homework
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20.CRWk20CorporateGovrnceandPMgtMonTues.pptHRM 4413 People Management & Development in Business
Week 21 Corporate Governance and People Management:
Trends and Issues
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Aims
- Know and understand what Corporate Governance is and why it is important
- Evaluate People Managers’ role in supporting good CG
- Explore linkages to other concepts covered during the module, particularly in recent weeks
Why are we exploring this?
CIPD Profession Map: Core knowledge
https:// peopleprofession.cipd.org/profession-map/core-knowledge/business-acumen#gref
- Business acumen
- Understanding your organisation, the commercial context and the wider world of work
| Foundation | Associate | Chartered | Fellow |
| The role and purpose of governance in your organisation | The role and purpose of governance, its structure in your area of work, and the broader regulatory environment you work in | The role and purpose of governance, its structure in your area of work, and the broader regulatory environment you work in | How to influence and shape governance, its structure in your area of work, and the broader regulatory environment you work in |
Reminder: What is a Masters degree or a Masters student? (Characteristics Statement UK Quality Code for Higher Education Part A: Setting and maintaining academic standards Master's Degree September 2015, QAA for HE)
“…all Master's degree graduates have in-depth and advanced knowledge and understanding of their subject and/or profession, …
…..informed by current practice, scholarship and research.
This will include:
a critical awareness of current issues and developments in the subject and/or profession;
critical skills;
knowledge of professional responsibility, integrity and ethics; and…
the ability to reflect on their own progress as a learner.
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Slide *
What is Corporate Governance?
Two (of many) perspectives
Ed Houghton, CIPD (Factsheet 2019)
‘Good corporate governance is about effectively supervising the management of a company to uphold the company’s integrity, achieve more open and rigorous procedures and ensure legal compliance.
Ultimately it should also promote good relations with stakeholders, including shareholders and employees.’
Gaa, J.C. Journal of Business Ethics (2009)
‘One of the fundamental principles of good corporate governance is transparency. In its simplest form, the principle states that an organization should disclose all the information in its possession that stakeholders would find useful in evaluating the organization and in making economic decisions regarding it.
Thus, stakeholders are able to obtain a clear and complete ‘‘picture’’ of a corporation’s activities and financial situation.’
These represent the ‘what’… but what can we say in terms of ‘So what?’
Corporate Governance:
who does it, and how?
- The Board
- Regulators (via Legislation) – The FCA (Financial Conduct Authority)
- Investors (Public Companies)
- People Managers
- …..other influences – Politicians, media,….?
Who? The ‘Board’
(sometimes the ‘Executive’ Board, sometimes the ‘C-Suite’)
- The size and complexity of the organisation will usually determine the size of the board.
- In a small company the board may consist of just the managing director (MD) and one other.
- In larger organisations it could comprise the Chair, Chief Executive, executive directors (EDs) and non-executive directors (NEDs).
- The executive directors (EDs) will run the company's business and will often be directors of functions such as finance, HR or operations.
- Non-Executive Directors (NEDs) have the same duty of care as EDs. Therefore before taking up any director appointment, it is vital to undertake a personal 'due diligence' to understand the company and the expectations placed on NEDs.
How? Board Meetings & Sub-Committees
- The Board may decide to delegate some of its authority to committees. The committees usually established are:
- audit committee
- nomination committee
- remuneration committee and, in some cases,
- ad hoc/special committees for a specific task
- Each committee will have terms of reference (ToRs) and will normally report back to the board at agreed intervals.
- Each committee should also have the appropriate balance of skills, experience, independence and knowledge.
How? Regulation via Legislation
- In the UK, the Companies Act 2006 is the overarching legislation which sets out the legal requirements for corporate decision making, and the consequences of getting it wrong. Section 172 ‘General Duties’ of Directors https://www.legislation.gov.uk/ukpga/2006/46/section/172 )
- The UK Corporate Governance Code (‘The Code’ published by the FRC – latest version 2018) then sets out standard of good practice aims to achieve more open and rigorous procedures, and requires all companies with a premium listing of equity shares in the UK to report on their application of the Code in their annual report and accounts.
- The first version of the UK Corporate Governance Code (the Code) was published in 1992 by the Cadbury Committee. It defined corporate governance as ‘the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.’
So why is it important?
Get it right
- Transparency leads to trust
- Trust encourages investment
- Investment enables businesses to develop
Get it wrong
- Reputational/PR issues
- Lack of trust
- Investors pull out money (sell shares)
- Share price plummets
- Value of company diminishes
- Struggles to perform due to shortage of cash
- Becomes prey for takeover
Martin & Gollen ‘Corporate governance and strategic human resources management in the UK financial services sector: the case of the RBS’ The International Journal of Human Resource Management, Vol. 23, No. 16, September 2012
So where do people Managers fit in?
What links can we make to other areas we have studied?
- Organisational Strategy
- Thinking strategically about HRM
- Megatrends in work, workplace, labour markets
- Shareholder MSV v Stakeholder perspectives
- Ethics
- Talent
- Diversity & Inclusion
- Engagement & Psychological Contract
- Authentic Organisations
- The CSR/CR Agenda (‘greenwash’)
- Leadership, culture & change
Our Aims
- Introduce CG & know and understand what it is and why it is important
- Evaluate People Managers’ role in supporting good CG- actual and potential
- Explore linkages to other concepts covered during the module, particularly in recent weeks
To do: CIPD Podcast Does corporate governance need fresh thinking?
Episode 134: In this episode we discuss the current state of corporate governance in the UK and what we as HR and business professionals can do to create a better system for the future
Chris Moon’s recommendation Purposeful Leadership (Yarlagadda, 2017, CIPD) https://www.cipd.co.uk/knowledge/strategy/leadership/purposeful-leadership-report#gref
People Managers’ role – actual & potential: The RBS Lessons pre & post GFC of 2009
(Martin & Gollen, 2012)
Leadership, organizational culture and HRM in RBS during the growth period (up to 2007)
- …”dysfunctional consequences of the overall approach to management in RBS also extended to the performance management system, the human capital system and to rewards” (p3306)
- “The organization pre-GFC was characterized by egoist ethics, a focus on measurement, human capital and leader centricity (Matthewson/Fred (‘the shred’) Goodwin), with the HR function playing a limited role at board level. The case also reveals a weakness in the HR function’s ability to help leaders to reflect on their leadership style and organizational culture to bring about change.” (P3311)
- HR as ‘an un-indicted co-conspirator’
- The change from Goodwin’s MSV to Stephen Hester’s ‘enlightened shareholder value’ heralded a change in culture
People Managers’ role – actual & potential:
CIPD Podcast (2019) Six (of many) points
- the discussion should be about what kind of society are we building with ultimately our own capital and our own company.(Saker Nusseibeh, Hermes Investment)
- Ed Houghton, CIPD: HR needs to challenge in the induction of non-executive directors onto boards and the time that they spend through the induction process getting to understand the business …’; ‘Look at the issue that non-executives are not remunerated enough for their role at present..’
- we (HR) have to use this word diversity don't we because we want different types of people in the boardroom,….not the Old Boys’ Club, …not a cosy group of chums
- Highlight then drive culture change “…far too many employees see HR and the compliance arms as more compliant and not compliance, meaning they’re compliant with the status quo and with the things that are broken. In fact I think HR could be the original employee champion, and that's what they should be but instead I think they’re seen as placating the status quo.’
- Theme: the ‘subservience of HR to management’ and to executive to deliver data, deliver insights, but to not help make decisions.
- Whistle blowing and the ‘safe’ employee voice
People Managers’ role – actual & potential:
Four Archetypes and Proposals for a New Approach to Corporate Sustainability. (Martin et al, 2016)
Four archetypes of corporate governance systems:
- The shareholder value model. In this model, market logics dominate: the interests of the shareholders are paramount. The culture is unitary: the firm is a harmonious team (top to bottom) united in the pursuit of shareholder value.
- The communitarian stakeholder model. Pluralist, democratic logics drive this model, which recognizes and focuses on the legitimate interests of other stakeholders — from employees to the community at large.
- The enlightened shareholder value model. This is a hybrid model that represents a tempered version of the shareholder value model. The unitary culture built on shareholder value dominates, but with some (enlightened) recognition for the business case of other interests (e.g., stakeholder interests, social values).
- The employee-ownership model. This is a second hybrid that represents a tempered version of the communitarian governance model. Employees own or partially own the firm. They recognize the needs of all stakeholders but are also focused on gaining a return on their investment as shareholders — in essence, a pluralist culture that combines democratic and market logics.
The HR options
…human resource choices and the implementation of those choices in different ways.
- Shareholder value firms have control and calculative HR policies intended to ensure employee compliance and employee efficiency (e.g., through close supervision and no hesitancy to fire). A few high value employees receive a disproportionate level of compensation, otherwise there is very little investment in human capital and social capital (relationships).
- In contrast, communitarian stakeholder firms feature a commitment to people exemplified through training to increase skills and job security, and a collaborative culture exemplified through an effort to give employees a voice in the firm. Communitarian stakeholder firms trade the low-trust board-employee mentality of shareholder value firms for a dynamic high trust approach.
- The hybrid models offer a mix of these two HR approaches. Enlightened shareholder value firms temper the control/calculative practices of shareholder value firms with commitment/ collaborative practices. While a few “star” employees are highly paid, the firm tries to engage less value-adding and less scarce employees.
- The employee-ownership hybrid tempers the high commitment/collaborative practices of the communitarian stakeholder model with some control/calculative practices. Thus, the firm pushes training and development but contracts will include transactional features such as incentive-based pay for performance.
So…..a corporate sustainable approach to human resources might entail. A sample of these elements include:
- Creating a high trust dynamic across all levels of employment.
- Implementing employee share ownership linked to a long-term commitment to firm and market value. (i.e. reward and engagement/retention integrated)
- Reinforcing the legitimacy of the firm through sustainability, ethics and diversity.
- Training employees on environmental, ethical and diversity issues.
- Enabling employee involvement in sustainability initiatives and decisions.
- Linking (i.e. integration) performance appraisal and rewards to sustainability, ethics and diversity.
