HR’s role in governance

Corporate Governance is usually associated with financial reporting, compliance and disclosure on matters impacting shareholder interests & value. The fact is it is also about how companies & its resources are directed, managed and controlled. Therein lies opportunity for HR to play a larger role in corporate governance and to drive good governance practices.

Good governance is all about delivering results and balancing the expectations of all stakeholders through the effective utilization of and responsible stewardship of resources. What distinguishes governance in one organization from the other is the way principles of stakeholder inclusion, strategic vision, performance, accountability and fairness are embedded in organization functioning and are reflected in business results.

By virtue of their scope of responsibility and areas of influence HR can play an important role in embedding these principles in the work structures, processes & practices and thus institutionalizing good governance . Some ways in which HR can contribute to good governance is by creating the:

1. Right Structure:
a. Differentiate & define the policy, planning, control, coordination and operating systems within the organization. This differentiation will ensure there is effective focus, allocation & monitoring of responsibilities so resources are deployed & used most effectively
b. Ensure independence of the audit & quality control functions so deviations and inconsistencies in principles can be thrown up early and addressed appropriately

2. Right Performance Orientation:
a. Ensure performance processes align stakeholder interests in a sustainable manner. Communicate goals and effectively monitor progress to build the right orientation to performance
b. Ensure that appropriate checks are in place to maintain the objectivity & transparency around performance measurement & progress.
c. Ensure that the compensation policy, supports the performance focus, reflects business requirements and reality and is not unduly aggressive or skewed to serving a particular stakeholder interest to the disadvantage of another stake holder.

3. Right Capabilities & Culture
a. Ensure that the senior team has the right balance of business aggression and gravitas to drive growth and manage risk appropriate to the business situation & stakeholder risk appetite.
b. Create an effective leadership pipeline so business effectiveness and continuity is not compromised
c. Work with other members of the executive in creating a performance driven culture, in creating an environment of fairness and transparency and in promoting the right attitude to meeting business performance and stakeholder expectations responsibly

Demonstrate HR ability to strengthen Governance
The two greatest challenges that HR may face in seeking a larger role in corporate governance would be existing organizational prejudices around who should be involved in Governance and doubt on whether HR has the skills to play a credible role in governance.

Increasingly there is acceptance that responsibility for Corporate Governance cannot be confined to Board Rooms but needs to extend across the executive organization. Existing organisation constraints on who should be involved in governance will therefore no longer be relevant in a not so distant future. As regards the capability to play a credible role, the responsibility lies with HR to equip itself with skills and to demonstrate that it can
• Speak business – taking a holistic rather than a functional view
• Integrate stakeholder expectations, business realities and environmental challenges to develop a performance architecture that aligns stakeholder interests, drives business results and motivates employees to strong performance
• Work with all constituents within the organization to develop the right attitude to delivering responsible business.

By playing a larger role in embedding the tenets of good governance in the very fabric of the organisation HR can contribute to taking organizations to a higher level of performance – not only by achieving the desired business results but also by achieving them in the right way.