on the contrary I was pleasantly surprised to hear in a recent AGM
of a property and investment holding company that several retail
investors had recognised and attributed corporate success to the
CEO and the management team.
retail investors linked the CEO’s leadership and peoples’
performance to the financial track record and good corporate governance
of the company. There seems to be some form of awareness amongst
the investing public that people, culture and the corporate environment
play a crucial role in value creation.
Corporate governance is defined broadly as rules and regulations,
systems, processes and practices, and ethical conduct that assist
the decision making top down with a view to create responsible,
accountable, controlled and value driven companies. Such attributes
promote investor, shareholder, customer, and employee confidence,
both current and future.
The collapse of Enron and Worldcom in the USA, and HIH Insurance
in Australia, to mention a few, is shocking. These are companies
that were profitable and exhibited good business and trend setting
practices in the corporate world.
Taking a step back – how did these companies with strong governance
practices not hedge themselves against corporate failures of such
magnitude and scale? In these companies’ disclosure, leadership,
targets that were set too high as well as ethical and moral conduct
were identified as amongst the major reasons for their failure.
Unfortunately till today there are corporations, supervisors and
regulators that have not learned enough from these failures nor
placed enough focus on directing efforts towards these challenges.
CEO and HR cost account for a large portion of operating revenue
depending on the kind of business operated - in compensation, health
care, contribution to the employee provident fund, training and
other HR expenses.
Very often this cost is not challenged at Board meetings linking
its contribution to overall corporate performance and governance.
In some instances there is no objective and unbiased assessment
of the CEO and top management as part of the Board governance process.
I tend to agree with some gurus in HR consulting that there is no
commonly acknowledged definition for the act of leading and managing
the human capital, which is somewhat an evolving organisational
practice. Yet, it deserves corporate attention.
Mercer Consulting Inc in defining “HR governance” is
seen to have linked HR’s role in the management of functional
investments to optimisation of peoples’ performance, fulfilling
fiduciary and financial responsibilities, mitigating enterprise
HR risk, aligning the function’s priorities with those of
line business, and enabling executive decision making.
Mercer goes on to detail the elements of governance to include structure
and accountability, philosophy and operating principles, core management
activities and performance monitoring. These activities link to
task execution and performance i.e. results and conformance. What
is evident is that the HR function has an expanded role that evolved
over time from providing basic administrative and support function
to one of a business partner and possibly catalyst for change, enhancing
leadership practices and creating ethical environments for business
Improving productivity, driving transformation programmes, policy
and rule compliance, clarity in reporting structures supported by
role clarity, preferred culture and leadership practices, delegation
of authority and accountability, managing reward plans and programmes,
staff development and talent /leadership management and retention,
resource allocation, succession planning, and performance monitoring
– all these can be linked to operational effectiveness, compliance,
risk management and contribution to business continuity and success.
Together with corporate values, integrity and skill enforcement
HR shapes ethical corporate behaviour and successful companies.
Under the Sarbanes–Oxley Act (SOX) the HR operating model
apart from reward and reporting issues is examined and recognised
as an important constituent in business success. SOX gives a holistic
approach to corporate governance. SOX contributed to pushing the
role of HR to a higher level in the organisational structure - a
business partner role to achieve strategic and operational objectives.
HR has a role in corporate social responsibility. HR ensures corporate
governance mindsets, culture and thinking top down are enshrined
in everyone in the company for the overall success of the company.
Without doubt, HR’s role and contribution ought to be important
items on the Board’s agenda when discussing corporate governance
- how HR can motivate a workforce to execute the business strategy
through sourcing, applying appropriate capabilities and managing
Nadarajah is now a freelance analyst on corporate governance
(CG) and financial matters.
In this role she assists companies to embrace best corporate
practices, highlight weaknesses in governance, internal audit
and risk management practices.
also trains in finance, risk, internal audit corporate governance
and insurance matters.
Previously she worked as a financial controller and in other
roles in financial institutions. Vijayam is a past president
of the Institute of Internal Auditors Malaysia.