The Organizational Challenge: Independent Contractors
September 30, 2009

Table of Contents

Introduction……………………………………………………………………. 3
Background……………………………………………………………………. .4
Analysis………………………………………………………………………….6
Conclusion……………………………………………………………………….8
References……………………………………………………………………….9

Introduction “Culture” has become a common way of thinking about and describing an organization’s internal world--a way of differentiating one organization’s “personality” from another (Trevino, P-256)). Employees are brought into the organization’s culture through a process called socialization. Through socialization, employees are taught the ropes. Socialization can take place through formal training or mentoring, or through more informal transmission of norms by peers and managers. When effectively socialized, employees behave in ways that are consistent with cultural expectations.
Organizational culture is created and maintained through a multifaceted of formal and informal organizational systems. Formally, organizational structure, selection systems, orientation and training programs, rules and policies, and performance management processes all contribute to culture creation and management. Informally, the culture’s norms of daily behavior keep the culture alive and indicate to both insiders and outsiders whether the formal systems represent fact or façade. Culture defines us and reflects the corporate public image. Ethics is an integral part of that organization’s overall culture.
Kinicki’s Organization Behavior (OB) 8th Edition states OB is interdisciplinary field dedicated to better understanding and managing people at work…..Three basic levels of analysis in OB are individual, group, and organization,” (Kinicki, P5). This paper analyzes cultural challenges faced by an organization that hires ICs versus employees through the levels in OB: ICs=individual, Special Forces=Group and Xe=Organization. First, we will review the description of ICs while providing an explanation why businesses prefer to use ICs versus employees. Then we will provide a brief summary on the history of a private company called Xe, formally called Blackwater USA, who hired ICs to perform armed security for the Department of State in Iraq. Next, we will examine cultural problems that exist within a company like Xe. Before concluding, we will discuss how organizations might take a cultural change approach to improve their organization’s behavior.

Background
According to the Counsel on Accreditation (COA), an Independent Contractor (IC) is an employed individual who contracts with a program or organization to do a piece of work according to his/her own methods and is subject to an employer’s control only as to end product or final result of the work, not as to the means whereby it is to be accomplished (COA).
A business can pay an IC to accomplish only a specific task, allowing the business to get the specialized expertise for a short period -- without having to pay for the training. “The business enjoys mainly profit-related advantages by hiring an IC instead of an employee. For one thing, an employer need not provide an IC with vacation time, pension, insurance (less DBA overseas), or other costly benefits. Management costs that ordinarily go toward training and overseeing large numbers of employees decrease when ICs do the work. Some say that because ICs benefit directly from their hard work, the quality of their work may be higher than it is for full-time employees who might be less motivated. And by hiring ICs, an employer enjoys the greater ease and flexibility to expand and contract the workforce as demand rises and falls,” (Farfax).
“Without a professional IC agreement, a company may be opened up to legal and tax liabilities that they probably had not planned on,” (Independent). “You want to make sure you are protecting all copyrights, patents, trade secrets, and other intellectual property arising from the work performed under the agreement.” The agreement also includes: * Duties of the independent contractor * Compensation and payment details * Contractor agrees not to disclose information about client * Contractor will be responsible for own taxes * Contractor possesses the skill to complete the work properly * Contractor agrees to be responsible for their own expenses * Non-solicitation of client's customers * Assignment of products or inventions created by contractor * Time deadline to complete work * Confidentiality * Contractor's warranties
ICs are called by a variety of names -- freelancers, consultants, the self-employed, entrepreneurs, or business owners.
The use of ICs in the growth of privatization of government operations has raised a number of concerns about compliance and accountability. The below concerns (not necessary verified facts) are three out of 20 compiled by No Private Armies’ “Fact Sheet on Private Military Firms.” These same similar concerns are voiced by many within the Internet and books. Although just as many positive comments have been heard through those same means, this paper focuses on “potential” cultural problems hiring ICs. * Private Military Firms (PMFs) are private businesses who recruit and train individuals, known as private military security contractors, in the techniques of arms and armaments, both for foreign wars and domestic policing. Such a company trains its contractors to use a wide range of weapons from pistols to rocket launchers. They also teach techniques of attack, capture, and interrogation. These companies maintain databases of contractors that can be assembled at a moment's notice, like a small army. For example Blackwater Worldwide boasts their database is 21,000.contractors. These contractors are then deployed on assignments for governments and for corporations. * The privatized military industry is a reality in the 21st century. This opens a series of troubling questions for democracy, for states, for ethics, for management, for law, for human rights, and for national and international security. * PMF comprise the one remaining industry whose behavior is dictated not by the rule of law, but by simple economics. (No Private Armies)
Xe, a private owned company founded by CEO Erik Prince in 1997 offers a wide array of business divisions and subsidiaries. Xe’s original core function and the company’s strength today lie in their military and law enforcement training—they were doing this long before Department of State (DOS) requested security teams. Xe, one of three firms hired by DOS in Iraq has courted much controversy. Per the requisite skills and experience determined by the contract(s) Statement of Work or Work Performance Statement, Xe deploys teams of ICs compromised of military veterans and/or law enforcement professionals in support of their commercial and government contracts.
Xe first appeared on national TV March 31, 2004, when Iraqi insurgents in Fallujah attacked a convoy containing four American ICs who were attacked, killed and their bodies were hung from a bridge crossing. Their most recent controversy happened on September 16, 2007, when Xe ICs opened fire in Nisoor Square, Baghdad, killing 17 civilians.
The lawsuit filed by the estate of Sabah Salman Hassonn, makes claim the CEO and founder of Xe is fostering a corporate culture of lawlessness and encourages contractors to act in the company’s financial interests at the expense of innocent human life,” (US District) .
Analysis
As mentioned earlier, an organizations culture can be comprised of: norms, values, behavior patterns, rituals, customs, traditions, habits, values, skills, technology, beliefs, and religious, social, and political behaviors of a group of people. When a company’s control over an IC is limited to the Statement of Work on an awarded commercial or government Contract, the organization’s socialization process become ineffective. The OB of that group of ICs will in turn cause problems and conflict to the Organizations Culture. We will examine possible results on a few of the potential problems discussed below
According to the Legal Dictionary, the definitions of an IC is “A person who contracts to do work for another person according to his or her own processes and methods; the contractor is not subject to another's control except for what is specified in a mutually binding agreement for a specific job, (Farfax). Although not protected by law to the extent of an employee, an IC has far greater control over elements such as work hours and work methods. Moreover, although the other contracting party retains control over the finished work product, an IC has exclusive control over the actual work process. Decisions such as whether to work for one person or several, whether to work a little or a lot, whether to accept or reject an undesirable work project, and how much money to charge are made by the independent contractor.
Executive leaders create the company culture and communicate those “norms” through many means and actions including award for performance and accountable for behavior. Award and accountability “normally’ contributes to a positive culture for employees. Practices of accountability are different for an IC and employee. When an IC has exhibit unethical behavior, it’s a violation of their contract agreement. The business can terminate the IC’s contract at any time or they can negotiate disciplinary action with the IC, i.e. fine them in lieu of termination, for minor violations although termination is preferred. The problem is, with ICs not socialized internally into the company, they have “no buy in” to behave within the company’s norms. Yet the behavior of ICs can negative reflect on the employees, company and public image.
Once employees are on board, many organizations guide employee’s behavior through formal organizational value statements, mission statements, policies, standard codes of behavior and ethical conduct, standard operating procedures, etc. As short term contractors, there is no return of investment to provide informal/ formal or additional training outside the contract, mentoring, goal setting, etc. They’re hired for their end product and if any training is provided, it’s stated per the awarded contract.
No matter how well intentioned standardized ethics programs are, cookie-cutter efforts are likely to be ineffective because they tend to be superficial, leaving deeper organizational systems unanalyzed and untouched (Trevino) Gary Jackson, the president of Blackwater stated “All of Blackwater’s deploying professionals, both US and third country nationals, undergo extensive training in core values, leadership, and human rights before they deploy. Each of them is issued a copy of the UN’s Universal Declaration of Human Rights in their native language to carry with them and remind them of their commitment to legal, moral, and ethical standards, (Hillhouse).” Could this be an example of well intended “cookie cutter” efforts made less effective without further analysis of socialization and the IC?
Norms are standards of behavior that are accepted as appropriate by members of a group. They exert a powerful influence on individual behavior in organizations and they can serve to support ethical or unethical conduct. To support the scope of work with competitive prices, ICs allow a company such as Xe to hire “elite” specialized expertise for a short period -- without having to pay for training. To find the “elite” IC with experience to operate (provide services) in high risk combatant areas, they hire veterans with Special Forces experience, SEALS, Green Beret, and PJs. The culture of Special Forces is built from years of extensive, specialized training, experience and team work and defines their behavior norms. When they provide their capability and courage in dangerous combatant areas, whether in active military status or as an IC, their behavior norms will remain the same. Should their behavior norms be the corporate “personality?” If you base your decision off the public controversy, probably not. Unfortunately, Xe’s bad culture image may result from actions of a couple of bad apples and not this group’s norm.
When working in a U.S. Central Command theater of operation, an IC authorized to carry a weapon for defense and/or protection, the Standards of Conduct is directed by the Military Commanders Rules of Engagement/Rules for the Use of Force. Can those standards co-exist with a Companies “Code of Business Ethics and Business Conduct?”
Leaders can help to maintain the current culture, or they can change it. Culture change engages changing people’s minds and behavior. A leader can articulate a vision; develop a strategic plan, pay attention to, measure, and control activities, by making critical policy decisions; by recruiting and hiring personnel who fit their vision of the organization.
Conclusion
In summary, we can change the way we treat a worker to achieve the end result we are seeking. These tools cannot be applied for IC. ICs workers will come and go, but their impact on a cultural image is long term.
Endeavors for companies such as Xe, to change their corporate image must first analysis the culture, deeper organizational problems (layers), restructure their socialization processes, and ultimately strategize a long term plan with goals and the actions to change the culture.

References

Counsel of Accreditation (COA) Glossary. Retrieved September 28, 2009 from http://www.coaafterschool.org/glossary.php#gi Farlex. The Free Legal Dictionary. Retrieved September 28, 2009 from http://legal-dictionary.thefreedictionary.com/independent+contractor.
Forbes. Pros and Cons of Hiring Independent Contractors. Retrieved September 28, 2009 from http://www.forbes.com/2006/10/10/contractor-IRS-union-ent-law-cx_nl_1011nolo.html.
Hillhouse, R.J. Exclusive Interview: Blackwater USA's President Gary Jackson. April 26,2007. Retrieved September 28, 2009 from http://www.thespywhobilledme.com/the_spy_who_billed_me/2007/04/blackwater_usa_.html Independent Contractor Agreements. Urgent Business Forms. Retrieved on September 30, 2009 from www.urgentbusinessforms.com/contractor.asp.
No Private Armies. Feb 16, 2008. Fact Sheet on Private Military Firms. Compiled by noprivatearmies.org/Clearwater Project. Retrieved on September 28, 2009 from http://noprivatearmies.org/pdfs/Fact%20Sheet%20on%20Private%20Military%20Firms.pdf
Trevino, L.K. and Nelson, K.A. Managing Business Ethics, Straight Talk About How to Do It Right, 4th Edition.
U.S. District Court for the Eastern District of Virginia. The estate of Sabah Salman Hassonn v. Erik Prince. Retrieved on September 28, 2009 from http://www.scribd.com/doc/19342109/Black-Water-Motion-in-Opposition-to-Dismissal