Why Small Companies Need HR Personnel
Corrections or additions?
These articles by Bart Jackson and Kathleen McGinn Spring were
prepared for the May 23, 2001 edition of U.S. 1 Newspaper. All rights
reserved.
Power in the Board Room: Not Beyond Review
The burnished walnut board rooms of corporate power,
we are assured, stand resplendent with status, money, and baronial
authority. This is the place to strive for. Those seated within make
all the deals and decisions. Those outside, well, just take orders.
However, the illusion of board members merely nodding in wise and
masterful inactivity, totally aloof from their decisions is currently
running up against a new set of Securities and Exchange Commission
and legal realities. Board directors are technically navigating the
adventurous ship of capitalism, and therefore lash themselves to the
full risk of the journey right along with the CFO and the lowly
product
inspector.
If you are serving on a board, whether non-profit or for-profit, or
are considering doing so, you might want to attend a working breakfast
on “The Corporate Board Room — Risks and Rewards” on
Thursday,
May 31, at 8:30 a.m. at the New Jersey Law Center in New Brunswick.
Speakers include Christine Bator, corporate specialist with
the Princeton law firm of Courter, Kobert, Laufer & Cohen; Nina
Henderson on the board of Shell Oil; John Gribbins, CEO of
State Healthcare; and Frank Paolucci, finance director of AON
Financial Services Company. The event is co-sponsored by the New
Jersey
Institute for Continuing Legal Education and Executive Women of New
Jersey. Cost: $99. Call 732-812-7272.
Recently, the board members of Caremark Inc., based where TK, took
their seats and opened their packets. To their shock, each one
included
a very personal envelope naming them individually in an upcoming $250
million class action suit against this national, publicly-owned
healthcare
insurer. Nowadays, responsibility comes home to roost with a
vengeance.
“Male or female, profit or non-profit, government or private,
has nothing to do with it,” says Bator, “If you serve on a
board of directors you are expected to be vigilant, to express `proper
fiduciary responsibility.’ Of course it is a great honor and privilege
to be asked onto a board, but the trend is moving swiftly away from
the figurehead director.”
Bator should know. In the past, she has served on the boards of the
New Jersey Bar Association, the New Jersey Institute for Continuing
Legal Education, and several others, including her current board
memberships
on the New Jersey Highway Authority and NJEW.
Board members’ exposure to personal liability comes from many corners,
including:
Fair disclosure regulations. Within the past 12 months,the SEC has set up more specific guidelines about information sharing.Formerly corporations were leaking the news of possible mergers,acquisitions,or IPO plans to only a select group of analysts. Now it is requiredthat these quiet quarterly conference calls be expanded to includeall shareholders.Mergers and acquisitions. “Mergers and acquisitionsare the primary times when directors are open to risk,” saysBator.”Disgruntled shareholders most often come to the fore.” Inthe mid-1980s and early-’90s, most investors felt that such dramaticcombinings were clever moves to boost stock prices, benefiting allaround. Now the public view has shifted to a more skeptical beliefthat the upper corporate echelons are maneuvering for their own profitwith a shareholder-be-damned attitude. This distrust engenderslitigation.After all, Bator states, “directors are, among other things,representativesof the shareholders within the firm.”Patent Infringement. As Matel Inc. recently learned,varioustypes of patent infringement reparations can be laid at the boardmembers’ feet if it is found that they did not diligently search forpreceding patents, or if they learned of another patent and ignoredit.Product Liability. As with infringement, the directorscan be shown to be totally negligent in product examination.Basically,Bator says, if the board is vigilant, asks the right questions, andcan show that it did its best, then they have done their job, andcut their liability, even though the product eventually fails.Audit Committees. The rather vague legal directive thatboard members “demonstrate proper fiduciary responsibility”hangs as a tempting hinge for many a shareholder lawsuit. A firm’saudit committee can unearth a possible negligence, which can explodeinto full-blown accusations of fraud if the stockholders, or evenmembers of the general public, do not feel they are being served.With the SEC auditing corporate audit committees, it’s best to steera course toward fuller public disclosure.Regardless of the source, the board member faces legal exposurefor virtually all of his or her business judgments. Even dissentingvotes. While the exposure may be very real, Paolucci, director ofthe AON Financial Services Group in Philadelphia, points out thatdirectors can afford themselves some very real protections. Thesimplestand most thorough protection is for the firm to take out Directors’and Officers’ Liability Insurance. Paolucci, who will act as one ofthe May 31 panel speakers, says that such an all-risk policy for bothprofit and non-profit firms is becoming more popular.Granted, the premium paid by a major Fortune 500 company to protectits decision makers may range up to $1 million annually. But thethreatof ponying up your share of a quarter-billion-dollar legal settlementcan quickly exhale all the pomp and honor that board membershippreviouslycarried. If the SEC drops a suit at your door, Paolucci says,”judgmentscan easily climb to the hundreds of millions. The results can becatastrophic— to the firm and to the individual finances of its officers.”Many firms claim to indemnify their directors and officers againstlegal judgments. The problem is, such indemnification holds bothdollarand legal limits. Typically these company protections hold as longas the director is acting “in the firm’s own best interest.”However, most major suits against directors come from shareholders,as a class action, bringing a derivative lawsuit on behalf of thecorporation. This presents a lovely Catch 22: We (the firm) willprotectyou as long as you were acting in the firm’s best interest. Ifstockholderssue (and win), obviously you were not acting in the firm’s bestinterest.So there goes your house and car.In short, you will do better to demand an outside Directors’ andOfficers’Liability Policy as a condition of your acceptance to the board. Yetyou might want to remember that a corporation is not a license forpersonal or business negligence, or scams. No insurance clauseprotectsa board from charges of fraud or blatant non-disclosure or stockmanipulation.”Basically, a member of the board must show himself as aware ofboth the corporate and public interest,” says Bator. “He mustask the right questions before (casting a vote). Lawyers must holdthemselves to an even higher standard of caution, and I personallyfind it unwise for a company’s official legal representative to bea voting board member.”So amidst all the honor and leather arm chairs, comes a shirtsleeveduty: read all those thick reports, question everything, and employyour natural integrity. After all, that’s why you have been chosento wield the power.— Bart JacksonTop Of PageMore About EWNJThe co-sponsor of the May 31 Law Center seminardescribedabove, Executive Women of New Jersey, is a power-packed group withan undeservedly low profile. Back in 1980 only 5 percent of Fortune500 company board members were women. Several of this pioneering groupunited to form the Executive Women of New Jersey with the goal of”promoting the advancement of women to the highest levels ofgovernment,business, and the professions.”Today, with the help of EWNJ, women comprise 12.8 percent — onein eight — of Fortune 500’s board members. EWNJ compiles adatabasefor companies and agencies from around the world seeking appropriatetrustees or board members. Those interested can contact theorganizationat 973-812-7272.Top Of PageWhy Small Companies Need HR PersonnelNew companies take a casual approach toward personnelissues, often hiring friends and dealing with employees’ requestson the fly. “There is a tendency to want to retain thatatmosphere,that family-like feel,” says Mary Thomas, a New JerseyDepartmentof Labor human resources consultant and trainer. “They think thereis merit in making decisions on a case-by-case basis.” She saysthis is a recipe for discord, and maybe even disaster, and urges allemployers to create a formal human resource function.Thomas speaks on “Establishing/Expanding a Human ResourcesFunctionor Department” on Thursday, May 31, at 9 a.m. at a joint NewJerseyDepartment of Labor and Employers Association of New Jersey seminarat Union County College in Springfield. Cost: $10. Call 609-393-7100.In response to a question on how many employees a company should havebefore it considers establishing an HR department, Thomas says”eventhe smallest company needs to hire and fire.” Given the businessrepercussions of smart — and lawful — hiring and termination,she says human resources procedures need to be in place right fromthe start.”There are some real predictable consequences of operating withoutan HR function,” she says. One of the most common isinconsistency.Susie the programmer takes two months off each summer to climb theHimalayas, whereas a request from Bert the bookkeeper for a Fridayoff so he can get his sailboat in the water is turned down.”Employeessee it as unfair,” says Thomas. Morale deteriorates, absenteeismclimbs, and turnover increases. And time is lost. “Managers andsupervisors have to spend time rethinking decisions and explainingto employees,” Thomas says. “And there can be a perceptionof favoritism.”Grumbling is not good, and lawsuits are worse. Fire or promote ordeny leave for reasons an employee can interpret as illegal, and acasual approach to HR administration can result in a lengthy, andexpensive, stint in court.New businesses have a lot on their plates, but Thomas suggests thatadding one more — an HR function — will save time, money,and grief. And doing so needed cost a fortune. Here are hersuggestionsfor getting an HR function going.Learn about the issues. Attending seminars, like the onesheld by the Department of Labor, is a good way to pick up the basicsof recruiting, monitoring laws, training and development, employeerelations, personnel record keeping, benefits administration,occupationalhealth and safety, and employee services. A second step might bereadingbooks on these subjects or hiring an HR consultant.Put together a handbook. Every company, no matter howsmall, should have a handbook, Thomas says. It should include astatementon employment terms, whether it is “at will” (anyone can quitor be terminated at any time for any reason) or governed by acontract.Policies on sick time, vacation, and holidays should be set forthtoo. Other basic documents include a list of job descriptions andan outline for performance reviews. Doing a good job with thesewrittenmaterials takes time, and Thomas says outsourcing them to independentcontractors may make sense.Put someone in charge. In the early stages of a business,managers and supervisors often share HR responsibilities, Thomas says.A better approach is to put someone in charge. She says many companieslook around, and choose an HR chief from among employees, adding thefunction to their other duties. Often someone performing a bookkeepingfunction is chosen. This can be a good solution for a small company,Thomas says.Put the new HR chief high on the management chart. Theperson delegated must be given training, must have enough time toperform all the necessary work, and must have access to uppermanagement.Dealing with the boss is not always easy, Thomas says. In a commonscenario, the employee responsible for HR hears through the grapevinethat management is about to do something that is possibly illegalor certainly unwise. Perhaps a star employee is about to be giventhe boot to make room for the boss’s nephew. “The personperformingthe HR function has to go to management and say `we can’t do this,’and management doesn’t want to hear it.”Beef up the HR department. As companies grow, thepart-timeHR chief is likely to become overwhelmed. Thomas says that accordingto the Bureau of National Affairs a company that has passed its 100themployee mark needs a fulltime HR director. As a rule, another HRemployee should be added every time the company’s head count goesup another 100.Keeping an HR department at full strength is more importantthan ever, Thomas says, in part because so many New Jersey companiesare still in a frantic hiring mode, and also because, “Employeesknow their rights,” and violating those rights can bring problemswith the power to badly disrupt business.Top Of PageCorporate AngelsThe New Jersey Society of Certified Public Accountantsthis year is awarding more than $240,000 to 84 New Jersey high schooland college students interested in pursuing an accounting career path.This is the largest amount to be awarded in a single year by thegroup,which has donated $1 million to New Jersey students over the past10 years.Verizon Foundation has donated $50,000 to PreventionEducationInc., a Lawrence not-for-profit, which runs a number of programs,including a Crisis Intervention Program that provides immediateshort-termcounseling to sexual abuse victims between the ages of 3 and 18.This is the largest grant Prevention Education has ever received.The organization was founded in 1985 to fill a void that existed inMercer County with regard to education, intervention, and trainingprograms related to sexual abuse and personal safety.Rutgers has received a $560,000 grant from Johnson &Johnsonfor a wide range of projects and programs in key research,educational,and community service areas. The grant will help underwrite the costof five new projects, and will also provide funding for 11 ongoingor expanded projects, fellowships, and a research awards program.New Rutgers projects receiving support under the grant includethe International Working Group on Gene Delivery with the New JerseyCenter for Biomaterials; spinal cord research and the Asthma Project,both at the College of Pharmacy; the Minority Nurse LeadershipInstituteat the College of Nursing; and the New Brunswick Scholars’ SaturdayAcademy through the Office of Minority Undergraduate Science Programs.The Rutgers College of Nursing has been awarded $2,019,657 fromThe Robert Wood Johnson Foundation toward the construction ofa 13,000 square-foot building to serve approximately 200 undergraduatenursing students.The grant, believed to be the largest ever received by theCollegeof Nursing, will be awarded in two phases. The first is a two-yearaward, running through January, 2003, of $519,657 for planning,design,and start-up of the new facility. The rest of the grant is in theform of a contingent matching grant of $1.5 million, to be awardedonly if the college can obtain commitments to finance the remainingconstruction costs — $2,289,593 — through other outsidesources.Previous StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
