HR practitioners need to better understand and enunciate what they are doing to ensure knowledge and innovation practices add to the bottom line
Governance practices have been in the spotlight in an effort to improve both governance and executive behaviour, plus enhance public image. So, what do these evolving standards mean for the relationship between the board of directors and the vice-president of HR?
Governance fundamentals
The board has two overarching duties: sustainability of the enterprise, and the relevancy of products, programs and services to the communities the enterprise serves. With this in mind, improved profitability and shareholder/stakeholder relationships, accurate public disclosure and transparency, plus reliability of reporting systems, have been the most immediate fallout of the Sarbanes-Oxley Act in the United States and the soon-to-be-established guidelines of the Canadian Securities Commissions. This means many Canadian companies will need to change work processes and implement new policies and reporting systems.
That said, the longer-term “real” work of governance requires board members to:
•understand the network dynamics and environmental trends in which the enterprise operates;
•engage with the communities they serve to ensure continued relevancy;
•provide oversight to management and ensure an ethical framework is in place;
•manage risk of the enterprise and its ability to deliver on its strategic and business plans; and
•leverage board member relationships to assist in government relations and fundraising activities.
Within this context, there are several areas where the HR department can be of value to the board.
HR and risk assessment
Given a good understanding of the environment in which the enterprise operates and the potential dynamics at play over the next few years, the board needs to ensure that it and management have a good sense of how to position themselves to create and provide value in the marketplace. This includes a clear understanding of the unique “knowledge recipes” and “innovation capacities” the enterprise intends to utilize.
Knowledge and innovation are core HR concerns. The entire HR team should be clear about how the department facilitates knowledge sharing, growth and leverage across the enterprise, as well as nurturing innovation practices that will drive future value offerings and increase shareholder value.
In the current environment of depressed share prices and high price/earnings ratios, many organizations have been “squeezing” discretionary expenses to improve the bottom line. However, the “squeezing out” of knowledge-building and innovation-enhancing initiatives is folly for medium- and long-term sustainability of an enterprise. HR must provide guidance in this area.
The board also needs to pay close attention when management presents the strategic and business plans. The board and management should have a good view as to the organization’s competency and capacity to carry out the plans.
In assessing this risk, the board will need to consider all its “asset” aspects: financial capital, infrastructure, human and intellectual capital, relationship capital and technology. HR should be involved in assessing and making recommendations about the infrastructure as well as the human and intellectual capital domains.
Infrastructure includes buildings, equipment, and most important to HR, organizational structure. Is the organizational design of the enterprise most appropriate for attaining the plan? Do the current internal processes and systems give the people the right information and knowledge, support, and incentive to maximize performance? Increasingly, dysfunctional processes and systems are not just the concern of operations management but also HR management.
Human and intellectual capital includes leadership and management, professional expertise, and owned, unique and systematized or imbedded intellectual capital. Does the organization have the necessary supply of leadership and management talent needed to deliver on the plan and achieve the desired future value positioning of the organization? Are the professionals in the enterprise capable of innovating, building alliances and partnerships and advancing the value and features of products, programs and services amid changing marketplace dynamics?
How will HR ensure that this knowledge and innovation enhancement happens?
What programs or initiatives are in place to ensure both the leadership and professional ranks can deliver the results?
How will HR measure the success of its ability to proactively contribute to the organization’s success?
In a technical-minded enterprise, or with a board prone to focusing only on finances, the vice-president of HR needs to enunciate how HR is working to address such risks and assure future performance.
Connections through the HR/compensation committee
This is the primary vehicle the board creates to probe the HR area and better understand people policies, systems and practices.
In this area, there are a few key concerns:
•ethics policy and practice — conflict of interest guidelines, code of conduct, values and principles statement, outcomes measures for transparency reporting;
•compensation and benefits— management remuneration policy, pay/employment equity, bonus and benefit design and payout implications; and
•succession planning — management and key professionals replacement, turnover and recruitment trends, competency and experience development plans.
Sarbanes-Oxley and the Canadian Securities Commissions have focussed on executive compensation and the treatment of stock options and executive loans, requiring significant work in reporting and new policy development. However, from a governance perspective, the bigger issues are about ensuring that a vital ethical framework is established and used by the enterprise, its suppliers and partners. Also, succession planning is a huge issue amid a competitive global talent marketplace and the advancing juggernaut of retirement turnover.
In this respect the vice-president of HR will need to be proactive in advancing these issues for the board’s consideration along with recommended action plans, policies and organization design implications.
The evolution of governance standards and practices is putting pressure on all aspects of the enterprise. In the human resources area, this requires HR practitioners to understand and better enunciate what they are doing to ensure knowledge and innovation practices add to the ability to attain the desired value positioning of the organization over the next few years. Boards need to support the vice-president of HR and senior management in proactively suggesting programs, policies and organizational design that reduce risk and enhance achievement of the strategic plan.
Unfortunately, regulatory bodies have increased the overall workload with respect to reporting and public transparency. However, HR can champion an outcomes-based approach to thinking, knowledge and innovation facilitation, performance management and measurement, which will help improve governance.
Doug Macnamara is president of Banff Executive Leadership Inc. in Alberta, specialists in board governance and executive leadership practices improvement. For more information visit www.banffexeclead.com.
Governance fundamentals
The board has two overarching duties: sustainability of the enterprise, and the relevancy of products, programs and services to the communities the enterprise serves. With this in mind, improved profitability and shareholder/stakeholder relationships, accurate public disclosure and transparency, plus reliability of reporting systems, have been the most immediate fallout of the Sarbanes-Oxley Act in the United States and the soon-to-be-established guidelines of the Canadian Securities Commissions. This means many Canadian companies will need to change work processes and implement new policies and reporting systems.
That said, the longer-term “real” work of governance requires board members to:
•understand the network dynamics and environmental trends in which the enterprise operates;
•engage with the communities they serve to ensure continued relevancy;
•provide oversight to management and ensure an ethical framework is in place;
•manage risk of the enterprise and its ability to deliver on its strategic and business plans; and
•leverage board member relationships to assist in government relations and fundraising activities.
Within this context, there are several areas where the HR department can be of value to the board.
HR and risk assessment
Given a good understanding of the environment in which the enterprise operates and the potential dynamics at play over the next few years, the board needs to ensure that it and management have a good sense of how to position themselves to create and provide value in the marketplace. This includes a clear understanding of the unique “knowledge recipes” and “innovation capacities” the enterprise intends to utilize.
Knowledge and innovation are core HR concerns. The entire HR team should be clear about how the department facilitates knowledge sharing, growth and leverage across the enterprise, as well as nurturing innovation practices that will drive future value offerings and increase shareholder value.
In the current environment of depressed share prices and high price/earnings ratios, many organizations have been “squeezing” discretionary expenses to improve the bottom line. However, the “squeezing out” of knowledge-building and innovation-enhancing initiatives is folly for medium- and long-term sustainability of an enterprise. HR must provide guidance in this area.
The board also needs to pay close attention when management presents the strategic and business plans. The board and management should have a good view as to the organization’s competency and capacity to carry out the plans.
In assessing this risk, the board will need to consider all its “asset” aspects: financial capital, infrastructure, human and intellectual capital, relationship capital and technology. HR should be involved in assessing and making recommendations about the infrastructure as well as the human and intellectual capital domains.
Infrastructure includes buildings, equipment, and most important to HR, organizational structure. Is the organizational design of the enterprise most appropriate for attaining the plan? Do the current internal processes and systems give the people the right information and knowledge, support, and incentive to maximize performance? Increasingly, dysfunctional processes and systems are not just the concern of operations management but also HR management.
Human and intellectual capital includes leadership and management, professional expertise, and owned, unique and systematized or imbedded intellectual capital. Does the organization have the necessary supply of leadership and management talent needed to deliver on the plan and achieve the desired future value positioning of the organization? Are the professionals in the enterprise capable of innovating, building alliances and partnerships and advancing the value and features of products, programs and services amid changing marketplace dynamics?
How will HR ensure that this knowledge and innovation enhancement happens?
What programs or initiatives are in place to ensure both the leadership and professional ranks can deliver the results?
How will HR measure the success of its ability to proactively contribute to the organization’s success?
In a technical-minded enterprise, or with a board prone to focusing only on finances, the vice-president of HR needs to enunciate how HR is working to address such risks and assure future performance.
Connections through the HR/compensation committee
This is the primary vehicle the board creates to probe the HR area and better understand people policies, systems and practices.
In this area, there are a few key concerns:
•ethics policy and practice — conflict of interest guidelines, code of conduct, values and principles statement, outcomes measures for transparency reporting;
•compensation and benefits— management remuneration policy, pay/employment equity, bonus and benefit design and payout implications; and
•succession planning — management and key professionals replacement, turnover and recruitment trends, competency and experience development plans.
Sarbanes-Oxley and the Canadian Securities Commissions have focussed on executive compensation and the treatment of stock options and executive loans, requiring significant work in reporting and new policy development. However, from a governance perspective, the bigger issues are about ensuring that a vital ethical framework is established and used by the enterprise, its suppliers and partners. Also, succession planning is a huge issue amid a competitive global talent marketplace and the advancing juggernaut of retirement turnover.
In this respect the vice-president of HR will need to be proactive in advancing these issues for the board’s consideration along with recommended action plans, policies and organization design implications.
The evolution of governance standards and practices is putting pressure on all aspects of the enterprise. In the human resources area, this requires HR practitioners to understand and better enunciate what they are doing to ensure knowledge and innovation practices add to the ability to attain the desired value positioning of the organization over the next few years. Boards need to support the vice-president of HR and senior management in proactively suggesting programs, policies and organizational design that reduce risk and enhance achievement of the strategic plan.
Unfortunately, regulatory bodies have increased the overall workload with respect to reporting and public transparency. However, HR can champion an outcomes-based approach to thinking, knowledge and innovation facilitation, performance management and measurement, which will help improve governance.
Doug Macnamara is president of Banff Executive Leadership Inc. in Alberta, specialists in board governance and executive leadership practices improvement. For more information visit www.banffexeclead.com.
