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
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:
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 required
that these quiet quarterly conference calls be expanded to include
all shareholders.
are the primary times when directors are open to risk," says
Bator.
"Disgruntled shareholders most often come to the fore." In
the mid-1980s and early-’90s, most investors felt that such dramatic
combinings were clever moves to boost stock prices, benefiting all
around. Now the public view has shifted to a more skeptical belief
that the upper corporate echelons are maneuvering for their own profit
with a shareholder-be-damned attitude. This distrust engenders
litigation.
After all, Bator states, "directors are, among other things,
representatives
of the shareholders within the firm."
various
types of patent infringement reparations can be laid at the board
members’ feet if it is found that they did not diligently search for
preceding patents, or if they learned of another patent and ignored
it.
can be shown to be totally negligent in product examination.
Basically,
Bator says, if the board is vigilant, asks the right questions, and
can show that it did its best, then they have done their job, and
cut their liability, even though the product eventually fails.
board members "demonstrate proper fiduciary responsibility"
hangs as a tempting hinge for many a shareholder lawsuit. A firm’s
audit committee can unearth a possible negligence, which can explode
into full-blown accusations of fraud if the stockholders, or even
members of the general public, do not feel they are being served.
With the SEC auditing corporate audit committees, it’s best to steer
a course toward fuller public disclosure.
for virtually all of his or her business judgments. Even dissenting
votes. While the exposure may be very real, Paolucci, director of
the AON Financial Services Group in Philadelphia, points out that
directors can afford themselves some very real protections. The
simplest
and most thorough protection is for the firm to take out Directors’
and Officers’ Liability Insurance. Paolucci, who will act as one of
the May 31 panel speakers, says that such an all-risk policy for both
profit and non-profit firms is becoming more popular.
Granted, the premium paid by a major Fortune 500 company to protect
its decision makers may range up to $1 million annually. But the
threat
of ponying up your share of a quarter-billion-dollar legal settlement
can quickly exhale all the pomp and honor that board membership
previously
carried. If the SEC drops a suit at your door, Paolucci says,
"judgments
can easily climb to the hundreds of millions. The results can be
catastrophic
— to the firm and to the individual finances of its officers."
Many firms claim to indemnify their directors and officers against
legal judgments. The problem is, such indemnification holds both
dollar
and legal limits. Typically these company protections hold as long
as 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 the
corporation. This presents a lovely Catch 22: We (the firm) will
protect
you as long as you were acting in the firm’s best interest. If
stockholders
sue (and win), obviously you were not acting in the firm’s best
interest.
So there goes your house and car.
In short, you will do better to demand an outside Directors’ and
Officers’
Liability Policy as a condition of your acceptance to the board. Yet
you might want to remember that a corporation is not a license for
personal or business negligence, or scams. No insurance clause
protects
a board from charges of fraud or blatant non-disclosure or stock
manipulation.
"Basically, a member of the board must show himself as aware of
both the corporate and public interest," says Bator. "He must
ask the right questions before (casting a vote). Lawyers must hold
themselves to an even higher standard of caution, and I personally
find it unwise for a company’s official legal representative to be
a voting board member."
So amidst all the honor and leather arm chairs, comes a shirtsleeve
duty: read all those thick reports, question everything, and employ
your natural integrity. After all, that’s why you have been chosen
to wield the power.
— Bart Jackson
Top Of Page
More About EWNJ
The co-sponsor of the May 31 Law Center seminar
described
above, Executive Women of New Jersey, is a power-packed group with
an undeservedly low profile. Back in 1980 only 5 percent of Fortune
500 company board members were women. Several of this pioneering group
united to form the Executive Women of New Jersey with the goal of
"promoting the advancement of women to the highest levels of
government,
business, and the professions."
Today, with the help of EWNJ, women comprise 12.8 percent — one
in eight — of Fortune 500’s board members. EWNJ compiles a
database
for companies and agencies from around the world seeking appropriate
trustees or board members. Those interested can contact the
organization
at 973-812-7272.
Top Of Page
Why Small Companies Need HR Personnel
New companies take a casual approach toward personnel
issues, often hiring friends and dealing with employees’ requests
on the fly. "There is a tendency to want to retain that
atmosphere,
that family-like feel," says Mary Thomas, a New Jersey
Department
of Labor human resources consultant and trainer. "They think there
is merit in making decisions on a case-by-case basis." She says
this is a recipe for discord, and maybe even disaster, and urges all
employers to create a formal human resource function.
Thomas speaks on "Establishing/Expanding a Human Resources
Function
or Department" on Thursday, May 31, at 9 a.m. at a joint New
Jersey
Department of Labor and Employers Association of New Jersey seminar
at Union County College in Springfield. Cost: $10. Call 609-393-7100.
In response to a question on how many employees a company should have
before it considers establishing an HR department, Thomas says
"even
the smallest company needs to hire and fire." Given the business
repercussions of smart — and lawful — hiring and termination,
she says human resources procedures need to be in place right from
the start.
"There are some real predictable consequences of operating without
an HR function," she says. One of the most common is
inconsistency.
Susie the programmer takes two months off each summer to climb the
Himalayas, whereas a request from Bert the bookkeeper for a Friday
off so he can get his sailboat in the water is turned down.
"Employees
see it as unfair," says Thomas. Morale deteriorates, absenteeism
climbs, and turnover increases. And time is lost. "Managers and
supervisors have to spend time rethinking decisions and explaining
to employees," Thomas says. "And there can be a perception
of favoritism."
Grumbling is not good, and lawsuits are worse. Fire or promote or
deny leave for reasons an employee can interpret as illegal, and a
casual approach to HR administration can result in a lengthy, and
expensive, stint in court.
New businesses have a lot on their plates, but Thomas suggests that
adding one more — an HR function — will save time, money,
and grief. And doing so needed cost a fortune. Here are her
suggestions
for getting an HR function going.
held by the Department of Labor, is a good way to pick up the basics
of recruiting, monitoring laws, training and development, employee
relations, personnel record keeping, benefits administration,
occupational
health and safety, and employee services. A second step might be
reading
books on these subjects or hiring an HR consultant.
small, should have a handbook, Thomas says. It should include a
statement
on employment terms, whether it is "at will" (anyone can quit
or be terminated at any time for any reason) or governed by a
contract.
Policies on sick time, vacation, and holidays should be set forth
too. Other basic documents include a list of job descriptions and
an outline for performance reviews. Doing a good job with these
written
materials takes time, and Thomas says outsourcing them to independent
contractors may make sense.
managers and supervisors often share HR responsibilities, Thomas says.
A better approach is to put someone in charge. She says many companies
look around, and choose an HR chief from among employees, adding the
function to their other duties. Often someone performing a bookkeeping
function is chosen. This can be a good solution for a small company,
Thomas says.
person delegated must be given training, must have enough time to
perform all the necessary work, and must have access to upper
management.
Dealing with the boss is not always easy, Thomas says. In a common
scenario, the employee responsible for HR hears through the grapevine
that management is about to do something that is possibly illegal
or certainly unwise. Perhaps a star employee is about to be given
the boot to make room for the boss’s nephew. "The person
performing
the HR function has to go to management and say `we can’t do this,’
and management doesn’t want to hear it."
part-time
HR chief is likely to become overwhelmed. Thomas says that according
to the Bureau of National Affairs a company that has passed its 100th
employee mark needs a fulltime HR director. As a rule, another HR
employee should be added every time the company’s head count goes
up another 100.
than ever, Thomas says, in part because so many New Jersey companies
are still in a frantic hiring mode, and also because, "Employees
know their rights," and violating those rights can bring problems
with the power to badly disrupt business.
Top Of Page
Corporate Angels
this year is awarding more than $240,000 to 84 New Jersey high school
and college students interested in pursuing an accounting career path.
This is the largest amount to be awarded in a single year by the
group,
which has donated $1 million to New Jersey students over the past
10 years.
Education
Inc., a Lawrence not-for-profit, which runs a number of programs,
including a Crisis Intervention Program that provides immediate
short-term
counseling 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 in
Mercer County with regard to education, intervention, and training
programs related to sexual abuse and personal safety.
Johnson
for a wide range of projects and programs in key research,
educational,
and community service areas. The grant will help underwrite the cost
of five new projects, and will also provide funding for 11 ongoing
or expanded projects, fellowships, and a research awards program.
the International Working Group on Gene Delivery with the New Jersey
Center for Biomaterials; spinal cord research and the Asthma Project,
both at the College of Pharmacy; the Minority Nurse Leadership
Institute
at the College of Nursing; and the New Brunswick Scholars’ Saturday
Academy through the Office of Minority Undergraduate Science Programs.
The Robert Wood Johnson Foundation toward the construction of
a 13,000 square-foot building to serve approximately 200 undergraduate
nursing students.
College
of Nursing, will be awarded in two phases. The first is a two-year
award, running through January, 2003, of $519,657 for planning,
design,
and start-up of the new facility. The rest of the grant is in the
form of a contingent matching grant of $1.5 million, to be awarded
only if the college can obtain commitments to finance the remaining
construction costs — $2,289,593 — through other outside
sources.
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