Incorporated in 2003 and started operations in 2005, KingFisher Airlines was one of the top airlines back then. The company received national and international awards for its services. Further, it expanded its services into diversified career services through loans, and as a result, KFA has never earned any profit since inception. Due to which employees went on strike, the Directorate General of Civil Aviation (DGCA) suspended its flying license in October 2012. KFG serves as a clear illustration of inadequate corporate governance, a system that guides and regulates companies. There are many more examples of failed corporate governance, including the famous Styman Computer Services Ltd. scam in 2008, where its founder confessed to accounting frauds. This is quite evident; even history depicts that the renowned companies are also not immune to governance failures. If these companies had adhered to proper HR compliance,
HRM: A Dire Need of an Hour
Human resource management could have played a pivotal role in preventing or mitigating these scandals had it been more cautious in a number of ways:
- HR could have filled the gap in professional management.
- Proper collaboration with legal and compliance teams would have ensured the company adheres to all laws and regulations.
- KFA employees went on strike because they hadn’t received pay in months.
- The collaboration with finance and audit teams would have established robust internal controls that could reduce the risk of financial mismanagement or fraud.
- The development of crisis management plans like communication strategies could have played a crucial role in fixing the matter.
The KFA case had a lasting effect on the airline industry, revealing the catastrophic consequences for the investors, employees, and the company itself. The study of corporate governance failures shares invaluable insights into the flaws and weaknesses in governance frameworks and practices followed by the board of directors (BoD).
Significance of HRM in Corporate Governance
Google, the world’s biggest company, is not only famous for its commitment to innovation but also for thriving corporate culture and its unparalleled HRM practices. The company ensures employees’ well-being, maintains a healthy work environment, abides by all rules, and manages its overall growth simultaneously. Today, Google’s success credit goes to not only BoD, who leads the company, but the HRM initiatives that attract and retain top talent, foster a culture of innovation, and maintain a high level of employee satisfaction. Examining the role of HRM and its effect on corporate governance helps organizations sustain health and credibility.
Ensuring Compliance
Observations show that HRM is responsible for properly setting policies and codes of conduct that align with corporate governance standards, given the ongoing gaps in organizations. From ethical training and codes of conduct to compliance monitoring and maintaining corporate culture, HRM is responsible for ensuring employees at all levels act in accordance with internal and external standards.
Building a Culture of Integrity
The core foundation of any company is dependent upon robust corporate governance. Organizations must focus on creating a strong climate; failing to do so will result in unachievable business outcomes. Gartner’s research on ‘Create a Culture of Integrity to Improve Corporate Compliance’ identifies that the key differentiator between a strong and weak corporate culture is climate, which means the practices and procedures employees follow and signals they follow that particular behavior is awarded and valued. Maintaining a positive culture that fosters trust among employees, management, and external stakeholders will lead to significant growth in the culture.
Foster Open Communication
Vijay Malya’s threats and the strike by KFA’s employees exemplify the company’s strife. The company’s poor corporate governance is evident in the significant communication gap between its employees and its management, or BoD. According to the Forbes article titled ‘Communication is Key When Fostering an Open and Diverse Work Environment’, effective communication forms the foundation of strong relationships and can further strengthen existing strong relationships, thereby enhancing the overall strength of a company.
Human Resource Management is a crucial function that demands attention.
The ultimate goal of every organization should be to protect their reputation. How’s it possible for them? They achieve this by fostering trust between employees and stakeholders, as well as by constructing a corporate governance structure that is more widely accepted. Overall, HRM significantly contributes to positive corporate governance by promoting ethical behavior, ensuring compliance with laws and regulations, facilitating investigations, maintaining transparency, and consistently monitoring and enhancing governance mechanisms. HR’s proactive role in ensuring ethical conduct and accountability is crucial in fostering a culture of integrity within an organization by reinforcing the principles of positive corporate governance.
