Lessons From The Murdoch Scandal — HR Must Monitor Employee Behavior

This public trust is our Company’s most valuable asset: one earned every day through our scrupulous adherence to the principles of integrity and fair dealing… Each of us has the power to influence the way our Company is viewed, simply through the judgments and decisions we each make in the course of an ordinary day. — from News Corp’s code of conduct manual

The News Corp scandal has been an expensive one, tanking the stock valuation by $7 billion in a single four-day period. While it might not be obvious, the scandal will have many serious human resource implications not just for News Corp, but for all large organizations in general.

News Corp will need to replace many key leaders following permanent damage to its employer brand that influences its ability to recruit and retain top professionals (incidentally, Scotland Yard faces the same issues). In both organizations the primary causes of damage appear to be large numbers of employees and managers acting badly.

Undetected employee misbehavior is a common problem at almost all large organizations, so this example should serve as a wake-up call to all in HR that it needs to re-examine its capability for identifying damaging employee behaviors.

What Is HR Accountable for?

One of the fundamental tenants of modern business is accountability, but you would be hard pressed to find any part of the HR function at News Corp accepting responsibility for the recent events. When employees behave badly, you can blame the CEO, but in a massively large organization he/she often pushes oversight off to others (Murdoch has stated publicly that he can’t closely monitor the actions of 53,000 individual employees worldwide). You can also blame corporate culture, but if you do, you must identify who is accountable for maintaining the culture and what systemic actions sustain it.  A third possibility involves blaming whoever is responsible for monitoring and guiding employee behavior.

These last two possibilities bring to mind an important strategic question:

“Who within an organization is responsible for maintaining corporate culture and the processes of monitoring and guiding the behavior of employees? (I think they call that performance management).” While not all would agree, one possible answer is HR!

HR Systems Should Prevent Employees and Managers from Acting Badly?

In all organizations, a key component of governance is establishing responsibility and accountability for managing the people and systems that will produce the organization’s efforts. When the personnel function evolved into the human resource management profession, one of the arguments for the shift was the application of higher-level management to the many human resources that staff the organization.  In short, the human resource profession accepted in theory responsibility for developing systems and processes to govern the performance of humans executing work on the organization’s behalf.

The HR function of today clearly owns the design and execution of nearly every employee performance-management-related process, including: job design, talent recruiting/assessment, policy communication, employee training, performance appraisals, performance improvement planning, compensation, and employee mobility.  In recent years the rhetoric emerging from nearly all of these core HR activities has focused on behaviors, so is the HR function accountable?

HR Has a Dual Responsibility That Doesn’t End With Writing a Manual

Unfortunately, a majority of human resource functions have gone only halfway toward completing their strategic role, which should include:

  • Creating processes and policies that direct employee and manager behavior, and
  • Creating a real-time employee monitoring process to ensure that actual behaviors are within preset limits. (Because many bad employee behaviors may be caused by or encouraged by individual managers, the monitoring process must not rely solely on managers to identify and report bad employee behaviors.)

HR almost always fulfills the first half of its responsibilities by writing policies and designing people management processes. In this case, News Corp has a well-written, 49-page “code of business conduct” manual that covers company values, ethics, and standards of behavior. The expected behaviors are clearly delineated and are hard for any employee or manager to miss or misinterpret. Their manual includes the powerful phrase at the top of this post.

These are elegant words but obviously a well-written manual was insufficient. Enron had a 46-page ethics manual, but it didn’t work either.

Required Action — Develop a Process for Independently Monitoring Behaviors

Every major business process including quality control, customer service, and finance, write policies and develop processes but they go a step further and implement a monitoring process that doesn’t rely 100% on managers identifying and reporting violations/exceptions. In direct contrast, HR functions rarely use independent monitoring or auditing, relying solely on individual managers to honestly complete performance appraisals (citing bad behavior) and refer stronger issues for performance management. Many functions also naïvely expect employees to voluntarily come forward and report the bad behaviors of their colleagues.

I challenge you to consider your own organization. How would your HR leader know if a group of employees were acting in such a way that could damage the organization? If employees were taking kickbacks, if there were “ghost employees,” or if there was major employee theft or circumvention of safety guidelines? Would the situation have to blow up before HR would learn about it? Unfortunately there is a significant probability that your organization could share the same situation faced by News Corp, i.e. widespread violations of the firm’s policies, rules, and processes by both employees and managers, all of it undetected by HR.

HR Must Accept the Role of Risk Manager

If you had to classify what happened in these two British organizations, it would be that undetected employee and management actions created tremendous financial risk for their organization. Although most large organizations now have major risk management functions that identify and help mitigate upcoming financial, production, and safety risks, many HR leaders have been slow to accept their role in mitigating “people management risks.”

Instead of looking ahead, HR has primarily been a reactive function that fights fires as they pop up. HR needs to become more proactive. HR leaders must identify major people risks, calculate the potential financial impact, and respond in a prioritized fashion. Next, the function must develop real-time monitoring and sampling processes to identify high-priority risks as they are brewing. Rather than starting from scratch, HR should borrow effective monitoring processes from other business functions like finance, supply chain, and risk management.

Some of the monitoring approaches to consider include the use of mystery shoppers, random sampling of employee actions, periodic audits, exit interviews to identify bad behaviors, anonymous whistleblowing processes, and random employee and customer investigator interviews. Technology solutions should also be added including real-time performance metrics, phone and computer monitoring, and anomaly identification software. In addition, HR cannot automatically assume that the corporate culture is effectively directing desired behavior. Instead, HR must proactively define, monitor, and manage the culture to ensure that it does its job in effectively directing employee behavior.

HR Has a History of Avoiding Responsibility

When things are going well, HR thought leaders and SHRM are more than willing to brag about the importance of HR’s role in managing the corporate culture, social responsibility efforts, and the ethical and value-driven behaviors of employees. However, when the crap hits the fan, there is often a deafening silence from HR professionals and thought leaders concerning HR’s accountability in managing employee behavior.

If you conduct even a quick Google search on the News Corp scandal, you won’t easily find a single HR leader, either inside or outside of the firm, stepping up and calling for HR to admit even partial responsibility for what occurred. This shouldn’t surprise you: in past disasters including Enron, Bear Stearns, Toyota and BP, HR has been at the bottom of the list of those willing to accept responsibility.


Final Thoughts

Every organization needs to reevaluate their current role and processes for the early identification and mitigation of widespread damaging behavior. If you run a training class on business ethics or social responsibility, you must ensure that those who pass the class actually act responsibly for years to come. If you design processes and policies for performance appraisal, performance management, metrics, or rewards, you must develop an effective monitoring process to ensure that in “real time” such policies, rules, and behavioral expectations are adhered to. If you espouse your role in creating or managing corporate social responsibility, then you must continually monitor and measure to make sure that the policies produce the expected behaviors and results.

I urge you to examine the HR processes at your organization to see if they would have successfully identified or better yet prevented problems similar to those at News Corp. Unfortunately, the answer will probably be no; just as at News Corp, the most likely way HR leaders would learn about bad behaviors among employees … would be in the news!

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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