Atlanta Human Resources Consulting and Executive Coaching Firm Articles by Corporate Performance Strategies

Build ethical and transparent cultures.

How can the HR Leader help build an ethical and transparent corporate culture?
- Create or Upgrade your 'Code of Conduct' Policy to address unethical and illegal behaviors, and encourage the reporting of them.
- Require associates to comply with the Code Policy and applicable statutes.
- Delineate behavior and practices that are prohibited by the company.
- Adopt confidential reporting procedures which allow anonymity.
- Establish procedures for investigating and documenting alleged abuses.
- Operate a Compliance hot line.
- Require any employee or stakeholder to report suspected fraud or misconduct to a designated company officer.
- Document and enforce the protection of whistle-blowers who report suspected fraud or misconduct.
- Champion ethical behavior; eliminate the 'gray areas' in policy and behavioral practice.
Strengthen HR's role in corporate governance.

How does the HR Leader strengthen the HR role in corporate governance?
- Assume a visible and active role with the Board of Directors.
- Educate Board members on the compliance process and HR's new responsibilities.
- Outline the company's compensation and benefits plans and Board responsibilities.
- Organize efficient and effective meetings for presenting HR responsibilities to the Board.
- Document each phase of the compliance process.
- Develop an action plan for overseeing the quarterly review of control processes.
- Assess the adequacy of any plan for remedial action.
Bring executive compensation practices into compliance.

How can the HR Leader help bring executive compensation practices into compliance?
- Play a key role in setting up the criteria for compensation eligibility:
  1. Conduct periodic reviews of compensation and benefits.
  2. Record changes and communicate these on a timely basis to Finance.
  3. Approve specific pay packages and changes in conjunction with the Board.
  4. Periodically monitor compliance with plans, as well as recordkeeping and data integrity.
  5. Centralize the monitoring of executive employment contracts in the HR department.
- Steer compensation philosophy and practices in directions that clearly align with shareholder interests:
  1. Discontinue illegal practices, such as personal loans, guarantees or credit to executives, officers and directors, or stock trading during black-out periods.
  2. Align senior leadership pay with the financial outcome of the business and with the interests of shareholders and employees.
  3. Ensure there is balance in executive pay plans to support the shareholder's long-term interests.
- Monitor compensation issues and trends to insure your company (including emeritus, advisory or honorary directors) remains compliant by restricting these practices:
  1. Company contributions to split dollar life insurance policies.
  2. Loans for margin calls, and or cashless option redemption.
  3. Relocation loans.
  4. Routine cash advances for reimbursable travel and business purposes.
  5. Personal use of company credit cards.
  6. Company funds for executive tax obligations for nonqualified deferred compensation benefits.
  7. Signing bonuses subject to repayment upon early termination.
  8. Loans from 401(k) plan.
  9. Failure to repay loans.
Adopt robust vendor management processes.

How can HR Leaders help develop internal controls for insuring vendor compliance?
- Limit service from external audit firms to either audit or to providing consulting services - but not both.
- Recognize the services which are now restricted from being provided by your external audit firm:
  1. Bookkeeping and any other service related to accounting records or the financial statement of the audit.
  2. Creation or management of financial information systems design and implementation, valuation, and actuarial services.
  3. Internal audit outsourcing services.
  4. Human Resources functions.
  5. Investment banking or broker services.
  6. Legal services or any other expert services unrelated to the audit.
- Create policy and conduct audits which hold vendors to your standards to insure full compliance.
- Pay particular attention to areas regarding contingent workers which may impact compliance:
  1. Recruitment practices.
  2. Background checks.
  3. Tax payments made by the contingent worker's actual employer.
  4. Contingent worker's legal working status.
- Ensure all HR department heads have documented processes (internal controls) for all vendors pertinent to their department; these processes should encompass all vendor responsibilities and comply with the legal, service agreement, and company plan requirements.
- Establish, monitor and take corrective actions for all vendors who handle compensation and benefits. Ask relevant questions (Pension example):
  1. Administrative provisions: Is Vendor calculating and reporting participant eligibility and vesting levels in an accurate and timely manner?
  2. Management and Disbursement of Benefits: Is Vendor consistently complying with their depository responsibilities regarding the plan assets in accordance with the Trustee Agreement?
  3. Problem Resolution: Does the Vendor have a documented problem-resolution procedure in place with guaranteed response times and escalation procedures?
  4. Employee Communications: Is Vendor preparing and distributing SPDs for all eligible employees within the DOL required timeframe?
  5. Compliance: Is Vendor consistently preparing an annual SAS 70 Report?
  6. Management Reporting: Is Vendor providing management reports to company?
  7. Actuarial: Is Vendor following accepted FAS standards?
  8. Security and Disaster Recovery: What are Vendor's formal back-up procedures and disaster recovery plan?
- Perform regular and quantifiable performance-oriented vendor audits.
Partner with Finance to establish and implement internal controls designed to ensure compliance in HR 'Priority Areas.'

How can HR Leadership help implement compliance in the Priority Areas?
- Establish effective communications and collaboration among HR, Finance, Legal and Treasury departments to implement required controls.
- Review HR functions in priority areas to insure proper amount of management, monitoring, and accountability.
- Adopt a standard approach for managing internal control procedures using the COSO framework.
  1. Ask the relevant questions:
    - Do you have policies?
    - Are you in control of your policies and procedures?
    - Are you able to provide documentation of compliance?
  2. Use COSO framework to establish an effective "internal control" discipline.
  3. Upgrade internal control processes that insure compliance and "flag" transactions or any situations that deviate from established policy.
- Provide SOX-relevant education and training to each stakeholder group:
  1. Prioritize your company's compliance with those processes or transactions most critical to your business's overall compliance objectives.
  2. Regularly audit your sales organization to ensure that compliance matters are addressed in sales training sessions.
  3. Refine your company's selection standards to detect candidates with a history for making unethical decisions under pressure to "make the numbers at all costs."
  4. Revise your performance management system to recognize and reward ethical behavior.
  5. Institute disciplinary procedures for violators of Code of Conduct policy and statutory violations.
- Institute a regular audit review of key human resources processes:
  1. Working with your Finance organization, prepare an audit protocol of those HR processes that may have significant SOX compliance value.
  2. Regularly conduct your functional-specific audit to uncover deficiencies in process or outcome.
  3. Remediate those processes which are non-compliant.
  4. Regularly disclose to your audit committee improvement plans for your processes and a timeline for reaching compliance goals.
- Develop feedback channels in performance reviews and attitude surveys for reinforcing and monitoring compliance issues:
  1. Ensure that your current performance management and reward systems promote and reinforce an ethical and transparent culture.
  2. Regularly evaluate both results and behaviors that are used to get results.
  3. Ensure that anyone evaluated below standard on any of the values or ethical standards is flagged and reviewed.
  4. Ensure that role models for the company's values and ethics are used for promotion decisions.
  5. Establish periodic employee survey feedback processes to monitor engagement and adherence to the company values.

By Patrick Dailey and Dave Brookmire

Sarbanes-Oxley - New Playing Field for HR Leaders