Rules Can’t Ensure Ethical Behavior Executive Briefing

Corporate scandals continue despite legislation; comp consultants serving both boards and management.

By Ann Pomeroy Nov 1, 2006

HR Magazine, November 2006

Why do corporate scandals such as the recent Hewlett-Packard Co. (HP) debacle continue to come to light in the post-Enron climate of increasingly stringent government regulation? HP used “pretexting”—impersonating people to obtain information—to acquire phone records in an effort to discover who at the company had leaked confidential board of director discussions to the press.

“The heightened regulation has reassured some that people’s behavior has changed” as a result of the new regulations, says Constance Dierickx, senior consultant at RHR International. “That is a false and dangerous assumption,” she warns. “Human behavior is not governed by rules and regulations. What governs human behavior is reinforcement and relationships and social and cultural norms.”

Dierickx says each board has its own climate and culture that need to be intentionally cultivated through interaction and dialogue. When boards reach the “cloak-and-dagger state of HP,” she says, it means there are systemic issues and the board is dysfunctional.

Dierickx, who works with directors and senior management, says HR is uniquely positioned to “put the issues on the table.” She points out that a critical part of HR’s role is to be an adviser to senior management, “and make sure they don’t oversimplify problems and derive overly dramatic but too-targeted solutions that aren’t going to solve the problem.”

For example, Dierickx says many boards conduct their own self-assessments and, not surprisingly, usually find that “we’re doing pretty well.” Instead of focusing on self-congratulations, she says, boards need to have “messy, complicated discussions” about the way they work, the subjects of their agendas and the quality of the discussion.

“And every director on every board should have an ethics hat on all the time,” she says. “HP’s problems were not technical problems; they were behavior problems.”

Pacific Rim Most Challenging For Expatriates

Attracting expatriate executives to work in China is easy, according to a Korn/Ferry International survey of more than 140 international recruiters, but it’s one of the hardest places for them to succeed.

“High-growth emerging nations [especially China, Japan and South Korea] often offer the greatest opportunities for expatriates, but they can also come with the most challenges,” says Chris van Someren, president of Korn/Ferry for Europe, the Middle East and Africa. “Global companies must find creative solutions to attract expatriates into these more challenging locations and nurture their success.”

The most common reason expatriate assignments fail, said 51 percent of recruiters surveyed, is a lack of cultural fit. Family and personal issues were cited by 23 percent, and not enough direction or goal-setting by 12 percent.

Although recruiters rated expatriate programs as highly effective in promoting better cultural understanding and as a professional development tool, they said expat assignments were least effective for addressing local talent shortages, generating new business abroad and improving employee retention.

Van Someren notes that, while expatriate assignments are helpful for developing emerging leaders and for helping organizations that are undergoing significant growth or change, “expatriates are clearly not a substitute for local talent.

“The key for employers,” he continues, “is maintaining an appropriate balance between expatriate and local talent by understanding when, where and how expatriates can best help the business.”

Can Consultants Serve Both Management and Comp Committee?

Expanded new federal disclosure rules for executive compensation have caused a run on consultants and led to debate over whether a consultant who advises the board compensation committee should also work for the company’s management.

At a recent conference on executive compensation convened by The Conference Board, James Ellinghausen, senior vice president of HR at Pulte Homes, told attendees that he believes it’s a conflict of interest for a consultant to work for both the comp committee and management. At his company, he said, the consultant who advises the compensation committee is not permitted to work for senior management.

Not surprisingly, perhaps, some of the consultants present felt they could work independently for both. One pointed out that “good compensation consultants are scarce.”

A new research report from The Conference Board, The Evolving Relationship Between Compensation Committees and Consultants, looks at legal and fiduciary issues faced by boards and compensation committees using a consultant. The report recommends that the board’s compensation committee should:

  • Be made up entirely of independent directors.
  • HHave primary responsibility for ensuring that the company’s executive comp programs are fair and appropriate.
  • Have full control over retaining and overseeing the work of any consultants it hires, as well as firing them if necessary.

The report’s authors, Carolyn Kay Brancato, director of the Global Corporate Governance Research Center and The Directors’ Institute at The Conference Board, and Alan Rudnick, program chair for The Conference Board’s Directors’ Institute, stress that comp committees must have complete control over the committee-consultant relationship. It’s their responsibility to ensure that the consultants are independent of management and that they provide objective, neutral advice to the committee.

“Under certain limited and specifically prescribed circumstances,” they wrote, “a consultant may do other work for the company, so long as it is overseen and monitored by the committee.”

To See Ourselves As Others See Us

A recent survey found that most managers think pretty highly of their management skills. Fully 92 percent of those surveyed said they are an excellent or a good boss.

Ask their direct reports, however, and you get a different story. Only 67 percent of employees surveyed gave their managers a good rating, and 10 percent said their boss does a poor job.

Since only a quarter (26 percent) of employees are given the opportunity to formally review their manager’s performance (and 73 percent of that group say they believe their feedback is taken seriously), it may not be surprising that bosses can be clueless about what employees really think of their management skills.

Robert Morgan, COO at Hudson Talent Management, says performance reviews don’t give a complete picture of a manager’s performance without input from employees. “Not only are 360-degree reviews a good opportunity to assess an employee’s capabilities as a manager, but they also let workers know that their opinions are valued.”

Although none of the managers surveyed said they are doing a poor job, plenty of them did admit that they could use some help, with 26 percent claiming they don’t receive adequate training for their managerial responsibilities.

The survey, which was conducted for professional staffing and talent management company Hudson by Rasmussen Reports LLC, an independent research firm, also asked workers to speculate on what would happen if their boss left the company. Although 41 percent of respondents said it was very or somewhat likely that they would be offered the newly available job, only 54 percent of those employees actually wanted it. That figure jumped to 65 percent among those making more than $75,000 annually.

And current managers were more interested in moving into their former boss’s job than non-managers (62 percent vs. 46 percent). However, older employees (ages 50 to 64) were less interested in a management position than those in their 30s (47 percent vs. 61 percent).

Executive Briefing Chart If I Were President ...

Asked what changes they would make if named president of their company, more than a quarter (26 percent) of senior managers surveyed by Robert Half Management Resources said their top priority would be to create an employee-friendly work environment.

The executive staffing firm, which specializes in accounting and finance executives, polled 150 senior managers from the HR, finance and marketing departments of the nation’s 1,000 largest companies.

A number of respondents said they would promote greater flexibility and a more employee-friendly workplace by taking such steps as offering telecommuting options; increasing the number of vacation days, and tuition and mileage reimbursements; allowing staff to dress business casual all the time; and celebrating more often.

Other areas targeted for change included improving employee communication (17 percent) and improving company performance (15 percent). Some executives said they would focus on employee compensation with such measures as raising pay across the board and restructuring bonus and incentive programs. Others would hire more women and minorities for senior positions.

One group, however, saw no need for change: 26 percent of the executives who responded said they wouldn’t change a thing.

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