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Seemingly
overnight, a new area has permeated the department
listings of corporations, that of “Corporate
Governance”.
Comprising many tasks, responsibilities and
competencies that had been in, variously,
Finance, HR, Legal, and Executive departments,
among others, are now coalescing into a single entity,
Corporate Governance.
Much has
been written, discussed and debated about the reasons and
rationale regarding the metamorphosis of Corporate
Governance. By
now, we are familiar with the excesses, misdeeds and fraud
that have been uncovered at such companies as Enron,
WorldCom and Tyco. These
very public examples of corporate irresponsibility have
led to a strong reaction by government officials to
mollify an anxious and skeptical public that controls are
in place to prevent such situations from recurring.
The prime result of this reaction was the
enactment, by the US Congress, of the Sarbanes-Oxley Act
(SOX) in 2002. SOX
is clearly a reactionary response; as a former SEC
commissioner commented: “Corporate governance seems to
matter only when observed through the rear view mirror,
while peeking at a corporate wreck.”
So what
is Corporate Governance? One definition is as follows: “Corporate Governance is how
any organization chooses to govern itself so that it is
compliant within legal boundaries and ethical to its
stakeholders while attempting to carry out its objectives.”
Many elements of this definition are common to
responsibilities of HR: policies, procedures, evaluations,
compliance, training, goal-setting, etc. In short, we have had a major role in Corporate Governance
all along; now, it is being defined as a sum of its once
separated parts.
As
organizations designate a role for Corporate Governance,
more and more are (or should be) turning to their HR
executive to take charge.
For similar reasons, HR executive should be
proactively taking charge of Corporate Governance.
The rationale includes:
-
Synergies
with HR – Core HR competencies are synergistic with
governance: defining policies and procedures,
adjudications skills, compensation management,
recruitment, mediation, etc.
-
Lack
of conflict of interest – Many areas of governance,
and certainly of SOX, deal with ensuring ethical and
legal finance and accounting operations and reporting.
HR does and can provide an opportunity to have
a non-Finance oversight of those areas of compliance.
-
Ombudsman
– The new era of governance, particularly when
complying with SOX, requires an element of
“ombudsman-ship”.
Given the HR role of organizational behavior
and development and handling confidential information,
this role is ideally suited for HR.
What do
the responsibilities of Corporate Governance look like?
While they would be unique in every organization,
some common threads may be as follows:
-
Board of Directors
-
Board
Compensation – With SOX, the role of the Board is
rapidly evolving.
For the first time, a piece of legislation
mandates a particular competency (having a
“financial expert” on the Audit committee) and the
demands on Boards are increasing dramatically.
Therefore, Board compensation is a hot topic.
-
Recruitment
– A recent article published by the National
Association of Corporate Directors (NACD) reports an
increase in Board turnover.
The new responsibilities are making some Board
members actually work!
-
Board
Committees – Assisting the CEO and Chairman in
establishing and populating committees is a key role.
This involves writing charters, maintaining
schedules and minutes, matching people to roles, etc.
-
Internal
Audit (IA) – The necessity of this function has
never been higher. The relationship between
companies and their external auditors is undergoing
dramatic changes. Establishing an IA function
provides an objective internal option that helps to
ensure proper governance practices. To maintain
the independence of the IA function, having it report
to the HR executive is a viable option, one that my
company has done for several years.
-
Policies
and Procedures – Much of the meat of SOX entails
having the proper policies and procedures in place to
ensure good corporate governance. For example,
there is a “whistleblower” provision of SOX that
requires the establishment of an anonymous hotline for
employees to report concerns about accounting and
auditing practices. HR typically has had a
central role in all areas of policies and procedures.
-
Ethics
– Some organizations are going as far as appointing
a “Chief Ethics Officer”. For many smaller
organizations, this is impractical however the
responsibilities still exist such as establishing and
maintaining a Code of Conduct, properly handling
investigations, etc.
As we dig
into the notion and functioning of Corporate Governance,
the list gets longer.
The lines between HR and governance sometimes are
blurry as the overlap is often large.
The key point is that we are living in a new era of
scrutiny and legal oversight. The core competencies of a strong HR executive are
particularly well suited and needed to pick up the mantle
of Corporate Governance.
The challenges are significant and consequential.
Strong ethical leadership from HR can help lead to
the effective management of Corporate Governance.
Ross
Gibson is Vice President, Chief Administrative
Officer and Corporate Secretary of American Superconductor, a
publicly traded company located in Westborough, MA.
He is responsible for Human Resources, Facilities and
Services and all aspects of Corporate Governance including
Internal Audit. He
is a past president of the Northeast Human Resources
Association (NEHRA). Ross
can be reached at: rgibson@amsuper.com
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