More About EWNJ

Why Small Companies Need HR Personnel

Corporate Angels

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 required

that these quiet quarterly conference calls be expanded to include

all shareholders.

Mergers and acquisitions. "Mergers and acquisitions

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."

Patent Infringement. As Matel Inc. recently learned,

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.

Product Liability. As with infringement, the directors

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.

Audit Committees. The rather vague legal directive that

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.

Regardless of the source, the board member faces legal exposure

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.

Learn about the issues. Attending seminars, like the ones

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.

Put together a handbook. Every company, no matter how

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.

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 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.

Put the new HR chief high on the management chart. The

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."

Beef up the HR department. As companies grow, the

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.

Keeping an HR department at full strength is more important

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

The New Jersey Society of Certified Public Accountants

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.

Verizon Foundation has donated $50,000 to Prevention

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.

Rutgers has received a $560,000 grant from Johnson &

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.

New Rutgers projects receiving support under the grant include

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 Rutgers College of Nursing has been awarded $2,019,657 from

The Robert Wood Johnson Foundation toward the construction of

a 13,000 square-foot building to serve approximately 200 undergraduate

nursing students.

The grant, believed to be the largest ever received by the

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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