The chief human resources officer must assume a corporate watchdog role in addition to the many other responsibilities.  This new HR role is critical to the survival of many of today’s corporations.  While human resources has recently been assigned a limited compliance and training role, the overall corporate governance effort is still unfocused, and day-to-day oversight is leaderless. 

 

SOX and HR.

Despite the widespread complaints about the additional burden, it not clear whether SOX has made any real impact on the business ethics problem.  Tales of unethical executive behavior and corporate plunder continue unabated while corporations still come apart.  Greed is rampant!

 

Even with Sarbanes-Oxley, corporate governance requires daily vigilance and constant advocacy to be effective.  On one hand, SOX deals with regulations, roles, and responsibilities.  On the other hand, corporate governance concerns executive behaviors rather than mere bureaucratic compliance.  Above all, good corporate governance depends on leadership, corporate culture, and values!  All these areas all fall within competence of human resources. 

 

Leadership Needed. 

Companies must achieve good corporate governance to manage risk effectively, and a corporate watchdog role is emerging as a critical element of an organization’s survival.  However, the governance activities must be led by a senior executive.  The chief HR officer must assume a corporate watchdog role and lead the governance efforts.   

 

Recent Scandals. 

Corporate scandals have damaged everyone’s faith in American big business and business leaders, perhaps forever.  And, no wonder!  Over the last few years, we have had a long parade of highly visible scandals such as the plundering of Tyco, Enron’s wild schemes aided and abetted by Arthur Anderson’s shredding of relevant documents, Adelphia’s bankrolling of John Rigas, and KPMG’s promotion of illegal tax shelters.  More recently, we have seen REFCO and other scandals emerge.    

 

Why Couldn’t HR Stop The Scandals?

Unfortunately, HR leaders are not on the record as speaking out against the illegal actions, or for playing an active role in avoiding the scandals at least, perhaps to our shame.  What is the story of human resources' involvement at Tyco with Dennis Kozlowsky and Mark Swartz?  Was HR leadership at Enron just ineffectual as wilder schemes were concocted?  Are human resources executives at Arthur Anderson’s HR on record as protesting the deliberate shredding of Enron-related documents?  Was Adelphia’s Chief HR Officer powerless when John Rigas treated the company as his own private piggy bank?  How should WorldCom HR executives have acted as the revered Bernie Ebbers destroyed that company?  What role did KPMG’s  human resources leadership play as partners benefited personally from promoting illegal tax shelters?  Did GE's renowned HR fail to advise against Emperor Jack’s severance package, or was the GE Board just not willing to listen?

 

Damaged Reputations

However, don’t throw stones!  Lately, some cheap shots have been taken at human resources.  Nevertheless, people in glass houses should be careful!  Firstly, other professional groups must look to their own tarnished reputations.  Sure, the recent scandals exposed some failings but it was not HR leaders that created the fraudulent schemes, or connived and lied to conceal them.  For these bad behaviors, we need to look at some of the other professions.  The CEO community still needs to take a long hard look at its own obvious failures.  How do we rein in the power of the imperial CEO?  What is the corrosive impact of the obscene CEO pay?  No executive deserves a $1.6 billion paycheck, not even $400 million! 

 

Moreover, the CFO image is damaged, perhaps forever, as the more tales of financial black magic emerge.  Now, it’s just stories of greed, malfeasance, and crooked behavior as some CFOs have concocted get-rich-quick schemes and have lined their own pockets.  Although SOX has assigned corporate governance roles to CEOs and CFO’s.  The actions of these few bad apples have damaged the reputations of all CEOs and CFOs.   

 

Special Whistleblower Protection.

To be an effective watchdog, HR needs special whistleblower protection.  High-sounding pronouncements about moral duty mean nothing when faced with paying the mortgage or college tuition.  If a human resources executive is fired by the CEO for speaking out about an ethical issue, will he or she ever get another good job?  In the circumstances, there is obviously not much chance of a good reference from the CEO, is there?  In all probability, the HR executive would be tainted in the marketplace as a whistle-blowing troublemaker, and effectively blacklisted.  Boards must create special protocols to protect HR whistle-blowers.

 

Board Access.

In summary, Boards of Directors must create a corporate watchdog role for the chief HR officer.  This new role must operate in close collaboration the Board and liaise regularly with Directors on corporate governance issues.  Human resources must be provided with adequate protection to ensure that it can act with the required “edge”.  On matters of ethics, the chief HR officer must report to the Board, and not to the CEO.

 

Of course, all business leaders must be encouraged to do the right thing.  However, human resources must take the lead in the efforts to change executive behavior throughout an organization.  HR must report on ethical issues to the Board to save the organization when these efforts fail, and be required to escalate problems to Board-level when things go wrong.