Recent scandals involving companies backdating their stock option grants to
employees may help HR managers get that seat at the table they’ve longed
for.
However, it might not be the seat they wanted.
On July 20, the U.S. attorney for the Northern District of California, the
Securities and Exchange Commission and the FBI filed criminal and civil charges
against former executives of Brocade Communications, a San Francisco high-tech
firm, for backdating stock options to employees from 2000 and 2004.
The charges allege that Gregory Reyes, Brocade’s former CEO, and Stephanie
Jensen, the company’s former vice president of human resources, backdated stock
options to current and new employees to give them the opportunity for a greater
windfall. The civil charges also name the company’s former CFO, Antonio Conova,
who is alleged to have learned of the backdating after joining the company in
December 2000.
"In some instances, employment offer letters and compensation committee
minutes were falsified and purported to document option grants to employees
before they had even been hired by the company," according to a joint statement
by the SEC and Justice Department. "As a result of this practice, Brocade was
able to give employees ‘in-the-money’ stock options without having to recognize
compensation expenses as required by accounting rules."
The case is part of a larger investigation of more than 80 companies by both
the Justice Department and the SEC. More charges are expected, officials say.
These cases suggest that HR professionals can’t just plead ignorance anymore,
says Pearl Meyer, senior managing director at Steven Hall & Partners, a New
York executive compensation consulting firm.
"Their jobs are going to be far more complex and technical than they
bargained for," she says. No longer can HR managers just focus on recruiting and
retaining employees, she says. "They need to extend their compliance knowledge
and responsibilities."
In effect, HR may be expected to become a watchdog within the organization,
says compensation consultant Jack Dolmat-Connell.
"HR should be questioning everything," he says. "They can’t just go along and
then plead ignorance."
But the role that HR will have to assume may not be the strategic business
partner that they had hoped to become, says Peter Cappelli, director of the
Center for Human Resources at the University of Pennsylvania’s Wharton School of
Business.
"They are going to become insider cops that have to tell managers what they
can and can’t do," he says.
Similar to the way that company executives treat general counsel, executives
may soon need to go to HR about issues not because they want to, but because
they have to.
—Jessica Marquez