Governance for all

Governance training for all employees within a corporate enterprise has defensive, rather than democratic, origins. In some ways, it’s just one more example of reactive, risk-avoidant corporate behavior triggered by the usual suspects: Sarbanes-Oxley, company scandals and the prosecution of corporate executives.

Despite this ignominious beginning, training that instills the tenets of good corporate behavior in the hearts and minds of all employees can be a powerful offensive strategy and an unswerving rallying point when tough ethical decisions beset the troops. But some managers believe governance training should focus on board members and senior executives and, when appropriate, extend to supervisors with a ‘need to know.’ In the meantime, however, governance training for rank-and-file employees is gaining popularity.

‘People have come to realize that governance is something that occurs, almost by definition, at all corporate levels in the same way accounting does,’ says Lawrence Hamermesh, the Ruby Vale professor of corporate and business law at Widener University School of Law. ‘Every transaction presumably serves some corporate purpose, and every problem in financial reporting or compliance with the law is a problem for the whole company, no matter at what level it occurs.

‘Corporate performance and good corporate citizenship require not only the adoption of nice looking codes of conduct and ethical behavior, but also continuing efforts to ensure that people understand what those are,’ adds Hamermesh. ‘If [a code of conduct] just sits there on a piece of paper, it’s meaningless. It needs to be translated into people’s consciousness.’

Perhaps that’s why training on a company’s code of conduct – the foundation of values and principles governing how employees are expected to behave – is often the point at which governance education begins. ‘We’ve seen an explosion of education in companies’ codes of conduct,’ explains Adam Turteltaub, corporate relations executive at LRN, a provider of governance, ethics and compliance management solutions.

‘Just handing out a code of conduct and asking someone to sign it to show they’ve read and reviewed it, and then leaving it at that, really isn’t enough,’ states Turteltaub, whose firm has helped more than 100 companies convert their codes of conduct into online training programs. LRN strives to introduce these corporate codes of conduct into real-life situations to help employees understand this is something that affects their job, and that these are issues they need to take seriously.

Once companies instill their guiding values and principles, they often provide compliance training relating to specific business risks, or to risks inherent in their particular line of business. ‘We look at employee training as part of an overall corporate governance and compliance effort,’ comments Andrew Cohen, associate general counsel for EMC Corporation. ‘[Training] is one of the tools available to drive the right behavior.’

Selecting the right audience

Of course, companies need to be thoughtful about their training programs. ‘You have to decide where you want to focus the opportunities you have to speak to and train the entire employee population,’ says Cohen. ‘You also need to think about which issues cross your entire employee population and which ones you should target to employees within a particular function.’

EMC provides a mix of in-person and online training around compliance issues for its 25,000 employees. Each year brings a new ‘training road map’ that supports specific corporate priorities – and as the company gets bigger and more diverse, the online training component continues to grow. Recent topics include information management, proper use of e-mail and electronic discovery.

Information management training is essential for all employees today, since how a company manages its records has a strong relationship with ethical corporate behavior, according to Susan Avery, senior strategic advisor at Arma International, a nonprofit organization serving records and information management professionals around the world. Avery views information as a ‘company asset’ that carries reputation and risk issues.

‘[Executives and board members] are being held responsible for the enforcement of their records management activities,’ she says. ‘Whether it’s in a court of law, a discovery dispute or a regulatory action where they are required to produce certain e-mails, documents or records, it’s an issue that boards simply can’t ignore any more.

‘At some point, every rank-and-file employee is managing records,’ adds Avery. The content of an individual e-mail may make it a record someday; therefore, the choices an employee makes regarding that e-mail – whether it’s deleted, sent out or unable to be retrieved – can affect a company in a prospective discovery request or regulatory investigation. ‘Employees can create a disaster for an organization if they’re not trained on what they need to be doing and what their responsibilities are,’ she says.

‘Information mismanagement is ubiquitous,’ notes Rudolph Kahn, founder of Kahn Consulting, which specializes in the legal, compliance and policy issues of information technology and information life cycle management. According to Kahn, disorganized records that cannot be accessed and retrieved ‘undermine productivity as well as a corporation’s ability to be compliant with laws.’

To help businesses educate their employees to make the right choices regarding the management of information, Kahn recently teamed with Arma to introduce a DVD-based training program called ‘Keeping good company.’ The program includes four separate training modules that cover the importance of information management, records and information management fundamentals, the rules for legal preservation and discovery, and the unique challenges of managing electronic records. Experts who deal with these issues on a daily basis share their insights and enlighten employees about what their companies expect and what the law requires.

As research draws strong correlations between good governance and improved corporate performance, it is incumbent upon companies to make employees aware of the consequences of their actions, according to Richard Siegel, managing director of Navigant Consulting, which provides dispute, financial, regulatory and operational advisory services. ‘There are premiums associated with good governance that range between 14 and 18 percent in the US,’ says Siegel. ‘From the company’s point of view, it is good business – and it is going to increase the possibility of increased shareholder value – if they can get the greater body of their employees executing with good governance.’

While Siegel typically consults with senior officers and executives, he anticipates that governance training eventually will involve all employees. ‘It will start in certain industries or sectors where the performance of employees, or their job actions, potentially can have a direct impact, positively or negatively, on the shareholder value of the company,’ he says. Siegel predicts that services companies (large IT outsourcers, for example) and consumer product and mass-market companies may be among the first to offer company-wide governance training. He believes that even though this training will look and feel more like quality and risk management training, rather than governance training per se, it will focus on activities that have a ‘direct impact’ on how a company is being governed at a ‘systemic’ level.

‘People typically think about governance as happening inside the boardroom and inside the senior management executive team,’ explains Siegel. ‘You really have to think about governance as a holistic approach to improving how people think about what they’re doing, doing the right thing and supporting doing the right thing from the very top management on down.’

First things first

That top-down sentiment may be precisely why Espen Eckbo, founding director of the Center for Corporate Governance at the Tuck School of Business, believes governance training should first focus on boards and senior management teams. ‘Board training is such a fundamental requirement to get good governance going forward,’ asserts Eckbo. ‘We’ve only started to train boards. Let’s get the boards up and running first.’

According to Eckbo, training for non-executive employees should be on a ‘need to know’ basis – for example, employees involved in contractual issues that could give rise to a conflict of interest. ‘I’m not sure whether I, as a shareholder or owner of a firm, would pay for a program for mid-level and lower-level employees,’ Eckbo adds.

Hamermesh believes governance training could be extended to supervisory employees who are responsible for significant operations or material aspects of a business. However, he questions whether governance training should be spread throughout an organization. ‘I’m not sure people at all levels need to be subjected to something that involves sitting in a classroom listening to people talk about something explicitly labeled governance recommendations,’ says Hamermesh. On the other hand, he adds that ‘if you think about governance education as imparting an understanding about responsibilities for accurate reporting and so forth, it really is almost at all levels up and down the company.’

Nurturing the right culture

Whatever your views are on who should receive governance training, there is a call for companies to create a culture of ethics and compliance. Simply going through the motions won’t be enough.

Boards and corporate secretaries should keep in mind that training is just one part of the governance equation. ‘Culture is a much more powerful force than almost anything else you can think of,’ states Turteltaub. ‘The real issue is what kind of environment you’re creating for your workers. Is the company providing incentives to do the right thing, or is there another set of incentives going on? What are the pressures to perform? Are things so heavily weighted toward just simply making the numbers that it tends to blind employees to anything else?’

‘You can’t control everyone’s behavior all the time,’ adds Cohen. ‘But you can set the right tone, you can create the right culture and you can focus on certain areas that you want to address. At the same time, though, it’s important to recognize that the business of the company is still its business – not its compliance activity.’