The role they play
This will not happen by serendipity. People in the organization have to be committed to it. This is where the human resources (HR) function steps in to create an internal and external behaviour framework, which aligns employees with an organization’s overall strategy, vision and values, while also ensuring human capital is treated fairly and in compliance with the law. In performing to this expectation, HR becomes a torchbearer for corporate governance.
Additionally, companies with strong corporate governance become talent magnets, attracting and retaining good people. It would, therefore, be apt to say that corporate governance and HR augment each other and their collaboration is critical to business success.
In an established corporation, HR performs its role in fostering corporate governance through four key elements. Visualize a pyramid with four building blocks. At the foundation are the values, human resource policies, organizational structures and performance frameworks that HR enshrines for the organization.
Overlaying this is the communication system that carries the above to all corners of the organization. But articulation alone is not enough; these frameworks need to be lived and practised and that is determined by the culture. And finally, they need reinforcement by the leadership, both by example and by walking the talk.
Policies: The guardrails
Organizational intent in HR management is epitomized by its values and people policies, organization structures and performance frameworks. They are the bedrock on which organization work practices rest, conflicts of interest are managed and customer orientation reinforced. They serve as checks for potential misconduct.
Corporate governance demands that HR ensures that its workforce policies conform not just to laws of the land where the corporation is headquartered but are also aligned to the applicable laws of each land where the corporation operates. At every stage of the employee life cycle, sound governance principles need to operate.
Recruitment on merit, not sifarish (influence), clearly outlining elements of compensation without skipping the “fine print" (variable pay-out ratios are a good example), clear job descriptions—all these are based on first principles of corporate governance.
On the development dimension, it is HR that is tasked with grooming talent and building a cadre of ethical leaders as well as training employees not just on technical and behavioural dimensions, but also on environmental, regulatory and diversity issues.
While many of the policies have their roots in statutory obligations, several are not legally necessary but are clearly in the spirit of good governance. Most organizations, for example, have gone beyond the legally mandated prevention of sexual harassment guidelines to set down anti-bullying guidelines. These are in the realm of good governance because they promote fair and ethical behaviour. It is in ensuring that these guardrails are in place that HR serves a strong role in corporate governance.
Black and white
Policies may be strategized, designed and documented but to build a transparent and accountable organization, they need to be disseminated. Internal communication, whether face to face, digital, published or gamified, is squarely an HR mandate. And it is through robust two-way communication that HR institutionalizes the intent enshrined in policies.
For new hires, orientation programmes are powerful communication tools to impart company policies and code of conduct. Setting the right expectation at the start of employment is a key tenet of good corporate governance. A well-written code of conduct, solid exemplars that demonstrate core values in action, and articulation of the organizational purpose by the CEO are great ways to educate and empower employees about what is expected of them.
For policies and values to truly take root, they need a fertile culture. Culture is that quintessential personality that employees associate with their organization. It is a nuanced and abstract concept, often revealing itself in the manner in which employees interact with each other and with business partners. Jon Katzenbach, a leading practitioner of organizational strategies, has described culture as “an emotional energizer". Equally, toxic cultures can be crippling. In his book Bad Blood, John Carreyrou reports a toxic culture, built on fear, secrecy and paranoia in Theranos, the Silicon Valley startup that failed.
The impact of organization culture on corporate governance is direct. Strong people processes and systems can encourage positive behaviour that ultimately leads to an open, fair and meritocratic culture.
There are other questions to keep in mind. Is the culture inclusive? Does it encourage the employee to speak up, to call out a perceived wrong, to voice a suggestion? Is there trust within and across teams? In these times of multi-disciplinary teams, this is especially critical.
Here again, HR has a strong role to play. Hiring employees with deep domain experience and breadth of knowledge to appreciate the strengths of other disciplines is critical.
There are no templates for creating strong organizational DNA. Each organization has to forge its own path. But the role of culture in good governance cannot be overemphasized.
Cues from the corner office
None of the other building blocks matter if the C-Suite and the board doesn’t walk the talk. Is there diversity at the top board levels? However robust the diversity initiatives are down the line, if the leaders are not seen to embrace it, they will have no teeth. Are the same yardsticks for performance and non-performance applicable at these levels? What about misconduct? Does it get brushed under the carpet or bear the same lens of scrutiny? Are compensation levels fair and not ostentatiously high? Are succession pipelines strong and transition plans robust?
We have seen the negative impact of weak corporate governance in the recent corporate meltdowns. Corporates need to look at the greater good and be accountable for their actions. If you follow the evolution of any organization, the basic tenets of good corporate governance are set in place by the leaders.
For corporate governance to be a living entity, it has to start from the top and work its way down to the policies. The credo and beliefs that are demonstrated by the leaders trickle down to all management levels, and set the culture that is then communicated and institutionalized for scale by the policies, structures and frameworks. This is especially true for new organizations, where values and culture are founder-led.
Traditionally, corporate governance has had a financial/investor overhang to it. However, as organizations evolve and governance matures, the role of employees and leadership in walking the talk and practising ethical behaviours has become strongly apparent.
Corporate governance is not a coat that can be just picked off the shelf and donned. It has to be lived. And HR has a big role in ensuring that this spirit of corporate governance is in the DNA of the organization.
Unless the protagonists in an organization stand by the tenets of good corporate governance and unless they play both in letter and in spirit, it will remain a passive framework. What breathes life into corporate governance is the way the actors behave and the way the stage is set. And the guardian or custodian of this play has to be the HR.Hema Ravichandar is a strategic human resources consultant. She serves as an independent director and advisory board member for several organizations.