Harrison: Sarbanes-Oxley Offers ‘Golden Opportunity’ for HR Execs

By Brian E. Clark

Steven G. Harrison, chairman of the international outplacement service Lee Hecht Harrison, says he is an optimist.

He says he believes that most people — including those who run corporations — want to do the right thing.

He argues that cynics who say "business ethics" is an oxymoron are wrong. And that the guys who ran Tyco, Enron and WorldCom were the exception. And he says the Sarbanes-Oxley business reforms offer the opportunity for human resources executives to be a guiding force for ethical practices.

"HR people can push leadership training, keep an eye on compensation and be lightning rods for creating an ethical culture and locking it in as a strategic value," he says.

Harrison was in Milwaukee to speak to the Society for Human Resource Management state conference last week at the Midwest Airlines Center. Lee Hecht Harrison has eight offices in the state.

WisBusiness Editor Brian E. Clark interviewed Harrison on Tuesday.

Brian E. Clark: Recent scandals and convictions of top executives has focused a lot of attention in the past few years on business ethics. Is this just a passing fad or a lasting trend.

Steven Harrison: I think this will have an enduring and positive impact if executives understand that government authorities now say that they expect companies to create an ethical culture. Federal sentencing guidelines now state that publicly traded companies are duty bound to make sure that present leadership is acting ethically, but that upcoming leadership is too.

They want companies to create incentives, monetary and otherwise, that will encourage executives to comply with the laws. We really need to get people to focus on having an ethical culture.

People say that Sarbanes-Oxley is a heavy handed law and has cost U.S. businesses $35 billion. But there is not much evidence companies are becoming more compliant. Executives need to "get it" because misconduct can end up costing $100 million and bring jail terms. But penalties can be reduced if firms can show that they are doing their best to be in compliance with regulations and that corporate culture does not encourage law-breaking.

Still, there are plenty of cynics out there who doubt if this will take. They say that there is going to be an ethics fatigue in the boardroom. But if companies want consumers to trust them, be a good place to work and have people invest in their stock, they need to behave in an ethical way. Americans were angry, and rightly so, at what happened with companies like Enron and Tyco and WorldCom

Clark: Has the role of the CEO changed because of Sarbanes-Oxley?

Harrison: It’s too early to tell. But there is a lot buzz right now about the downsizing of the job. It may not be as glamorous and not as big on style, PR and risk-taking. There will now be a premium on CEOs who stick to the basics and know their stuff and are responsible for what is going on in their companies.

Clark: How has the role of the human resources executive changed as a result of Sarbanes-Oxley and other guidelines?

Harrison: I’m an HR guy, so I have a bias. I think this is a golden opportunity for HR in this new environment of compliance. The law puts a premium on background checking. Companies also have to hire lawyers to handle the confidential complaint process. The HR department will manage that. HR people can push leadership training, keep an eye on compensation and be lightning rods for creating an ethical culture and locking it in as a strategic value.

But HR departments will have to have support from the top for it to work. This time around, though, ethics are grounded in the law. HR didn’t create Sarbanes-Oxley. Ethics now has traction because it can affect the life and death of a company. In some cases, though, the HR director is going to have to approach the CEO and say “we need to have a talk.” It will take courage, even if the CEO is not interested or enthusiastic.

Clark: How does Sarbanes-Oxley affect privately held companies?

Harrison: It directly affects publicly traded companies. But nearly every privately held firm has an exit strategy or end game in place to liquify what has been built. That can mean being acquired by a public company or doing an IPO. So they should be in legal compliance with Sarbanes-Oxley. Besides, it’s good for their reputation and their own culture. You should’t have to be public to be doing the right thing.

Clark: Were you surprised at the stiff sentences given Dennis Kozlowski of Tyco or Bernard Ebbers of WorldCom? Will those sentences help deter future ethical abuses?

Harrison: It didn’t help that the public was incensed by things like $6,000 shower heads or $2 million parties charged as personal expenses by Kozlowski as he was looting Tyco. I was not surprised. And I hope it will help stop these kinds of things from happening again. The message has been delivered.

Clark: Is there anything that can be learned from the Martha Stewart scandal, other than that you shouldn’t lie to the feds?

Harrison: I’ve looked for an enduring lesson, but I can’t find one. But there is sort of a sad behavioral commentary, even if she wasn’t convicted of insider trading. And I have to tell you, my family loves her product line. But I have to wonder about her leadership. When you go to jail, you don’t complain about the quality of the lemons. And when you have house confinement, you don’t do brash things that cause your confinement to be extended. You’d think she be talking about integrity and humility. But I guess that’s not her personality.

By contrast, Ed Breen, the new head of Tyco, has talked about what the company learned from past mistakes. He even hired an ombudsman and a top guy to handle compliance. That showed contrition, which Martha Stewart hasn’t.