Charles Saliba CEO, HR Works s.a.l.

1. HR Governance The Real Gatekeeper Charles Saliba CEO, HR Works s.a.l. Colloquium on Corporate Governance across Ethics, Culture & Citizenship USEK, April 14 & 15, 2014

2. 2008 Time of the UGLY Truth

3. TheGuilty 25 People to blame for the Financial Crisis The good intentions, bad managersand greed behind the meltdown Richard Fuld Former Chairman & CEO of Lehman Brother Bernard Madoff Stockbroker, Investment Advisor, and Financier Angelo Mozilo Phil Gramm Alan Greenspan Chris Cox American Consumers Hank Paulson Job Cassano Ian McCarthy Frank Raines LathleenCorbet Dick Fuld Marion & Herb Sandler Bill Clinton Georges W. Bush Stan O’Neal Wen Jiabao David Lereah John Devaney Bernie MADOFF Lew Ranieri Burton Jablin Fred Goodwin Sandy Weill David Oddosson Jimmy Cayne sample Angelo Mozilo Co-founder of Country Wide Kathleen Corbet AAA Sealing And many others...

4. The Guilt greed misjudgment incompetence

5. The Consequence Financial Crisis Economic

6. What were the Repercussions of the Crisis? ‘ , Decrease in Trust Levels Financial Institutions The word CREDIT is derived from the Latin word CREDERE, which means to HAVE TRUST IN Trust in the Top 50 Global Financials expressed through Media Sentiment MarketPsych: “TRUST”/Top 50 Global Financials Source: TRNA/MarketPsych/ Sentiment Indicators – Thomson Reuters. Indicator drawn from news and social media sources to illustrate the level of trust in Global financial institutions, which decreased considerably from 2008 until the first quarter of 2013

7. What were the Repercussions of the Crisis? Decrease in Trust Levels in Economic System Anti Capitalist Tendencies among G8 Countries 30% 17% 15% 13% 11% 7% Source: FT – Harris Poll (2008) USA Italy Great Britain Spain France Germany The graph shows the effect of the financial crisis on citizens’ confidence in the market economy. Citizens from these countries were asked whether the current financial crisis had been caused more by “abuses of capitalism” or by the “failure of capitalism itself”, an astonishing 30% of German respondents selected the latter explanation. This value is four times higher than the 7% obtained in the US and nearly twice as high as that obtained in France, at 17%. Results show that German economy has been hit the hardest among the world’s largest economies by the financial crisis

8. What were the Repercussions of the Crisis? Increase in Regulatory Activity (documents changes, announcements, enforcements by regulators) Proliferation of regulatory activity leading to increased compliance burden for the financial sector Source: Data drawn from Governance, Risk & Compliance business and Thomson Reuters Accelus™. Greatest volume of regulatory alerts are tracked in North America, followed by Asia, and UK/Europe. Today, there are 85 regulatory alerts per day Total Alerts Year-on-Year

9. What were the Repercussions of the Crisis? Great Financial Losses (especially in US Banks) Average Quarterly Net Income per 100$ of Bank Assets (Pre-crisis, Last 5 years, Last 4 quarters) Source: FDIC Bank Data & Statistics Quanta Analytics The graph shows the overall quarterly income to asset level as reported by each of the Big Four banks and for the rest of the U.S. banking community for (1) the eleven-quarter pre-crisis period; (2) the five-year crisis period; and (3) the last four quarters of the crisis.

10. The Consequence real Financial Crisis Social Economic Existential

11. Reading it Differently 25 Human Resources (HR) Socio- Existential Crisis 25 People = =

12. Will it happen again? Yes, it will

13. Why? practice of People Governance Shy

14. Key HR related emphasis • Organization Structure • Roles of the BoD • Succession Planning for BoD Members • Executive Remuneration • BoD Members Induction • Codes of Conduct & Ethics Examples sample

15. So, what is the Solution? iNCLUSION of HR Governance in Corporate Governance practice

16. Then again, What’s the Big Idea? The Governance Dilemma It has been proven by undoubtful fact that the Global Economic & Financial Crisis of the World was caused by people who lacked Competence and/or Morality. 1 Intentionally Wrong Decisions • Moral Crisis Economic & Financial Crisis Governance Dilemma 2 Unintentionally Wrong Decisions Competence Crisis • Integrity & professionalism of the Human Resource in rganizations

17. So What? The Problem The Challenge The Answer • Persistence of the Governance Dilemma (caused by the Human Element) • More Financial, Social & Economic Trouble will keep coming because no serious measure are being adopted to neutralize the cause of the problem The need for an HR Governance As a tool to Mitigate Human Resource (HR)Risk

18. But what is HR Governance? • HR Governance is a management concept developed by HR Works’ Research Center in 2013. Itstands for the process of ensuring that the Human Element in any Organization is vigorously governed in terms of Morality and Competence. • It aims at putting in place all required enablers to govern the Value Chain of People Management inside an Organization. • Value Chain of People Management includes: • Selection of Staff • Remuneration • Behavioral Compliance & Professionalism • Employee Competence & Good Judgment • Career Development • Succession Planning, and • Performance Management

19. How does HR Works apply it? (1/5) HR Works’ ‘HR Governance Model’ HR Governance I II III Areas for Governance Legitimate Governing Bodies Selected Governing Tools Pillars The HR Department The Human Capital Structure & Composition The Leadership Team The Board of Directors & its Committees HR Committee Internal Audit Department Quality Assurance Department Due Diligence Audit Reports Quality Assurance Reports Progress Reports Pillar I Pillar II Pillar III * This Model is developed by HR Works’ Research Center

20. How does HR Works apply it? (2/5) HR Governance I II III Areas for Governance Legitimate Governing Bodies Selected Governing Tools • Three entry points through which lack of compliance and hence risk can penetrate any Company 1 2 3 The HR Department The Human Capital Structure & Composition The Leadership Team • Monitoring the Application & Compliance of: • HR Policies & Procedures • HR Systems • HR Team and, • Practices that the HR Function is utilizing for managing the Workforce • Ensuring Business protection in terms of: • Workforce numbers • Employees’ education & competencies • Profiles & Social Background • Gender & Nationalities • Capacity & Ability to grow • Level of Individual Dependencies • Workforce Aging and, • Performance • Evaluating leaders’: • Strength & Weaknesses • Leadership styles • Quality of decisions • Extent of compliance vs. non-compliance to rules and regulations • Projection of the Company professional image • Retention & Development potential and, • Performance Governance Scope

21. How does HR Works apply it? (3/5) HR Governance I II III Areas for Governance Legitimate Governing Bodies Selected Governing Tools Entities in charge of implementing the Company’s HR Governance, by virtue of Law or appointment by the Board 1 2 3 4 Board of Directors & its Committees Internal Audit Department Quality Assurance Department HR Committee • Monitor the appropriate execution of systems and policies a priory, i.e. before a decision is made hence mitigating any potential risks that might arise from inappropriate actions • Raise the flag whenever they notice a breach or a deviation in the implementation of agreed upon systems and policies Reactive Governance Proactive Governance

22. How does HR Works apply it? (4/5) HR Governance I II III Areas for Governance Legitimate Governing Bodies Selected Governing Tools • Valid & reliable Tools that sustain a concrete & defendable outcome of HR Governance Exercises 1 2 3 4 Due Diligence Audit Reports Quality Assurance Reports Progress Reports • Diagnostic Technical exercises usually carried out by Internal or External Human Capital Auditors • Assess the current status of an Organization In terms of its compliance with HR practice (policies and regulations, key financial, legal, & organizational benchmarks) • Review work previously executed by the HR Department or any other entity involved in people management inside the Company • Result in documented findings and recommendations report presented to the Board of Directors for discussion and appropriate Action • Give concerned entities, like the HR Department and the CEO, a comprehensively detailed perspective on points of improvement to sustain HR Governance • Emphasize the continuous improvement dimension brought about by HR Governance • Ensure that the Audit & Quality Assurance Recommendations are being acted upon, and that the Organization is rectifying its track to be or become compliant again

23. How does HR Works apply it? (5/5) HR Governance I II III Areas for Governance Legitimate Governing Bodies Selected Governing Tools The Moral Dimension of HR Governance The Competence Dimension of HR Governance 5 6 The Professionalism Code Competencies of Governance • A Global formal Code that sets and defines the Pillars of Professionalism for the modern World inclusive of Code of Ethics, Collegial Relations, Good Judgment, Integrity of Decisions, Collective Good, etc. • This Code would be delivered to all Employees in companies through Awareness & Training Sessions • The Professionalism Code should also be a serious candidate to become a Core University Course for all specializations, specifically for Business related majors. • This tool comprises of ensuring that all employees in a Business are in their right place, i.e. in a position for which they have the required competencies to work in. • The tool is based on ensuring that every employee has a Job Description based on a formally promulgated Organization Structure; it also counts on having a clear Competency Assessment tool that measure the gap between Employee’s current level of competence versus the level of competence required by the Job he is in

24. How does the HR Governance Model Operate? Board of Directors & its Committees Progress Reports Directives & Recommendations Findings & Recommendations Input Directives CEO Recommendations & QA Reports Quality Assurance Department Internal Audit Department Coordination Feedback HR Committee Recommendations Input & Directives Feedback Request HR Audit & Review Compliance Monitoring of Implementation HR Department

25. Now let The Guilty try again

26. About HR Works s.a.l. Member of HR Works is a Consulting Firm that specializes in Organizational Transformation and Human Capital Strategies development and implementation. Through its extensive service offering HR Works aims at providing high-end professional, comprehensive, and mostly pan Arab expertise in the field of Human Capital & Organizational Consulting, Talent Management, and Capacity Building. Established in 2008, HR Works has offered its services to a mosaic of esteemed Regional and International Clients in industries like Transport, Telecom, Banking, Architecture & Engineering, Food & Beverage, Hospitalization, Investment, Manufacturing, Retail, Shipping, Energy and others. The outreach of our Clients’ business activity is of global presence including Asia, Africa, America, and Europe. In addition, HR Works have a solid experience in the Public sectors ofvarious Arab Countries including Kuwait, KSA, UAE, and Lebanon. Its expertise in this regards include Organizational Restructuring, Manpower Planning, HR Systems Development, Compensation Strategies, and others. HR Works is a company of The HR Group Holding s.a.l., based in Beirut and serving the Middle East, GCC, and Levant Regions.

27. Our Service Offering Member of Services Organizational Re-engineering Total Human Capital Strategies Talent Attraction Strategies Talent Retention Strategies Performance Management Strategies Workforce Aging Strategies Leadership Pipeline Strategies Leadership Development Programs Talent DNA Assessments Succession Planning Change Management Employer Branding HR Functions Set Up Compensation Strategies Manpower Planning Human Resources Bylaws Employees Handbooks Human Capital Due Diligence HR Audit Human Capital Dashboards Benchmark Studies Executive Human Capital Advisors HR Functions Advisory Support On-call HR advice

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