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Lessons From The Murdoch Scandal — HR Must Monitor Employee Behavior

by Aug 1, 2011, 5:07 am ET

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!

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • Bill Gallop

    So John… What you are saying is its HR’s responsibility to monitor and police ALL employee activity? In my business its Management’s duty to monitor activities.

    Give us an example of how any of the “Murdoch Scandle” could have been monitored in a practical way?

  • Keith Halperin

    Thank you, Dr. Sullivan.
    1) Who would want to work in a micro-managed, fearful corporate police-state if they didn’t have to or unless it paid EXTREMELY well?
    2) HR won’t be allowed to monitor the “scoundrels at the top” who are responsible for the major malfeasances we see, and who get off scot-free: witness the financial crisis- how many C’s and SVPs who’ve made tens of millions a piece while the economy lost trillions and huge numbers of people have lost their jobs and homes have even received the most minor of sanctions, let alone 10 or 11-figure civil lawsuits or indictments on multiple felonies?
    (http://www.npr.org/2011/05/24/136496032/how-reckless-greed-contributed-to-financial-crisis)

    Cheers,

    Keith

  • http://drjohnsullivan.com Dr John Sullivan

    In response to the question as to what HR at News Corp. could have done…

    Trusting all managers to report their own rule violations is simply naive. How well did that work on Wall Street 3 years ago?

    The new name for HR may be Employee / labor Risk Management
    Identifying execution anomalies in the important areas of costs, quality or corporate values is important to every organization. Fortunately, function, except HR, periodically audits their processes and their results in order to identify and eventually prevent systematic errors. Since most audits find errors “after-the-fact” senior leadership has begun emphasizing a new term, risk management. Risk management is the business term for moving beyond periodic auditing and focusing on proactively identifying, preventing and minimizing major errors. Because almost all risk exposure involves the human element (Donald Norris of Norris & Associates) anyone responsible for human resources needs to be active in identifying, assessing and preventing management and employee risks.

    Risk management is necessary because processes and policies occasionally fail to meet their goals and individuals including managers periodically do things (whether purposely or by accident) that can dramatically hurt the business. You can of course wait until these human errors occur before starting to fix them (after the fact) but limiting yourself to reactive measures can be terribly expensive. In customer service and security for example, risks are assessed using “mystery shoppers”. In finance they use formulas or computer algorithms in order to identify possible anomalies. In HR, we are reactive and wait until a potential risk becomes a current problem.

    Approaches HR at News Corp. could have used to identify the bad behaviors include:

    In the News Corp. example, their behavior primarily involved bribes and the invasion of privacy. Identifying and preventing the use of bribes is a separate strategic function that is quite common in major corporations (for example: Halliburton paid $579 million in penalties as a result of its bribes in Nigeria). The invasion of privacy situation is certainly more unusual but it has already cost of billions in stock valuation and brand reputation. Some approaches that they could’ve used include:

    Postmortems – after a major story was won or lost, a neutral combined HR and business team could’ve analyzed what happened (independently re-interviewing sources and reporters). The postmortem would determine if the “victory” came at too high a cost, if the best practices should be more widely spread or to identify the critical factors that caused the story to be lost to a competitor. In the case of News Corp.., a simple examination of your reporter’s phone records would have revealed that they had routinely called these questionable numbers. Whenever an organization or an individual “wins” a disproportionately high percentage of any competitive battle (i.e. Outstanding performance by a baseball player could mean the use of steroids) it is appropriate to look closely for rule or policy violations.

    Post-exit interviews – six months after employees involved in high-risk activities leaves the firm, they could be interviewed by a neutral party in order to find out if they witnessed or suspect any wrongdoing. In the News Corp. case, a former reporter actually did reveal the illegalities but the information was provided outside of formal neutral investigative channels.

    Anonymous whistleblowing – a process could’ve been set up where employees could anonymously report serious violations of key policies and the follow-up examination would be done by a neutral team within the organization.

    A sample test – a common tool among investigators is to expose high-risk managers and individuals to an “opportunity” to violate the rules (TSA uses it all the time to check airport security procedures). A hired investigator could call and offer private information in exchange for a bribe. Or a cooperating famous person could be asked to place a juicy item in their voicemail box in order to see if it ended up in a reporter’s notes or story.

    1984 ended long ago
    If all of these approaches sound like “big Brother” or “micromanagement” (to idealistic dreamers living in the past), the answer is that these types of risk identification activities are now becoming essential in all large global organizations that face catastrophic risks. Maybe you the reader would simply trust a “Bernie Madoff” type but the new corporate slogan for risk management is “trust but verify” (Ronald Reagan).

    My question to the readers is … Is there anything that HR is accountable for on the record?

  • Howard Adamsky

    No. HR is not required to monitor employee behavior.

    Employes are to monitor their own behavior.

    In his landmark book, “The Myth of Mental Illness,” Thomas Szasz,Professor Emeritus of Psychiatry at the State University of New York Health Science Center, teaches us that we must operate with a minimum of control from external forces (HR in this case) and a maximum of internal forces. (Our ability to know right from wrong.)

    From prohibition yesterday to the war on drugs today, (Yes, we are losing the war on drugs big time) it should be definitively clear that outside forces, even with endless money tossed in for support, do little to curtail abuses in human behavior.

    Were the things done in Murdoch’s empire despicable? Of course they were but as long as we, as capitalists, pay our dollar for results that are devoid of both conscience or concern in our sad and crumbling society, there will always be folks who will be glad to get the scoop at any cost.

    You and I John; we are at fault as we pay to support the monster and to support the machine.

    As an aside, HR, in 99% of organizations, could not do this on their very best day. As it relates to the 1% that can? Who will monitor their behavior?

  • Keith Halperin

    Thank you, Dr. Sullivan. A few comments:
    1) By and large, and long as the shareholders are receiving healthy dividends and the “players” are receiving 7-figure bonuses, hardly anybody cares how crooked management is, and those whistleblowerts that do tend to end up rather poorly. Murdoch et cie. went a bit too far in bugging a murdered girls phones- “for shame!”

    2) I wouldn’t be surprised if the $579M bribery fine for Haliburton was viewed as a COB- our friends probably made multiples of that in the deal. It’s similar to corporations putting a few million behind “non-partisan” attack ads to swing an election or setting up a corporate/legislative task force to write favorable legislation (http://www.npr.org/2011/07/21/138537515/how-alec-shapes-state-politics-behind-the-scenes). Spend a few million: get a few billion in return. That’s quite a ROI!

    3) If you believe that a wish to avoid excessive workplace surveillance is the same as trusting a Bernie Madoff, I believe you are mistaken. Furthermore, organizations like the ACLU, the EFF, EPIC.org (Electronic Privacy Information Center), and the EU (http://www.ibls.com/internet_law_news_portal_view.aspx?id=2079&s=latestnews) may have somewhat different opinions than you re: workplace privacy. As the saying goes: “Transparency in the boardroom, not at the keyboard!”

    Cheers,

    Keith

  • Sandra McCartt

    Interesting article Dr. J. When i read something i often have mental pictures based on the content of an article.
    Mulling this one over i kept seeing the HR squad wearing black shirts with lightening bolts on the collars while being trained in law enforcement tactics and the pitfalls thereof..like entrapment.

    Somehow i don’t see this concept as promoting employee engagement with HR to further retention.

    Perhaps risk management is best left to the lawyers and their staff of paralegals who take the ethics line complaints.

    Maybe instead of the old suggestion box one could be put in the hall that had a sign that said. “Inform on your co-workers here”. Sort of reminds me of something from back in the 50′s. Wasn’t his name McCarthy?

  • Keith Halperin

    @ Sandra: Well said. Unfortunately as long as the unemployment rate remains high, I see more of this sort of thing occuring? Why? If a given person won’t put up with this, there are a large number of people desperate enough who will.

    @ Everybody:
    Here’s a recent editorial reflecting my earlier comments:
    (Read the last line. -kh)

    …………………………………………………
    Stop coddling banker thieves
    Today, August 03, 2011, 9 hours ago | Jim Hightower
    Stealing is wrong, right? “If you do the crime,” the old slogan says, “you do the time.” But… does everyone?

    Let’s suppose that you robbed a Wells Fargo branch bank and scooted away with $5,000. Alas, you get caught, but you cut a deal with prosecutors. Naturally, you’d make restitution, paying back the 5K, plus you agree to a $500 fine. In return, you don’t have to go to jail or even admit guilt, plus you’re allowed to issue a press release blaming the wrongdoing, not on you, but on a “relatively small group” of rogue cells in your brain.

    What are the chances of a prosecutor (or Wells Fargo) letting you get away with such a “punishment?”

    Zero. But, if it’s Wells Fargo doing the crime, such coddling is the norm in our so-called “justice system.”

    Indeed, the financial giant was caught illegally tricking thousands of lower-income families into taking out predatory home loans with exploding interest rates that eventually would cost the families thousands of dollars and their homes. The bankers merrily falsified mortgage documents, and the bank raked in billions of dollars. It was a widespread illegality fostered by Wells Fargo’s top executives.

    So, on July 21, Federal Reserve prosecutors handed down justice to these miscreant bankers. Their punishment? An $85 million fine and a $20 million restitution payment – or .001 percent of this behemoth’s annual revenues of $80-billion. Far from jail time, no Wells Fargo banker was even charged, nor did the giant have to admit its guilt – a corporate press release blamed the unpleasantness on a “relatively small group” of low-level employees.

    Do the bankers and prosecutors think we don’t see this gross injustice? Banker thievery by Wells Fargo and its aloof peers will not stop until top bankers are made to do the time.

    28-19_wnc.mp3