WHY HR GOVERNANCE MATTERS

Historically HR leaders have not been challenged to thin !or"ally abo#t !#nctional
governance iss#es$ %y &!#nctional governance& 'e "ean a((lying an a((roach to
governance that !oc#ses on (er!or"ance )res#lts* as 'ell as con!or"ance )co"(liance* to
ey s#((ort !#nctions )HR+ ,inance+ Technology*$
Sarbanes O-ley has "ade all cor(orate and !#nctional e-ec#tives "#ch "ore a'are o!
their (ersonal and legal acco#ntabilities$ .n the !e' instances 'here HR governance has
been "ade e-(licit+ it is #s#ally synony"o#s 'ith co"(liance and does not address the
central iss#e / i"(roving leadershi( and "anage"ent o! a !#nction that invests an
average o! 01 (er cent o! o(erating reven#e in re"#neration+ retire"ent+ training and
other h#"an ca(ital (rogra""es$
With over a third o! co"(any reven#e at stae+ it2s ti"e !or CEOs to e-(and their !oc#s
!ro" co"(liance/driven cor(orate governance to the !ar "ore (rod#ctive and (ro!itable
iss#e o! !#nctional governance$ .n this article+ 'e e-(lore the (otential (er!or"ance
enhance"ent o((ort#nities achievable 'ith i"(roved HR Governance$
What is HR Governance?
As HR Governance is a relatively ne' organisational (ractice+ there is not as yet a
co""only acno'ledged de!inition$ Mercer de!ines HR Governance as the act o! leading
the HR !#nction and "anaging related invest"ents to3
o(ti"ise (er!or"ance o! the organisation2s h#"an ca(ital assets4
de!ine staeholders and their e-(ectations4
!#l!il !id#ciary and !inancial res(onsibilities4
"itigate enter(rise HR ris4
align the !#nction2s (riorities 'ith those o! the b#siness4 and
assist HR e-ec#tive decision "aing$
.t2s i"(ortant to note that 'hile cor(orate governance is treated as a strategic ob5ective to
attain+ HR governance is not$ HR Governance is a systematic approach to management
that enables the !#nction to achieve strategic and o(erational ob5ectives and (er!or"ance
o#tco"es$
The chart belo' ill#strates the relationshi( bet'een b#siness+ h#"an ca(ital and HR
!#nctional strategies that in!l#ence HR2s o(erating "odel and in!or" its governance
syste"$
Why does HR Governance matter?
HR Governance can have a "eas#rable i"(act on yo#r b#siness by i"(roving
(rod#ctivity and hel(ing to drive organisational change$
So"e o! the bene!its o! establishing a 'orable HR governance str#ct#re are3
clear re(orting str#ct#res
role clarity and val#e/adding HR activities and decisions at each level o! the
organisation
logical decision "aing bo#ndaries and controls
integration and align"ent 'ith b#siness (riorities
clarity aro#nd an organisation2s tolerance o! d#(licative activities
trans(arency o! (rocess and res#ltant e"(loyee tr#st6co""it"ent
de"onstrable evidence o! HR2s val#e to the b#siness$
The !ollo'ing case st#dies de"onstrate &HR Governance in action& in di!!erent
sit#ations$ The iss#e !or every organisation is to have ass#rance that+ given its o'n
#ni7#e conte-t+ its governance (rocesses 'ill red#ce o(erational and legal ris 'hile
enhancing its ability to deliver strong (er!or"ance$
HR Governance in action
Striking the right balance in operating philosophy
A (har"ace#tical co"(any decided to consolidate its collection o! inde(endent o(erating
#nits into a #ni!ied global s#((ly chain$ 8revio#sly each co#ntry had o(erated as an
inde(endent !ranchise+ 'ith "areting+ HR and (rod#ction based on local re7#ire"ents$
9nder the ne' "odel+ a dr#g co#ld be develo(ed in the 9S+ start (rod#ction in .reland+
!inish (rod#ction in %ra:il and be sold in Ger"any$
.n the (ast+ the HR !#nction in each co#ntry o(erated a#tono"o#sly+ delivering locally
acce(table res#lts b#t not taing advantage o! e-isting ca(ability in other (arts o! the
'orld$ ,or e-a"(le+ there 'ere "#lti(le e-ec#tive develo("ent (rogra""ess aro#nd the
organisation+ each 'ith #ni7#e entry+ (artici(ation and advance"ent re7#ire"ents$
The co"(any co#ld not esti"ate ho' "#ch "oney it s(ent on "a5or h#"an ca(ital
invest"ents s#ch as training+ so it co#ld not say ho' "#ch the d#(lication 'as costing+
nor co#ld it "eas#re the relevance+ e!!ectiveness or align"ent 'ith b#siness re7#ire"ents
o! vario#s HR (rogra""es$
.n line 'ith the global rationalisation taing (lace in other !#nctions+ HR !or"ed a
governing co#ncil+ co"(osed o! both the regional and cor(orate HR leaders+ and set !orth
to identi!y o((ort#nities to c#t s(ending on d#(licate sche"es$ At !irst the co#ncil
de!ined global g#iding (rinci(les+ 'hich so#ght to (#t standardised 'or!orce (ractices
in (lace across all geogra(hies$ Not only did this not c#t costs / it increased the"+ as local
HR !#nctions sta!!ed #( to i"(le"ent irrelevant (rogra"s$
The HR co#ncil realised that the 'ay to eli"inate d#(lication 'hile aligning 'ith the
b#siness 'as to !oc#s e-cl#sively on those 'or!orce (ractices that 'ere so#rces o!
global co"(etitive advantage+ s#ch as s#ccession (lanning+ (er!or"ance "anage"ent
and leadershi( develo("ent$ The tea" develo(ed g#idelines to state e-(licitly 'ho had
control and decision/"aing a#thority !or all o! the "a5or activities$
Once this (lan 'as i"(le"ented+ it increased consistency across the b#siness+ eli"inated
#nnecessary d#(lication and "aintained necessary local di!!erences / leading to red#ced
costs+ strea"lined (rocesses and local b#y/in to the i"(le"entation (lan$ .t also had one
#nintended bene!it3 it hel(ed HR leverage its invest"ent in a large HR in!or"ation
syste"+ 'hich had th#s !ar been #sed e-cl#sively to trac heads and (ay (eo(le$
%y balancing global+ regional and local ob5ectives+ the HR co#ncil 'as able to gain
co""it"ent to global (hiloso(hies and (olicies and e"(o'er the local !#nction to
o(erate "ore e!!iciently and e!!ectively$
Reducing the risk of organisational change
At a ra(idly gro'ing co"(any+ ad"inistrative (roced#res 'ere considered !or"alities4
ho'ever+ the CEO 'as !inally !orced to recognise the "a5or !inancial and b#siness riss
(osed by the lac o! !or"al governance syste"s$
.n the HR de(art"ent+ the HR ;irector 'as 5#ggling a set o! iss#es / (artic#larly in the
area o! re"#neration / that i! le!t #nattended co#ld have res#lted in #nacce(table
!inancial ret#rns and (ossible intervention by reg#lators$ The co"(any2s decision/"aing
style 'as heavily consens#s oriented+ "aing it di!!ic#lt !or the Re'ards Co""ittee
"e"bers )a s#b/co""ittee o! the %oard res(onsible !or oversight o! ele"ents o!
e"(loyee re"#neration* to tae res(onsibility !or their actions$ The Re'ard Co""ittee
'as ased to doc#"ent its governance (ractices+ so it develo(ed a charter that s(eci!ied
(roced#res and g#idelines re7#ired by reg#lators+ b#t also 'as ada(table !or a ra(idly
changing b#siness$
Once the Re'ards Co""ittee "e"bers ca"e to ter"s 'ith their (ersonal acco#ntability
and !id#ciary roles+ they set !orth the res(onsibilities and acco#ntabilities o! their o'n
gro#(+ the gro#( to 'hich they re(orted )both the Co"(ensation Co""ittee o! the %oard
and the %oard o! ;irectors*+ and the !#nctional gro#(s they s#(ervised6'ored 'ith$
While co"(liance 'as the (ri"ary driver !or this governance activity+ it 'as not the only
concern$ Any reg#latory snags co#ld have had short/ and longer/ter" negative i"(act on
the brand o! the #(/and/co"ing co"(any$ .t 'as clear that the creation o! e!!ective
governance syste"s co#ld enhance the co"(any2s viability in the eyes o! its c#sto"ers+
(otential c#sto"ers and shareholders / as 'ell as rein!orcing its co""it"ent to its
'or!orce$
So+ doc#"enting an e-(licit a((roach to (lan "anage"ent and control 'as "#ch "ore
than a ris/"itigation tool !or this organisation$ .t 'as a (o'er!#l "eans o! sa!eg#arding
the co"(any2s brand assets and b#ilding e"(loyee loyalty as it gre' and changed$
Who's minding your HR Governance?
.! yo#2ve "anaged to 'or yo#r 'ay thro#gh the cor(orate governance iss#es+ it2s ti"e to
t#rn yo#r attention to !#nctional governance$ Catch yo#r HR ;irector in the hall'ay and
as hi" or her any o! the !ollo'ing 7#estions to assess the strength o! yo#r co"(any2s
a((roach to HR governance3
What is the "odel !or governance o! the HR !#nction<
What are HR2s areas o! !oc#s< Ho' are activities in these areas being "anaged<
Ho' 'ell do the !#nction2s (hiloso(hies on ris+ a#tono"y+ and delegation o!
a#thority align 'ith the b#siness< Ho' do yo# no'<
;o yo# #nderstand yo#r !id#ciary and !inancial acco#ntabilities as a !#nction<
Ho' is the (er!or"ance o! the !#nction being "onitored<
.! the res(onse is less co"(rehensive and (er!or"ance/oriented than yo# ho(ed+ it2s ti"e
to get serio#s abo#t HR governance$ ."agine the HR riss that co#ld be l#ring in yo#r
b#siness+ or alternatively+ thin o! the (otential #nta((ed o((ort#nities to increase
(rod#ctivity and c#t costs+ 'hich are lying there 'aiting to be discovered$
,or "any co"(anies+ there is no' an o((ort#nity )soon to beco"e a necessity* to a((ly
the (o'er!#l !ra"e'or o! governance to "a5or !#nctions$
,orgotten yo#r (ass'ord<
Abo#t "e"bershi(

,ollo' the "oney
Gary Gill+ National Head o! =8MG ,orensic+ =8MG
Change >o#rney
Nicholas Conigrave+ Associate ;irector+ Hay Gro#( A#stralia
Category creativity
Mie %ooer and Melanie Sanders+ %ain ? Co"(any
Co"ing ho"e
Glenice Maclellan+ Egon @ehnder .nternational

G;8
Mie Riddi!ord+ CEO ,or#"
A#stralian "ade
Steve Sabo#ne+ ;eb Gro#(
Tr#st Me
Mie Riddi!ord+ CEO ,or#"
Winning 'ith (roc#re"ent in Asia
>e!! Melton+ 8hil %arton+ and Gerry Mattios+ %ain ? Co"(any
Correction3 NRMA
CEO ,or#"+
T'eet at yo#r (eril
Mie Riddi!ord+ CEO ,or#"
The Global ABB
Mie Riddi!ord+ CEO ,or#"
When
Mie Riddi!ord+ CEO ,or#"
%randing that 'ors
>ason Eisner+ %rand C#est
S#bsidiary challenge
Eric R#ggirello+ %ayer Gro#( A#stralia and Ne' @ealand
End 5etlag no'D
;avid Cro'+ %ritish A"erican Tobacco A#stralasia
The E#cy C#lt#re
Mie Riddi!ord+ CEO ,or#"
The =ingdo" and the C#arry
Mie Riddi!ord+ CEO ,or#"
Strategic Ca(italis"
Mie Riddi!ord+ CEO ,or#"
Seven decision/"aing tra(s
Mie Riddi!ord+ CEO ,or#"

Correction3 NRMA