Checks and Balances

During the height of the economic crisis, there were many experts attempting to assess and explain the reasons why the economy failed. The result: hubris, greed, pressure to perform that led to sacrificing integrity for short-term benefits, you name it; it was simply due to failed human judgment.  Now that there are signs of recovery, everyone is looking to prevent these types of catastrophic events from happening again.  There is a rush to regulate the types of decision-making that got us into trouble. Much like SOX in the early 2000s after scandals of the like of Worldcomm and Enron, regulation will once again take center stage in our working lives, especially for certain industries. There are both positive and negative side effects to having to live with regulation in the work place. And while there’s likely to be some sort of pain associated with it, everyone hopes it will help in avoiding future economic disasters of the magnitude we just had. However, regulation tends to always be reactive.

To no one’s surprise, as investigative reports and new books have surfaced to explain the crisis, so have countless accounts of employees who knew about hazardous decisions and behaviors that their direct managers or leaders in their organizations were engaged in and that put the organization at risk. And, of course, the latest mega saga with Goldman Sachs had its CEO, Lloyd Blankfein, admitting, “I should have paid more attention to what my employees were doing.”

No lifeguards on the beach

The stress from having to continually produce short-term results or having to react to media commentary might make some executives fall under the pressure of making highly volatile and suspicious moves. Egregious risk-taking action doesn’t happen over night, however. Very often, people who engage in these practices will show red flags with their intent to ignore or bend the rules in other areas of their jobs by continually walking outside the boundaries of governance. There may be displays of unconscious, capricious behavior when it comes to other aspects of their jobs such as, hiring, firing, promoting, employee appraisals, or keeping only certain  “advisors” as part of their inner circles, among others. The aforementioned transgressions are rarely done in isolation or behind a computer monitor. They typically involve others in the organization who are witnesses to the transgressors’ whims. Sometimes it may be their colleagues or their own employees, and sometimes, it may even be an HR partner. And for HR, as well as others in management, avoiding addressing their earlier lapses may inadvertently encourage greater risk-taking for these people.

In government, there is a principle under which separate branches are empowered to prevent actions by other branches and are induced to share power. This principle is referred to as Checks and Balances (source: Wikipedia). But corporate Checks and Balances have failed us; perhaps because they are rarely effected in any kind of methodical way.

Where is HR?

From an HR perspective, the banking mishaps have caused many to scramble and focus on executive payment plans and compensation. But while compensation is often used to drive desired behaviors, this strategy might be misdirected in cases such as these by addressing the symptoms rather than the root of the problem. Public companies in particular must make significant changes in other internal areas. Instead of allowing questionable conduct to continue and risk being exposed in public, having a systematic way to review actions might keep future offenders in check. This should go beyond an internal “official policy” that prescribes certain behaviors, but where in reality, folks are rewarded for the bottom line results despite dubious and even plainly deviant actions; or worse, when the rules apply to some but not to others.

Government investigators and other regulators, including internal ones, mainly look at transactions. When they ask questions, they don’t always know when they’re being given scripted answers. HR professionals look at actions, patterns, and internal reputation. This is a matter of character, and that cannot be judged by temporary contact, especially the type that it’s focused on a moment in time. Most executives are well versed in PR rhetoric and know what others want to hear. Those that get to observe them on a daily basis however, witness their inner workings and are better at distinguishing true intent from effect.

What do we know about these people? What characteristics to they exhibit on a daily basis? HR needs to make it acceptable for employees to talk about their integrity concerns.  Certainly, as a first step, HR should always encourage employees to have open discussions with their direct managers before they involve anyone else including bringing HR into the fold.  We want to avoid the impression of a gotcha mentality against managers. However, poor managers do exist and HR must be sympathetic to the possibility that employees may be being asked to engage in corruptive practices and having an open discussion in time may halt this practice and put appropriate corrections in place.  Anonymous hotlines serve a similar purpose, but it should be used as a last resort as it sends a message that the organization discourages openness and transparency. Otherwise, why wait for someone to call when there might be people who already know there’s a potential problem?

This is not a role that anyone, whether or not in HR, wishes to play. But as the bridge between employees and management, HR should already own this accountability. HR leaders who are in business partnership roles already know the importance of building and developing solid relationships with their business counterparts and appreciate the delicate balance one must keep when disagreeing with someone’s actions. However, having someone guarding human assets is a good step towards correcting and circumventing future missteps in other areas.

Some refer to this as “policing” on the part of HR. The alternative is to let executives and other senior managers regulate themselves. There’s no denying that confronting someone, especially a high-ranking executive, is uncomfortable for anyone. However, HR would be wise to avoid another unflattering term, that of “rubber-stamp.”

This is often difficult to do however when in many companies, HR, despite its exclusive focus on people matters, is relegated to reporting lines below the CEO level, causing it to be “out of the loop” on certain critical moves done by executives.

Connecting the Dots

Reckless decision-making and actions don’t happen in a vacuum. Before they surface as financial or compliance blunders, transgressions are often witnessed in other areas, many times in the course of someone’s career in the management of others.  While in power, these leaders may lack a reputation for fairness or may actively promote a culture of intimidation.  Employees comply out of concerns over losing their jobs or being alienated. Equally concerning is the impression employees get that these managers have gotten ahead by behaving in this way and if they want to get promoted, they will need to follow suit and engage in similar behaviors.

HR leaders cannot be simple bystanders. This means having the courage to speak up and bring the leader back on message. Otherwise, the troubling relationship that has been uncovered of “see no evil, hear no evil” between banks and the regulatory agencies, may also be tagged on, even if by reputation, to the relationship between HR and executive management. If HR leaders do not keep their ears to the ground, they’re also failing in their roles as part of management and in their duty to advocate for the company and its long-term success.

If companies want to avoid devaluation and government intervention, they need to demonstrate effective internal mechanisms to self-regulate. In order to change the behavior of those who engage in extreme practices, there needs to be a more relevant strategy beyond compensation plans. An honest and direct approach to business starts with the understanding that there are more people than those at the top who suffer the consequences brought about by the mistakes of a few. And that an open and transparent organizational culture is not only a good practice, but it also happens to impact the bottom line by avoiding scandals that result in losing face in public, public mistrust, government intervention, shareholder detriment, turnover, and resulting layoffs that might otherwise be unnecessary.


This entry was posted on Sunday, May 23rd, 2010 at 7:51 pm and is filed under HR Role, HR Strategy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “Checks and Balances”

  1. figure coach says:

    Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.

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