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Blog: The Business of Management
 

November 28th, 2007

HR on Trial

In all the never-ending talk about HR finally getting that long sought-after seat at the table comes this word of warning: High-level jobs have some high-level risks.

Just this week here in California, two prominent human resources executives were in legal hot water over actions they took as part of their executive teams. The result may be jail time for them, and maybe even a longing for the days when they were doing something a little less strategic than fiddling around with stock options.

The first is Stephanie Jensen, the former vice president for human resources at San Jose-based Brocade Communications Systems. Jensen went on trial Monday on stock-option backdating charges. In opening arguments, a federal prosecutor said Jensen colluded with her boss to conceal employees’ salary packages from company auditors, shareholders and federal regulators.

According to the San Francisco Chronicle, Jensen is accused of scheming with former Brocade CEO Gregory Reyes for several years to keep their compensation practices off Brocade’s books by falsifying records. Although Reyes, who is now awaiting sentencing on 10 felony convictions related to the same events, had final authority to approve the practices, “Stephanie Jensen was the key person who ensured that the details of this fraud were carried out,” Assistant U.S. Attorney Adam Reeves told a U.S. District Court jury.

Former HR chief Jensen “was initially charged with eight felonies, including fraud against the government in Brocade’s SEC filings,” the Chronicle said. “But prosecutors, without explanation, dropped six of the charges earlier this month, leaving one count of falsifying company records and one count of conspiracy to falsify the records. Jensen is not accused of personally profiting from her actions.”

The second HR executive caught up in a legal drama is Nancy Tullos, the former vice president for human resources at Irvine-based Broadcom Corp. She reportedly has agreed to plead guilty to obstruction of justice in connection with a federal probe into the manipulation of stock option grants at the California chip maker.

A story in the Los Angeles Times said that “Tullos has agreed to cooperate with investigators examining allegations that top Broadcom executives backdated stock options to secretly benefit employees, according to three people with knowledge of the probe.” According to a 10-K form the company filed with the Securities and Exchange Commission, Tullos “was heavily involved in the flawed option granting process.” She might not have assigned dates herself, but she “was fully aware of what was occurring, and encouraged, assisted in, and enabled it,” the 10-K says. The stock option charges have been costly; in January, Broadcom took a $2.259 billion charge in non-cash expenses for the years the alleged manipulation took place.

Beyond the legal implications and personal tragedy in these cases, there is a sobering lesson here for any HR executive, and it’s this: The power that comes with having a seat at the table carries with it some heavyweight ethical and legal responsibilities. It’s not that HR has the stark choice of being either a low-level paper-pusher or an executive felon—both Jensen and Tullos presumably had a moment in which they could have said, “This is wrong; we have to stop.” But these examples do show that being at the table sometimes means putting your business and personal life on the line.


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