Human Resources and Corporate Governance
Certainly, such ratings are important, especially since Poland compares negatively in this respect with its closest neighbors (which are also its most direct competitors for capital investment).
However, without minimizing the clear issues with corruption and the lack of transparency that exist here in Poland, the core issues and questions are closely associated with the globalization of business that has taken place over the past 15 years, and with the rapid and dramatic economic and social changes of the past decade. In reality, it requires a broader perspective - and probably a more personal one. At the most basic level, cultural differences have a profound effect on the way that business is conducted and on what is considered acceptable.
When the Sarbanes-Oxley Act was enacted by the USA (in response to largely domestic business scandals), the impact quickly spread worldwide. As a result, U.S. Corporations, and many multinationals traded on U.S. markets, are now faced with tricky questions of how to account for different 'business' expenses and conflicting requirements for disclosure, and the like. It is clear that the 'technical' issues are addressed effectively at a systemic level by lawyers and auditors.
However, the implications for human resources (HR) and HR departments have been significantly underestimated and therefore relatively unaddressed. There are incredible synergies from involving the HR function in corporate governance - especially in dealing with issues related to codes of conduct. The corporate culture also plays a crucial role in determining the risks an organization faces with respect to compliance and the transparency of its business dealings.
The Importance of Culture
There is a substantial (if not obvious) difference between 'technical' legal compliance and ethical behavior, not to mention the approach that a company has to doing business. Corporate cultures vary widely and can often be described quite well in general terms.
As an executive search professional for 14 years, I have seen this close up. As a team member in the corporate governance practice for emerging markets within Ray & Berndtson, I have seen the impact of corporate culture on ethical behavior as well. We have had the opportunity to support a number of clients within the global emerging markets with the benchmarking of their corporate governance practices and also to participate in the implementation (actualization) of 'codes of ethics.'
From this experience, we have seen that a code of conduct is a crucial element and not just a 'technical issue' of Sarbanes-Oxley compliance. However, the implications of most codes of conduct are not obvious to many employees. More importantly, a critical element is missing at many corporations, namely employees' awareness of their ethical obligations and, often, of the decisions and choices they have.
Awareness - and the willingness to act within guidelines - is at its heart an issue of corporate culture and leadership by senior management, who must demonstrate in daily business the appropriate standards of transparency and ethical behavior (not just talk about it). And just to be absolutely clear, transparency and ethics are not simply a matter of not being corrupt, but of a willingness to assure that the company does not violate the law (or behave inappropriately).
What are the key steps in creating (or assuring) that the corporate culture is transparent and 'ethical' in practice? Of course, the answer varies from company to company. Home-grown businesses, former state-owned companies and multinationals all have different challenges. For Central & Eastern Europe and other emerging markets, here are some of the key messages and approaches from major companies that lead to success in actualizing a code of conduct:
They draw a connection between a code of conduct/code of ethics and actual business practices and then communicate this throughout the organization. In other words, they inform and provide a framework for internal discussion of the code of conduct.
They recognize that there is no contradiction between ethical behavior and good business results.
They recognize that decision-transparency, like having clear values, is part of the necessary vision for an organization and improves results.
The chief executive and management board take responsibility for meeting the standards of the code of conduct - and, by example, other managers and executives are expected to do the same.
They recognize that there is a potential for ethical 'dilemmas' and that there is a significant range between black and white, but through internally addressing such issues directly they will create an environment that is more transparent and ethical.
They know that the HR team plays a crucial role in assuring the transmission of, and adherence to, a code of conduct.
Employees are expected to take responsibility for their actions and must know that acting outside of the guidelines, therefore, has consequences.
The Role of Human Resources in Corporate Governance
The role of HR staff is often underestimated in the process of implementing a code of conduct. They play several key roles. First they are the facilitators who conduct training and support senior management in evaluating processes (and the suitability of managers to fill corporate governance-critical roles such as internal auditing). Increasingly, in public companies, the HR Director will be expected to proactively support the CEO and supervisory board in assuring that strong HR practices are implemented within the company.
The HR organization can also play the role of ombudsmen, proactively giving support in areas of conflict (e.g. gender or age discrimination). It also, especially in the USA, plays a supportive role in situations where there is a 'whistleblower.'
Of course, at the most basic level, the HR function must assure that the company's hiring policies and practices are in-line with the code of conduct and the law. For instance, it has long been the practice in Poland to ask women their age, if they plan to have children and other similar questions (and this is still the case today). It has also been the practice to artificially establish upper age limits for potential candidates. These practices will need to stop when Poland joins the EU, but they also need to be recognized for their effect on corporate governance.
Implications in Poland
On a global scale, cross-border capital investment is rapidly increasing the importance of transparent codes of conduct. Poland stands to lose a lot if it does not improve its performance and reputation.
For the Polish capital markets, there is a clear incentive to have stringent and transparent rules for publicly traded companies (though this is still more talked about than implemented). For Polish business owners, it is crucial to start fostering the behaviors that will create a code of conduct within their companies and investments. For international investors, it is to act according to the 'best' standards of the international business community. For senior executives, it is to assure that they work to appropriate codes of business conduct.
Matthew Tebeau, the Managing Partner of Ray and Berndtson Poland and the Baltic States
However, without minimizing the clear issues with corruption and the lack of transparency that exist here in Poland, the core issues and questions are closely associated with the globalization of business that has taken place over the past 15 years, and with the rapid and dramatic economic and social changes of the past decade. In reality, it requires a broader perspective - and probably a more personal one. At the most basic level, cultural differences have a profound effect on the way that business is conducted and on what is considered acceptable.
When the Sarbanes-Oxley Act was enacted by the USA (in response to largely domestic business scandals), the impact quickly spread worldwide. As a result, U.S. Corporations, and many multinationals traded on U.S. markets, are now faced with tricky questions of how to account for different 'business' expenses and conflicting requirements for disclosure, and the like. It is clear that the 'technical' issues are addressed effectively at a systemic level by lawyers and auditors.
However, the implications for human resources (HR) and HR departments have been significantly underestimated and therefore relatively unaddressed. There are incredible synergies from involving the HR function in corporate governance - especially in dealing with issues related to codes of conduct. The corporate culture also plays a crucial role in determining the risks an organization faces with respect to compliance and the transparency of its business dealings.
The Importance of Culture
There is a substantial (if not obvious) difference between 'technical' legal compliance and ethical behavior, not to mention the approach that a company has to doing business. Corporate cultures vary widely and can often be described quite well in general terms.
As an executive search professional for 14 years, I have seen this close up. As a team member in the corporate governance practice for emerging markets within Ray & Berndtson, I have seen the impact of corporate culture on ethical behavior as well. We have had the opportunity to support a number of clients within the global emerging markets with the benchmarking of their corporate governance practices and also to participate in the implementation (actualization) of 'codes of ethics.'
From this experience, we have seen that a code of conduct is a crucial element and not just a 'technical issue' of Sarbanes-Oxley compliance. However, the implications of most codes of conduct are not obvious to many employees. More importantly, a critical element is missing at many corporations, namely employees' awareness of their ethical obligations and, often, of the decisions and choices they have.
Awareness - and the willingness to act within guidelines - is at its heart an issue of corporate culture and leadership by senior management, who must demonstrate in daily business the appropriate standards of transparency and ethical behavior (not just talk about it). And just to be absolutely clear, transparency and ethics are not simply a matter of not being corrupt, but of a willingness to assure that the company does not violate the law (or behave inappropriately).
What are the key steps in creating (or assuring) that the corporate culture is transparent and 'ethical' in practice? Of course, the answer varies from company to company. Home-grown businesses, former state-owned companies and multinationals all have different challenges. For Central & Eastern Europe and other emerging markets, here are some of the key messages and approaches from major companies that lead to success in actualizing a code of conduct:
They draw a connection between a code of conduct/code of ethics and actual business practices and then communicate this throughout the organization. In other words, they inform and provide a framework for internal discussion of the code of conduct.
They recognize that there is no contradiction between ethical behavior and good business results.
They recognize that decision-transparency, like having clear values, is part of the necessary vision for an organization and improves results.
The chief executive and management board take responsibility for meeting the standards of the code of conduct - and, by example, other managers and executives are expected to do the same.
They recognize that there is a potential for ethical 'dilemmas' and that there is a significant range between black and white, but through internally addressing such issues directly they will create an environment that is more transparent and ethical.
They know that the HR team plays a crucial role in assuring the transmission of, and adherence to, a code of conduct.
Employees are expected to take responsibility for their actions and must know that acting outside of the guidelines, therefore, has consequences.
The Role of Human Resources in Corporate Governance
The role of HR staff is often underestimated in the process of implementing a code of conduct. They play several key roles. First they are the facilitators who conduct training and support senior management in evaluating processes (and the suitability of managers to fill corporate governance-critical roles such as internal auditing). Increasingly, in public companies, the HR Director will be expected to proactively support the CEO and supervisory board in assuring that strong HR practices are implemented within the company.
The HR organization can also play the role of ombudsmen, proactively giving support in areas of conflict (e.g. gender or age discrimination). It also, especially in the USA, plays a supportive role in situations where there is a 'whistleblower.'
Of course, at the most basic level, the HR function must assure that the company's hiring policies and practices are in-line with the code of conduct and the law. For instance, it has long been the practice in Poland to ask women their age, if they plan to have children and other similar questions (and this is still the case today). It has also been the practice to artificially establish upper age limits for potential candidates. These practices will need to stop when Poland joins the EU, but they also need to be recognized for their effect on corporate governance.
Implications in Poland
On a global scale, cross-border capital investment is rapidly increasing the importance of transparent codes of conduct. Poland stands to lose a lot if it does not improve its performance and reputation.
For the Polish capital markets, there is a clear incentive to have stringent and transparent rules for publicly traded companies (though this is still more talked about than implemented). For Polish business owners, it is crucial to start fostering the behaviors that will create a code of conduct within their companies and investments. For international investors, it is to act according to the 'best' standards of the international business community. For senior executives, it is to assure that they work to appropriate codes of business conduct.
Matthew Tebeau, the Managing Partner of Ray and Berndtson Poland and the Baltic States
