What Does HR Has to Do with Good Corporate Governance?

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By S. A. Kohan

In many companies, the group that is directly connected to bringing the money receives the most attention. Since the human resources team is not an income generating body of a company, it is often perceived as a burden – a cost center.  In reality, many human resources teams are burdensome and do not contribute much to the governance of their organizations except for endlessly shuffling garden variety of legal papers and filing them away in black-hole like archives. Let’s name this model of human resources as the Mindless HR Practices. Smart companies need good governance which needs HR teams that have mastered Mindless HR Practices and are decision scientists as well as management experts.

A human resources team with advanced college education in management and human resources coupled with extensive management experiences should be the go-to center for all supervisory employees on all matters relating to organizational and human capital management. Let’s name this human resources model as the Management Science Experts. Boudreau and Ramstad make the point that, “in the same way that marketing is the decision science of sales, and finance is the decision science of accounting, HR can be thought of as having two components: a professional practice and a decision science centered on talent management and organization capability” (Boudreau & Ramstad, 2005).

In multifaceted companies, the executive team is not always the best vehicle for addressing all issues. The executive leadership of smart companies do steer their management teams to collaborate closely with their Management Science Experts. This knitting of the company’s teams ensures that the right perspectives are present at the decision-making meetings to balance competing objectives and establish priorities.

Most managers are not educated in the art and science of management. Often they are experts in the subject matter of the department or the business they operate and by default are tasked to perform management duties. For example, a physician who opens up a private practice may not have management experience but because practicing medicine will produce income the practice becomes a viable business; however, the physician in charge is tasked with management duties without the benefit of having the knowledge of management expertise which can make governance of the clinic a chaotic matter. We see this lack of management expertise across industries where a social worker becomes a director of social services without having management training, or a chef becomes a restaurant operator or a baker opens up a bakery with no organizational management or corporate governance expertise, or a computer program developer suddenly stumbles upon a fortune and ends up managing a business and people without understanding the basics of the corporate governance. Common sense and high intelligence will ultimately fall short of serving the non-management professionals who are required to manage businesses. That where the human resources team should come on board to assist the managers with the corporate governance. 

Considering the significance of the role human resources team can play, it is essential for the HR team to have been formally trained in management and organizational leadership.

Successful Entrepreneurship Does Not Equate to Good Governance

Many entrepreneurs suffer from a fallacy of being good corporate governors, while they are not. Somehow producing impressive profit margins gives a false notion to some entrepreneurs, executives, and managers that they are good at corporate governance. Although good corporate governance can contribute to sustainability and profitability of a for-profit company, a profitable company may not necessarily have a good corporate governance. For example, there are many companies that are plagued with poor management, hostile work environment, high employee turnover, legal issues, but continue to operate because of the demand for their services or products. Such companies can reach higher profits margins and experience less difficulty operating if their incorporate good corporate governance practices. The professional human resources team can pave the road for good corporate governance.

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