Tuesday, 20 January 2009

HRs Role in Governance

Been very busy with writing deadlines, so no posts recently. We've just finished writing a chapter for a book edited by Suzanne Young on Corporate Governance, a particularly important issue just now, especially given Gordon Brown's recent criticism of governance in the British financial services sector. We've argued in the past that HR has a key role to play in governance and sometimes a negative one. I'm thinking here of a paper written by Bert Spector in 2002 claiming the HR was the unindicted co-conspiritor in Enron because of its advocacy of a certain brand of McKinsey-style talent management.

Our focus in the chapter, probably quite apposite given the UK Government's 'nationalisation' of some of the UK banks to inject more responsible management (see John Kay's insightful comments on Newsnight last night), is to look at this issue in the public sector, particularly healthcare. To help us think about this issue, we've adapted some excellent work by Jaap Paauwe on four faces of governance and its relationship to risk. Our adaptation, which we have illustrated with material from current research into the Scottish healthcare system, shows how governance of the HR function itself - how it is organized and led - play directly into the 'three pillars of governance' in healthcare. Firstly, it does so by shaping staff governance (or climate governance) - the ways in which staff are encouraged to participate and exercise voice in their organizations. Secondly, staff governance has an obvious and important impact on clinical governance - the balancing of innovation in heathcare with risks to patient safety etc. Innovation is key to creating public value in any 'enterprising' public service, but there are often real risks to innovation that must be governed effectively (the banks have suffered from this because senior managers didn't seem to know what was going on in their innovations in the wholesale banking market for which they were responsible). Finally, clinical and staff governance directly impacts on the third pillar of financial governance, which in turn refracts back on these two other pillars. How NHS boards (with many lay members) are selected, developed and performance managed will have an enormous influence on the management of innovation in healthcare. In turn, the costs and demands by professional for greater innovation will impact on financial prudence among these authorities.

Our key message is that HR at a strategic level has to understand these causal links, and has to manage its own house to make an impact on these three pillars of governance in healthcare and in other industries. All three rely on effective people management, but aren't always seen as part of HRs role. HR should 'step up to the plate' to help make their organizations legitimate as well as different, which are the two central objectives of reputation management. As an aside, a good starting point for understanding the governance problems of the financial services industry would be to read Niall Ferguson's excellent book, 'The Ascent of Money', which was my Xmas reading and why I haven't had time to post

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