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| Corporate
Governance: A better way of doing business Much of the reform efforts have focused on tightening government and industry regulations and imposing stiffer penalties for non-compliance. The growing consensus is that corporate integrity will be restored only by forcing change at the top: specifically, by enforcing stricter reporting obligations and accountability standards for directors and officers, auditors, securities analysts and legal counsel, and punishing those who knowingly commit securities violations with personal fines and prison sentences (i.e., Sarbanes-Oxley). Yet while a great deal of emphasis has been placed - and rightly so - on promoting responsible corporate leadership, far less consideration has been given to the mechanics of bringing a large, geographically dispersed organization into compliance. Multinational companies with diversified holdings around the world must meet the requirements of multiple governments and regulatory bodies, each with its own reporting criteria, forms, timetables, languages and currencies. And owing to this rapidly changing regulatory environment, employees may be committing breaches of security, confidentiality, business ethics or industry regulations without even knowing it, while following time-honoured business procedures. This puts the entire organization at risk. In today's governance-conscious climate, a plea of ignorance, even if true, is simply indefensible. Both because shareholders, customers, and business partners have become increasingly litigious after the scandals of the past few years, and also because various legal precedents have been set recently with respect to evidence discovery scope and responsibility, the potential for damage stemming from non-compliance has grown considerably. Corporate Governance
extends beyond the province of the boardroom and executive suite.
It is virtually impossible for any organization to achieve compliance
with all the standards demanded of it unless every employee has
the necessary skills, capabilities and training to undertake their
duties and tasks. This requires a significantly expanded and more
centralized role for Human Resources (HR). Shareholder
value According to a 2002 McKinsey & Company global investor survey (1), corporate governance is at the heart of investment decisions, and is put on par with financial indicators in the evaluation process. In fact, an overwhelming majority of the institutional investors polled were prepared to pay a premium for companies exhibiting high governance standards. Therefore, corporate governance is not only a legal imperative, it dramatically can impact a company's ability to secure funding, sustain stock value and safeguard its brand and corporate reputation. Furthermore, global research indicates that maximizing an organization's human capital has a direct correlation to shareholder value. Personnel Today, a leading British HR publication, recently cited a study alleging that up to 26 percent of the shareholder value of an organization is driven by key HR practices. (2) Correspondingly, the global consultancy Watson Wyatt has conducted research into the correlation between effective people management and organization success for the past four consecutive years. The latest of these global studies, published at the end of 2002, found the link "stronger than ever," and concluded, "Organizations with the best human capital management deliver significantly more shareholder value than those with poor people practices."(3) Traditionally, Human Resources was largely an administrative function, and provided little in the way of strategic counsel or human capital intelligence to business units or upper management. Reflecting its off-to-the-side status, human resources management systems (HRMS) databases typically did not link to the main corporate infrastructure, nor were personnel-led activities integrated into major business workflows, such as enterprise resource planning (ERP), customer relationship management (CRM) or supply chain management (SCM). And since personnel matters tended to be handled at the local level, employee data was fragmented across the organization. Enormous
potential The challenge of implementing a human capital management (HCM) strategy for a mid-to-large organization is managing change on both the macro-corporate and micro levels. Business conditions are dynamic and in a constant state of flux. To avoid the risk of non-compliance, it is not enough for companies to set broad ethical and compliance standards for the company as a whole. The training must reflect the compliance requirements of a particular country and/or regional governance body, such as the European Union. Furthermore, the re-education process should drill down to the individual employee's responsibility vis-à-vis the performance and documentation of set tasks. Compliance cannot be implemented in an ad hoc fashion. Those enterprises that respond piecemeal to regulations will see skyrocketing costs and remain at risk. The only way to ensure compliance is to create a long-term strategy for quickly and accurately disseminating information throughout the organization, and systematically measuring, documenting and tracking compliance on an on-going basis. Central to this effort is aligning business goals with human capital management strategies, to ensure that the corporation has the skills, competencies and training to meet its financial targets and compliance requirements. Strategic
HR With the emphasis on improving workforce skills and knowledge, the scope of human resource activities has broadened. In addition to its classic administrative functions (i.e., payroll, compensation and benefits, time and labour), HR now plays a vital, cross-functional role in gathering, analysing and disseminating workforce data and intelligence, and consulting with business groups about their current and future needs. This can take the form of assessing workforce trends, identifying knowledge and competency gaps, measuring worker output against key performance indicators (KPIs), and spotlighting existing or developing problem areas (i.e., high rates of absenteeism/staff turnover, non-compliant practices). To gain the visibility, control and efficiencies required of this greater consultative role, HR must function as one seamless operation. Today's leading e-HR enterprise solutions provide the unifying Web-based infrastructure and robust multi-language, multi-currency functionality to consolidate HR functions across geographies, time zones, and regulatory jurisdictions. With this low-cost transactional platform, companies can promulgate shared services and global HR practices, providing real-time workforce intelligence, consistent reporting standards and a dynamic training environment. While corporations have long recognized the cost-benefits and efficiencies of self-service and automated business processes (impossible without a clear HR organizational structure) - compliance now is an even greater spur. Centralized HR systems make it easier for companies to set policies and automate procedures that might otherwise be open to the risk of improper accounting and human error. These systems integrate compliance transparently into the way employees work using automatic process controls. For instance, lax procurement procedures open the possibility for collusion between purchasing agents and suppliers. By automating the process, HR can reduce significantly the cost and administrative overhead, while reducing human error (intentional or not) and guaranteeing that critical procedural steps are neither circumvented nor ignored. With Internet procurement, desktop purchasing can be tightly controlled (by role or function), using spending caps, preferred vendors and suppliers, and built-in security and authorization channels. Or take the critical area of corporate hiring. An online recruitment system enables companies to field candidates and to qualify eligibility, before setting up in-person interviews. Moreover, electronically submitted job applications for management positions can be dynamically routed to a background checking service. e-HR For example, in Great Britain, a person's corporate position and title carry legally mandated privileges and perks, known as discriminatory benefits, such as a company car or expanded health insurance. If the company has a large British subsidiary or office, automating HR to ensure governance will pay-off in terms of compliance, efficiency and employee satisfaction. Otherwise, it is best handled manually. To be clear, compliance cannot occur in an information vacuum. Therefore, it is the company's responsibility to apprise employees and external suppliers and subcontractors of their regulatory obligations, and the potential risks and liabilities of non-compliance. Education is key. In the past, new hires either were given on-the-job training by other employees or put through a formal training programme. Companies now are realizing that it is dangerous to presume that an adequate transference of knowledge and skills occurred. Does the new bookkeeper understand the ramifications of Sarbanes-Oxley? How much of two days of intensive training is retained? Was the company's code of ethics given the weight it deserves? While traditional methods of training still have a place in the workplace, compliance requires a more systematic, frequent and well-documented approach. For most organizations, the best way to regularly train and monitor the entire workforce is through Web-based training, which can be linked directly to the human resource management system. With employee information stored in one place, training can be tailored to job descriptions, skill requirements and/or compliance responsibilities. For example, self-guided Web and computer learning can be used for the dissemination of general information enterprise-wide, while costly instructor-led classroom instruction can be reserved for specialized occupational and managerial training. Indeed by 2004, research firm Gartner Group estimates more than two-thirds of Global 1000 enterprises will include e-learning as part of a formal Business to Employee (B2E) initiative. Finally, there must be a measurement of performance, so the organization can measure compliance with legislative and regulatory laws, as well as corporate policies and standards. These measurements must be accessible to the line of business managers, HR professionals and employees so individuals may monitor their own progress. Governance
across the workforce By leveraging the intellectual capital and skills of its employees, an organization can drive new efficiencies and create lasting competitive advantages. A motivated, well-trained workforce is more likely to produce quality services and products, which will engender brand loyalty and customer retention. Moreover, in today's cautious investment climate, the better run the company, the greater the funding opportunities. Corporate governance, managed across your workforce, is a sound investment all the way around. (1)
McKinsey Global Investor Opinion Survey on Corporate Governance,
2002 |
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