HR Solutions: Hiring process affected by corporate scandals

Lynne Haggerman is president/owner of Haggerman & Associates, an employment, management training, human resources consulting and outplacement firm.

The disrepute of Enron and similar corporate scandals led to the creation of the Sarbanes-Oxley Act. The law applies to all public companies and any private organizations that have filed a registration statement with the Securities and Exchange Commission regarding a potential initial public offering. Some of the mandates in the act affect the areas of selection, discrimination, benefit administration, and human resource policies and procedures.

Selection

The act requires that CEOs and CFOs certify periodic corporate reports. Accordingly, companies will notice an increase in CEO and CFO applicants asking to review relevant financial information during the interview process. Executives at this level will want to avoid accepting a position with an organization and then quickly resigning after finding illegal or unethical financial practices.

In response, businesses must first determine what financial data will be disclosed. The same information should be provided to all applicants to avoid discrimination lawsuits. Since confidential data will be revealed, consider utilizing a nondisclosure agreement to protect the interests of the enterprise.

During the interview, ask each job seeker if he complied with the act in prior positions. Verify his statements by conducting reference checks and obtaining background information

Discrimination

The act expanded protection to whistleblowers and government informants already protected in a comparable manner by other laws. Under the act, whistleblowers may not be discharged, demoted, suspended, threatened or harassed. In addition, retaliation or discrimination is not allowed. It also is illegal to retaliate against government informants.

Look for the court system to apply the regulations found in existing anti-discrimination laws, such as Title VII of the Civil Rights Act and similar statutes. For this reason, take advantage of the guidelines already provided by those laws to ensure compliance.

Update discrimination, harassment and nonretaliation statements in employee handbooks to include the act. As with analogous laws, be sure to provide supervisory training, document attendance and maintain the training records.

Benefit administration

Personal loans and extensions of credit to executive officers and directors are prohibited. Review and modify compensation programs if needed.

CEOs and CFOs must reimburse bonus and stock option profits upon certain restatements of financial statements. Create new benefit administration guidelines and provide training.

In addition, insider trading during pension fund blackout periods is illegal.

Policies and procedures

Develop a code of ethics for senior financial officers and maintain proof of receipt of the policy. Conduct training to ensure the policy is understood and retain attendance documentation.

Include violations of the act in the section of the employee handbook listing behaviors that will be cause for immediate discharge. Update document retention policies to include the act.

New laws, such as the Sarbanes-Oxley Act of 2002, are always gray. Court cases establish precedent and change the gray to black and white.

The winner of the game is the corporation that does not set precedent due to a lost lawsuit. Avoid legal trouble by modifying human resource practices to ensure compliance.