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A
number of high profile corporate failures in 2000-2003
have brought a renewed focus on the importance of good
corporate governance, bringing the topic to a broader
audience. As corporate governance issues become
increasingly important, Human Resources management
will play a pivotal role in the restoration of public
confidence in business institutions.
In
response to the Enron, WorldCom and other corporate
governance and accounting scandals, U.S. President
George Bush signed into law the Sarbanes-Oxley Act of
2002, which sets forth new corporate governance,
auditor, conflict of interest and disclosure
requirements affecting issuers, management, employees,
auditors, investment banks, boards and attorneys. This
legislation has already affected and is likely to
continue to impact further legislation, regulations
and the activities of corporations around the world
for years to come.
Examples
abound of poor decisions regarding executive and
director compensation plans. From obtaining
interest-free loans from the company, to poaching
retirement plans, to insider trading - business has
been taking a beating. The current criminal trial of
the Rigas family of Adelphia Communications for fraud
is just one example of lack of governance. It could be
argued that all board members of the company should
take responsibility for the billions of dollars in
potential damages to shareholders and employees.
Last
year, shareholders at SBC Communications presented
resolutions that required a link between executive
compensation and performance. The board of directors
blocked the resolutions. This year, an initiative is
in place to connect the two, mainly due to the
appointment of an independent board member as chairman
of the Compensation Committee. This is a direct effect
of Sarbanes-Oxley on corporate governance.
The
human resources committee is often charged with
oversight responsibility for executive and senior
management performance and pay, adequacy and
effectiveness of compensation plans, benefit plans,
stock option plans and succession planning. How well
this oversight is achieved has a large effect on the
public's perception of the company as a whole.
The
importance of this task is reflected in the increasing
inclusion of human resources management reports in
fiscal reporting. Now more than ever, analysts and the
public are looking at compensation policies and
executive benefits in a focused way.
Human
resource leaders are facing a severe challenge - how
to balance the need to protect the business and its
stakeholders while retaining senior management and
offering competitive compensation plans. By meeting
this challenge, the human resources staff can craft
the only source of sustainable competitive
advantage-an organization whose design, culture, and
people are aligned with its strategy and values. |
