HR directors usually aren’t the most politically powerful officers in higher-level corporate cultures. The function doesn’t produce product or create sales, so there’s no ready way to judge its value and contribution. Like a solid defensive lineman, an HR director is working best when basking in total anonymity — when no HR issues arise.
Among midlevel line managers and supervisors, the HR department often is viewed as the enemy — standing in the way of terminations, requiring “reasonable accommodations,” or conducting investigations. Therefore, good personnel officers develop strategies to provide service to company management and show that their department exists to help, not hinder, the company’s operating, production, and sales components.
Stephanie Jensen, the HR director for Brocade Communications Systems Inc., thought she was performing that service function when she facilitated a compensation scheme that included backdated stock options. That option plan isn’t illegal in itself, but it needs to be properly accounted for — and Brocade’s finance department failed to do that. So Brocade was prosecuted under the federal securities laws because it allegedly didn’t properly account for the options, which artificially boosted its true profitability. Jensen claimed that she knew nothing about the company’s financial reporting, and her lawyer added that she was acting on advice of counsel.
Every indication was that Jensen would avoid federal prison after a jury convicted her of falsifying books and records. The probation department recommended a halfway house instead of jail, Jensen was properly remorseful, and U.S. District Court Judge Charles Breyer is known as a liberal jurist. Nonetheless, he sentenced her to four months in prison in addition to six months in a halfway house, followed by a year of supervised release and a $1.25 million fine.
Jensen may have fallen victim to lousy timing since her sentencing immediately followed the collapse of Wall Street giant Bear Stearns and the consequential demolition of the pensions of thousands of its employees. When announcing the sentence, Judge Breyer expressed a need to send a deterrent message to corporate executives because dishonest books and records “withdraw the underpinning” of America’s financial markets. CEOs can’t engage in improper personnel schemes on their own, the court noted. “They need help [from subordinates]; and that person needs to say no.” Well, that could be easier said than done.
Audio Conference: Ethical Choices: HR’s Role in Guiding the Organization
Just say no?
When can an HR chief say “no” to a CEO and make it stick? As important as the securities laws are, the policies and regulations behind labor and benefit laws are no less significant. But when a CEO rejects plans to reclassify positions that had been erroneously deemed exempt, how do you say no? Do you have to quit over it? When you allow an employee to resign on the first day of the month, extending medical coverage to a month in which no services are performed, that may be a minor form of insurance fraud; do you fall on your sword to prevent that? When you allow an employee to work through lunch and leave an hour early, you’re technically engaging in a misdemeanor; do you play the role of ogre and forbid it? Recently, many of you probably were abetting illegal gambling rings because your office pool bets on the NCAA college basketball championship. “March Madness” isn’t a legal defense.
Previously in my career, I had to respond to a potential criminal charge against an HR director who was accused of terminating an employee based on an “arrest that did not result in conviction,” a misdemeanor under Labor Code § 432.7. My client was an insurance company, the employee in question was arrested for running an insurance fraud ring, and while the arrest was how we first learned of the scam and he escaped prosecution on a technicality, we had plenty more than the arrest to act on by the time the termination occurred. The fired employee invoked § 432.7 and asked the labor commissioner to find a criminal violation. After a hearing, however, the termination was upheld, and my client has never seen the inside of a jail.
Still, as if an HR officer doesn’t have enough to worry about, the Brocade scandal has raised the specter of prison time if he “enables” company management in the violation of a law. That rule may not be the best way to develop camaraderie and cooperation between the personnel office and the company it serves.
Mark Schickman is a partner with Freeland Cooper & Foreman LLP in San Francisco and the editor of California Employment Law Letter. You can reach him at (415) 541-0200.