POSITION PAPER

SHRM BOARD POLICY ISSUES AND STATUS



SMFT was formed in 2010 as a way for former SHRM volunteer leaders to voice collective concerns about decisions affecting the Society. Our 50 Steering Committee members include almost all Past Chairs serving prior to the introduction of Board compensation, several Past Chairs of HRCI/SHRM Foundation/SHRM Consultants Forum, two former SHRM CEOs, and many others who have held significant volunteer leadership roles. Our Steering Committee collectively represents greater than 1,400 years of membership in SHRM and includes the sole living founder of the organization. We also count among our supporters a large number of grassroots SHRM members who are actively involved in our work, as well as many media contacts interested in HR-related issues.

Since our formation in 2010, our goal has been to work collaboratively with the SHRM Board to bring about positive change and increase the level of transparency with which the Board operates. Our desire was to meet with the Board to ensure that it fully understood our concerns, the most important of which are transparency of operations and why transparency is vital to SHRM members. After a year of repeated requests to meet directly with the Board, we were encouraged when the SHRM Board announced, at the 2011 Annual Conference, that the Board had agreed to meet with SMFT representatives. We framed this as a very positive step at our SMFT press conference held later the same day.



On October 5, 2011, four SHRM Board representatives, including Chair Jose Berrios, Bette Francis, SPHR, Gary Latham, Ph.D., and Robb Van Cleave, SPHR, met with three SMFT representatives who are past Chairs of the Society. The SMFT representatives were David Hutchins, SPHR, CCP, CEBS, Kathryn McKee, SPHR, and Wanda Lee, SPHR. The meeting was held from 2 - 4 PM in Chicago, Illinois.



Although the meeting was cordial and did build positive relationships, it only resulted in agreement on three areas of concern: revisions to SHRM’s election ballot, modification of SHRM’s mission statement, and limitations around the use of the CPI in determining future dues increases. The election ballot was appropriately modified to allow for one write-in candidate for each available Board position, in accordance with SHRM’s Bylaws. (For some unexplained reason, the Board had adopted a practice of allowing only one write-in opportunity on the entire ballot.) There was agreement that the SHRM mission statement would be revised to reflect that SHRM strives to be “a” global voice of the profession, rather than “the” global voice. This modification was implemented subsequently, following a vote by the Board at the February Board Meeting. The Board also stated at the October meeting that the CPI would be only one factor used to determine future dues increases, although we have not yet seen this change published. In addition, the Board announced that they would be including several HR-certified professionals on the upcoming (2011) ballot, a commitment they did subsequently fulfill. Other issues were only superficially discussed, due to the short time allotted for the meeting. There was unanimous agreement that a second meeting would be productive.



On March 4, 2012, four SHRM Board representatives, including Chair Jose Berrios, Bette Francis, SPHR, Gary Latham, Ph.D., and Hank Jackson, SHRM CEO, met with two SMFT representatives who are Past Chairs, Kathy McKee, SPHR, and Kathleen McComber, SPHR. The meeting was held from 9 AM - 12 PM in Alexandria, Virginia.



At the March meeting, the Board was not receptive to seriously alleviating our greatest concerns – the Board compensation and premium-class travel benefit. Additionally, we believe some explanations our representatives were given on other issues are incongruent with the concept of SHRM as a non-profit individual membership association, while other explanations appear to be incongruent with recognized good business practices. Following are some examples:


Board Compensation Program

• Our understanding is that the Board representatives are not willing to further discuss the issues of Board compensation and Premium-Class travel. We do not believe that their position on this is acceptable.

• With the issue of Board compensation, as we have noted many times, Board Source and the American Society of Association Executives (ASAE), two widely acknowledged experts on best practices of association boards of directors, strongly recommend that if a not-for-profit organization – especially an individual member association – is going to consider board compensation, it should have any board compensation and benefit plans proposed, studied, and approved by an independent, non-board committee. Unfortunately, the SHRM Board has done exactly the opposite by proposing, studying and approving its own compensation and travel benefits.

• This is not only contrary to recommended practice, but many believe it is an inherent conflict of interest. Another serious perceived conflict of interest occurred when a member’s official complaint regarding the Board’s compensation decision was rejected by the complaint procedure’s Review Committee, which is comprised solely of Board members. Thus, the current process allows the Board to exonerate itself of any wrong-doing alleged in potential member complaints. This raises an important question about the need to revise the Member Discipline Process to appropriately handle potential complaints against Board members. We are aware of no such revision to date.

• SMFT representatives highlighted in the meeting that SMFT was willing to compromise on the compensation issue. We suggested that, if any compensation is to be awarded, it should go only to the non-HR professionals on the Board, since the human resource management profession is not their chosen career path and one could reasonably have a different volunteer expectation of them. However, one HR professional Board representative expressed this belief (that may be shared by other HR professionals on the Board): If any Board members are to be paid, then all Board members should be paid, including SHRM professional members on the Board.

• After reviewing the Society’s publicly-available IRS 990 financial reports, SMFT is still concerned that the Society was losing money at the time the Board voted to increase their compensation and establish the premium class travel benefit for themselves. Those changes were made in June 2010, in the middle of a year where the Society, as a professional not-for-profit organization, reported on its IRS required 990 reports that in 2010 the Society experienced a loss of greater than $3,200,000. Of even more concern is that, in 2009 the operating loss was $8,700,000 and in 2008 it was $17,100,000, for a three-year total of $29,000,000 in operating losses immediately prior to these Board-approved enhancements being announced.[1] It was therefore surprising to us that our representatives were told at the meeting that the Society was "not losing money" at that time.

• Research has revealed to us that almost all non-profit board members are unpaid volunteers. SHRM's Board compensation plan, providing $20,000 to $35,000 per board member annually for only four meetings a year, is also excessive when compared to those rare non-profit organizations that do compensate their Board members. This is especially true for a professional society of individual members. On this point we were provided the opinion of a highly qualified lawyer who specializes in association law. He was speaking informally and providing information, not legal advice; he is not our counsel. Based on his broad experience, he stated, in part, that “ … In decades of assisting what I'd guess are, altogether, over 1,000 nonprofit membership organizations in my career, I've never known any to pay compensation (beyond travel expenses) to non-executive-staff board members, other than in national medical specialty societies, where it is common.” He concludes, “That doesn't mean it doesn't happen elsewhere or that it is illegal (it clearly isn't); but it is certainly uncommon. And it also obviously raises issues of conflicts of interest when it's the governing board itself that votes on compensation for the governing board.”

• It may be that the justification for the Chair’s compensation of $35,000 is the large amount of time required for official SHRM business. If that is the case, we would question why the Past Chair’s compensation is not reduced, since there is substantially less official business required of that role.

• If the Board has evidence supporting its position that the compensation and benefit plans are appropriate and needed, we believe it is imperative that this be made available to members.

• We believe it is important that the Board adopt the authoritative recommendations of the highly respected ASAE and Board Source standards or be transparent about why they choose not to do so.


Board Premium-Class Travel Policy


• The premium-class (first- or business-class air travel) SHRM Board travel policy has even less justification than the Board Compensation policy and is, therefore, an even more inappropriate policy for a nonprofit Board such as SHRM’s Board.


• In 2010, when the economy tanked, companies and nonprofits alike were tightening their belts, terminating employees, halting training, and certainly limiting travel. For almost all SHRM members, unlimited premium-class travel was out of the question. However, without member or any independent input, the SHRM Board voted themselves a new policy granting unrestricted premium-class travel to Board members (including domestic flights). We believe they then asked a sympathetic consultant to review and presumably endorse their intentions. At the same time, they increased membership dues.



• When SMFT first challenged the implementation of this SHRM Board travel policy, we were told that if we could review the Board’s consultant's report, we would understand that the Board’s action to grant themselves this perk was fully justified. SMFT requested a copy of the consultant’s report and the request was denied.



• Common sense and our HR experience told us there could not be competitive justification for such a generous perk, especially in the nonprofit sector. For instance, how many SHRM members have served on a nonprofit board and had the right to travel first class or business class? In addition, how many SHRM members work for an employer who gives them the absolute right to fly first class or business class at any time, even for a one-hour flight?



• Some time after our request was denied, we received a copy of the consultant’s report from an anonymous source. We still do not know who sent the report to us, but we surmise it was someone – a staff member or Board member – who knew what was being said by the Board was inaccurate. We realized that by courageously providing us this information, this person was also clearly encouraging us to continue our efforts to change certain SHRM Board policies and practices.



• Here is an excerpt from the consultant’s report:

“… there is limited published information available on the prevalence of nonprofit boards that receive business class or first class air travel.[2] Despite the lack of published data, it is our opinion that at a minimum, the organization’s travel policies for its Chief Executive Officer would also apply to board members. Furthermore our legal counsel who has expertise on tax and government issues affecting tax-exempt organizations has stated that "first class [air] travel and a lot of other [board] compensation practices are pretty common for associations,” and such organizations could probably "pay first class travel without getting into IRS trouble."”



• We are confident SHRM members would agree that the consultant’s comments are far less than convincing. In fact, we are extremely disappointed that the board would take an action which would be less than absolutely understood to be in full compliance with IRS regulations, especially when admittedly based upon a lack of published data supporting such a recommendation.



• In addition, the consultants backed into and volunteered the following recommendation to help justify the SHRM Board’s desired action:

• "As a final observation, we believe a reasonable argument can be made that business class travel can serve to both (1) attract the high level board talent SHRM seeks, and (2) motivate or encourage on-site attendance at board meetings, which can be of a direct value for effective governance."



• In conclusion, it is SMFT’s position that there is fundamentally no competitive precedent for the Board's Premium Class Domestic Travel Benefit established in 2010. In addition, any SHRM HR professional board member who will only serve the SHRM membership if (s)he receives such an extraordinary perk is not worthy of being on our Board of Directors.


Non-HR Professionals on the SHRM Board

• Adding non-HR professionals to the Board for one-year periods for the purpose of their business expertise is likely to have unfavorable results. This is especially true when weighed against the customary practice of hiring consultants with the relevant, special expertise. Exposing Board members to our Society for only four Board meetings is unlikely to afford them sufficient knowledge of our profession and the nature of our membership to allow them to make the meaningful contributions that HR professionals could make. Sacrificing Board positions that previously have gone to HR professionals, in order to have non-HR professionals on the Board even longer, would only further complicate the issues. As a member-based association, we must also be concerned with member dissatisfaction that most certainly will result.

• The SHRM Bylaws require two-thirds of Board members’ votes to change the bylaws without membership approval. There were two new non-HR Professionals on the Board in February, when the Board voted to amend the bylaws, thereby allowing themselves to terminate the membership of any Honorary Life Member, Professional Life Member, or Past Chair Life Member, without due process – specifically without following the detailed member discipline procedures set forth in the bylaws. It would appear that those Past Chairs and others who have supported our efforts are the potential targets of this change. It is doubtful that this bylaw amendment would have been approved without the support of the new and existing non-HR professionals on the Board. We are concerned that individuals, with essentially no current or historical knowledge of the Society or tie to our profession, will now be able to substantially influence a vote that could potentially have such adverse consequences as sanctioning any or all Life Members, including Past Chairs. Ironically, the vote to change this bylaws provision was not mentioned to our Past Chair representatives at the March SMFT/SHRM meeting.

HR Certification Brand

• We applaud the new Board members who are certified. However, the current

number of HR-certified Board members is only 5 of 13, the lowest percentage in

our Society’s history. Failing to require certification of HR professionals serving

on the Board undermines the value of the HRCI brand that is a hallmark of our HR

profession. The Board has explained that sometimes the senior HR executives they

seek to serve on the Board are not certified. If this is the case, there is no

reason why such a senior HR executive should not promptly take and pass the

relevant HRCI certification exam, once elected to the Board. In this respect the same could be expected of a newly-hired SHRM CEO or SVP of

HR meeting HRCI exam candidate qualifications.


Finance Professional as SHRM President & CEO

• Our understanding is there was significant member disappointment that after a year-long search to fill the SHRM CEO position, the Board failed to recruit a new CEO from within the ranks of its 255,000+ members. This is a very desirable position, paying more than $500,000 annually. It is embarrassing that the world's largest human resource management professional society was unable to recruit a new CEO from at least our profession, if not our Society’s own ranks, after a year-long search.

• Subsequent to the unsuccessful search, the Board decided to place SHRM's Chief Financial Officer in the CEO position. Because of the history and evolution of the Human Resource profession, a great many SHRM members are inclined to resent that a financial professional was made our Society’s President & CEO. Although many of us recognize that Mr. Jackson is a high-performing executive, he is not a professional human resource executive. Also, he had previously indicated to others that he had no interest in the CEO position, and that he planned to retire in the foreseeable future. This has raised members' fears SHRM will have another short-term CEO.

• At the March meeting, Mr. Jackson attempted to relieve our concerns about him not being an HR professional by highlighting to our representatives that the human resource function had reported directly to him at a previously-held position. If his HR experience in this role was substantial enough to qualify him for the CEO position, then it presumably would also qualify him as a candidate for the HRCI exam. If so, then we encourage him to take the HRCI exam and confirm that he possesses the minimum knowledge requirements of our profession. If not, then the question remains as to whether he has the requisite HR knowledge to serve as CEO of the world’s largest HR professional Society.

• Mr. Jackson also reinforces his apparent belief that HR should report to Finance by highlighting that this was the organizational preference at his prior employer.



India and China Investments

• Defending the substantial investments in China and India by suggesting that corporations have requested assistance warrants further in-depth discussion. As a member-based Association, SHRM must be responsive to the needs and concerns of our individual professional members, rather than subsidize corporate interests.

• The multi-million-dollar expense for SHRM’s investment in China (with only approximately 170 members) and India (with only approximately 2000 members) is a matter of great concern for members, especially during these difficult economic times. Members should be apprised of how SHRM justifies the three office locations in India, with the estimated $1,178 per member cost, and the $1,708 cost per member in China, when most of these China/India members are only paying $95 or less for dues. (This is based on the 2010 Form 990 financials and current India and China membership levels.)

• The Board representatives have suggested that these efforts are an experiment that will be evaluated more fully by the end of 2014. Realizing that little or no progress has been made to date, it seems clear that the investment is unwise and the program should be discontinued, in much the same way that pharmaceutical company trials are discontinued as soon as unsatisfactory results are known.



• Realigning these priorities may also allow more effective utilization of financial resources for other global and domestic needs.





In conclusion, very few changes resulted from the two meetings. It is important to note that, prior to scheduling the second meeting, the SHRM Board Chair wanted to withdraw the agreement to meet a second time. Only after we protested was the second meeting finally scheduled.



A final point of deep concern is that the SHRM Board refused to meet with any SMFT representatives who were not Past Chairs of the Society, thereby excluding two thirds of our SMFT Steering Committee members able to articulate our issues. While we had no issue with the very qualified Past Chairs who represented SMFT at the meetings, we believe this exclusion was inappropriate and it did offend some of our team members. It is well-accepted that any group which is formed for the purpose of problem-solving on behalf of its members’ interests must have the inherent right to select its own representatives.



Although we now recognize that future meetings between SMFT and the SHRM Board are likely to be futile, SMFT remains committed to upholding the sound principles upon which SHRM was founded and will continue to use other avenues to vigorously pursue positive change in Board practices.




[1] This magnitude of losses are not reflected in SHRM’s Annual Reports for years 2008, 2009 and 2010 which are materially smaller totaling $7,116,753 in losses for the same period. We inquired why this is the case and SHRM CEO, Hank Jackson confirmed our suspicion that during this period SHRM had established a for-profit subsidiary that is not being included within their required not-for-profit IRS 990 reporting.

[2]This is because essentially no one has such a benefit! [Comment added by SMFT]