implicit initiatives. Explicit ways of promoting ethics include ethics trainings, seminars on ethics, rewards and punishment policy, and mechanism of reporting ethical concerns/issues (ethics portal, whistle blower policy, IVRS, etc.). Implicit ways of creating ethical climate include HR practices, namely selective selection, training for developing interpersonal and technical skills, fair performance appraisal system and various engagement initiatives. The support and guidance of the senior management and line managers ensured successful execution of both initiatives. Results from the study suggest, over the period of time, the untiring efforts of various actors that saw the development of an ethical climate.

Keywords

Ethical climate HR systems ethics initiatives employee engagement TPDDL

Introduction

Ethical climate refers to “the shared perception of what is correct behavior and how an ethical situation should be handled in an organization” (Victor & Cullen, 1988, p. 51). It describes the employees’ perception of ethics and ethical standards as well as the related policies, practices and policies of the organizations that guide their behaviour. Ethical climate promotes the normative system for guiding the ethical decision-making and behaviour of the employees (Victor & Cullen, 1988; Vidaver-Cohen, 1998). Ethical climate has been found to inhibit dysfunctional behaviour by influencing cognitive and affective states of the employees (e.g., Martin & Cullen, 2006; Parboteeah et al., 2010; Schminke, Ambrose, & Neubaum, 2005). Researchers have confirmed that ethical climate not only promotes ethical behaviour (e.g., Deshpande & Joseph 2009) but also influences the various individual- and organizational-level work-related outcomes such as job satisfaction (e.g., Goldman & Tabak, 2010), organization commitment (e.g., Ambrose, Arnaud, & Schminke, 2008; Martin & Cullen, 2006), unethical behaviour (e.g., Birtch & Chiang, 2014) and in-role and extra-role behaviours (Leung, 2008). More and more organizations are waking up to the need to ensure an ethical climate within the workplace. Initiatives such as ethical training programmes, code of ethics and an unethical behaviour reporting mechanism are now becoming the norm with companies that wish to remain competitive. This being said, the question is how ethical climate can be developed at workplace?

Parboteeah et al. (2010) studied the role of managerial practices in establishing ethical climates and indicated that practices such as communication and empowerment influence ethical climates from a functional perspective. Studies about antecedents of ethical climate have focused on the role of leaders (e.g., Chen & Hou, 2016; Shin, 2012; Shin, Sung, Choi, & Kim, 2015; Upchurch & Ruhland, 1996; Wimbush & Shepard, 1994), and leadership provided by top management team has been found to play a critical role in establishing ethical standards (e.g., Shin, 2012; Shin et al., 2015).

Existing contributions provide an insight on how ethical climate in the organization shapes the attitude and behaviour of employees and influences various work-related outcomes. However, to our knowledge, previous studies have ignored the strategic importance of establishing an ethical climate within an organization. Interestingly, two studies have highlighted the strategic importance of ethical climate in potentially helping an organization to gain competitive advantage and sustainable growth (Manroop, 2015; Manroop, Singh, & Ezzedeen, 2014). Antecedents of ethical climate is another area where more research attention is required (Simha & Cullen, 2012), especially on how HR contributes to the development of ethical climate in the organization. Recently, a study conducted by Guerci, Radaelli, Siletti, Cirella and Shani (2015) confirmed that human resource management (HRM) practices have great potential in developing and shaping the ethical climate of the organization. We could not find many empirical studies that establish a relationship between HR practices and ethical climate, except for the study by Guerci et al. (2015). Given the dynamism of the business environment, cut-throat competition and advancement in technology that makes mimicking of best practices very easy, organizations have been compelled to explore non-traditional resources such as ethical climate (Manroop, 2015; Manroop et al., 2014) to gain and sustain growth. To the best of our knowledge, the subject, how HRM practices contribute towards development of ethical climate, which in turn helps the organization to gain sustainable growth, has not been studied extensively though there are a few exceptions (e.g., Manroop, 2015).

To answer the emerging research question, we adopted the case study method. This study aims to contribute to this emerging field of research on ethical climate by examining the influence of HR systems (HRS) on development of ethical climate. As this area is nascent—and also since our research question attempts to answer the “how” part, that is, process of influence—we employed the qualitative approach. In addition, this study also explores various other factors influencing ethical climate, especially the role of leadership. The case study of how Tata Power Delhi Distribution limited (TPDDL) developed an ethical climate after acquiring Delhi Vidyut Board (DVB, the state run electricity board) in July 2002, and achieved business turnaround.

The article is organized into four sections: Section one reviews relevant literature; section two discusses the methodology, and more specifically, the brief background of company, HR practices and initiatives undertaken to develop an ethical climate; section three includes findings; and the final section analyzes the theoretical and practical applications to implement an ethical climate.

Theoretical Background

Ethical Climate

Ethical climate theory (ECT) was first proposed by Victor and Cullen (1987, 1988) in order to understand the normative system of an organization that influences the ethical or unethical behaviour of its employees. ECT finds its root in organization climate literature (Schneider, 1983). Organization climate describes the shared perceptions of employees about various policies, practices and procedures which influence their attitude and behaviour (Reichers & Schneider, 1990; Schneider, 1975, 1983; Schneider & Reichers, 1983). This very important characteristic of the organization encompasses attitudes, feelings and behaviour emerging on day-to-day basis within the organizational context (Ismail, 2005). These feelings, attitudes and patterns in behaviour are the result of interactions, social exchanges among members and their encounters with various organizational policies, processes and procedures (Schneider et al., 2000). Hence, these experiences influence decision-making about acceptable organizational behaviour (Zohar & Luria, 2005) by reflecting “the way things are done around here” (Reichers & Schneider, 1990, p. 22).

Victor and Cullen (1988) identified nine types of ethical climates of which five types, namely instrumental, caring, independence, rules, and law and code have been popularly highlighted in existing empirical studies (Bulutlar & Oz, 2009; Martin & Cullen, 2006; Tsai & Huang, 2008). Instrumental ethical climate is related to egoism (promotion of self-interest) as ethical philosophy with individual and organization is the loci of analysis. Employees in this climate either focus on self-interest or their company’s profit even to the possible detriment of others. Caring ethical climate is related to benevolence construct, and employees make decisions keeping in mind concern for the well-being of others (friends as well as team members). This climate aims to produce a positive outcome for the large number of constituents. In independence ethical climate, employees are given the freedom to take ethical decisions based on their deeply held personal convictions. In rules ethical climate company’s rules or standards such as codes of conduct, guide the action and decision of the employees (e.g., Appelbaum, Deguire, & Lay, 2005; Martin & Cullen, 2006). Finally, law and code climate is having locus of analysis of cosmopolitan (society or external organization). In this climate, decisions are taken on the basis of external codes such as the law or professional codes of conduct.

Studies have also examined the role of leaders in establishing ethical climate in the workplace. For instance, ethical leadership has been found to be positively related to ethical climate (e.g., Chen & Hou, 2016; Mayer, Kuenzi, & Greenbaum, 2010; Schminke et al., 2005; Shin, 2012; Shin et al., 2015). And ethical leadership provided by top managers influence its development (e.g., Shin, 2012; Shin et al., 2015). Other contributions have looked at the role of enforcing ethical codes (Schwepker & Hartline, 2005), organizational empowerment and communication in establishing ethical climate (Parboteeah et al., 2010).

While most studies have either focused on the role of leadership or an organization’s form on ethical climate (e.g., Martin & Cullen, 2006; Mayer et al., 2010) little attention, with few exceptions (e.g., Guerci et al., 2015), has been paid to examine the role of HRM practices on ethical climate. Way and Johnson (2005) proposed theoretical foundations for linkages between HRM practices and organizational climate. Till date, to our knowledge, only one study has examined the relationship between HRM practices and ethical climate (Guerci et al., 2015).

Ethical Climate and Human Resource Management (HRM)

An HRS can be defined as a “set of distinct but interrelated activities, functions, and processes that are directed at attracting, developing, and maintaining a firm’s human resources” (Lado & Wilson, 1994, p. 701). Bowen and Ostroff (2004) suggested that an HRS can play an important role in developing an ethical climate that subsequently influences attitude and behaviour, and hence, employee performance. Manroop et al. (2014) highlighted the role of HRS (between selective selections, training and development programmes, performance appraisal and compensation) in development and maintenance of five types of ethical climates, namely instrumental, independent, caring, law and codes, and rule climates. HR practices work in a synergic manner within the HRS to encourage employees to promote the organization’s interest along with self-interest. Evidently, this type of HRS develops an instrumental ethical climate. Similarly, different combinations of selection, training, compensation and appraisal strategies will establish the remaining ethical climates such as caring, rule, independent, and law and codes climate (for details see Manroop et al., 2014). HRS promotes the ethical climates by both “symbolically signaling and directly communicating key organizational values and behaviors” (Mossholder, Richardson, & Settoon, 2011, pp. 35–36). HRS conveys expected behaviour at workplace and also facilitates such behaviour through different policies, or as Manroop et al. (2014) argue, through the process of articulating and reinforcing expected employee values and behaviour. Bowen and Ostroff (2004) recognized the importance of managers’ support in strengthening the consensus about expected behaviour at workplace.

The discussions above indicate the role of HRS in the development and maintenance of different types of ethical climates. Leaders/managers’ support in the process also cannot be ignored. This study attempts to answer mainly two research questions: (a) How HRS contribute to the development of ethical climate of an organization? and (b) How an ethical climate influences individual and organization level outcomes? The next section discusses the TPDDL case to answer the research questions.

Methodology

The Case Method

Our study attempts to explore the influence of HRS followed by organization on ethical climate and process of influence on various outcomes. The focus of the study, therefore, is on the “how” questions, listed above. Moreover, the case study helped to gain a deeper understanding of the very complex phenomena, like ethical climate (e.g., Dooley, 2002, p. 344; Easton, 2010, p. 119). Hence, we choose the “case method” technique to obtain answers of the research questions (cf. Yin, 2014, pp. 9–15). We are using a single case (TPDDL), and, the case has the potential of replication that makes it suitable for the study (cf. Yin, 1994, p. 38; 2003, p. 5). We have addressed the generalization (external validity) issue of our findings by relying on existing theory and literature (for example, ECT). In single case study, mapping with existing theory improves the generalization of results (cf. Thollander & Rohdin, 2011, p. 12; Yin, 2014, pp. 45f.).

By collecting data from three sources—internal documentation (financial statements, details of various ethics programmes), publically available archival records (news clippings, public reports) and 18 direct interviews with senior officials of TPDDL—we could triangulate the data. Qualitative data was analyzed as suggested by Miles and Huberman (1994). For example, we first transcribed the interviews after which coding was done independently by researchers. The results depicted the same themes.

Case Study: Tata Power Delhi Distribution Limited (TPDDL)

Background of the Company

Traditionally, across India, the power sector was under government control. Reforms initiated by the Government of Delhi (GoD) in mid-2002 allowed public private participation (PPP) in electricity distribution, whereas the generation and transmission remained under the control of the Delhi government. Following reforms, the state-owned Delhi State Electricity Board, which supplied power to entire Delhi state, was unbundled into three distribution companies, and one among the three North Delhi Power Limited (NDPL) became a joint venture (JV) between Tata Power Company Limited (51 per cent) and the Government of the National Capital Territory (NCT) of Delhi (49 per cent). The JV was later renamed TPDDL. TPDDL commenced its operation on 1 July 2002 with a customer base of around 600,000, spread across 510 sq. km in north and north-west parts of Delhi state. In addition to the Aggregate Technical and Commercial (AT&C) losses of around 53 per cent in 2002, TPDDL inherited a host of issues such as backlog of 100 thousand customer complaints and pending 20 thousand new connection requests; poor and obsolete distribution network (transformer and cable bursting was common); operational inefficiency; 5638 employees with most of them having low level of technical skills; strong and hostile trade unionism; and dilapidated office infrastructure (miserable condition of sanitation facilities, absence of drinking water facilities and no chairs and tables in offices) (Bhatnagar & Saini, 2007; Chairman Note, 2012; Saini & Bhatnagar, 2006; Singh & Apte, 2005). Confronted with many challenges, the TPDDL leadership had to align the efforts of employees inherited from the erstwhile organization DVB, with the vision-mission of TPDDL.

Reportedly, unethical practices of DVB employees, including corruption, had significantly contributed towards the commercial losses of the organization (Bhatnagar & Saini, 2007; Saini & Bhatnagar, 2006; Singh & Apte, 2005). Most employees were deeply rooted in the bureaucratic and low-performing culture that normally prevails in state-owned organizations. Senior managers also indulged in many unethical practices such as taking bribes and neglecting customer queries. Customer service was poor, given the fact that there was a backlog of more than 100 thousand customer complaints that remained unresolved. Taking bribes to respond to and settle customer grievances was the norm. Senior officials of the erstwhile DVB were unconcerned with the performance of the company since salary and perks were not performance-based, but were guaranteed regardless of the financial health of the organization. The GoD continued to infuse funds every year in the form of budgetary subsidy to ensure smooth power distribution, and so there was no profit pressure on managers. Strong employee unions (19 unions were active) existed, and they protected employees against strong actions from management, including job losses. While forming the JV a Tripartite agreement was signed between Government of Delhi, DVB and DVB Joint Action Committee (several unions) confirming continuation of service as per existing terms and conditions. Hence the new company was not in a position to retrench at will, the inefficient or the unethical employees. Indian labour legislations made employee separation difficult and a long process.

Post acquisition, the challenges faced by the management team of TPDDL were many and changing the work culture was just one. At one end, the technology upgradation team was entrusted with the task to bring operational efficiency in the distribution network and reduce power theft through installing advance metering equipment; on the other hand, the HR and ethics teams were given the responsibility to enforce the Tata Code of Conduct (TATA group which promoted TPDDL has strong ethical code) and its progressive work culture among the inherited and new employees. Given the fact that the inherited employees had a long working record with DVB, change was not easy. The challenge was to motivate the employees to follow a diametrically opposite work ethos, where unethical behaviour was not a way of life and where rewards were performance based and not guaranteed.

To wean out the non-performers, the company offered a lucrative voluntary separation scheme (VSS) in 2003, which was accepted by 1794 employees. Simultaneously, the first batch of 80 engineer trainees and 30 management trainees were hired under PARIVARTAN (Hindi word, means “change”) campaign. Given the poor financial situation of DVB, new talent hiring was almost non-existent for many years, thus pushing up the average age (to around 40 years). The new recruits were to be the change catalysts for organization. The infusion of fresh blood, experienced DVB employees, mentors from Tata Group and top management team came together to script a successful transformation story.

The transformation effort showed positive results. As on 31 March 2016, TPDDL’s profit stood at ₹23,264.59 lacs (see Figure 1) and AT&C losses were reduced to 8.88 per cent (from 53 per cent in 2002). As on the date, the company has a customer base of more than 1.51 million, a peak load of around 1764 MW (May, 2016), with operations spanning across 510 sq. km. TPDDL has shown the highest level of excellence in implementing high-tech automated systems across its entire distribution network systems.

Figure 1.

Source: Financial statements from 2002 to 2016.

The following sections discuss the various initiatives undertaken by the HR and ethics teams to develop an ethical climate in TPDDL.

Role of HR in Development of Ethical Climate at TPDDL

The HR team was battling with a two-fold problem. One, to motivate an anxious (as they were apprehensive about their past unethical actions getting surfaced) workforce inherited from DVB, and second, create tangible and intangible infrastructure to facilitate the transformation of work culture from bureaucratic- to professional-ethical culture. The HR team had to deal with issues such as mistrust, resistance to change, fear of losing power (hierarchical power), fear of being accountable for past misdeeds and anxiety about future. These factors posed a threat to the amalgamation of the newly hired young skilled employees with experienced DVB employees.

The HR team developed an effective and transparent communication system of various policies, practices and initiatives. Prior to acquisition, the HR department of DVB worked in a silo, but after JV formation, the HR function was linked to all other departments with the aim to streamline employee management in an integrated manner. This helped to work towards a common organizational goal rather than just narrow departmental goals. For example, existing employees began to get time-based promotions, which earlier used to be delayed. On being asked about the HRS of the erstwhile organization, Chief HR & Admin-Mr. Sushil Kumar Srivastava remarked:

There was complete absence of technology in managing various HR functions by erstwhile DVB. Manual attendance registers were maintained, salaries were disbursed in cash, many wrong entries were found in those registers as those registers were casually maintained. Salaries were being paid to employees whose names were missing in the register. There was no proper system to count the actual strength of the organization.

To ensure performance and ethical culture at TPDDL, the HR team initiated steps to implement the value-driven work culture that is the hallmark of all Tata group companies. These initiatives included communication and training through seminars and talks by senior officials of the group. Different interactive forums were initiated, for example, large group interactive events (LGIE), workshops, town hall meetings, joint interaction forum (JIF—working together with unions), SAMVAD (mechanism for giving suggestions for improvement) and voice of employee (VOE—to address individual employee grievances and shape their perception about company).

Chief (HR & admin.) personally conducts VOE (Voice of employee) along with his Team (HR, Administratoion & Health services) at various locations to address individual employee grievances and shape their perception about company, and its values. Through this platform, he also emphasizes on the importance of safety and ethics at workplace. He directly monitors the grievances raised by the employees in the Online Portal – HR Connect, through monthly meetings to ensure that the grievances are resolved or responded to within timelines. Moreover, Chief (HR & Admin.) ensures to be a part of the employees by being with them to celebrate their success through Reward & Recognition ceremonies. This has created a sense of trust among the employees, and developed their confidence in HR.

The HR team became the voice of the employees for the management, and opened the one-to-one communication channel to understand and address employees fears, insecurities and all queries related to job security, career progression and the transformation process. Earlier, the channels used to be contaminated by different actors, including employee unions and vested interests.

For better employee connect, the HR function was devolved to field offices, in the form of Nodal HR officers who were assigned responsibility for specific geography. In 2003, the department was again decentralized and HR functionaries were relocated to the major operational units (like distribution hubs and power plants). Fully functional HR offices were created at the district level (field hub), with the mandate to address employees’ concerns and needs and streamline all HR processes, including attendance management and benefit administration. The performance of the Nodal HR officers (districts) were monitored centrally at the corporate level. The Nodal HR officers worked towards the development of healthy, transparent and ethical work culture. Commenting on their role a senior executive said:

Introduction of Nodal HR officers made it possible for the employees to directly raise their issues, problems and concerns to the HR. Nodal HR officers were located in field offices and they closely observe the work culture, any discrepancies noticed are escalated. Employees also feel free to share their feedback about various policies, practices with them. The Nodal HR directly reports to Head Office. They also manage all employees’ welfare matters and actively participate in ethics related activities.

Another senior official remarked on the role of HR function in building ethical work culture:

From induction program onwards, the HR team actively interacts with the new employees and motivates them to raise their concerns fearlessly. The HR practices in TPDDL are very progressive, fair and transparent. Compensation packages are the best in the industry. If there are any grievances, one can directly approach the nodal officer or use the digital platform, HR Connect.

Most of the inherited employees were in the non-executive cadre (blue collared workmen) with low level of formal education and technical skills. In August 2002, TPDDL established a captive training centre to conduct skill upgradation training programmes for such employees. In January 2005, a full-fledged training centre (CENPEID: Centre for Power Efficiency in Distribution) was established to impart custom training to meet the organization’s needs. Adequate incentive plans were implemented to motivate employees to improve their performance. Even inherited employees (whose service conditions were governed by the Fundamental Rule Supplementary Rule [FRSR]) were offered incentives over and above those recommended by the government. Pre acquisition office infrastructure including sitting arrangements for staff and customers, sanitation facilities etc. was poor and after the acquisition good office infrastructure was developed by TPDDL. A respondent recalled:

Sanitation facility was in poor condition. There was no proper drainage system in washrooms and they smelled like hell. People has to cover their noses to use the office toilets.

Figure 2.

Source: Company documents.

In addition to the technical trainings, ethics trainings were also provided to instil the Tata groups’ values. In subsequent years, many related policies such as gift policy, whistle-blowing policy, sexual harassment policy and vigil mechanism policy were implemented to eliminate unethical practices at workplace.

A mentoring process was introduced to strengthen culture building. In addition, newly recruited employees were acquainted with the organization’s value system and elements of work culture through the buddy system, where existing employees helped them socialize and learn Tata values.

TPDDL not only focused on the development of permanent employees but also worked towards protecting the interest of the outsourced employees (termed BA: business associates) by creating a business associate and legal cell to dedicatedly monitor BA cadre employees and ensure statutory compliance by service provider. BA employees were also given training on safety, ethics and soft skills. Their feedback was collected in the form of employee satisfaction and engagement surveys. This feedback became inputs for the improvement of their welfare-related policies.

The present CEO & MD, Mr. Praveer Sinha, who is also the Principal Ethics Officer for Tata Power DDL has laid a special focus on inculcating an ethical and performance driven culture in the company. Under the mentorship of CEO & MD, efforts have been taken towards creating a sense of belongingness towards the organization amongst employees. A number of initiatives such as Employment opportunity for Employee wards and spouse, Social security schemes, Wedding Gifts, involvement of family members in Reward & Recognition Ceremonies etc. have been put in place towards establishing an emotional connect of employees with the organization. CEO & MD has been instrumental in promoting gender diversity at workplace and equal opportunities to the women employees by posting them in challenging roles and assignments. Efforts are put in to support the women employees during the critical stages of their life through extended Maternity Benefit, Child Adoption leaves, Tie-ups with creches, option for “break in service” post maternity, and re-orientation programs on joining back.

The Senior Management feels strongly towards development of our employees, and has therefore, laid an emphasis on their learning & development through external development programs, high value trainings, higher education opportunities and many other initiatives. Further, the CEO&MD has been a driving force in promoting Innovation in the organization through the Innovation Council and other platforms, which has encouraged our employees to actively participate in new innovations and initiatives. The employees are also encouraged to contribute in community service through our Corporate Social Responsibility Group, which is now called the Social Innovation Group.

With a view to implement value driven work culture and employee commitment towards the organization to, the CEO&MD and the other Senior Management Members take out time for participating in various Organization wide events such as ethics week celebration, safety week celebration, various CSR activities like visiting and opening of VT centers. They engage with the employees and their families through the annual Employee Mela “Ullas” and events like Bachpan Gully and Humrahi for communities and consumers in Tata Power area.

Constant and consistent efforts of maintaining open and transparent two-way communication culture, promotion of ethics and values, and employee-friendly HR practices helped to overcome problems that were inherited by the acquisition of DVB.

Findings and Discussion

Efforts undertaken by TPDDL to develop ethical climate can be categorized into two groups: one explicit and second, implicit efforts. The following section explains both (see Figure 3).

Figure 3.

Source: Developed by authors.

Explicit Ways of Promoting Ethics: Contribution of Ethics Team

As said above, TPDDL’s top management team focused on building ethical culture and replicated the TATA groups’ ethical framework in the JV. The Tata Group companies share a set of core values, namely integrity, understanding, excellence, unity and responsibility, which serve as the “Bible” for the group companies. These core values were transmitted and reinforced in the inherited employees, through initiatives like training and constant communication, and behaviours were also linked to the performance management system.

Communicating Ethical Standards

Communication played a very important role in creating awareness about ethics and ethical standards expected by the company. After the acquisition of DVB, top leaders of TPDDL and/or Tata Group would communicate through various channels about the company’s values, expected conduct and seriousness for ethics. The senior leadership team acted as a role model in exhibiting the ethical behaviour they expected from employees. Multiple onsite awareness sessions were conducted by senior managers to promote ethical conduct and acquaint the inherited and also newly hired employees about various elements of the Tata work culture and ethical codes. One of the senior officials from the first engineer trainee batch cited:

Mr. Anil Sardana, the then CEO (NDPL) and current MD—Tata Power met our batch during induction program and he said you all have been selected based on your merit. I see you all as “change agents.” There are only three ways of cancellation of your employment, one, you resign voluntarily, second, unfortunately you die, and third, you are found guilty of unethical behavior. There is no other way to separate you from TPDDL.

Through communication, the HR team and many senior Tata Group employees attempted to instil confidence and trust among both groups of employees. One senior official recalled how the HR team worked on communication:

The HR team used to visit zones for ethics sessions to create ethics awareness among the employees. Tata Group employees would visit the field and share their experiences, through stories. These small stories developed trust between employees and organization. The trust and confidence subsequently got reflected in their performance also.

In all sessions, interactions and communication, ethics was a topic that was predominately discussed. Gradually, various ethics initiatives got institutionalized. In 2004–2005, the ethics committee was formed to create awareness at workplace and to handle ethical issues at various levels; and in same year, the Tata Code of Conduct was formally adopted. One year later, in 2005–2006, a 2-tier ethics management team was constituted consisting of top level managers. The ethics management team organized training on Tata Code of Conduct and also introduced a rewards policy for promoting ethical conduct among employees.

In 2008–2009, an Ethics Management Apex Team (EMAT) was constituted consisting of top-, middle- and senior-level ethics counsellors, headed by MD and CEO of the company who was also the Principal Ethics Officer (PEO), supported by Chief Ethics Counsellor who reported to CEO. At the next level, Locational Ethics Counsellors and a team of ethics champions were identified and mandated to promote ethical behaviour within designated offices. The ethics champions were chosen from the employees and so the other employees had no hesitation in reaching out to them.

The EMAT played a crucial role in the development of ethical culture at workplace by guiding, reviewing and monitoring ethical issues and ethical dilemmas experienced by the decision makers. JIF was another mechanism introduced to build ethical culture and promote values. Employees and customers were sensitized on ethical matters by the senior leadership team through various annual meets and contact programmes (for example, energy club, NGO meets, Ujjwala, Bhagidari programmes by the Government of Delhi, seminars/conferences, etc.). Reports on ethical concerns were regularly submitted to the board of directors.

Chief Ethics Counsellor Mr. Harish Sharma of TPDDL observed:

We inherited a very knowledgeable, but not formally educated workforce from the erstwhile organization. However, they had a different mindset as they had worked under different work culture, but we helped them in understanding and adapting TATA work culture through communication and counselling. It was very difficult to encourage them to report unethical practices fearlessly. One to one counselling resulted into the desired result and their mindset started changing. Various stories related to ethics were shared with them. Tata Power and group leaders also shared their experiences. That motivated them to adopt this ethical culture.

TPDDL leadership team was working on many fronts in parallel. Company on one side was focusing on improvement in its operation to reduce losses, and on the other side, the HR team was getting shaped. Ethics was seriously promoted using multiple methods and transparent policies. These efforts helped TPDDL in gaining and sustaining current growth. Currently, employees are more focused, working ethically, and system has won the confidence of all stakeholders that contributed towards growth.

Gradually other stakeholders such as customers, suppliers and vendors were also initiated to the ethical mandates. Initially, customers who were conditioned to the DVB’s method of functioning would offer bribes to get their queries and issues addressed or gain from reduced billing. Customers offered bribes in order to cover their theft of power. However, they soon realized that bribery would not help, and they changed behaviour (started using metered connections, instead of illegally drawing power or doctoring power meters).

The ethical value system, when implemented in practice also helped shape the external stakeholder perception about TPDDL. For instance, procurement of services/materials currently are done through open advertisement/pre-qualified suppliers as per the guidelines of Delhi Electricity Regulatory Commission and provisions of related law. TPDDL’s annual reports are audited internally, as well as from external reputed audit firms, and are available for public scrutiny. This is what a senior manager had to say on the transformation and ethical climate building:

Development of ethical culture cannot be considered as successful until other key stakeholders like supplier, vendors, customers and business associates are not actively involved in the process. We have formulated transparent policies and developed agile processes for project awarding and bid evaluation. Project approval decision status can be checked online; hence it assures the stakeholders about the transparency and fairness of the system. That further shapes their perception of the company being ethical. We always try to bring transparency and fairness in our dealings with customers, suppliers, and vendors. TPDDL’s conducts information sessions for these stakeholders to create awareness about the company’s ethical framework.

To further strengthen the ethical work culture in the organization, TPDDL introduced a week long ethics celebration programme, appropriately named as “the ethics week celebration.” The first ethics week was celebrated in 2008–2009. The week was planned to coincide with the birth anniversary (3rd March) of J. R. D Tata, the former Chairperson of Tata Group. During the week ethics counsellors offered training on ethics and competitions such as postermaking, painting, nukkad natak (street drama) and quizzes are organized to create awareness. Customers and family members of employees are also invited for the celebrations. Each locational ethics counsellor and the ethics champions joint meet employees of respective locations. In these sessions, various policies like gift policy, vigil mechanism policy and do’s and don’ts are discussed.

Rewards and Recognition for Promoting Ethical Conduct

One of the initiatives undertaken by TPDDL for promoting ethical conduct among employees is “recognizing & rewarding good ethical conducts.” Individuals are publically rewarded and recognized for displaying honest action or ethical conduct. Photograph of the employee and the details of the good ethical conduct are shared across the organization through the internal communication newsletter “Ethics Patrika” under the section “People Who Make Us Feel Proud.” The benefit of this practice is shown by the increase in number of instant rewards given out each year.

Reporting Mechanism of Unethical Practice/Behaviour

A robust ethical concern resolution process, centrally controlled by Chief Ethics Counsellor, was established very early itself. Concerns are logged and monitored through an online tracking system and resolved in a time-bound manner. If the concerns raised are found to be valid, necessary corrective actions are taken. Additional channels are also available for raising ethical concerns such as ethics drop boxes, ethics portal, joint interaction forums, Chief Ethics Counsellor & Locational Ethics Counsellors, website, integrated voice recording system (IVRS), telephone, e-mail, whistle-blower, letters to EMA team members, etc.

Implicit Ways of Promoting Ethics: Role of HR Systems in the Development of Different Types of Ethical Climate

Instrumental Ethical Climate at TPDDL

TPDDL carefully selects employees after ensuring congruence between individual and organization values. For instance, situation judgment test (conducted online by an external agency to ensure unbiased results) is conducted to assess a person’s score on integrity, among other attributes (job criteria). Also, candidates appearing for interviews are evaluated based on ethical outlook, which is an important assessment criterion. Once a candidate is selected, background verification from the previous organization is conducted. TPDDL expects its employees to promote the common interest of the organization, along with his/her own interest, These types of selection criteria are a message to the employees that they need to pursue the common interests (Ambrose, Arnaud, & Schminke, 2008).

All new joinees, at all levels, are part of structured induction process, where ethical framework is discussed extensively. At initial stage, even inherited employees went through an induction programme, where ethical norms were discussed in details. In regular course of work learning and development needs are identified based on individual and organization’s requirement of capabilities. Subsequently, employees are equipped with skills that are required to achieve individual and organization goals. Training equips employees with competencies required to exhibit desired behaviour at workplace (Evans & Davis, 2005) and further reinforces the expectation that employees have to perform well at workplace. That the organization invests money and time to build capabilities that are required confirms the existence of an instrumental ethical climate at TPDDL. Erstwhile DVB, training was rarely organized for employees, but TPDDL extensively focuses on developing its human resources.

Alignment of efforts of workforce towards the achievement of an organization goal is further achieved through the development of performance-based culture at TPDDL. Individual targets (based on balanced scorecard) are provided to reduce commercial losses and these targets are linked to the (Performance Management System). Individual incentive is provided in terms of differentiated annual increment and performance pay, both of which are linked to the employee’s performance rating in the performance cycle. Here, demonstrated ethical behaviour is also an important criterion that is measured. An existing study confirms performance-linked pay and management by objectives that align individual goals with organizational goals (Evan & Davis, 2005, p. 767). Through performance appraisal, the degree of alignment between individual and organizational interest can be monitored and appropriate rewards can be recommended to encourage desired behaviour (Jian, Lin & Lin, 2011). From the above, it can be construed that the HRS of TPDDL contributed towards development of instrumental ethical climate, which is characterized by promotion of both organizational goals and employee self-interest.

Caring Ethical Climate

In this climate, employees develop genuine interest in the welfare of others within and outside the organization (Martin & Cullen, 2006). “Understanding” and “unity” values of Tata Codes of Conduct emphasize on care, respect and humanity for colleagues, and expect employees to develop cohesive relationship with all stakeholders across the group. The HR team took adequate measures to enforce these values in the employees through the channels adopted by the company to promote an ethical climate.

Employees were also provided soft skills training to develop interpersonal skills. In order to foster group cohesiveness, group performance-linked incentives have been introduced. For instance, the increment rates for individuals are decided keeping in mind the organizational performance on certain parameters common for all such as AT&C loss reduction, safety parameters, customer engagement score, employee engagement score and score on external organizational assessments such as TBEM (Tata Business Excellence Model). Another major group incentive is the annual “AT&C-linked incentive” payout, which is directly linked to the organization’s performance on its KPI of AT&C loss reduction and on safety-related parameters. Further, to promote a team-based culture in the organization, a reward of “picnic grant” is awarded to certain teams in recognition of their exemplary performance in team projects. Therefore, the HRS encourages employees to build quality relationships with fellow members (Evans & Davis, 2005). Training in interpersonal skills (Whitener, 1997), group targets and group performance-linked incentives contributed towards the development of a caring climate (Evans & Davis, 2005) at TPDDL. Interpersonal skills help to sensitize employees towards their colleagues, which in turn facilitates the development of trust and consequently, forming quality relationships (e.g., Brown & Trevino, 2006; Whitener, 1997). Fairness and equality in allocation of group pay has been maintained by TPDDL—a step which has helped to build trust and ensure a conducive workplace environment (Bamberger & Levi, 2009).

In addition, TPDDL has initiated several measures to promote safety culture through various initiatives. A 3-tier safety management team is entrusted with the task to create awareness among employees regarding safety issues and impart adequate training to avoid accidents. Safety boards (do’s & don’ts) have been introduced in customer-intensive places in buildings. Zero accident incentive schemes are another measure undertaken by the company to motivate employees in locations to adhere to safety norms and ensure no accidents happen. Safety is linked to PMS through safety scorecards. Safety drives are conducted twice a year to avoid any mishap. The temporary employees (BA employees) are also under the ambit of the safety management programmes.

HR practices such as training in interpersonal skills, group-based incentives, team-based work design, fairness in performance appraisal and employee safety concerns are some of the factors that reflect the company’s commitment to the welfare of its employees (Chuang & Liao, 2010; Collins & Smith, 2006). Studies have revealed that conducive environment positively impacts customer service. In a caring climate, employees not only support each other but also ensure better customer service which translates into high customer satisfaction (Takeuchi, Chen, & Lepak, 2009).

Law and Codes Ethical Climate

Right from inception, TPDDL has developed and maintained transparency and fairness in all policies, procedures and practices. High importance has been given to legal/statutory compliances in different functions such as HR, safety, operations, procurement and other functions. The internal audit and legal departments work together to align all processes on the line of applicable laws. A separate legal cell for BA employees was established to ensure compliance of statutory requirements (overtime, wage rate, leaves, etc.) and safety guidelines. Series of audits, that is, safety audits, HR audits, statutory audits, and internal audits, conducted regularly help to monitor any compliance deviations. TPDDL had signed an agreement at the time of acquisition of erstwhile DVB with various employee associations and government stating full absorption of DVB employees without tempering their existing employment contract conditions. The company fulfilled all the requirements of agreement and focused on employee development rather devising ways to retrench non-performing employees or reduce head count. The above instances reflect the ethical values of the organization.

Rule Ethical Climate

Analysis of TPDDL processes suggests that rule ethical climate predominately prevails in the organization. The Tata Code of Conduct acts as a Bible for the employees of TPDDL. The senior officials of the Tata Group of companies visit and convey various core values to employees to instil Tata culture in the employees.

Employee behaviour in the organization is guided by many policies such as gift policy, vigil mechanism policy, safety policy, sexual harassment policy, grievance handling system, rewards and recognition policy, policy on outstation project assignment, whistle blower policy and many more. All decisions are taken based on the company’s rule and the Tata Code of Conduct guidelines. In addition, extensive training is imparted to employees to create awareness and promote ethical conduct at workplace. Violations and violators are dealt with swiftly and zero tolerance is applied when required, irrespective of levels and costs.

Support of Line Managers in Promoting Ethics

Over the period of time, ethical norms became institutionalized in TPDDL. Line managers played a very critical role in developing the ethical climate through the exhibition of ethical conduct and conveying the values of the company to their team members. They were the strongest link between top management and lower level employees, and hence very critical. One of the senior officials cited:

Line managers communicate the code of ethics and guide in resolving ethical dilemmas of people at the grass root levels. All policies are conveyed and implemented through line managers. Line managers are in immediate contact with their team, that is, people at the grass root level so their behavior influences the behavior of the team members. They also help in removing the fear amongst employees & encourage them to be whistle blowers. There is no fear of retaliation for raising any ethical concern. With continuous efforts of the whole management team, line managers and employees, we have replicated trust, confidence & TATA group culture at TPDDL.

Impact of Ethical Climate on Various Individual and Organization Level Outcomes

During FY 2015–2016, a total of 141 (against 86 sessions in 2014–2015) training sessions were conducted for creating ethics awareness covering 51.83 per cent TPDDL and 48.42 per cent business associate employees. Management of business ethics (MBE) survey is regularly conducted both externally and internally to measure the effectiveness of various initiatives to promote ethics, including ethical policies, various communication channels, means to raise concerns and the approachability of the counsellors. The initiatives have substantially contributed towards the creation of an ethical climate at TPDDL and manifested in increase in MBE score over time (see Figure 6).

Figure 4.

Source: Company records.

Figure 5.

Source: Customer satisfaction survey conducted annually by TPDDL.

Figure 6.

Source: Ethics survey conducted once in two years by TPDDL.

Also, reported unethical behaviours have declined over the same period. In addition, many employees have shown exemplary ethical conduct at workplace, and they have been rewarded for the same.

In the business front, the company was able to reduce AT&C losses to 8.88 per cent (see Figure 4) mainly through inhibition of unethical practices (power theft and corruption). TPDDL focused extensively on improving customer service and established dedicated customer relationship cell, handling customer queries/complaints efficiently. The customer base also increased from 0.67 million (in 2002) to 1.5 million (as on 31 March 2016), and a customer survey indicated an increase in customer satisfaction levels over time (see Figure 5).

Customers are being provided prompt and good services naturally that enhanced their satisfaction level (see Figure 5). The following feedback from few customers reflect their satisfaction level:

“It’s really very happiest moment for me as my complaint resolved within 24 hours Support like this appreciated and Thanks to Tata Power-DDL Services and especially thanks to customer care team.”

“Thank you so much for responding to our complaint of non-functioning of our street light. I am satisfied with the work.”

I have received the bill based on the meter reading and the complaint or issue is resolved. I am highly satisfied with the services provided by you and thank you for your cooperation. Keep up the good work.

First of all I thank you for providing the satisfactory services. I am satisfied with your services as whenever I wrote any complaint or want any verification from you I got satisfactory response.

Ethical climate has been found to influence both in-role and extra-role behaviour of employees (Leung, 2008), and employee engagement has positive relationship with in-role and extra-role behaviour (e.g., Demerouti, Bakker, & Gevers, 2015; Piccolo et al., 2010). In congruence with existing studies, we also found positive impact of ethical climate on employee engagement. In 2007, TPDDL began conducting an employee engagement survey once in two years to measure the engagement level of employees. Several engagement initiatives by company resulted in a 21.5 per cent increase in engagement level (see Figure 2) of employees from 2007 to 2015. High engagement can be credited as a factor behind increased productivity, which in turn positively impacts firm performance.

Implications for theory and Practice

This article explicated the linkages between HRS and the development of ethical climate in a legacy organization. Ethical climate can be considered as strategic tool to gain competitive advantage in the current dynamic business environment where replication of best practices has become simpler. Therefore, firms need to explore new resource to fetch competitive advantage. The organization culture (Barney, 1986), learning (Fiol & Lyles, 1985), routines (Nelson & Winter, 1982), entrepreneurship (Rumelt, 1987) and ethics are other resources that can yield competitive advantage to a firm. Organizations, after investing effort and resources can establish a unique ethical climate that cannot be purchased or replicated unlike physical resources (Branco & Rodrigues, 2006); hence, they possess great potential to yield competitive advantage to the firm. In this study, we found TPDDL created a very unique ethical culture at workplace that not only changed the mindset of the inherited employees from DVB but also helped the company to gain several benefits such as improvement in organization performance, customer service quality, more engaged employees and reduction in unethical conduct. Signalling theory asserts ethical values followed and promoted by the organizations that convey a message to external stakeholders about their trustworthiness, credibility and reliability (Branco & Rodrigues, 2006). Therefore, ethical climate captures the positive reaction of various stakeholders vis-à-vis its competitors, which impacts the firm’s success (Galbreath, 2005).

Findings of the study have many implications for practice. Organizations need to focus on the development of ethical climate as it helps them to attain and retain skilled workforce by providing trustworthy, fair and transparent work culture. The HRS need to incorporate the ethical dimension in their processes and procedures as they shape the perception of employees about ethical standards of the organization. Fair and transparent treatment from line managers further reinforces the organization’s values and expectations in the mind of employees. Employees tend to reciprocate the organization for providing healthy work culture through a variety of ways such as high level of commitment, performance and exhibition of extra-role behaviour at workplace. Finally, managers can be trained for displaying ethical conduct, along with structured formal system that needs to be placed to develop ethical climate at workplace.

Footnotes

Acknowledgements

Tata Power Delhi Distribution Limited (TPDDL), New Delhi facilitated the conduct of this research. We sincerely thank Mr Sushil Kumar Srivastava (Chief-HR & Admin, TPDDL) and Mr Harish Sharma (Chief Ethics Counsellor, TPDDL), who provided insights that greatly helped in developing the research paper. We would also like to express our gratitude to senior officials of TPDDL who participated in our study and shared their experiences with us. Thanks to Mr K. K. Padmanabhan, Mr Shivank Singh and Ms Sonia Arora for providing data support during the research.

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