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Hot topic: Corporate governance, part two

What should HR’s role be in preventing poor practices?

Investigations into Carillion have revealed executives received large pay packets in the midst of multiple profit warnings, leading to the business folding with £1 billion debt and over 1,000 redundancies. Two weeks later similar fears were sparked for Capita. Is it time to rethink corporate governance?

Norman Pickavance, co-founder of the Centre for Organisational Renewal, says:

"Too often attempts to tackle the issues highlighted by recent corporate failures have been piecemeal and superficial. Too often we have allowed the complexity of the issues involved to narrowly focus our sights or become overly technical in attempting to address individual symptoms such as executive pay, board competence or corporate culture. We need to break out of the complacency that engulfs much discussion inside the business community, and challenge accepted orthodoxy.

"HR leaders could become far more active in helping their CEOs, boards and leadership colleagues to think through the fundamental and intrinsic purpose of their businesses. They could help to put in place transparent practices that enable people to challenge decisions misaligned with these long-term aims, and they could help to better equip NEDs in their stewardship responsibilities.

"First, however, HR leaders will need to find the courage of their convictions. Without the bravery to think and act differently it seems likely that we will be consigned to more corporate failure, and a continued decline in trust."

Sandy Pepper, professor of management practice at LSE, says:

"The demise of Carillion raises a number of issues for management scholars and HR practitioners. Did the NEDs carry out their duties with appropriate rigour? Were the auditors right to give an unmodified audit opinion in March 2017? Not unreasonably, the general public has high expectations of independent directors and audit firms. But are these expectations realistic?

"In the triangular relationship between shareholder, senior manager and employees, senior managers appear to have benefitted at the expense of other stakeholders.Whatever the truth of the matter, the optics are terrible.

"HR’s role in all of this? To be senior management’s critical friend and to speak truth to power when things look as if they might be going wrong. One can ask no more than that."

Read the first part of this hot topic