This paper is making to highlight on the meaning of HR governance in the way of optimizing performance of the organization’s human capital assets and mitigate enterprise HR risk
Compliance as follow: 1. How HR contributes to realize the required level of formal compliance in the organization as a whole, e.g. compliance with financial regulations. 2. Governance of the HR function: Internal perspective looking at how the HR function can be organized and structured to achieve required levels of coordination, cost-effectiveness and ability to live up to expectations (especially related to added value), as well as looking at how HRM practices are designed to meet legislative requirements. 3. Governance of the workforce or People governance: Outward looking perspective considering how HR governance objectives can be embedded in HRM practices with a focus on turning threats/risks into opportunities, developing the intangible aspects of corporate values and climate.
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HPCSA Health Professions Council of South Africa
As a result of the dynamic economic climate and labor market demand for specialized skill sets, also the HR challenges and crises that we’ve continued to witness over the past five to ten years.
Also because of regulatory change we’ve witnessed, the HR governance and its effective governance have now become profound priorities for the fast majority of organizations.
The majority of respondents from both public and private sector organizations think that organizations are doing a good job in articulating corporate vision and values. Moreover, organizations are now implementing HR planning and questioning the efficiency of their HR business models. Areas of priority, however, include developing formal HR governance structures and practices, HR performance measurement metrics, and clarity of accountabilities for all stakeholders, including Board, line management, and employees.
What is the role of HR governance on organization corporate vision and values?
How can HR governance enhance enterprise performance?
Why HR governance is important to mitigate HR risk?
I think there is no universal clear definition of what the term actually means, it appears HR governance encompasses many different types of issues – several of which are outlined below.
HR governance is important because senior business leaders are finally beginning to realize people truly are an organization’s most important asset. And in many industries, personnel costs represent the single largest expense for an employer. Therefore, organizations cannot afford to manage such a prized resource (and a major expense) in a haphazard manner.
Having some kind of governance structure in place, both for the HR function itself and for all types of people management issues, helps treat employees fairly, consistently and in compliance with the law and recognized best practices, control costs and align people management practices with an organization’s overall strategy and its vision, mission and values.
It also helps provide a framework to ensure an organization doesn’t descend into “anarchy” in the absence of rules, regulations, norms and standard operating procedures relating to people management.
With all the concern today around corporate governance, effective HR governance also facilitates compliance with legal and ethical obligations relating to people management practices. Having a proper HR governance structure in place can even impact the way an organization does business and makes decisions at the highest levels – right up to and including its board of directors.
The Human Resource Governance is to provide a best practice framework of systematic processes, knowledge and support to enable the business to maximize its human capital, to achieve and exceed its set goals and objectives.
It is the practices and processes that are put in place to help organizations achieve their goals ethically and in the best interest of all stakeholders.
HR governance encompasses the oversight and leadership of HR strategy, related policy, and program results. More specifically, HR governance is comprised of two components: formal governance and internal HR governance. Formal governance involves the Board of Directors, and ideally, a standing HR or Compensation Committee. Internal HR governance consists of the CEO and management team’s approach and strategy to HR management and program efficiency and effectiveness
HR governance is the act of leading the HR function and managing related investments to:
â- optimize performance of the organization’s human capital assets
â- fulfil fiduciary and financial responsibilities
â- mitigate enterprise HR risk
â- align the function’s priorities with those of the business
â- enable HR executive decision making.
Governance is not a strategic objective. It is a systematic approach to management that enables the function to achieve strategic and operational objectives.
There are several factors that are affecting the importance of HR governance, such as a dynamic economic climate and labor market demand for specialized skill sets, coupled with HR challenges and crises that we’ve continued to witness over the past five to ten years. Furthermore, because of regulatory change we’ve witnessed over the past five years, the HR agenda and its effective governance have now become profound priorities for the vast majority of organizations.
Good HR governance in this day needs to balance the need for effective oversight and confidence with the need for focused HR strategy execution to differentiate and enhance competitive position over the longer term.
Management can simplify the process by introducing four basic pillars as their governance framework: developing human resources policies, implementing and adhering to the policies, reviewing and updating polices, and making sure that human resources expertise is represented as part of the skill set of the board of directors.
Effective HR governance concerns itself with all aspects of HR functional management.
Effective HR governance is:
â- consciously planned and designed;
â- balanced in focus between the human capital needs of the organization, and operational and fiduciary responsibilities;
â- understood, accepted, and acted on by involved stakeholders within and outside HR;
â- aligned with existing corporate models to which it must link
â- Able to measure how it contributes to the sustained success of both the function and the business it supports.
I would say that HR governance is not distinct from, but rather a core component of, good corporate governance – in the same way that financial governance or risk governance are also core components. Formal HR governance includes risk management, as well as policy and program governance. Indeed, HR governance also includes the internal oversight and management of an organization’s HR strategy, programs, practices, and outcomes, through clearly defined roles, responsibilities, and accountabilities both down and across the enterprise. In addition, HR governance involves the HR business model, and the organization, measurement and management of the HR function, along with the related implications for its management and employees.
The majority of respondents from both public and private sector organizations think that organizations are doing a good job in articulating corporate vision and values. Moreover, organizations are now implementing HR planning and questioning the efficiency of their HR business models. Areas of priority, however, include developing formal HR governance structures and practices, HR performance measurement metrics, and clarity of accountabilities for all stakeholders, including Board, line management, and employees.
Increasing productivity, enhancing performance and accuracy is easy when governance is implemented appropriately. It takes a skilled hand, determination and clear ideas about what the business’ aims are in order to set up guidelines that meet these goals. Monitoring processes once they are in place is a simple task as well, which the HR governance leader or team will manage as best fits their schedules. Optimization is a key with these faculties, but it is always best to have an oversight on these individuals as well to ensure they are doing their jobs correctly.
The state of Washington has directed its human resources department to construct and maintain governance offices specifically to meet these ends, but even here employees filling governance titles are subordinate to those in key leadership positions. Increasing transparency on internal accounting procedures and fact checking at every level is a key to ensuring that tasks are being completed in accordance with the overall corporate message and standards in mind.
HR governance provides insight and guidance for human resources practices in order to improve on existing functions. These professionals can act as intermediaries, outline changes and provide analytics on what a company is doing well and what needs to be improved, creating a more harmonious workforce with heightened performance metrics.
HR Governance can have a measurable impact on your business by improving productivity and helping to drive organizational change.
Some of the benefits of establishing a workable HR governance structure are:
Clear reporting structures
role clarity and value-adding HR activities and decisions at each level of the organization
logical decision making boundaries and controls
integration and alignment with business priorities
clarity around an organization’s tolerance of duplicative activities
transparency of process and resultant employee trust/commitment
Demonstrable evidence of HR’s value to the business.
At a rapidly growing company, administrative procedures were considered formalities; however, the CEO of any enterprise is forced to recognize the major financial and business risks posed by the lack of formal governance systems.
In the HR department, the HR Director is juggling a set of issues – particularly in the area of remuneration – that if left unattended could have resulted in unacceptable financial returns and possible intervention by regulators. The company’s decision-making style was heavily consensus oriented, making it difficult for the Rewards Committee members (a sub-committee of the Board responsible for oversight of elements of employee remuneration) to take responsibility for their actions. The Reward Committee was asked to document its governance practices, so it developed a charter that specified procedures and guidelines required by regulators, but also was adaptable for a rapidly changing business.
Once the Rewards Committee members came to terms with their personal accountability and fiduciary roles, they set forth the responsibilities and accountabilities of their own group, the group to which they reported (both the Compensation Committee of the Board and the Board of Directors), and the functional groups they supervised/worked with.
While compliance was the primary driver for this governance activity, it was not the only concern. Any regulatory snags could have had short- and longer-term negative impact on the brand of the up-and-coming company. It was clear that the creation of effective governance systems could enhance the company’s viability in the eyes of its customers, potential customers and shareholders – as well as reinforcing its commitment to its workforce.
So, documenting an explicit approach to plan management and control was much more than a risk-mitigation tool for this organization. It was a powerful means of safeguarding the company’s brand assets and building employee loyalty as it grew and changed.
HR professionals today strive towards strategically partnering with line management to resolve significant business challenges and to make positive contributions to their organisation’s bottom line. However, various indications exist that corporations and their leaders are no longer perceived as trustworthy (Serettan et al, 2009).
An extensive set of business influences, including the decline of leadership trust, have forced corporate governance issues from boardrooms onto the desktops of business executives throughout the organisation including that of the HR decision maker. According to Hess (2001) and George (2003), governance of an organisation is a complex challenge to balance the conflicting and competing interests of various stakeholders that continually confront directors and require concurrent fulfilment.
As organisations operate within a challenging global environment, risk is an unavoidable and inherent element in the conduct of business – irrespective of the industry it occurs in.
It is fundamental to business success to maintain a status of optimum balance, or equilibrium, between the risk business executives are prepared to take and its exchange for the realisation of satisfactory levels of return.
Slowly, but surely, the understanding is awakening that every business process is affected and influenced by means of decisions or manipulated by human beings and therefore every position in an organisation has associated risk.
HR professionals are actively en route towards transforming from HR business partners into the role of HR governors. The upward tendency of fraud occurrence and unethical business practices displayed by high-risk candidates have made it imperative for organisations to unlock human potential of the workforce while simultaneously adhering to due diligence requirements. The ultimate goal of HR risk management is to identify, mitigate, manage or eliminate risk before it becomes a threat to the continued existence of the organisation. HR risk management is most effectively applied when included on these three levels: prevention, detection and intervention.
Due diligence and risk prevention activities, like employee vetting, integrity testing and psychometric profiling, contribute to the building of an organisational culture of integrity by screening out undesired behaviour and thereby focusing on the employment of candidates with predictable ethical conscience.
It is important to screen existing as well as prospective employees in order to determine an integrity profile, ascertain compatibility with job requirements and thus alert the organisation to possible threats relating to the profile of a fraudster as well as manifested behaviour which could be detrimental to a company.
Anti-corruption activities by the HR governor should include a risk and fraud prevention plan, whistle-blowing policies and processes by means of an anonymous anti-corruption hotline as well as risk assessment/employee vetting, ethics training and awareness and financial disclosures. Good HR governance practice should also include an ethics risk assessment, like a cultural survey to identify potential reputational risks associated with unethical principles, norms and standards guiding the organisations’ activities, internal relations and interactions with shareholders.
Risk detection activities the HR governor has to engage in are required when “things have gone wrong”. Loss of income suffered due to poor judgement, theft and embezzlement cannot be ignored and require extensive investigation.
Criminal forces like cartels and organised crime rings deliberately target and exploit individuals and prey on their weaknesses and vulnerabilities in order to force collusion by blackmail and manipulation. This costs organisations millions. Industrial espionage, information extortion and collaboration in fraud activities are just some examples of the results of such forced collusions. However, lesser transgressions like minor misappropriation of organisational resources and abuse of privileges and benefits may pose major reputational and financial risk if left unchecked.
Monitoring and analysing the trends in movement of employees electronically or by means of biometric equipment, provide other ways in detecting potential or actual risk behaviour that could lead to financial losses, stock shrinkage, accidents and other unethical business activities. The application of polygraph testing as part of the evidence collection process is on the increase.
The creation and maintenance of an ethical organisational culture by means of good HR governance is a topic that organisations cannot afford to ignore any longer. The risks associated with the opposite impact on their attractiveness to global investors may cost them lucrative business opportunities. A culture of integrity and ethics requires ethical leadership with an ethical vision, processes and procedures driven by managers who pro-actively mitigate people and other risks and comply to the requirements for good corporate governance
Accuracy in employee performance predictions correlates directly with integrity levels as measured by valid, reliable and duly accredited HPCSA and registered instruments. It is not only the accountability of the HR executive to ensure that the policies, procedures and processes followed in their organisations are ethical and do not infringe on any of the fundamental human rights of prospective employees; but obligatory that governance requirements be determined and stipulated in order to prevent organisation sensitivity to litigation risks.
Declined levels or insufficient levels of productivity are required to be translated in terms of the risk it poses to the organisation. (for example, ineffective management, ambiguous communication or insufficient resources or dangerous work environments).
Informal integrity enhancement, ethics training interventions, targeted team development and other formal training courses to increase technical as well as behavioural competencies not only in the workforce, but specifically in leadership interventions will escalate effective utilisation of organisations’ employees into performance excellence (Rossouw, 2005) and truly contribute to a positive bottom line impact for the HR governor.
HOW A CHANGE IN HR GOVERNANCE LEADS TO AN HR TRANSFORMATION IN 20 COUNTRIES
The HR head of this financial services company with 17,000 employees across Europe approached me to investigate a situation which had gone on for almost a year: the HR directors from a number of European countries had been repeatedly complaining about tremendous workloads and a massive influence from HR headquarters. This was generating increasing pressure on the local HR departments and putting the quality of local HR work at risk. To begin with I proposed setting up a quantitative and qualitative analysis (“HR Metrics”) of the situation with a view to obtaining greater clarity on what exactly was going on within the organization. The analysis was aimed at a) measuring the workload in each country, b) analyzing the relative distribution of HR processes in terms of time, c) understanding the evolution of HR in the subsidiaries over the years, and d) hearing the subjective views of the HR directors involved. The result was somewhat surprising in that it turned out that the influence of the headquarters over local HR departments had substantially increased over time, without this being a consciously chosen strategy, but rather a tacit process. At the same time, the HR organization was still (officially) decentralized, i.e., the HR departments in subsidiaries were structured according to their own ideas. This led to a situation where HR governance was increasingly following the rules of centralization (via standardized and controlled processes and guidelines), while the necessary adjustments in the subsidiaries were not made, hence creating not only an increase in the workload but also tensions and frustrations within the HR community. Rather than addressing the issue by simply increasing the number of full-time equivalents in subsidiaries to cope with additional demands – which was obviously not possible for cost reasons, the decision was made to initiate a process of HR transformation focusing on redefining the HR structures across all 20 countries. This meant a process of 20 countries coming closer, learning to share their views, listening to each others’ differences and moving in the same direction in an intensive process of negotiation. As a result, a new HR organization along the “3 Box Model” was defined, HR functions were prioritized taking into account the obvious changes in HR Governance and new HR Hubs were established providing centers of excellence and shared services based in the region as opposed to in the headquarters. A new international HR organization was born.
LEADING ONESELF AND A TEAM IN
TIMES OF INTERNATIONAL CHALLENGE
One year after he had taken up his new position, the HR director for Europe and the Middle East of a big technology company came to me with a request to facilitate a team building workshop with his international HR team. “How do I get better alignment in the HR director team?” was his explicit question.
In the process of further clarifying the request, I understood that the implicit question actually was: “Can you help me get my team of strong, independent minded country HR directors to do what I want without me appearing authoritarian and patronizing?”
He obviously found himself in a leadership dilemma.
After more discussions, we started talking about the real issues: Basically, he perceived some team members to be very senior, with a lot of experience in their position, whereas he himself was new in his role. To further complicate the matter, the team members reported directly to the local CEO. This put him in a very uncomfortable situation with regards to his role and when it came to bringing about the strategic changes in HR he had in mind. Finally, his corporate environment was fast-paced, making it difficult to define a strategic direction and stick to it.
We decided to start working together in a coaching setting, rather than immediately jumping into a team building exercise. The fact that he clarified his own position in the political context and that he recognized his own strengths as well as limitations opened the door to develop personal strategies to deal with these constraints and gain more inner stability. This gave him more confidence in his role and credibility in the way he conveyed his messages. After these personal issues were addressed, the team workshop did the rest: redefining roles and responsibilities, clarifying misunderstandings, expressing expectations and building up trust.
Good corporate governance is not a guarantee against organisational failure, but it ensures that adequate disclosure for risks is undertaken. Integrity and wisdom are required when dealing with risks to ensure that actions taken are in the organisation’s best interest (Wixley and Everingham, 2002). An organisation’s strategic approach to risk management generally starts by identifying and evaluating the way that risks are managed in the volatile environment in which the business functions. Risks are “uncertain future events” which, if left unchecked, could have an adverse affect on the achievement of business objectives and even threaten the continued profitable existence of the organisation.
HR governance is still considered an emerging organisational practice in most business enterprises, but an increasing amount of HR executives across all business types in various industries are partnering with risk management advisors and consultants to assist them in pro-actively mitigating and managing their organisational risk associated with the human element. Governance topics for HR executives to address include, but are not limited to, health and safety issues, training and advancement, wages and benefits, succession planning, workplace ethical codes of conduct, workforce performance and the attraction and retention of “low risk” talent.
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Marjolein Dieleman* and Thea Hilhorst. Human Resources for Health 2011, Royal Tropical Institute, Amsterdam, the Netherlands
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