I was asked recently to speak about how HR can make a meaningful contribution towards integrating governance into a company’s DNA. To begin, after the financial crisis, regulators and funds came up with a new bunch of new governance structures and rules that they wanted their companies to practice and adopt.
This new governance regime brought about new challenges for HR – the conscience keeper in a business. The world we operate in is entirely different to the time HR first got invited to join the management team. Today, the increased focus on compliance and governance now permeate many aspects of HR. As an example HR is expected to review all executive compensation schemes on a regular basis to ensure that they cannot be viewed as driving inappropriate behaviour. HR is also expected to report on compliance violations in order to ensure the company maintains consistently high standards of ethics. Especially when dealing with the government. Corporate culture normally permeates and influences every part of a company. Of particular importance is the role culture plays in corporate strategy and performance. Culture is also increasingly on the agenda of regulators, with some, such as those in the United Kingdom, now holding boards directly responsible for oversight of corporate culture. Other companies are under deferred prosecution agreements or corporate integrity agreements from the US. Therefore, HR needs to play a key guardianship role as well as ensuring employees are fully aware of their obligations. The reason for this is the concept that good corporate culture, grounded in good core values based on corporate governance helps to sustain business growth and attract and retain ethical employees.
Therefore, there is certainly room for HR to make a meaningful contribution towards integrating governance into the company’s DNA by shaping the values of the business. Now that the dust has settled from the corporate governance crisis of the past few years, government and business have had some time to try and address the underlying problems that often lead to corporate governance issues. Corporate governance requirements can often be satisfied when it comes to the letter of the law, but respecting the spirit of the law is a challenge for some companies. Much has been said and written about culture change since the financial crisis. For example, in Enron, analyst found a strong correlation between a failure to embrace the spirit of corporate governance and deep-seated organisational culture problems. Furthermore, it is now widely accepted that the CEO and top executive behavior, attitudes and values determine organisational culture – and no matter how many mission or value statements HR plasters on the walls, it is the top management that finally shapes the values in a business. This dimension is probably the biggest chink in an organisation’s corporate governance armour.
Corporate governance in my view is an issue that encompasses an entire organisation, but without a supportive chief executive, HR will most likely to be sidelined. As a result, HR is often the victim of a no-go cycle. Because in many businesses, corporate governance still lacks business perspective, and HR lacks the standing within the organisation to talk governance. So without that stature, HR often has trouble getting a foot in the door to discuss business challenges like corporate governance. Therefore, HR must and needs to play an important role to promote good corporate governance but to do that they should be well trained in the procedures and demonstrate the value of good corporate governance to business sustainability and for attracting and retaining talent.
Today, the current governance debate in many companies is focusing not only on the changes and upgrades that need to be made to the processes, but also on the different players who need to have a role in either driving good governance or monitoring governance within the enterprise. Therefore, within a company, focus is required from all the key functions to promote governance. However, HR can facilitate good governance within an enterprise by focusing on three main areas; firstly, HR can set and implement a framework for executive pay. Secondly, they can drive performance evaluation beyond the corporation and into the boardroom. Thirdly, they can ensure that there are good systems for succession planning. Lastly, help the enterprise to take a broader view of the relationship between long-term business success and practicing good ethics. Culture needs to become a standing agenda item for the board to make sure complacency doesn’t become an issue and that a strong culture remains a focus of management and employees. To help oversee that monitoring, a dashboard with cultural indicators from across the company is a useful tool.
(The writer is a HR thought leader)