An enemy within Page 06

Tough at the top Page 14

Tax and the City Page 22

The search for all-rounders Page 32

HOURGLASS
Issue 10 May 2008

HR

Enhancing value through people

How does HR remain relevant in a changing world?

Human Resource Services international conference, Boca Raton 2008 Changing course: redening the people frontier

Save the date

October 2124, 2008 Boca Raton Resort and Country Club Boca Raton, Florida
The world around us is changing at an unrelenting pace in everything from the economy to the environment. Perhaps because of this changeor in spite of it, organizations are continually being held to higher standards and held accountable to the public. Do businesses today have the leaders they need to execute on the strategies of tomorrow? Are the skill-sets needed to pilot the worlds leading organizations through change readily available where and when they are needed? How will your organization arm itself for the changes that are happening?

It is clear that in order to go from vision to execution we must look past our own borders for the leaders with the skills to help our businesses connect and succeed. We are changing course, stretching the boundaries, challenging past practices and thus redening the people frontier. In this light, PricewaterhouseCoopers will be hosting its annual US international human resources conference in Boca Raton in October 2008. The conference will feature a diverse range of plenary speakers and will be supported by a comprehensive workshop program. We look forward to seeing you in Boca Raton! To register your interest, please send an email to: HRS.Conference.Registrar@us.pwc.com

MCNY-08-0727 2008 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member rms of the network, each of which is a separate and independent legal entity.

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Editors Welcome

Douglas Broom

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Thought leadership without the padding Hourglass cuts through the clutter to reach the key issues.
Editorial Offices Hourglass Croner 145 London Road Kingston-upon-Thames Surrey KT2 6SR Chief Editor Douglas Broom hourglasseditor@croner.co.uk Editorial Committee Michael Rendell, Sandy Pepper, Faye Graham, Andrew Smith and Janet Davies (Human Resource Services, PricewaterhouseCoopers), Douglas Broom, Liz Fisher (Croner, Wolters Kluwer) Commissioning Editor Liz Fisher Sales Mark Cleeve Distribution Barry Carter hourglassdistribution@croner.co.uk Design and Production Phil George Published by Wolters Kluwer (UK) Ltd 145 London Road Kingston-upon-Thames Surrey KT2 6SR Tel. 44 (0) 20 8247 1372 Fax. 44 (0) 20 8247 1388 Publication Sponsor PricewaterhouseCoopers Human Resource Services Plumtree Court London EC4A 4HT Tel. 44 (0) 20 7583 5000 Fax. 44 (0) 20 7212 2040 To comment on this issue of Hourglass hourglasseditor@croner.co.uk

As reverberations from the credit crunch continue to be felt across the business world, with every development we realise that few of us are immune from its effects. The consequences present particular challenges for HR. As Alex Blyth outlines on page 26, money worries are becoming a major cause of stress-related absences from work. The question is how far businesses should become involved in making sure that their employees are in a fit state, emotionally and physically, for work. The sudden interest in wellness at work programmes suggests that the HR function is at the forefront of the fight against stress. This is just one area that amply illustrates the new demands placed on the HR function in a fast-changing world. The role that HR will play in the future is an issue that is preoccupying many a HR professional at the moment, as our regular columnist, PwC global leader for HR services Michael Rendell, addresses on page 4. HR undoubtedly has much to contribute in these turbulent times and should be one of the first in line providing advice on future strategy. But as Michael Rendell points out, HR is facing a perception problem. HR professionals have the skills and experience to help in times such as these and should be an integral part of the business. The challenge for HR is how it can communicate that it deserves its place at the strategic centre of the company and has much to contribute. We hope you find this issue of Hourglass a stimulating read. We are always delighted to hear feedback from our readers details of how to contact us are on page 37.

Douglas Broom Chief Editor

To request additional copies of Hourglass hourglassdistribution@croner.co.uk Wolters Kluwer 2008

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Contents

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Looking forward How can the HR function stay relevant in a changing world? Michael Rendell HR risk The Socit Gnrale affair has once again highlighted the risks companies face from their own employees. How is the HR function responding? Philip Smith

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Called to the bar Karen Caddick 10 The hospitality and beverage industry demands a steady flow of quality talent. The HR director of Punch Taverns explains how the group meets the challenges of supply. Hamish Champ Succession planning The best succession-planning strategy encourages the steady identification of talent at all levels throughout the organisation. Mick James Leadership Businesses are increasingly turning to other disciplines to learn what makes a good leader. Liz Fisher Tax and reward Recent changes to the UK tax regime for non-domiciles have shown how politics can affect long-term HR strategy. George Yeandle Stress at work Money problems are the most significant cause of problems at work. Should employers do more to improve their workers financial education? Alex Blyth 14

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Employee wellbeing Illness and stress-related absence costs business billions of pounds a year, which is why more companies are turning to wellness programmes. Beth Holmes Governance The responsibilities and demands placed on non-executive directors has increased dramatically over recent years. Is the result a shortage of suitable candidates? Clare Gascoigne End notes The latest HR publications and research Liz Fisher Keeping in touch

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Looking forward

Michael Rendell

Reality check
What can HR do to bridge the gap between its perceived profile, reputation and relevance and the function it actually fulfils? How does HR remain relevant in a changing world?

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At the end of March, PricewaterhouseCoopers hosted its second HR conference in Rome for people managers from all over the world. Our theme was Keeping HR relevant in a changing world, and we explored the important challenges and opportunities for our industry over the next few years. The pace of business change is unrelenting and the challenge of leading and managing people in a global environment has never been tougher. Yet some commentators are questioning the role of HR and its ability to influence and shape the people challenges facing businesses now and in the future. How does HR become more relevant to the business it serves? Can HR truly take the lead in driving the people agenda? We have come to expect people issues to be high on the CEOs agenda. Our 11th Annual Global CEO survey showed that it was the number one priority for nine out of 10 CEOs. 65% of CEOs said that an inability to access the right skills was the biggest barrier to their business achieving success, but we were surprised that only 43% had confidence in their HR function to compete effectively for this talent. The question for us is, how can HR become more relevant? Before the conference, we asked the delegates some searching questions to kick off the debate. For example, what more could HR do to attract new talent to the profession? More than three quarters of respondees thought that raising the professions reputation and profile would address this. What is the single most important challenge for HR leaders over the next five years? Attracting and retaining talent was the overwhelming response. So, what does the future hold and how can we position ourselves to take advantage of the changing environment? At the end of last year, we looked at the future of work and what it might be like in 2020. In one scenario, traditional HR departments become more and more marginalised. Nearly a fifth of the delegates at our conference believed the HR function would be defunct by 2015, yet nearly half believed there would be a chief of Human Resources, or a similar role, by this date. What can HR do now to bridge these potential gaps and remain relevant? Where some people see gaps, others see opportunities. HR needs to become more focused on the external market, particularly in the current economic climate. HR teams should be discussing with the board how they might be affected by the downturn. How will they retain their talent if things get tough? Beyond the current economic turbulence, in some markets there is also the changing nature of global economic dynamics. Traditional routes

HR needs to become more focused on the external market, particularly in the current economic climate. HR teams should be discussing with the board how they might be affected by the downturn
for capital flows are being diverted or even reversed. China is now a major investor in the West, not a low-cost production solution. All this irrevocably changes the way organisations manage their people, from where they get their people from, to the terms on which they are engaged. In an article on succession in this issue, Laurence Barrett of Prudential plc makes the point that HR will be invited to the board table when HR is recognised and valued for its role. When the HR function works effectively in its entirety, the questions around its value disappear. The challenge is for HR to believe in itself as an integral part of the business and advise the board in the areas it understands better than anyone else. Michael Rendell is global leader of HR Services at PricewaterhouseCoopers.

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HR risk

Philip Smith

An enemy within
A rogue trader at a French bank has sent human resource managers running to make sure their own systems and policies are in place in the battle against fraud. But will they ever win the fight?

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History has a habit of repeating itself. When news broke about a 4.5bn (3.8bn) rogue trader scandal at Socit Gnrale, commentators immediately compared it to the collapse of Barings back in 1995. In that case, Nick Leeson famously broke the bank betting on a recovery in the Japanese stock market, losing a cool 827m. Amid all the comparisons made between the two cases, one fact stands out both Leeson and Jrme Kerviel (pictured, left), the alleged culprit at SocGen, had detailed knowledge of the so-called middle and back offices. In Leesons case he was in charge of both the front office, where the trades are made, and the back office, where they are checked. Although this was not the case at SocGen, Kerviel had had considerable experience in the back office before moving into a trading position. Following the collapse of Barings, and other financial scandals, moves were made to ensure the separation of front and back office, alongside numerous other controls, but with the passing of time, memories fade, and fraudsters spot their opportunities. In the immediate aftermath of this latest scandal, HR functions in the financial services industry are working alongside their internal audit and control departments to ensure the opportunities are closed down. One immediate action for HR departments in many financial services companies was to ensure traders were taking time off at SocGen it emerged that the man at the centre of the scandal had only taken four days off in the previous eight months. Many organisations, if not all, will have a policy stipulating that traders should have a two-week break from the trading floor. The immediate response in the weeks after Soc Gen was to ask whether this policy was being properly enforced. A key reason behind this is that, with a fraudster out of the office, colleagues would be in a position to value and check their outstanding positions. It might seem obvious, but such a simple precaution can pay real dividends. Systems can be put in place to monitor not only the amount of holiday taken, but also when it is taken. A red flag will wave when a trader, or any other person in a high-risk position, takes their holiday but never fails to be at their desk on a Monday morning. This, of course, is just one simple step out of many steps human resources professionals can, and are, taking to tighten procedures. Which employees can gain access to which systems is also on the HR agenda, with many HR departments going through a reconciliation process to understand who should have access, and who has. Sharing passwords is a classic risk, as is the risk posed by temporary staff, something that has been heightened during the current skills shortage when

staff might not be vetted as thoroughly as they should be. A recent survey by Websense, an internet security company, found that nearly nine out of 10 temporary staff had the same access to documents on the company system as permanent staff, 62% had used someone elses log-in details and 42% were able to connect a personal USB device such as an MP3 player or memory stick to their work computer. The risk of sensitive material being stolen should always be high on the list of worries, and there are numerous cases where carelessness in the way data is handled has placed millions of records at risk. This might seem some distance from the financial scandal at SocGen, but the risks are just as strong both financial and reputational and made more so by increasingly imaginative uses of technology employed by determined fraudsters. This is a two-way street, though, and technology can also be used more effectively in the way employees in high-risk areas are monitored. Hi-tech fraudsters demand a hi-tech response. Phil Beckett, a director at Navigant Consulting, an international forensic accounting and business advisory consultancy, says there are a number of areas where technology can assist in preventing and detecting fraud. First is data analysis, where one looks at the outcome of a fraud and then looks for traces of it within the data held by the company duplicate payments, ghost employees and suppliers for instance and how much they statistically vary from the average. Clusters and patterns can also be identified alongside neural networks, which pinpoint relationships between sets of data. Patterns identified from known cases of fraud can then be applied to future data to give an early warning of problems. The patterns may be good, or they may be bad, but for every cluster there are two things you need to think about, says Beckett. Why is there a cluster there and why are there outliers to that cluster? Technology allows this method to be applied to communications as well as transactions, according to Becketts colleague Andrew Durrant, managing director at Navigant. You can now mix voice with emails and transactions to look at clusters and outliers. This forms part of the traffic analysis, where you not only look at content but also at communication patterns between people and organisations. This will also cover instant messaging and mobile phones, often the fraudsters favourite tools, as content monitoring in the past was more difficult. Moving on from this, it is now possible to have live monitoring of networks, which are then subsequently analysed with alerts put in place, says Beckett. As soon as something unexpected happens, then it triggers an investigation. Beckett adds that some of the most sophisticated software

will combine all of the above with external information sources news websites, for instance and again look for correlations. But, says Beckett, the tools allow you to do this, but it doesnt solve anything. As Durrent says: Before you do this, you need to identify where your high-risk areas are. There is of course a danger that over-reliance on technology can create a Big Brother atmosphere and there has been talk of patent applications for software that will monitor, among other things, an employees every heartbeat. Such innovations might seem over the top, but could be employed if an organisation can see a commercial benefit in doing so.

A less contentious option is to look at some of the softer areas to help identify potential problem areas. Staff satisfaction surveys, for instance, are coming under closer scrutiny. Organisations are now looking into predictive analytics, looking into areas such as employee survey results to see whether they can be a precursor to risk occurring, says Christopher Box, a director in PricewaterhouseCoopers financial services human resources department. Are there correlations between lapses in security and employee survey results? And once these correlations have been identified, HR needs to act on them. You need to equip your managers with the skills so they can understand their staff, so

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There has been talk of patent applications for software that will monitor, among other things, an employees every heartbeat. Such innovations might seem over the top, but could be employed if an organisation can see a commercial benefit in doing so.

that they have a certain level of emotional intelligence. It is about giving people the skills so they can sense and understand certain situations, Box says. Managers and their organisations need, however, to be able strike a balance when monitoring their employees. As PwC partner Richard Phelps says: Most organisations at the moment are striving for staff to be engaged but it is a fine balance with the risk scenario, where you do not want a huge financial loss because you gave someone too much freedom. Phelps stresses the importance of the quality, rather than the quantity, of controls that are put in place. SocGens own internal investigation into its losses revealed that some 75 warnings had been issued over the conduct of its trader, but that these were either ignored or not considered important enough to warrant action. Although much of the attention has focused on the role of internal controls and systems, Box believes HR has an important role to play: I would argue that if there was more effective management of an individual, then the manager of that individual is going to have a greater opportunity to stop that person from doing something they shouldnt be doing. Box says that doing this will not guarantee success against a fraudster, but you will have a better chance of succeeding if you do and a better chance of preventing history repeating itself.

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Profile

Hamish Champ

Called to the
After a varied HR career that has ranged from banking to broadcasting, Karen Caddick, HR director of Punch Taverns, explains the unusual challenges of the hospitality industry.

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bar
These are challenging not to mention trying times for the UK pub industry and its customers. Alistair Darlings debut Budget, which introduced bigger-than-expected rises in alcohol duty, came at a time when confidence across the hospitality industry was already at a critical low. Bad weather effectively wrecked many a pubs summer last year, while the effects of the now UK-wide smoking ban throughout the cold, dark winter months are being felt in many establishments throughout the country. Pubs that have previously relied on smoking customers are reporting declining sales as people stay home and drink beer, wines and spirits they have bought cheaply from their local supermarket. Meanwhile, those who do visit pubs must now pay more for the drinks they buy. Economic uncertainty is denting consumer confidence, and subsequently discretionary spending on leisure pursuits is under greater pressure than ever. Pubs, to put it mildly, are finding the going tough. In such an environment it becomes even more crucial to ensure that a company has the best talent at its disposal. Recruiting the best people to run its pub estate, to manage the link between head office and its pubs, and oversee the whole company generally requires considerable effort. Punch Taverns is the UKs largest owner and operator of public houses, and knows only too well the stresses and strains that affect the industry. Formed through the purchase of a portfolio of nearly 1,400 pubs from the Bass Lease Company in 1997, the group has since grown to become a publicly-listed business of some 8,500-odd pubs, around 7,500 of which are operated by lessees effectively independent businessmen and women who pay rent to and buy beer from Punch in return for operating the pub as their own enterprise while the remaining pubs are managed operations, whose staff are directly employed by the company. Karen Caddick has been Punch Taverns HR director for 18 months and is part of a team determined to create the best environment for all staff across the company, whether it be a new member of bar staff at one of the groups managed pubs found via an employment agency, or a new finance director sourced by one of the countrys leading head-hunters. The challenge of finding the right person to run a Punch Tavern pub should not be underestimated, says Karen. The right candidate has to be good at running a customer-facing business, a task that requires a whole range of skills and responsibilities. On the leased side of the business, new operators are found through a number of methods, from advertising through to word of mouth. Being the size we are we get a lot of interest from people. A lot of people come to us, wanting to run one of our pubs, she says. Punch operates a Recommend A Friend system, whereby those putting forward someone who successfully becomes one of the groups lessees receives a 500 reward. It helps reduce agency fees, says Karen. Recruitment agencies are very good and put forward good quality people, but it can be costly. Finding the right person to become a lessee is only the first step. Then comes training in all aspects of running a hospitality business, encompassing the serving of food and drink, health and safety requirements, law, accounting and financial well-being and so on. We offer training packages that are designed to bring out the best in a lessees entrepreneurial side, such as Profit Through Beer or Profit Through Food, says Karen. Beyond the tie, whereby lessees are required or tied into buying certain products from the group, these operations are independent of much of the groups head office control. Lessees have recently become rebranded within Punch itself from retailers to customers. Designed to

CV Karen Caddick
Previous career Karen began her career with Royal & Sun Alliance in 1993. She perfomed several roles while with the insurer, including head of HR for its division More Th>n. She moved to Barclays, where she was head of Employee Relations and HR Policy, before joining Channel Five Broadcasting as head of HR. Before joining Punch Taverns in October 2006, Karen was Global HR Director at The Financial Times Group. Qualifications Karen is a graduate of the Chartered Insurance Institute and a Fellow of the Chartered Institute of Personnel & Development. She says: Our employer brand is really important in attracting key people, and it is important that we focus on building our profile as an employer. We are doing a lot internally to ensure that we build our employer brand through external PR activity, and we also make sure that all of our employment literature is clear about what we stand for. That is a key part of our HR strategy. Awards are also very important to us, since again they enhance the perception of the company with public. The smoking ban and increasing food agenda has help to improve the perception of the industry. That, and the fact that Punch has a Leased and a Managed arm means that the career opportunities we can offer to people are very broad. We need to sell all of this to increase our attractiveness to talented people.

remove the tenant/landlord tag, with all its connotations, the move, Karen says, aims to give lessees the feeling that they are just that: customers of the group. Away from the relative freedom of the leased business, the managed side of the Punch the Spirit estate has tighter structures in place for its 700plus pubs. Recruits to run the managed pubs are sourced through a core of employment agencies and, intriguingly, are sometimes poached from rivals. We keep our ears to the ground, and if we hear of someone who is running a rival companys pub really well we will sometimes approach them to see if they would like to come and work for us, says Karen. Inevitably, the company also sources employees from overseas. For our Managed estate, she adds, we recruit a large number of people from outside of the UK. In fact, in key areas such as London they are an incredibly valuable source of labour. We now provide language training to help people to improve their English. Punch also monitors other sectors in the industry, for example hotels and restaurants, to unearth good quality staff. The group applies benchmark criteria against rival companies to ascertain the right level of pay, bonuses and benefits for its employed staff. As with the leased estate, training is a vital part of driving the standards of the business higher all the time. Our Spirit Academy, based in Northampton, raises the profile of our training across the managed estate, says Karen, and is all about launching career paths, where possible, across the business. We look at the optimum structure for each managed pub salaries, career progression and so on. Further up the chain of command are the Business Relationship Managers, or BRMs. Charged with overseeing the business needs of a number of leased pubs each, these individuals are often found through traditional networking opportunities, while the groups regional operations directors can be found this way or via head-hunters. But its a small world, relatively speaking, and finding the right person from within the industry can be tricky. Were all fishing from the same pool for these people, says Karen. We often try to get a fresh perspective by looking outside the pub trade when were trying to find a suitable applicant to fit a role. That said, Punch rarely takes chances: In both the Managed and Leased business we use the Gallup SRI tool as a way of screening potential managers to ensure we get the right talent in. We have profiled what great looks like in these roles, and so we use the SRI assessment tools to narrow down the talent pipeline to make sure we hire great people.

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Were looking for people who have the ability to work in the industry and in our company. It doesnt matter if theyve not worked in the pub sector before, so long as we believe they are the right person for the role

As with any organisation, sometimes the things that seem the most obvious to maintain are the hardest to keep tabs on. A lot of training is easy to evaluate, its quantifiable through results, says Karen. More difficult are things like leadership issues. We evaluate our senior leaders with twice-yearly personal assessments, and we have dedicated leadership programmes in place to support and assess these individuals. Part of this has been driven by the changes Punch has experienced as a company in recent times. Weve gone from acquiring, acquiring, acquiring, to being a business focusing on organic growth while getting a grip on our cost base. We need leaders to shift up a gear and see the market differently. More accountability is essential, she says. But what of the top of the companys tree? Some of Punch Taverns senior management are, after all, among the best paid in the sector. When it comes to executive packages we benchmark against FTSE100 companies to attract the right calibre of person, says Karen. When it comes to hiring in the executive area, Punch looks for people who can plug gaps, as Karen puts it. It seems that the process can be exhaustive. With Phil Dutton [Punchs recently-appointed finance director] we did head-hunter interviews, and Giles [Thorley, Punchs chief executive] and I interviewed him. Then we got an occupational psychologist to profile him. We wanted to ensure he would fit the role. Our culture is special; it emanates from the senior team, and whoever joins us at a senior level needs to be in tune with that. Dutton hadnt worked in the pub trade before. He had previously been finance director at budget clothier Matalan and before that had worked at supermarket chain Asda. Karen herself had had no experience of the pub sector, having worked in newspapers and television industries before joining Punch. Were looking for people who have the ability to work in the industry and in our company, she says. It doesnt matter if theyve not worked in the pub sector before, so long as we believe they are the right person for the role.

Reward packages and bonuses at senior level are linked to financial performance, while discretionary long-term incentive plans are assessed by benchmarking against a number of listed companies, namely 20 larger and 20 smaller than Punch in terms of market capitalisation. The longterm incentive plan, says Karen, is an important retention tool: Like many businesses, the rewards are high for exceptional performance and they do focus the mind on delivering outstanding results. On top of that, they are built to deliver over a three-year period and people dont retain them if they leave. That increases the reasons to stay with the company. While retaining many of its executives for lengthy periods, the group saw two senior departures last year that demanded a dip into the senior management pool as well as a rejig of the corporate structure to accommodate new people and new talents. But stability is key, says Karen. As we hire people we ask ourselves How long will they hang around? When we see candidate for senior roles it becomes apparent. We can sense their drive, their ambition. People can also move sideways at senior level, and far from being a potential negative, this can add value to the business, suggests Karen. When Adrian Fawcett [Punchs former chief operating officer] left the business last year, Deborah Kemp moved across to run the operational side of our leased pub business. Deborah started her life at Punch on the property side, doing deals, and now shes overseeing the leased estate. So what of the challenges facing Punch Taverns? Crucially its the shift in culture, from an acquisitive group to one focusing on growing from within. Karen again points to the slowdown in dealmaking. We could do other deals, she says, alluding to a proposed merger with rival managed pub operator Mitchells & Butlers, which at the time of writing Punch had walked away from. But for now, like I said, we are focusing on driving organic growth.

Hamish Champ is business editor of The Publican.

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Succession

Mick James

Tough at the
Good succession is about much more than filling the top job; the best systems encourage a steady identification of talent at all levels.

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Poor succession planning costs money lots of it. A 2005 survey carried out by the Centre for Economics and Business Research suggested that poor succession planning had wiped 2bn a year from the stock market value of FTSE 350 companies between 2002 and 2005. Companies with clear succession plans outperformed their rivals, not only in the immediate aftermath of a senior departure, but in the longer term as well. Yet many companies still find themselves unprepared for the unplanned departure of a senior figure. A lot of things have come through that work against succession planning, says Jonathan Krogdahl, managing consultant heading the consulting sector team with Futurestep, a division of executive search firm Korn/Ferry International. Many UK companies work on a very short-term and immediate basis compared to, say, Japanese firms that think about succession planning in terms of the lifecycle of the firm, says Krogdahl. Theres a perceived need for flexibility, and an expectation among Generation Y that they will need to change jobs to get to the next step. Against this background, the costs of poor succession planning are often overlooked. Theres a loss of intellectual property, damage to client relationships and to the bonds that hold teams together, says Krogdahl. Firms need to find a way to make people stay longer, but they put off having those conversations until theres a sense of urgency, someone says theyre leaving and they have three months to fix it. But most people who accept a counter offer leave within three months anyway. Good succession planning not only saves on recruitment costs but protects companies against the vagaries of the war for talent. In China the organisations that are doing better are those that have developed people internally rather than just stuck expats in, says Laurence Barrett, director of group resourcing and development at Prudential plc. In Asia salaries are becoming highly inflated, but you can pay people reasonable salaries and they will stay if they can trade off career growth and development for cash. The more senior the position, the greater the risk of external vulnerability. A vacancy at the top is a classic sign a company may get taken over, says Paul Harper, chairman of the Association of Executive Recruiters and head of Paul Harper Search. Thats when youre exposed, when you can seem like a natural target. Even if an immediate successor is not appointed at once, having a strong bench and a good acting CEO can be enough to manage the transition if it has been planned in advance. The problem with appointing a headhunter once someone has left is the time it takes, says Harper. People underestimate the time it takes to get the right person for any of their key roles. Youve effectively got to pluck out someone who is at the top of their game; getting the best versus the second best can make a lot of difference at this level. This doesnt necessarily mean that an external search is in itself a sign of weakness. Often people will use it as a benchmarking exercise against the internal candidate to demonstrate to the world that it is the right one, says Harper. Often when theres change at the top the intention is to change direction to get different thinking or new blood, but if you dont have anyone in mind you are massively exposed. Many companies simply dont have the information to support proper succession planning. We look at succession planning as the starting point for talent management, says Grant Crow, UK managing director of talent management software provider Stepstone Solutions. A typical client will be an international player, which might run the SAP HR suite in Europe, and PeopleSoft or Oracle in the US. How do they start to get an overview of that talent and the aspirations of that talent base? Crow says that UK organisations need to be a bit bolder in their attitude to talent management: Many management teams have not even defined what they mean by talent. Or theyve gone down the toein-the-water route but people dont know they are in the talent pool. Crow is strongly in favour of moving towards a self-service approach to succession planning, in which people can nominate themselves for the talent pool to be assessed against explicit criteria. Its a view thats endorsed by the Chartered Institute of Personnel and Development: Succession planning should not necessarily be restricted to the top roles, but should be extended more widely to look at the career journeys of more junior people, says Vanessa Robinson, adviser on organisation and resourcing at the CIPD. You dont always have to have a very sophisticated system, but you have to be active both to nurture people and to see it matches their own aspirations. Transparent processes and self-nomination make it easy for managers to have open conversations with their staff and for individuals to see where they might need to change or think differently about their career path. People can waste a lot of effort second-guessing the criteria needed to progress, says Robinson. However, intervention may also be necessary, for example where firms are looking to build a more diverse management team. Certain groups of individuals may selfselect themselves out, Robinson adds, so it needs to be done with management support, so you can say to people, why dont you put yourself forward.

A vacancy at the top is a classic sign a company may get taken over. Thats when youre exposed, when you can seem like a natural target
Succession planning also needs to be considered in a more flexible manner than simply lining up individuals for roles. More and more people are not looking for someone for a specific job but for a broader role, for types of behaviour and competences, says Robinson. You need a number of people you could possibly put in different roles if the external business environment moves on. If you start to plan five years ahead, by the time you get there the organisation will be looking very different. According to Robinson, one of the problems with succession planning, and development work generally, is a lack of consistency through the employee lifecycle. You get a lot of development at the graduate level, and then it comes back at a senior level, she says. Its the people in the middle who get less attention. Now that the job-for-life culture has been all but eradicated, this coincides with the period when people are developing their careers by moving jobs. But even leavers can be included in succession planning. Korn/Ferrys Krogdahl points out that many professional services firms such as lawyers and consultants have become adept at placing and tracking their alumni: If the career path is away from what we do and towards the client, then why try to delay the inevitable? If you let them go in the right way you can have them back at some time later on. While HR can advertise the benefits of succession planning, it is not necessarily something that can be forced on an organisation. You cant impose it on people organisations are complex, says the Prudentials Barrett. I see this as a line manager responsibility to develop a succession plan. If as a manager I dont know the market well enough to recruit talent, if I cant create opportunities for my people, then I havent done my job very well. The role of HR is much more about having the expertise to support and educate line management. Its not a question of saying to your top people you must go through this process, but of getting to the situation where the CEO says to you I need your advice, says Barrett. HR doesnt need to fight to get a seat at the top table we do good work and we get invited. The important thing is to avoid overprocessing succession management. Most of our talent processes are very light, says Barrett. To devise a succession plan is a no-brainer. The trick is to turn that into real outcomes, the real issue is the quality of the conversations you have with people. Nor should people see succession planning, or even achieving a particular ratio of internal to external appointments, as a goal in itself. Succession planning is not a silver bullet, says Barrett. If you choose to go internally, thats not a problem, but equally if you choose to go externally to refresh the organisation, thats equally not a problem. The point is whether you are actively thinking about and caring for a pipeline of talent: if you do that you need to have a conscious strategy on how to approach talent.

A family problem
A recent PwC survey highlighted the problems of succession planning in family firms. Well over a quarter of family firms expected to change hands over the next five years, and nearly half (44%) of those are expected to remain in the family. But of those firms only 47% have drawn up succession plans, and only 30% of those with a plan have nominated a specific successor. While family firms are more than twice as likely as global firms to appointed a management team composed entirely of non-family members, six out of 10 will appoint at least one family member to a key role. Paul George, a PwC partner who specialises in family businesses, commented: Many owners are not facing up to the tough choices involved. There is, sadly, a long tradition of great family businesses that have failed as a result of sleepwalking into a succession process.

topic

author

Leadership

Liz Fisher

Lessons from the

Sporting stars and military leaders have become a popular feature of the leadership lecture circuit. But this is more than a novelty business has invaluable lessons to learn.

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field
If you are looking for a practical induction to the essentials of leadership, you could do worse than start with this years RBS Six Nations rugby championship. To the surprise of just about everyone, Wales won not only the title but beat every other team in the contest to win a grand slam, just months after the same collection of players were unexpectedly bundled out of the Rugby World Cup by Fiji. For the past two years, the Welsh team has been a collection of individually talented players who, infuriatingly, consistently failed to add up to the sum of their parts. If the rumours are to be believed, too many strong characters among the players and coaching team contributed to their lack of overall focus. It took a new coach, the New Zealander Warren Gatland, to pull them into shape but not, he stresses, by placing a proverbial bomb in the changing room. There is a public impression that I am ruling with an iron fist, but there are only three things I insist on, Warren Gatland told journalists the day before Wales secured the championship title with a win over France. They are intensity and quality in training, working hard in the gym and the type of game I want us to play. Everything else is up for grabs. Its not a dictatorship. Provided with a leadership structure that has made it clear who is in charge but respects the players skills and contributions, and is never despotic, the team have thrived. In Ryan Jones the team has a captain who commands respect and affection among the players, but who completely trusts the guidance of the coaching team. In the space of a few months, the new approach turned a team embroiled in a crisis of confidence into an unbeatable force (in the northern Hemisphere, at least). The contrast with Englands performance over the same period has been salutary. At the time of their World Cup win in 2003, England arguably had a similar leadership set-up to the Gatland regime at Wales. Sir Clive Woodward was seen as an excellent manager of the team, and while the coaching leadership was strong, there was a solid emphasis on collaboration and mutual respect between coach and players. And in Martin Johnson the team had a captain who commanded respect and inspired commitment. The end of the Woodward/Johnson tenure, though, saw England lose their way. Over recent months, England showed many of the same characteristics and shortcomings that plagued Wales in the run-up to last years World Cup. The players seemed to lack a clear understanding of what their strategy on the pitch should be, and they wanted for ambition and focus at times. It was not until the young scrum-half Danny Cipriani made his full-match debut at the final game of the Six Nations against Ireland that England played like the team of old. That Cipriani runs the game with an authority bordering on arrogance cannot be a coincidence. He may not be the best type of leader, but at least the team had one. It remains to be seen whether Martin Johnsons recent appointment as the England team manager will ensure that the squad regains its focus. Even if you are not a rugby fan, the respective fortunes of the two teams raise some fascinating insights into leadership styles and skills that work, and the effect they can have on an organisation as a whole. It is no accident that some of the key members of the England World Cup team, as well as many other successful sporting stars, are now sought-after speakers on the leadership lecture circuit. Business and sport may be different disciplines, but that does not mean that they cannot learn from each other. Business is different, but its not that different, says Jeff Grout, former business adviser to Woodward, now an international leadership speaker, consultant and co-author of a number of books that draw on lessons in leadership from other disciplines. Ive learned some incredibly valuable stuff from listening to sportsmen, and people from the military, talking about how they approach leadership and their chosen discipline in general. Grout uses as an example the psychological approach that many Olympic athletes take to their long-term goals. Many of these sportsmen and women set a number of interconnected goals, he says. They would have an outcome goal, a series of performance goals and process goals. The swimmer Adrian Moorhouse, who won a gold medal at the Seoul Olympics and now runs a performance development consultancy, told Grout that he had set his outcome goal to win an Olympic gold at the age of 12. Winning required a time of 63 seconds, which was his performance goal, says Grout. So the next few years were taken up with process goals, which meant training, working on style, technique and mental performance. It was the process goals that were going to get him closer to the performance goal. The outcome goal was pushed to the back of his mind and he focused only on the process. That is true of many athletes they only take that outcome goal out occasionally and dust it off to get them out of bed on a cold, dark morning when they need to be training. There are lessons to be learned here Im convinced that business concentrates far too much on the outcome goal to the detriment of the process goals. It is this ability to break down winning strategy and processes, which has become more common in the sporting world as it becomes more professional and competitive, that brings valuable lessons for business. Martin Johnson, for instance, talks during his leadership sessions of his view of successful communication. He divides the communication strategy that went on during his time with the England team into Big Talk and Little Talk. The big talk was the strategic-level discussions, on and off the pitch, of how the game would be played and the tactics that would be used. These were generally

Military trainers make enormous efforts to replicate real conditions so there are as few surprises as possible. The sporting world also makes great use of visualisation and scenario planning. A lot of business training, by contrast, is classroom-based, and generally there is only ever a plan A.
set beforehand but could often change during the course of a game because of the weather, for example, or because the opposition were employing unexpected tactics. The little talk was what Johnson calls the everyday stuff that gets things done. When on the pitch, he says, he was rarely quiet, constantly encouraging players, supporting or correcting split-second decisions, reminding the team of tactics and communicating (along with other players) the second-by-second judgments that drive a game. Johnson makes the point that both forms of communication are essential, but its easy to concentrate on the big picture alone. Its the little talk that makes the big talk happen, is how he puts it. The analogy with business is not difficult to see. The best business leaders set a successful strategy, but they then concentrate the greatest part of their effort in making sure that the strategy is properly communicated and understood at all levels, that it is being followed and that, crucially, they listen to and act on any events that may influence their strategic decisions. Johnson says that if things were going well on the pitch, his role was akin to that of the conductor of an orchestra the preparation had already been done, everyone knew what they should be doing and had the confidence and ability to do it. His role was to inspire them to do their best and guide them should the tempo change. Interestingly, Johnson and the World Cup squad also learned valuable lessons from other disciplines over the years. The team spent what Sir Clive Woodward says was a valuable session with the Royal Marines, which emphasised the importance of reacting to what does happen rather than just merely rehearsing what you think will happen. The Marines made the point that war is a series of cock-ups, and that is what they train for when they jump out of a helicopter in a combat zone, they have no idea what will happen. Woodward transferred a similar approach to the rugby field, stressing that a team may have the best players and coaching team, but the opposition could still outsmart them on the pitch. The secret was to react to what was happening in the game. Perhaps this is why military leaders are also in demand as leadership lecturers. The thing about the military is that they practice scenarios they might face for real and explore everything that could go wrong, says Grout. They make enormous efforts to replicate real conditions, so there are as few surprises as possible. The sporting world also makes great use of visualisation and scenario planning. A lot of business training, by contrast, is classroombased, and generally there is only ever a plan A. Major General Patrick Cordingley, who commended the Desert Rats during the first Gulf war, is one of the military speakers in popular demand on the lecture circuit. Along with other military commanders, he emphasises that no-one will follow their leader into a life-threatening situation unless they have their absolute trust, and believe in what they are being asked to do. Military leaders know better than most the importance of maintaining morale and mutual trust between leader and followers. Major General Cordingley says that when he was in charge of troops he would be sure to eat with them whenever possible, particularly when in a combat zone. The commander needs to know what the men are thinking, he says, and it is relatively easy to gauge mood when you talk to someone over breakfast, for instance, and he has been on guard during the night. I could sit next to him and say, what were you doing last night? And he would say he had been on guard and did I think it was going to be alright. And that was very useful because I had the opportunity to say directly to him that yes, of course it was. Cordingley and his 5,000 men spent five months in the Saudi Arabian desert, waiting for orders to advance on Kuwait. During that time he made huge efforts to stave off boredom among the troops and made sure that they knew they were as well-prepared as possible, but he also took great pains to make himself visible and accessible. If I went into an area where I didnt know the men particularly well and I saw someone playing chess, I would go over and play with them, he says. It was a bit of a waste of time, strictly speaking, because it might take half an hour, but if they beat me and they often would they would love being able to tell everyone that they had beaten the brigade commander. Those sorts of things really helped, and I think it is an important thing to do, although it wasnt studied on my part. Military leaders are generally (there are always exceptions) more adept than most at engaging with their men, and work hard to inspire trust and keep motivation high. Some are naturally empathetic, but those that are not will have learned through structured leadership training and experience that these skills are invaluable. They are also skills that transfer successfully to business some of the greatest business leaders are those that inspire their staff to do their best. The business world is certainly not short of advice on what it takes to be a good leader. Sometimes, though, the best advice can come from unexpected quarters. Gatland and the Welsh rugby team have shown that with the right leadership, a collection of talented individuals can be pulled together to create a phenomenal result in a matter of weeks. The ultimate aim of any business is to win so why not learn from the winners?

What Do Leaders Really Do? by Jeff Grout and Liz Fisher, is published by Capstone Press, price 14.99

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topic

author

Tax and reward

George Yeandle

Tax and the

Government policy, particularly tax changes, can have a profound effect on HR strategy. How can you plan for politics?

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City
Overseas secondments are a vital element of the talent management programme of most multinationals, and often an administrative headache for HR managers. The decisions of politicians, however, can have a profound and sometimes unpredictable effect on an organisations secondment strategy. The taxation of overseas workers, particularly at the higher end of the spectrum, is a contentious domestic issue in many countries. A key plan for the new French president Nicolas Sarkozy, for example, is to use the tax system to tempt talented French workers back from Belgium, which has a far more favourable regime. The reform of the tax system around the shipping sector in Greece has already resulted in companies and individuals relocating back to their homeland. In April the issue of non-domicile taxation hit the headlines in the UK, when the government announced a significant amendment to the non-dom tax regime. The result has been a frenzy of HR activity as multinationals assess the impact of the changes and domestic companies anticipate a disruption of the flow of talent into the capital. In the last two years, London has overtaken New York as a financial and commercial centre in terms of access to capital, its financial and commercial infrastructure and its vibrant business community. Indeed the UKs attractiveness to businesses and to ex-pats has been undisputed for a long time. But changes to the UK taxation regime look likely to erode that attractiveness and to some minds call Londons pre-eminence into question. In the aftermath to Alistair Darlings first Budget, the outlook for London as a destination for overseas businesses and business people now looks decidedly foggy. It will perhaps come as a surprise to the HR directors of international businesses that moves by the UKs new Chancellor will have an impact on their international assignment programmes. But as of April 2008, people living and working in Britain who have financial and business interests in other territories, but have until now not paid UK tax on those interests, will face a much more stringent tax regime than before (see box). The changes will have little impact on the super-rich entrepreneurs and business moguls for whom the new flat rate charge of 30,000 represents small change. It will, however, give pause to the thousands of individuals who are offered secondments to the UK in the course of their work. For many years, sending high potential employees on secondment to the UK has been a no-brainer, particularly for financial services businesses. Now the personal financial affairs of those individuals are likely to be the deciding factor on whether to move them to London or Sydney.

In the aftermath to Alistair Darlings first Budget, the outlook for London as a destination for overseas businesses and business people now looks decidedly foggy.

The concern in the UK is that other countries will prove more attractive to talented individuals looking to work abroad, that companies will be forced to think twice about sending individuals to the UK and that still others will think twice about situating new businesses or opening offices in the UK without the potential to choose freely how to staff them. Other European countries may have higher headline rates of tax, but the Netherlands and Belgium, for instance, both have schemes designed to attract ex-pats in recognition of the contribution they make. The rule changes are unlikely to force a sudden and mass exodus from the UK; they will, however, affect different groups in different ways, and their impact will be difficult to pin down. For a junior or mid-ranking manager due to start a two-year assignment in the UK, the loss of the annual 5,000 personal allowance may be decisive, since that individual will see 4,000 more disappear in tax over the course of their stay, for instance. There will certainly be a large group of people who will be better off electing to be assessed for UK tax on their worldwide income and gains. And their employers may well choose to help and advise them on that. But there is no doubt that this raises questions for companies in terms of an increased advisory role in their employees lives, and also has implications in terms of privacy. Just how far does a company want to reach into its employees affairs? How far is it practical for the company to offer or secure good advice for them? How easy will it be to make sense of the individuals personal financial affairs so that they can be reported on a UK tax return? There will be some individuals who have personal income or gains from family businesses or offshore trusts and some of those people will have complex financial affairs. How far does that individual and their employer go in terms of risk-assessing their new tax position before both decide that it might just be simpler if they were assigned elsewhere? In addition, it is not just established international mobility programmes that are likely to be disrupted. There is a real possibility that a new Spanish business looking for a toehold in northern Europe will look at the Netherlands or Belgium, that a US law firm looking to expand will look first at Asia Pacific. And the problem with this kind of impact these lost opportunities is that they are impossible to quantify. The great shame about these rule changes is that they come at a time when London has made great strides as a financial centre compared to New York, which has been hampered by the requirements of the 2002 Sarbanes Oxley Act. They also emerge at a time when all financial centres and capital markets are facing economic pressures. The rule changes have been widely

The new UK non-domicile regime

From April this year, non-domiciled UK residents who wish to continue to be taxed on a remittance basis rather than on their worldwide income and gains will have to pay an annual levy of 30,000. Before the rule changes, non-doms paid 40% on income earned in the UK but nothing on other income and gains a generous regime that put the UK ahead of many OECD countries. The new charge will apply to those individuals who have been resident in the UK for at least seven out of the previous 10 tax years. Individuals will have the opportunity to decide each tax year whether to pay the charge and be taxed on a remittance basis or whether to take their chances and be assessed on their worldwide income and gains. The changes wont apply to everyone. Those with unremitted foreign income and gains of less than 2,000 will be exempt from the charge. It is clearly not the UK governments intention to discourage the thousands of nannies, builders and other trades-people, school teachers or university professors from spending their often short stints in the UK. However, those on a higher income who opt to be taxed on a remittance basis will lose certain allowances, including the personal allowance and the capital gains annual exemption (unless the 2,000 de minimis applies).

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Tired of London?
The City of London Corporations Global Financial Centres Index for 2007 rated London as the most successful of 47 financial centres around the world, and ahead of New York by five points in an index that rates cities by the quality of their people, business environment, market access, infrastructure and general competitiveness. London, the researchers conclude, is in the top quartile in over 80% of what they consider to be instrumental factors (such as cost and quality of living, access to qualified people, infrastructure and regulatory climate), with particular strengths in people, market access and regulation. And London benefits from strong inflows of professional and managerial workers more than half the number attracted to the UK as a whole. The main negative comments concerned corporate tax rates, transportation and operational costs. Hong Kong and Singapore were third and fourth in the 2007 index respectively, well ahead of Tokyo (in ninth place) and two major Chinese centres, Shanghai (24th) and Beijing (36th). In Europe, Zurich is in fifth place and Frankfurt sixth. Paris is 11th in the index, only three points behind Geneva. Canadas national financial centre Toronto acts as major international centre and is in 12th place in the index, ahead of two US cities: San Francisco (13th) and Boston (14th). The Corporation, which publishes the index, says that research for the study shows a change in emphasis in the factors that make up a countrys competitiveness ranking over the past few years. In 2005, for instance, people and skills issues were rated as the most important factors of competitiveness, followed by regulatory issues. It seems more than likely, however, that concerns about the level and complexity of corporate and personal taxation and other regulatory issues may eclipse the people agenda in years to come. Source: The Global Financial Centres Index George Yeandle is a partner with PricewaterhouseCoopers

received as a blow to Londons competitiveness, but they also represent a loss to the wider global business community, which now faces either added complications when formulating the pay and benefit packages for those destined for the UK, or a reduced set of choices when it comes to finding assignments for their talented individuals. In and of itself, taxation is probably not a factor that will rule London out as a destination entirely, but the changes are likely to make HR directors and senior managers look twice at the UK for employees whose financial affairs are more complex than the norm. Its a close decision, but the new regime may prove one obstacle too far.

topic

author

Stress at work

Alex Blyth

Drowning in debt
Money worries are thought to be the root cause of poor performance at work. Should employers do more to improve their workers financial education?

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Staff that are educated in personal finance are less likely to be in debt and to suffer the associated stress. A happier workforce contributes to the business more efficiently
After years of out-of-control consumerism fuelled by cheap credit, the global credit crunch has brought the chickens home to roost. The crisis has brought personal debt levels in almost every developed country into the spotlight. In Canada, for instance, personal debt has increased by 36% over the past decade (to Can$752.1bn). The populations take-home pay increased by just 15% over the same period. Personal debt is at unprecedented levels in all OECD countries. In Australia, credit now accounts for more than 150% of GDP, compared with 25% in the mid-1960s. In the UK, personal debt increases by 1m every five minutes. At the end of January 2008, total UK personal debt stood at 1,412bn. This was up 113bn, or 9.1%, on the previous year. On average, every household owes 56,708, and is paying an average of 3,775 each year in interest. The evidence globally suggests that on almost every aspect of personal finance, from debt through to savings and pensions, the majority of the population in developed countries are under-educated and under-performing. While this is undoubtedly a problem for many people in their personal lives, it is also increasingly becoming a problem for us in our working lives. According to the latest MoneyExpert.com research, 33% of adults with debts are concerned or very concerned about their ability to keep on top of their borrowing. 4.8m adults spend more than they earn and 9m adults just break even at the end of every month. Indeed, more and more companies are beginning to consider whether or not they have either a responsibility or an incentive to help their employees access financial advice. While there are potentially many benefits to them of doing so, it is also a complex area which is fraught with danger. For the forward-looking employer of today it is an area that cannot be avoided. The latest figures from the UKs Health & Safety Executive for 2005/06 report that more than 420,000 people took a month off due to stress, equating to more than 10.5m working days lost, says John Hall, chief executive of debt solutions provider newtomorrow.com. Debt worries play a major part in stress at work. It has been estimated that 250,000 of those people taking time off work did so because their stress was caused by money problems. It is not only debt that is a problem. Research from Scottish Widows reveals that 34% of those aged 55 and over do not believe they have enough savings to be able to retire at state retirement age. Serious as all this is, companies have no legal obligation to do anything. James Carmody, principal at employment law firm Reculver Solicitors in London, says: There is no legal obligation on employers to educate staff on personal finance. The only obligation is to put in place a stakeholder pension scheme if more than five people are employed. There is not even any obligation on employers to contribute anything towards the scheme. Yet, many people believe that it is in the interests of companies to provide their staff with financial education. Bev Budsworth, MD at advisory firm The Debt Advisor, says: Regardless of whether they are blue or white collar, debt can affect an individual physically, as well as mentally, so that they are underperforming at work and may have higher than usual absenteeism. Organisations that understand the effects that debt and financial worries have on their staff can help them by providing confidential help and advice, she adds. Staff who are educated in personal finance are less likely to be in debt and to suffer the associated stress. A happier workforce contributes to the business more efficiently.

Case study: Dunfermline Building Society

Alan Mitchell, HR Director at Dunfermline Building Society, believes that companies do have a responsibility to educate staff about financial matters. Money worries are never a good thing for anyone to have, and helping staff in this area can play a vital part in the morale of the business, he says. It can only improve the relationship between employee and employer, and it gives employees a way to find information if they do have money issues. Dunfermline Building Society has partnered with the Financial Services Authority to provide all staff with a booklet that contains information on basic budgeting, saving for the future, borrowing and costs of repayment across different types of mortgage. It also covers personal finances in its staff training. Mitchell recognises the dangers inherent in providing advice, and believes that the best way to avoid these potential problems is to partner with an independent financial adviser. Dunfermline also helps other employers educate their staff. For example, it provides a savings scheme for employees at Michelin Tyres in Dundee, through which staff can save directly from their wages and receive a preferential rate of interest. We are keen to ensure our staff are financially aware, and so we provide support both internally and externally, through our employee assistance programme, says Mitchell. I guess some companies assume their staff are financially aware or that it is not their responsibility, but we feel it is our responsibility to help in this area, and we dont see any reason why any company wouldnt at least provide staff with information from the Financial Services Authority.

Liability can arise if the employer ends up offering financial advice that turns out to be wrong. It is a complicated area and many employers may not be sufficiently well-informed to try to educate their staff
As well as these operational benefits, providing financial education can enhance the employer brand. Many people appreciate their employers advising them in this area, says Marc Hommel, partner and head of pensions at PricewaterhouseCoopers. However, you need to consider carefully whether or not it is suitable for your staff. Generally, financial advice is valued by those who have money to save or invest, and who are willing to consider different options. If your workforce fit that profile then this can be a great way to set yourself apart from rival employers. It is important to tread carefully in this area. Apart from anything else, if you get it wrong you can end up facing legal action from the very employees you are trying to help. Carmody at Reculver Solicitors explains: Liability can arise if the employer ends up offering financial advice that turns out to be wrong. It is a complicated area and many employers may not be sufficiently well-informed to try to educate their staff. Budworth outlines what she believes companies should do: They should concentrate on educating their staff in how to take a responsible attitude to their finances and help them to realise how an irresponsible attitude can lead to debt problems. They should also provide practical help with their finances such as mortgages, insurance, lending and their rights as a consumer. Companies should employ a welfare officer so staff have someone they can talk to, in confidence, about their finances, she continues. They could also consider having in-house courses by teaming up with charitable organisations that offer debt advice. Donald McNaught, director at Scotlands largest personal debt solution provider Invocas, suggests setting up a full-time helpline. Having a debt counselling service that is accessed through the workplace is an effective way to tackle employees financial problems and reduce absenteeism, he says. Such a service can be provided under the brand of the employer and can help prevent employees taking time off work through stress. Our experience suggests that almost half of callers can be put back on track through general budgetary advice, with the rest of callers requiring a more specific solution such as a debt management plan, refinancing or Protected Trust Deed. There are many options for how to provide this advice, and many external suppliers willing to help you provide it. Whichever route you choose, you must always ensure that it gives you and your staff what you need. As PwCs Hommel concludes: Many employers waste time and money providing advice that their staff dont understand. Some make the grave error of providing specific investment advice. The solution is to give your staff generic information in a format that is straightforward and easily accessible. Do that and you will soon reap the benefits.

Debt in the US
Year 1975 1980 1985 1990 1995 2000 2005
Source: Federal Reserve

Consumer debt $736.3bn $1,397.1bn $2,272.5bn $3,592.9bn $4,858.1bn $6,960.6bn $11,496.6bn

Outstanding debt as a percentage of disposable income 62% 69.5% 73% 83.8% 89.8% 96.8% 127.2%

Today in the UK
According to campaigning group Credit Action, the following will happen in the UK today: Consumers will borrow an additional 310m Consumers will pay 257m in interest The average household debt will increase by over 12.45 74 properties will be repossessed 292 people will be declared insolvent or bankrupt 2,750 County Court Judgements will be issued Bank and building societies will hand out 1bn in mortgages 4,000 fixed-rate mortgages will come to an end 388 mortgage possession claims will be issued 404 landlord possession claims will be issued and 306 landlord possession orders will be made Citizen Advice Bureaux will deal with 6,600 debt problems More than 7,716 loan repayments will go unpaid 526m will be withdrawn from cash machines 24.5m transactions worth 1.4bn will be spent on plastic cards

topic

author

Wellness at work

Beth Holmes

Ill health costs

Employees are waking up to the benefits of effective wellness management. In a climate of pressurised economic uncertainty, it has never been more important.

29

Ill health costs the UK economy over 100bn a year the same as the cost of running the National Health Service for a year according to an analysis by Dame Carol Black, national director for health and work. Her report, published in March, looked at all aspects of the delivery of workplace health, includes measures such as replacing sick notes with well notes, stating what work someone with health problems can actually do. The shift from sickness to wellness, both in terms of recognition and management, has been subtle. Indeed, wellness is a relatively recent introduction to the language of business, at least as far as human capital is concerned. It is one thing striving for a healthy bottom line, but companies are beginning to cotton on to the fact that the physical and emotional health of their employees is not only as important as, but directly correlates to, the success of the business. Broadly speaking, wellness encompasses all those reasons why staff may not either be giving their best or actually be present in the workplace, from illness to stress to a Monday morning hangover. With the current economic climate meaning that more is expected of employees to help companies ride the wave of a credit crunch while their personal finances are being stretched to the limit, the pressures of work are being felt by most. Add to that the endless media reports of binge drinking, a time-poor nation fuelled by unhealthy eating in a polluted environment, and its a miracle anyone manages to function at work effectively. According to PricewaterhouseCoopers partner David Baty, stress is one element of wellness and one that is increasingly recognised as a problem, even if it is still difficult to see it happening. It creeps up on people, he explains. Its an insidious set of small, incremental changes. People suddenly become aware that things arent right. It could be event-based or a sudden perception of loss of control, and, crucially, it cuts in to the broader topic of wellness. Baty defines wellness at work as consisting of three things. First, occupational health and safety, including workplace ergonomics, accident prevention and so on; second, managing ill-health, taking into account such things as absence through stress, how you deal with the absence, how it is monitored and measured, and looking at the culture of the company; and finally, promotion and prevention, which is all about enabling employees to be healthy on all levels, and helping them with stress, diet and exercise, plus the cognitive aspects and understanding about what makes for feeling good at work. When you consider that even people who are unwell but not off sick have an impact on productivity indeed potentially a bigger impact than

absenteeism a companys success becomes inextricably linked with its workers enlightened self interest. Ben Willmott, employee relations adviser at the Chartered Institute of Personnel and Development (CIPD), says: Adopting a policy of wellness management means taking a holistic approach to the promotion of employees health and wellbeing in order to create enhanced business performance. Wellness management, he claims, is about prevention of sickness and absence, rather than rehabilitation. CIPD figures show that absence costs business on average 659 per employee every year. Due to the sheer size of the job of managing wellness, more and more companies are implementing wellness programmes. But Willmott warns: Attempts to promote wellbeing and manage absence will be fatally undermined unless they are underpinned by good peoplemanagement and effective work organisation. There is no point providing healthy eating options and on-site gyms if people are dreading going to work because of their bullying line manager or because of excessive workload. So what can be done? In Aguascalientes in Mexico, the authorities have plumped for fiscal incentives, with overweight police officers being offered cash bonuses if they slim down. Elsewhere the approach is broader and perhaps more educational. According to the CIPD, in the UK almost half of organisations provide all employees with access to counselling services as part of their wellbeing initiative. This is followed by employee assistance programmes (31%) and support to stop smoking (31%). Around a quarter of employers also provides health screening, healthy canteen options and subsidised gym membership to all employees. PwC undertook a review of its entire health-related benefits in 2004 in order to implement an integrated approach. The firm set up a working group with members of leading individual workstreams examining sickness and absence data, sick pay policy, health benefits, long-term sickness absence management and wellbeing initiatives. It also ran workshops with representatives from the business to understand how they currently managed employee sickness. The result was a completely revamped Health Matter Programme, which includes Zest for life at PricewaterhouseCoopers a scheme that supports employee health and wellbeing by raising awareness of health issues. Activities across the UK include on-site dentists and physiotherapists, reflexology, massage, meditation, yoga, pilates, smoking cessation clinics, wellbeing workshops, fit-for-life and desk survival courses. The scheme also

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With employers persistently experiencing difficulties attracting and retaining talented people, keeping your workers happy, healthy, well-motivated and at work can only become more important for employers.

provides an employee assistance programme to staff and families and offers Choices a flexible benefits scheme providing a range of health-related options. Jackie Gittins, director in Human Resources Consulting at PwC, is also keen to stress that it is not a one-size-fits-all package and that each employee, wherever they are based, has the right to a tailored package that suits them. PwC has 37 offices across the UK, she says, and our network of health champions act as the eyes and ears for what kind of local health matter activity would be successful. Accountants Ernst & Young also has a comprehensive infrastructure to help monitor its people, including private health insurance, annual health screening, dedicated occupational health professionals and workplace assessments, along with an employee assistance programme that supports employees families as well. It also claims to lead by example, with chairman (and marathon runner) Mark Otty being lauded as the model of a healthy and balanced approach to life and work. Supporting our people to achieve their potential must begin at the most fundamental level their physical and mental wellbeing, says Richard Jordan, head of employer brand at E&Y. It is only from strong foundations that they can handle the complex issues and challenges that they face every day. All of this admirable and growing attention to employees all-round health is commendable, but it does throw up some difficult questions. For instance, do employees still have the right to assert their unhealthiness? It is, says Willmott, a fine line to tread. Theres clearly a balance to be struck between promoting health and wellbeing and interfering in private lives and choices of employees, he says.

Most employees want to live healthier lifestyles, so in most cases employers promotion of wellbeing will be supported. However, wellbeing can only really be about positively engaging with employees. You cant bully people into healthy living. That wouldnt work and would be actively counterproductive. Baty also believes that knowledge is power. It has to be about personal choice, but an educated one. Choice has to remain the fundamental principle of this. And he agrees that compulsion is not an option. Arguably, compelling people to do something that they dont want to do could be causing more problems. Also crucial is the constant evolution of health programmes, claims PwCs Gittins. Using integrated reporting we are continuously identifying key issues in the workplace. The programme also has links with our diversity agenda, community affairs and corporate responsibility. It supports our overall business by engaging with our people, giving them opportunity and choice. So what, then, does a healthier workforce mean for the future? Will a strong and healthy workforce build the foundations for, ironically, a more stressful future in the form of a pensions crisis? There are bigger forces at play in the pensions crisis than wellbeing initiatives, says Willmott. It is inevitable that more of us are going to keep working for longer in the future. Wellbeing initiatives will do more to help employers get the most from valued and long-serving employees than they will to contribute to the pension crisis. With employers persistently experiencing difficulties attracting and retaining talented people, then keeping workers happy, healthy, well-motivated and at work can only become more important for employers, continues Willmott. Many employers are already working actively to improve their engagement of their workers, and are reaping the rewards.

topic

author

Corporate governance

Clare Gascoigne

The search for

Are the increased demands placed on non-executive directors resulting in a shortage of good-quality candidates?

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all-rounders
It is relatively rare for a country to claim that it has set business standards worldwide, but it is a claim that the UK could legitimately make in the area of corporate governance. The Cadbury report, published in 1992, was a comprehensive review of corporate governance practice that set out a code of best practice for company directors. In particular, its recommendation that company boards should contain a minimum proportion of non-executive directors was one that was quickly adopted around the world. A year after Cadburys recommendations were published, Sweden issued its own report on recommended corporate governance procedures. South Africa was next, with the King report in 1994, followed by Australias Bosch Committee report in 1995 and India in 1998. Between 1993 and 2000, more than 18 countries issued their own guidance on corporate governance and specifically, the role of executive and non-executive directors (NEDs). Since then, the UK has continued to review and refine the role of non-executive directors. The Greenbury report looked at directors remuneration, Hampel at internal controls, and guidance from Turnbull pulled everything together. In 2002 corporate scandals such as Enron and WorldCom had the corporate world worried; Derek Higgs, chairman of the investment bank SG Warburg, was appointed to find out how a similar disaster could be averted in the UK. It was Higgs that changed the role of NEDs, setting out clear requirements and responsibilities (see box) and describing them as custodians of the governance process. This is echoed in other countries in the US, for instance, independent or outside directors are viewed as the key gatekeepers under the Sarbanes-Oxley Act. There is still a debate about whether non-executives are there as policemen or to develop the business, says Malcolm Higgs (no relation), professor of Human Resources and organisational behaviour at Southampton Universitys School of Management. Good corporate governance can enable people to fulfil both roles. What the Higgs Report did do was to significantly boost the importance of and demands on NEDs. That may have helped on the corporate governance side, but has the increased responsibility led to a shortage of people willing to take on the role? Yes, according to Graham Durgan, chairman of the NED Association, which trains people in NED responsibilities and acts as a clearing house for companies looking for a non-executive. There are a lot of people who could be NEDs partners of professional practices, those who work in not-for-profit organisations, civil servants. These people are all capable and the way round the shortage is through training, he says. Not everyone, though, agrees with the idea that there is a shortage of good NED candidates. I dont see any evidence of it, says Sir Andrew Likierman, professor of management practice at the London Business School and himself an NED for four organisations. If companies have very particular requirements it may be difficult to find someone, but I see plenty of good new non-execs. Perhaps the perception of shortage stems from a slowing down of the rate of appointment of new NEDs, according to Sean OHare, partner in the HR resource service at PricewaterhouseCoopers. Boards have gone through a significant refreshing following the Higgs Report, which said there should be a greater diversity in boards and a focus on the calibre of non-execs, he says. Between 12% and 15% of NEDs were appointed new each year for the first few years after Higgs; then in 2007 that dropped to 2%. But, he argues, that is more a sign of the corporate world achieving its aim than of a shortage in good candidates. There isnt a drum beat of chairmen saying there is a problem finding NEDs, he says. Certainly the pressure for performance has been sharply increased, with annual assessments forcing all directors to evaluate and prove their value to the company. Higgs said that NEDs should be sound in judgement and have an inquiring mind. They should question intelligently, debate constructively, challenge rigorously and decide dispassionately. And they should listen sensitively to the views of others, inside and outside the board. It is a tough list of requirements: business knowledge and experience, yet openness to change; a willingness to challenge at the very top, yet also the ability to listen all the way down; maintaining independence, yet being a team player. This evaluation process is an area where HR should be getting actively involved, says OHare. Its a delicate process. Its also a two-way process, much like the functioning of the board overall. The Combined Code on Corporate Governance (compliance with which is a requirement for London Stock Exchange listing) makes it clear that executive and non-executive should be working together, sharing knowledge and information particularly critical for NEDs, who only spend an average of 18 to 20 days a year working with the company. This point has been picked up in other jurisdictions the Australian Corporations Act, for instance, takes the view that there should be no distinction between NEDs and executive directors in the application of director duties. The role of an NED in Australia is currently seen as requiring a time commitment of around one fifth of a senior management position, although it is acknowledged that this is bound to increase as NEDs responsibilities expand. OHare argues for HR involvement at the earliest stage of NED recruitment. Long gone are the days of the chairman recruiting NEDs via his friends at the golf course though personal networks are still important, says Higgs. A lot

What Higgs and the Combined Code say about NED responsibilities
Some responsibilities are the same for both directors and NEDs, according to the Higgs Report. All board members must: provide entrepreneurial leadership of the company within a framework of prudent and effective controls that enable risk to be assessed and managed; set the companys strategic aims, ensure that the necessary financial and human resources are in place for the company to meet its objectives, and review management performance; and set the companys values and standards and ensure that its obligations to its shareholders and others are understood and met. But the NED must also: constructively challenge and help develop proposals on strategy; scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible; determine appropriate levels of remuneration of executive directors, and have a prime role in appointing, and where necessary removing, executive directors, and in succession planning. The broader duty is to maintain confidence in the conduct of the company. To that end, NEDs need to be well-informed about the company and the external environment in which it operates, with a strong command of issues relevant to the business. That will mean not only keeping up to date with the world, but making sure the executive directors are sharing the right information. NEDs are also responsible for understanding the views of major investors, both directly and through the chairman and the senior independent director. The effective non-executive director: upholds the highest ethical standards of integrity and probity; supports executives in their leadership of the business while monitoring their conduct; questions intelligently, debates constructively, challenges rigorously and decides dispassionately; listens sensitively to the views of others, inside and outside the board; gains the trust and respect of other board members; and promotes the highest standards of corporate governance and seeks compliance with the Codes provisions wherever possible.

of NEDs are found that way its not necessarily a negative. But before that, as a company you need to have laid out very clearly what you want from your NEDs, what contribution you are looking for. You could be looking for a particular experience, or for an individual to play a particular role on the board. You should also be looking for someone to challenge you, agrees Durgan. The danger is that you recruit someone like yourself, and you should be prepared to recruit in an uncomfortable way. You have to be fairly brave to recruit people who are prepared to question you. HRs role may well be key here, since it is likely to be easier for a board outsider to spot the gaps and weaknesses, and strengthen the executive directors willingness to step outside their comfort zones. Much is made of the need for diversity on boards (Higgs was critical of the predominance of white, middle-aged men on UK boards), but Likierman says the key is to determine need. You have to ask, what is the objective of being diverse? If the company markets products exclusively to young people you will want to access their viewpoint, and one way might be to appoint a younger person as a NED; but you could also run focus groups. You need to be able to answer the question, why do you want the board to be diverse.

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There are a lot of people who could be NEDs partners of professional practices, those who work in not-forprofit organisations, civil servants. These people are all capable and the way round the shortage is through training

Can you teach someone to be a NED? Some aspects can be taught, says Likierman. If you dont start with a financial background, that can be taught. Coaching can develop interpersonal skills. You can make up for weaknesses. At this level, of course, much depends on the individuals openness to selfimprovement; although many are engaged on the basis of their experience, those that have no interest in self-development are unlikely to make perfect NEDs. So why do it? You can work at a high level without having to live with the dayto-day problems of implementation, says Higgs. Some companies encourage their senior management, just below board level, to work elsewhere as nonexecs to broaden their experience and develop their talent. It can be part of a corporate CSR programme to allow those with high potential to work on a notfor-profit board. I dont think they are just in it for the money! says OHare. Being an NED is a place of standing, there is prestige attached. And I think a high proportion genuinely want to give something back. NEDs are a tricky recruitment problem, but they fulfil a critical role. Get it right, and your company could see transformational results.

To find out more...

A practical guide to the Companies Act 2006, produced by PricewaterhouseCoopers Legal and PricewaterhouseCoopers is designed to arm executive and non-executive directors with an understanding of their business and personal legal obligations, particularly in light of the new Companies Act. The guide covers important new requirements in areas such as directors duties, financial reporting and business reviews, as well as all legal requirements required when managing shareholder relationships, transactions involving shares and employee share schemes. Price: 60+ 4.50 p&p ISBN: 978-1-84140-971-9

topic

End notes

Whats new?
A round-up of the latest HR publications and research.

36

Confidence and ego

Good business leaders have always understood the importance of positive feedback and working to improve the employees confidence. Confident people make good decisions. But is it possible to be too confident? New research from London Business School, Kellogg School of Management and the psychology department of Northwestern University suggests that a balance needs to be struck between improving workers self-esteem and the risks of over-confidence.

A new look at talent management

The HR function, as we all know, is notoriously difficult to pin down into a clear set of responsibilities. As HR moves steadily closer to the strategic heart of the business, its responsibilities are becoming more diverse and demanding. Many of them, however, are difficult to translate into business language, contributing to the perception of HR as a soft skills discipline with little relevance to the cut and thrust of business. Could the answer be to compare key HR issues, such as talent management, to other major business processes? Peter Cappelli, professor of management at Wharton School and director of Whartons Centre for Human Resources, certainly thinks so, arguing that talent management can and should be approached in the same way as the supply chain process. After all, a shortage of talent can be as damaging to an organisation as a shortage of widgets. In Talent on Demand: Managing Talent in an Age of Uncertainty, Cappelli argues that the questions routinely asked of supply chain managers could hold the key to successful talent management: Do we have the right parts in stock? If not, do we know where to find what we need quickly? What is it costing us to store the right inventory? Is it worth it? Cappelli concentrates on four areas: balancing in-house development of talent with outside recruitment; improving the accuracy of talent requirement forecasts; maximising the returns on talent investment; and creating an in-house talent market. Cappelli argues that the principles of supply chain management, particularly just-in-time strategy, could help to tackle the abysmal record of talent management in some organisations. Companies need a steady supply of talented employees to make sure they will succeed in the future, and in an open labour market, that demands a structured approach. Talent on Demand: Managing Talent in an Age of Uncertainty by Peter Cappelli is published by Harvard Business School Press, price $35, and is available from Amazon.com ISBN: 978-1422104477

The researchers found that in some cases, positive feedback can escalate a perceived threat to the employees ego, exacerbating their natural need to justify their decisions as the right ones, even when they were not. The challenge for leaders is to encourage the right level of confidence in workers so they are able to change a failing strategy, rather than justify it. The Promise and Peril of Self-affirmation in De-escalation of Commitment by Adam Galinsky Gillian Ku, Daniel Molden and Niro Sivanathan is due to be published shortly in Elseviers Organisational Behaviour and Human Decision Processes. For more information see the Journals section of www.elsevier.com. ISSN: 0749-5978

Employee motivation
Back in 1946, the Labour Relations Institute asked a sample of employees to rank from a list of 10 factors that included feeling appreciated, job security and wages the things that motivated them at work. The experiment has been repeated at intervals since by academics in the US and UK, in an attempt to track the changing face of employee motivation. The latest set of results has been compiled by David Spicer, professor at the Bradford University School of Management, and he outlines the main findings in an article in the latest issue of Human Resources magazine. Spicers survey showed significant changes in the motivating factors named by employees. The factor ranked as most motivating was interesting work, which was rated only the fifth most motivating factor in 1992 and was sixth in 1946. Any theory that modern employees rate engagement in the workplace higher than remuneration, though, is contradicted by Spicers finding that wages were named the second most motivating factor (compared to a study in the 1980s that ranked wages fifth) and the top motivating factor by those under the age of 26. For more, see the latest issue of Human Resources magazine, www.hrmagazine.co.uk.

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