Governance and Human Resources
Governance and Human Resources
Paper presented by Nazhat Shameem at the HRI Conference
November 4th and 5th 2011
Warwick Hotel, Fiji.
Human resource management has now become central to the idea of corporate governance. This is because the idea of creating institutional trust has become central to governance ideals. Ultimately trust between employer and employee, between management and the Board, and between management and staff, leads to ethical workplaces, and to productive and honest relationships at work. The strategies for best practice in this area are well known to the participants at this conference. They include employment security, selective hiring, and extensive training, sharing information, autonomous and self-managed teams, performance-based pay, extensive training, sharing information and the reduction of status differentials. It is also considered to be the recipe for greater company productivity, to have a close alignment between human resource strategies and company strategy. The real challenge for human resource management and strategic planning in Fiji is in my opinion, a failure to recognise the challenges of managing people in Fiji’s context. Human beings are ultimately a product of their social and cultural up-bringing. In Fiji, it is impossible to manage people and create institutional trust, unless there is an understanding of the social context of the conduct of people. That understanding demands sensitivity to culture, to gender, to intra-cultural links and to the approach of people when faced with authority figures. How do you reduce status differentials in a society where inequality is taught as an inevitable part of our communities? How do we expect equality in work place relationships whilst encouraging the authority and leadership of the CEO and the Board of Directors?
The Role of the Board of Directors
Central to the idea of corporate governance is the role of the Board of Directors. In my view, insufficient attention has been paid in Fiji to the need to have a Board which is a cohesive and co-operative body on the one hand, and which is a dynamic group of people from different backgrounds which is capable of questioning management decisions on the other. Yet human resource strategies start with the Board.
What makes a good Board? A good Board ideally has between 6 to 9 people. A good Board should be capable of being divided into two sections- one section which has expertise in the areas of banking, finance, investment or the law, and the other with expertises in the core function of the organisation. A good Board should be diverse. A good Board is not made up of people from the same school alumni or from the same religious group. A good Board encourages vigorous discussion and celebrates dissent. It is dissent which leads to qualitative decisions because they have been tested by discussion and disagreement.
A good Board is able to evaluate its own performance, and should have at least two sub-committees; one which checks on the accuracy and integrity of financial information, and the other which spearheads corporate governance policies for the whole organisation. A good Board should also have a nomination sub-committee, one which considers suitable replacements for directors whose terms have expired or who have retired. The Board itself should recommend replacements to the appointing authority.
A good Board drives the concept of trust in the entire organisation by following a code of ethics, by insisting on good governance practices, by operating as a check on management conduct whilst encouraging innovation and creative thinking, and by insisting on ethical and timely disclosure.
A good Board is not in a coma. Yet a good Board does not behave like management either. It knows the balance between Board activism and Board interference. A good Board can recognise risks and take steps to ensure that the organisation is protected from those risks. A good Board is able to recognise those laws which the organisation is most likely to break, either through Board behaviour or through the behaviour of the employees, officers or agents of the organisation. A good Board insists on legal and ethical compliance.
The Role of Management
The CEO, is accountable to the Board and is obliged to implement Board policies and decisions. How much freedom he or she has to make decisions unilaterally depends on the freedom given to him or her in the job description, and performance appraisals. Many Boards prefer to keep the CEO on a short leash. Others give him or her so much discretion that in effect the CEO is the creative head of the company.
The Crimes Decree now requires a Board to exercise due diligence over the conduct of the high managerial agents of a corporate body, so that when the high managerial agent commits a criminal offence, or authorises others to do so within the body, the corporate body itself is not prosecuted. In other words a corporate body is only immune from prosecution for the criminal acts of its high managerial agents, if the Board of Directors exercised due diligence to ensure that the high managerial agent was complying with the relevant law.
As I have said, the days of the comatose Board have gone. The new boards must exercise due diligence.
The role of governance is usually delegated to management to implement. This means that codes of conduct and corporate governance manuals must be approved by the Board, but must be implemented by management, and then in turn by human resources. The end product must be the creation of a corporate culture which encourages ethical conduct, legal compliance, respectful and equal work relationships, transparent and uniform grievance procedures and clear guidelines on discipline and sanctions. The creation of a corporate culture, defined by the Crimes Decree as “practices, rules, and guidelines in a corporate body or part of a corporate body” is the responsibility of management. However, the rules which underpin that corporate culture must be driven by the Board. It is a symbiotic yet independent relationship. Yet accountability is always to the Board.
Equality in the Workplace
Both the Employment Relations Promulgation and the Public Service Act (as amended by Decree in August 2011) require employers to maintain workplaces free from discrimination and harassment. The definition of discrimination is the same in both laws. Section 6(2) of the Promulgation provides that;
“ No person shall discriminate against any worker or prospective worker on the grounds of ethnicity, colour, gender, religion, political opinion, national extraction, sexual orientation, age, social origin, marital status, pregnancy, family responsibilities, state of health, including real or perceived HIV status, trade union membership or activity, or disability in respect of recruitment, training, promotion, terms and conditions of employment, termination of employment, or other matters arising out of the employment relationship.”
Section 6(3) allows for affirmative action programmes for disadvantaged groups or individuals, and subsection (4) provides that employers shall pay employees equal pay for equal work. The Promulgation and the Public Service Act prohibit sexual harassment which is defined as;
“ sexual harassment means when a worker is sexually harassed in his or her workplace, or placed where workers are gathered for work-related purposes including social activity when an employer or its representative or a co-worker-
(a) Makes a request of a worker for sexual intercourse, sexual contact, or any other form of sexual activity which contains an implied or overt-
(i) Promise of preferential treatment in that worker’s employment;
(ii) Threat of detrimental treatment in that worker’s employment;
(iii) Threat about the present or future employment status of that worker;
(b) By the use of words (whether written or spoken) of a sexual nature or materials of a sexual nature;
(c) By physical behaviour or gestures of a sexual nature;
(d) Creates an intimidating, hostile or humiliating work environment by conduct, word or both on the basis of gender,
That subjects the worker to behaviour which is unwelcome or offensive to that worker (whether or not that is conveyed to the employer, its representative, or the perpetrator and which is either repeated or is of such a nature that it has a detrimental effect on the worker’s employment, job performance, or job satisfaction; in this context, detrimental effect includes the creation of an environment which affects a worker’s physical emotional or mental health and well-being.”
This definition reflects closely the cases on sexual harassment which have been decided in other countries. The jurisprudence developed in the United States, and the law was re-defined by the Indian Supreme Court which described sexual harassment as a form of gender discrimination.
What then is the relationship between governance and sexual harassment?
Corporate governance is essentially about ethics in business. How it is to be achieved is ultimately about developing trust – trust between the Board and management, between management and employees, between stakeholders and shareholders. In order to develop trust, a corporate culture must be developed which is respectful, equal, and legally compliant. Sexual harassment is about the breach of trust, it is about the forming of unequal and discriminatory relationships at work, and it is usually about inadequate grievance procedures for those who hold subordinate positions in the company. Sexual harassment is usually indicative of a badly governed work environment.
Most workplaces now have sexual harassment policies. However the proof of the policy is in the implementation. A corporate culture is not just about the policies. It is also about the practices of the organisation. When a sexual harassment case goes to court, there is usually far more wrong with the governance of the organisation than an allegation of harassment.
Equality is also about freedom from ethnic discrimination, or from discrimination on the basis of sexual orientation. Appointment on merit and competence is fundamental to achieving an efficient workplace. Does that mean that ethnic background is never relevant? Occupational preferences are not discriminatory. For instance when the judiciary advertises for a Hindi-speaking court officer, this in not discrimination against all those who do not speak Hindi. Further, there may be room for affirmative action in some workplaces. Special rules for the disadvantaged are not discriminatory as long as they are for the benefit of those who are really disadvantaged. Special rules do not exist for the privileged-the creamy layer of society. Who are the disadvantaged? They are those who can show a historical disadvantage in ability to access the basic rights and freedoms in society – the right to access justice, the right to housing, food and water, and the right to life. And that is not all. Any special measures for affirmative action intended to level the playing field for the disadvantaged, must be proportionate to the disadvantage. One is not obliged to destroy buildings to give access to the disabled. But one might be obliged to build ramps and wheelchairs for them.
Where there is no legal basis for affirmative action, then appointment, promotion and rewards must be based on merit and merit alone. Similarly, an employer must impose discipline in a uniform way. Workplace favourites give rise to unequal workplaces and to the lack of institutional trust.
Corporate Strategy and Human Resources Strategy
One of the biggest challenges for HR management in Fiji is the difficulties in aligning corporate strategy with HR strategy. A corporate body might aim for greater effectiveness and greater profitability, but the employees are not managed in a way that they can keep up with that overall strategy. Employees must feel part of the greater corporate strategy. They need to own it. In Japan, many corporations have permanent seats on boards for employees’ representatives. They represent employee interests but they also become part of the overall corporate strategy of the organisation. The relationship between employees, trade unions, and corporate employers is a vexed issue and almost needs a special workshop. However, the unitary theory of human resource management is based on the belief that the organisation is an integrated and harmonious system and that management, employees and staff all share a common interest and objectives. From an employee’s point of view, thus means that working practices must be flexible and performance oriented, that employees must be efficient and multi-skilled, and that the role of the union is simply to provide an additional line of communication between management and an employee. The unitary approach enables greater employee participation in the workplace. Employees are empowered and given greater discretion in decision making and problem solving. This is more than democracy. It is good governance, because the unitary approach encourages equality of relationships in the workplace. Thus, helping to build institutional trust.
The unitary approach has advantages for the employer too. Staffing policies will unify employees. Conflicts are only likely to arise where management has failed to adequately explain the corporate vision to employees. Management must ensure that the staffing needs of every employee are discussed with him or her, and that those needs are aligned with corporate needs and objectives. The responsibility for ensuring that employees are empowered must be delegated to line managers.
The pluralist perspective of workplace relations prefers to see relationships in terms of power and influence. It sees conflicts in the workplace as inescapable, because the interests of management and employer can never be the same. Thus collective bargaining according to pluralists is both necessary and normal. In order to facilitate collective bargaining, employers must facilitate union/employer communications, a trade dispute mechanism, and a mediation/arbitration process to resolve disputes.
It is probably true to say that workplace conflict is inevitable. Indeed human nature is such that conflict anywhere is inevitable. Collective bargaining has certainly a role in resolving conflict, but even more important are disciplinary processes which are applied to everyone regardless of rank. The difficulty is that in our unequal society, justice is not always equally applied. Persons in power are often never held accountable for deeds which require accountability. Nevertheless the shift in other, developed countries away from collective bargaining towards individualism is undeniable.
Discipline loses its meaning if it is not preceded by training and knowledge. Many organisations have wonderful codes of conduct and procedure but they need to be dusted down to be able to read them. In many fraud cases, the rot sets in when internal procedures are not communicated to staff, or when they are not uniformly followed. Important for discipline, is that codes and rules should have teeth. In other words, the rules should say that breach of the rules will lead to discipline. And when there is breach, there must be discipline. The rules for effective disciple are; speed, uniformity, objectivity and predictability. A failure to discipline for breaches of rules has two consequences – one is that that the workplace fails to offer equality in relationships, and the other is the creation of a corporate culture which fails to encourage the following of rules.
Whistle blowing processes become an important part of creating a legally compliant corporate culture. Yet whistle blowers rarely come to a happy end. The whistle blowers in the Flour Mills case, at the National Bank of Fiji and at Enron, probably made themselves unemployable when they blew the whistle. Yet without whistle blowers, how does the Board, or the shareholders, or the media ever discover the fraud and corruption which exist in many corporate bodies? The answer surely lies in an anonymous whistle blowing process which protects from victimisation and which guarantees an objective investigation into the grievance. Most workplaces in Fiji have yet to introduce such a process. Perhaps our cultures, so respectful of status and authority, are not comfortable with the idea of whistle blowing. Yet if we are to create a society based on governance, then reporting on bad governance becomes necessary. We need to confront this necessity. Reporting on fraud and corruption is not an act of disloyalty. It is an act of loyalty to the institution and to principles of good governance.
There is a close relationship between good governance and human resource management. Indeed it can be said that no corporate governance policy has a chance of success without human resource policies which harmonise with the corporate policies of the whole organisation. A threat to governance is a disconnect between the aims of the organisation, and the objectives of the employees. The result is the breaking down of institutional trust. The answer must surely be the creation of more equal and respectful workplaces, where rules are adhered to uniformly, where there are clear lines of communication, and where employees empower themselves to share the corporate aims of their employers.