Enforcing Justice and Rules in Organizations

It is a mistake to underestimate the challenge of conflict management and human risk. More than one company has stumbled because of a single individual...

Justice, the Achilles heel of organisations

Most executives have still not realised that, despite all their efforts to manage risk, there is one enormous risk that escapes them. It is the risk of a human being snapping. HSBC in Switzerland learnt this the hard way when one employee passed confidential data to the French government. Despite the sophistication of the risk management systems that a bank the size of HSBC was able to put in place, it was an employee who not only made it stumble but also created a diplomatic crisis between the French and Swiss governments, while shaking the sacrosanct institution of banking secrecy to its foundations. Not bad for one man alone!

A single individual was also enough to rock Société Générale to its foundations. The peaceful life of the bank’s executives was turned upside down overnight when the truth came out. Indeed, the mere mention of Jérôme Kerviel sends shivers of anxiety down the spine of the board members of any company likely to have one or more employees who do not play by the rules.

UBS, during the subprime crisis, also fell victim to the lack of foresight of only a handful of executives. Apart from having forced the Swiss government to capitulate before the US tax authorities, UBS got off less lightly than HSBC, since it came close to collapse. Barings Bank, for its part, had to be sold for a symbolic pound following the misconduct of a single trader. Lehman Brothers was not even that fortunate, since the actions of a handful of employees simply drove it into bankruptcy. The list of companies brought down by their employee(s) is far longer, but, so as not to “overindulge in good things”, we shall stop there.

The common denominator in all these stories is, of course, the employee or employees who go off the rails. This raises the question of how companies can protect themselves against human risk. Companies, with banks leading the way, show boundless ingenuity in setting up control systems to prevent misconduct. Even though these “systems” make it possible to avoid certain problems, they are powerless to control all risks, and particularly human risks. Since it is difficult to anticipate every textbook case, these “systems” are generally reactive: they are based on past experience, whereas employee creativity is always one step ahead. Besides poisoning everyone’s lives through the constraints they impose, these “systems” have another major drawback: they implicitly convey a message that employees do not appreciate: “If management puts a control system in place, it is because it does not trust us!”

Given the proven inadequacy of systems, and despite the fact that they look very appealing, solutions must be sought elsewhere. Otherwise, executives and shareholders, more vulnerable than ever, will no longer be able to sleep soundly.

Commitment and conflict management

Fortunately, there is an antidote, at least a partial one, that deserves their full attention. It is employee commitment. The risk of problems is considerably reduced when committed employees are vigilant, ask questions, draw their managers’ attention to problems, suggest solutions, and so on. Employee commitment acts as an extraordinarily intelligent safeguard, probably far more effective in reducing human risk than all the “systems” designed, through deterministic and limited control mechanisms, to prevent misconduct.

Yet the level of employee commitment is hugely influenced by the way conflicts are managed, which itself directly depends on how justice is delivered within companies. The feeling of injustice stems from perceptions generated daily by multiple managerial situations such as the failure to uphold certain values, a lack of fairness in decision-making, not feeling recognised or even simply heard, and so on. To be convinced of this, one only has to read Robert Sutton’s book The No Asshole Rule (1), which shows the harmful effects of badly managed conflict situations.

The real problem is that the exercise of justice is the Achilles heel of organisations. All employees know that they cannot always turn to Human Resources to resolve conflicts fairly, quite simply because HR, being itself answerable to others, cannot often intervene independently and objectively. The same applies to the managers of the employees concerned, who are in the same position as HR: as stakeholders, they cannot decide in complete independence. Since poorly resolved conflicts and situations of injustice are the breeding ground for disengagement and/or misconduct, it is imperative to defuse these time bombs.

Profession: company arbitrator

It may seem impossible, yet this is precisely what Pictet Bank has done. Starting from the observation that human beings constitute the least controllable risk, Pictet’s partners put in place a mechanism whose objective is to prevent, as far as possible, the risk of having an employee snap. To do this, they hired Europe’s first internal arbitrator, Yasmine Jhabvala, and entrusted her with the task of ruling on conflicts in complete objectivity. The originality of the initiative was such that Ms Jhabvala probably had to “invent her profession” and define an operating framework capable of reassuring all the parties concerned of the integrity of her judgement. Clearly, the path must have been strewn with obstacles, since the existence of an arbitrator with unlimited powers of investigation and the authority to decide necessarily means limiting the power of certain decision-makers. Despite the initial tension that one can imagine, inevitably generated by what must have appeared to be a countervailing power, Ms Jhabvala managed to establish her credibility through her impartiality. Seen from the outside, the most remarkable thing is the quiet strength of Pictet’s partners, who were able to withstand the probable, indeed inevitable, attacks of those who may have been “inconvenienced” by the arbitrator.

What is most interesting about the initiative is that Pictet did not take an interest in this issue because of a tense working climate. It was by analysing what had happened in other institutions, and by telling themselves that no one can claim to be immune, that Pictet’s leaders explored the options available to them for reducing the risk of being caught out like some of their peers. They thus came to the conclusion that a mechanism ensuring that fairness was respected within their bank would have a genuinely preventive effect against occasional dysfunction, always a possibility in any organisation. Being able to anticipate potential problems and take preventive measures is a practical demonstration of leadership based on a long-term strategy.

It has now been almost four years since the HR community in French-speaking Switzerland watched, with interest but also a degree of incredulity, even irony, the creation of this new corporate profession, which also raised the question of what distinguishes the internal arbitrator from the mediator. The difference lies in the fact that the mediator has no decision-making power whatsoever (and also rarely any real broad investigative power). Their role is therefore limited to conciliation, in the hope of getting the parties to find a compromise, provided they are acting in good faith (which is not always the case!). While conciliation, whose usefulness is not in question, is perfectly suited to certain situations, it can under no circumstances resolve all conflicts, because some situations arise, for example, from causes beyond the direct control of the protagonists. This is notably the case with conflicts resulting from the organisation of work, which are independent of the individuals concerned.

The internal arbitrator has genuine powers of investigation and decision, like a civil judge. He or she is therefore much better equipped than the mediator to tackle the root of the problem while avoiding recourse to external judicial authorities, which is public (and therefore not confidential), lengthy and costly. Those authorities are also powerless to modify work organisation when it is the source of conflict. The internal arbitrator therefore occupies an original position that fills certain gaps left by the other actors dealing with workplace conflict.

Fairness and justice, tools of prevention

One may now assume that, through the continuation of her role over the years, Yasmine Jhabvala’s work has demonstrated, at Pictet, the relevance and effectiveness of the internal arbitrator. In her company, and since she is still there, she has certainly by now acquired the legitimacy and recognition needed to work serenely.

By favouring the long term, Pictet’s partners showed the foresight to dare to innovate by putting in place this arbitration mechanism, unique in Europe. Quite apart from reducing human risk, the bank derives clear competitive advantages from it: it has in fact been shown that, in order positively to influence turnover, employees’ opinion of their company matters more than that of customers. Thus, by ensuring fairness and justice within its institution, Pictet serves its clients better thanks to the stronger commitment of its employees. The simple fact of knowing that Pictet employees are less likely to snap than those in other banks that attach less importance to employee well-being is, in itself, a huge incentive to prefer Pictet. One should not forget that clients also turn to Swiss banks in order to sleep soundly. What could be more reassuring than knowing that conflicts are handled fairly and that employees, feeling secure, are therefore more committed and loyal?

It is high time other companies, and not only other banks, followed Pictet’s lead and grasped the nettle in order to clear the minefield created by present or future conflicts that are badly managed. Now, conflicts are necessarily badly managed as long as there is no independent body to rule impartially, outside the courts or employment tribunals. Civil justice is called upon only for conflicts that are sufficiently serious, not for those that demotivate people or risk tarnishing companies’ reputations.

As long as the independence of internal justice is not guaranteed, companies will remain vulnerable. Only arrogant leaders can claim that this cannot happen to them. In contrast to the anticipatory capacity of Pictet’s partners, the arrogance shown by the leaders of UBS or Lehman Brothers before their fall is obvious proof of this.

The difficulty is that even if clear-sighted leaders recognise the existence of a real risk, this does not mean they will have the courage required to step off the beaten track. They may well continue to succumb to the temptation of adopting an ostrich policy, praying that the problems arise after their reign, or that others set the example, as if Pictet’s example were not enough... But are leaders who lack courage still legitimate leaders?

If you want peace, prepare justice... (2)

Workplace peace justice: a contribution to a new model of governance

In order to identify the key success factors of an internal arbitration mechanism, the author met Dr Davor Komplita, a psychiatrist in Geneva, a consultant and corporate trainer, who, on the basis of his clinical experience, has observed in recent years a worsening of suffering at work (burnout, harassment, suicides, violence). In his view, this issue is now a public health priority. The unlawful consequences of these psychosocial problems are added to their social and human cost. This observation led him to develop the concept of “workplace peace justice”, which he prefers to that of arbitrator. The discussion begun on this occasion between the author and Dr Komplita made it possible to clarify the role and place of each actor in implementing this innovative concept, designed to transform corporate governance:

- Senior management, after a thorough analysis of the issue, decides, in its own interest and that of the company, to alter its governance. It delegates a specific part of its authority to a body. To guarantee its impartiality, this “workplace peace judge” must enjoy complete operational independence. Once appointed by senior management, the workplace peace judge and his or her colleagues receive a clearly defined mandate through ad hoc directives.

- The shareholders’ meeting or the board of directors lays down the rules of the game. The ultimate purpose of workplace peace justice is to ensure respect for the values and governance rules adopted by the company, including all applicable legal provisions. For the workplace peace judge to be able to apply them, it is essential that the shareholders’ meeting or the board of directors communicate them in a clear published document, which may be called a charter. This charter, clarifying values and governance rules, constitutes a framework to which all assessments and resolutions of conflict situations must refer. It is comparable to a state constitution.

- The workplace peace judge works in complete independence within the defined framework, surrounding himself or herself with the necessary expertise. He or she enjoys a right of thorough investigation specific to the situations brought before him or her. The judge protects the protagonists by suspending all administrative measures during the procedure and ensures the confidentiality required by the circumstances.

- When an employee submits to the workplace peace judge a problem they are facing, the investigation and analysis of the situation cover several levels: interpersonal relations, work organisation, management, ethics, and compliance with the charter. Such a multi-criteria analysis requires skills that the judge would do well to acquire through specific training in order to avoid errors that could undermine credibility. The judge then recommends all the necessary measures on these four levels in order to resolve the conflict peacefully and prevent any recurrence. He or she ensures the proper implementation of these measures and follows up the protagonists over the medium term. The judge’s independence ensures fair treatment of the parties to the conflict and, by so doing, serves the fundamental interests of the employer and shareholders by preventing human risks. The judge’s ethical action is inspired by the principles of the rule of law. Like any magistrate, if the workplace peace judge must account for the conduct of procedures, he or she remains totally independent in his or her judgements.

- Supervisors and experts are appointed by senior management, at the request of the workplace peace judge, to assist him or her, in complete confidentiality, in the exercise of his or her duties. They supervise and review the latter’s processes of analysis, evaluation and decision-making. They provide expert opinions in various fields: occupational health, psychology, employment law, management and organisation, ethics and professional conduct. Acting as safeguards, they guarantee the absence of any possible excess.

- Senior managers cooperate fully in the conflict-resolution mission by implementing the measures recommended by the workplace peace judge. Middle managers apply them in the field.

- Employees contribute to any investigative procedure necessary for analysing the situation and resolving the conflicts brought before the judge. They benefit from complete confidentiality in compliance with the legal provisions in force.

- Human Resources endeavours to resolve the conflict situations submitted to it. All those it cannot resolve to the satisfaction of the parties, as well as those in which it would itself be a stakeholder (conflict of interest), must systematically be referred to the workplace peace judge. By virtue of its function, HR provides specific support for the judge’s investigations. It ensures the proper implementation of the corrective measures recommended to ensure compliance with the charter and, in so doing, contributes to the development of the governance model and the quality of relations within the company.

- Company lawyers ensure the legal compliance and relevance of the directives and regulatory provisions organising the activity of the peace judge. They supervise and validate the judge’s decisions, and their implementation, from a legal standpoint.

- Occupational physicians support the peace judge’s activity by assessing, at the judge’s request, the physical and mental health of the employees involved. If necessary, independently of fitness for work, they assess the employees’ capacity to participate in the conflict-resolution process. They ensure that the measures recommended by the judge help protect employees’ health.

- Security managers cooperate with the peace judge, either by providing information or by putting in place protective measures required by certain circumstances.

- Civil justice remains the solution of last resort to which the protagonists may appeal if the ruling of the workplace peace judge (or its implementation) infringes the law or the company charter. The internal justice mechanism never deprives the protagonists of the possibility of applying to an employment tribunal or other legal bodies. The internal peace justice procedure is specifically intended to avoid having to trigger civil justice directly, while preserving it as a final instance of recourse. Thus, in addition to supervisors, it plays the role of guarantor of people’s rights.

A real revolution in HR

The concept of “workplace peace justice” or “arbitrator” presented here corresponds to a radical paradigm shift in corporate governance. The introduction into organisations of a third independent power, judicial power, is probably one of the boldest innovations in human resources.

By analogy with the governance systems of a state, one may consider that, until now, there has existed an “executive power”, made up of managers, as well as a “legislative power” – the board of directors and the general meeting, or their equivalent depending on the legal form. But organisations do not have an independent internal “judicial power”.

As a result, conflict management is handled by managers, the “executive power”, which, where mediation/conciliation fails, leaves employees with no option other than to turn to civil justice, which is of course external to the company. Since they are very often stakeholders, managers cannot in most cases decide in complete independence. The absence of independent justice means that conflicts are resolved either through mediation, which HR seeks to achieve by trying to keep everyone happy, or through a balance of power. Trade unions often play, in this context, the role of countervailing power.

When an employee turns to an external court, this is generally perceived by management as a declaration of war. In order to avoid warfare by lawyers and often the loss of their jobs, many employees bow their heads and submit to management’s verdict. That does not prevent them from being convinced that they have been the victim of an injustice. Yet as long as employees feel a sense of injustice, which automatically arises whenever fairness of treatment is not respected, harmonious functioning is impossible.

The introduction of a “workplace peace judge” (WPJ), to use Davor Komplita’s terminology, has the effect of preventing conflict from leaving the company. The fact that the WPJ knows the company from the inside and has investigative powers far greater than those granted to civil justice makes a fairer resolution of conflicts possible. The WPJ is better able to identify the real cause of conflicts, particularly when the protagonists are experiencing a conflict caused by something beyond them (such as work organisation). He or she decides on the basis of a reality that generally escapes ordinary courts, because those courts judge according to laws and not according to corporate culture, context, or the relationships between the actors. For lack of time and investigative powers to truly understand the nature of conflicts, their conclusions often omit important parameters.

Since civil justice remains accessible in any case, nothing prevents recourse to it if the impartiality of the WPJ is called into question. In that case, all the WPJ’s investigative work will be extremely useful to the external judge in sorting things out while applying the law. This possibility of external appeal acts as a safety valve for all the protagonists, because it prevents the WPJ from exercising his or her power in a partisan manner. Other mechanisms, which will not be detailed here, are also put in place to avoid abuses of power or excesses by the WPJ.

Ultimately, the WPJ is the guarantor of respect for the organisation’s values and governance principles. In his or her absence, no independent mechanism exists to ensure that values are actually respected in practice, whether by employees or by managers. The WPJ thus serves as guardian of the organisation’s values. By his or her mere presence, the WPJ also has a preventive effect, insofar as all the parties know that he or she may take up any transgression.

The WPJ therefore protects the company and reassures shareholders, the board of directors and owners that the values and principles they have chosen are indeed being applied. Employees obviously benefit from this too, which should also satisfy trade unions. The real losers are the managers or employees who benefit from the current system, in which the administration of justice is the ruler’s prerogative. They are the ones who will most likely be most opposed to the introduction of a fairer conflict-resolution mechanism.

This power to ensure fairness of treatment in employment relations and uphold the company’s values amounts to a genuine revolution in governance and human resource management. Until now, beyond mediation, HR managers were very poorly equipped to handle conflicts. The arrival of the WPJ changes the game and makes it possible, with impartial conflict resolution, to envisage a radically different mode of operation, one less based on power relationships.

Who is Pictet?

Founded in Geneva in 1805, Pictet & Cie is the largest Swiss private bank, with more than €260 billion in assets under management and administration, and one of the leading independent wealth management banks in Europe. It is a limited partnership, whose seven partners are jointly and severally liable without limit for its commitments.

Its principal areas of activity are: private and institutional wealth management, administration and management of investment funds, Global Custody and Family Office. The group, which is headquartered in Geneva, employs 3,000 people and is also present in Basle, Barcelona, Dubai, Florence, Frankfurt, Hong Kong, Lausanne, London, Luxembourg, Madrid, Milan, Montreal, Nassau, Paris, Rome, Singapore, Tokyo, Turin and Zurich.

Pictet has been present in France since January 2004 under the name Pictet & Cie (Europe) SA, Paris branch.

(1) Objectif zéro-sale-con, Petit guide de survie face aux connards, despotes, enflures, harceleurs, trous du cul et autres personnes nuisibles qui sévissent au travail, Vuibert, 2007.

(2) A paraphrase of the Latin saying Si vis pacem para bellum (“if you want peace, prepare for war”), which says “if you want peace, prepare justice”.