Hr Involment In Corporate Governance Business Essay


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"The primary purpose of corporate leadership is to create wealth legally and ethically. This translates to bringing a high level of satisfaction to five constituencies - customers, employees, investors, vendors and the society-at-large. The raison d'être of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year".

- N. R. Narayana Murthy


This study examined the relationship between the involvement of the human resource management function in formulating corporate governance mechanisms and the quality of their implementation. It also looked at the relationship between the quality of implementation of corporate governance mechanisms and performance.

This study was based agency theory, institutional theory, and the resource-based view of the firm.

The importance of HRM in gaining competitive advantage has been long recognized. Such importance is enhanced to the extent that HR practices are successful in developing organizational capabilities that enable an organization to adapt to a changing environment .

These practices provide the infrastructure

necessary for the organization to create value

Some authors argue that the HR function must be

involved not only in strategy implementation but

also, more importantly, in strategy formulation

(Tichy and Devana, 1982; Schuler, 1990).

Failure of governance takes on many forms.

Some are too blatant to be unnoticed, such as

polluting air and water, engaging in unfair labor

practices, and dealing in illegal activities It has also been realized that human issues almost always lie beneath business issues, including governance issues, andthus, must be managed (Christensen, 1997; Pyneand McDonald, 2001).

This paper examines the Philippine experience in how the HR function contributes to corporate governance.

While several studies onthe relationship between HR practices and organizational performance have been done(Martell and Delaney and Huselid 1966; Youndt: Philippine Management Review2006)there is a dearth of empirical studies on the relationship between HR practices and corporate governance.


Different hypothesis has been developed in this regard

Hypothesis 1a: The quality of

implementation of elements of corporate

strategy is positively related to


Hypothesis 1b: The quality of

implementation of behavioral control

mechanisms is positively related to


At this point, it is interesting to determine

the role of HR involvement in the formulation of

policies and practices in support of governance.

Using the resource-based perspective, Lado and

Wilson (1994) argued that HR practices may be

a source of competitive advantage. When such

practices are aligned with strategies, they

become idiosyncratic to the organization

The idea may be applied to practices supporting corporategovernance.

Hypothesis 2a: HR involvement in the

formulation of elements of corporate

strategy is positively related to


Hypothesis 2b: HR involvement in the

formulation of behavioral control

mechanisms is positively related to


By extension when HR is involved in

crafting policies and practices that enhance

alignment of individual interests with corporate

interests, implementation of such will also be

enhanced to the extent that such involvement

provides the means where information necessary

for implementation are exchanged and utilized.

Hypothesis 3a: HR involvement in the

formulation of elements of corporate

strategy is positively related to the

quality of implementation.

Hypothesis 3b: HR involvement in the

formulation of behavioral control

is positively related to the

quality of its implement.

Thus far, this paper has invoked economicsbased

theories in explaining HR involvement in

corporate governance. The next set of

hypotheses explores the role of institutional

variables in the relationship between HR and

corporate governance.

Institutional theory argues that an

organization operates in a network of social

relationships. It is thus important that for an

organization to gain legitimacy, it is accepted by

actors in its network ation.

Hypothesis 4a: Quality of implementation of

strategic plan elements is higher in listed


Hypothesis 4b: Quality of implementation of

strategic plan elements is higher in


Hypothesis 4c: Quality of implementation of

behavioral control practices is higher in

listed corporations.

Hypothesis 4d: Quality of implementation of

behavioral control practices is higher in



data collection

Data used in this study came from a

convenience sample of 36 organizations in Metro

Manila, Philippines, the same data set used in an

exploratory study on the role of HR in corporate

governance and risk management (Mendoza,

Supangco, and Tolosa, 2005). Convenience

sampling was utilized because of budgetary

constraints. The nature of data collection limits

the generalizability of the results of this study to

the organizations that participated in the survey.

The questionnaire was e-mailed to members

of the Personnel Management Association of the

Philippines and other human resource managers

in August and September 2003. Some 39

questionnaires were received but three

questionnaires were deemed inappropriate to the

study as these did not come from corporations.


Dependent Variables

Two dependent variables were used in this

study: performance and quality of


Independent Variables

The independent variable used in the first set

of hypotheses was quality of implementation of

policies and practices described in the preceding


Control Variables

Variables that may affect governance

practices were introduced. These are public

listing and multinational status described above.


This study has provided empirical results ofthe role of HR in corporate governance in

selected Philippine organizations.

The most important learning from this study

is that quality of implementation more than

involvement of HR impacts on performance.

This result provides the economic case for

implementing HR practices that support




while there was no direct effect of HR

involvement on performance, its effect may be

dependent on public listing. This is another area

that may be explored in the future.




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