CFO Magazine

Reform Effort Rebuked

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Tony Malone, CEO of The Network, maintains that internal audits are not as effective as anonymous tips in shedding light on serious problems. "Whether it's sexual harassment, racial discrimination, corruption, or fraud, companies need to give employees an easy way to speak up about what is going on," he says. About 54 percent of the 200,000 incidents tracked in the report were made anonymously.

But critics say even the best hotline system won't work if a company's culture doesn't support ethical behavior. David Gebler, president of consulting firm Working Values Ltd., says companies should train midlevel managers to be better listeners and train high-level executives to lead by example. "If your CEO says, 'We're going to walk away from any opportunities that might compromise our ideals,'" says Gebler, "that's much more effective than just publicizing a hotline number and mandating that everyone take a Web-based compliance module." — J.McP.

"How'm I Doing?"

What you think about performance reviews may depend on which side of the desk you sit. When Salary.com surveyed 2,000 employees and 330 human-resources professionals, it found that while two-thirds of companies believe their performance reviews are effective, only 39 percent of employees agree.

One reason for the disconnect, says Jeff Summer, a global leader of talent management at Deloitte, is widely divergent expectations. "Employees actually want to have a meaningful conversation about their performance and career development, but employers are often simply complying with performance-review policies."

As further evidence of a disconnect, the survey also found that 82 percent of employers believe they provided clear goals to their employees before conducting formal reviews, but only 46 percent of workers said they fully understood their goals. Mark Albrecht, vice president of talent-management solutions for Salary.com, says that managers often try to communicate such matters via informal conversations, but employees don't realize the import of such talks. An employee may not realize his or her performance is at issue, Albrecht says, "unless the manager comes right out and says it."

Companies have plenty of motivation to improve their performance evaluations. "There aren't enough knowledge workers now, and it's going to worsen over the next 10 years," Summer says. Younger employees have also come to expect more career guidance and a clearer picture of their paths to the top, he adds.

Summer says companies should train managers on effective communication and emphasize coaching and career development. Albrecht recommends that managers discuss performance with their employees at least quarterly. — L.D.

Ignorance Is a Defense

Directors around the country sighed with relief late last year when the Delaware Supreme Court ruled for the defense in Stone v. Ritter, a lawsuit involving director liability at AmSouth Bancorporation. The court clarified its views on director liability, reaffirming the landmark 1996 Caremark decision that requires a very high standard of proof. Complainants, in short, must show that directors "knew that they were not discharging their fiduciary obligations," says the court.

Shareholders filed the suit against AmSouth in 2004, after the bank paid $50 million in fines and civil penalties to resolve investigations into its failure to disclose the activities of bank customers who were engaged in a Ponzi scheme. (AmSouth has since merged with Regions Financial Corp.) Plaintiffs argued that AmSouth's 15 directors had breached their fiduciary duty by failing to detect the scheme. But the court ruled that the directors could be held liable only if they had completely failed to implement any reporting or control structure, or if they had consciously failed to monitor such a system. AmSouth did have control systems in place, and the court found the directors not personally liable.

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