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Can bad Human Resources practices kill a company?

A'Vanity Fair' article on Microsoft has caused ructions across the US business community and beyond since its publication in August and could have widespread consequences for larger Irish companies.

The blockbuster expose asserted that Microsoft had lost its creative mojo -- that it had failed to launch significant new products for almost a decade during which it has been repeatedly beaten in the market by its competitors. The cool reception given by critics to the company's recently launched 'Surface' tablet and its new Windows 8 software would only seem to underline the claim.

While it part blamed CEO Steve Ballmer, 'Vanity Fair' probed much deeper under the company's skin. It noted pointedly that every single former Microsoft employee interviewed for the article had blamed the company's problems not so much on Ballmer, but on a Human Resources management practice known as "stack ranking."

The article is being hailed as an "emperor's new clothes" moment in the US and elsewhere -- not, for what it says about Microsoft -- but rather what it reveals about a commonly used and hitherto unquestioned HR tool.

Stack ranking, which is commonly used in Ireland, calls for a company to rate its employees on a merit scale of 1 to 4 (sometimes on 1 to 5) once every six months or else once a year. The best performers get a 1 or "excellent" ranking and the worst get a 5 or "poor" ranking.

The catch is that a fixed percentage quota of employees must always be achieved for each ranking. Therefore 10pc of the employees must always be ranked "poor" no matter how good or bad they actually are. Pay increases tend to be given to the "excellent" range while those in the "poor" bracket are shunted towards the door -- leading to its US nickname "rank and yank."

If Maradona, Charlton, Best, Cruyff and Pele comprised a five-a-side soccer team graded through stack ranking, then one of them would have to receive a "poor" ranking and three would have to be rated "average" and Maradona would deliberately feed finely crafted duff passes to Best.

Critics of stack ranking say it keeps employees focused on short-term rather than long-term project goals, that it kills team performance and actively causes employees to stick the knife into each other.

Stack ranking was devised by Jack Welch at GE in the 1980s. Today it is used by 60pc of the 'Fortune 500' companies, many of whom are located in Ireland. According to the Chartered Institute of Personnel and Development (CIPD), the practice was imported here by many FDI companies since the Eighties and has since become widespread.

The CIPD's director Michael McDonnell adds: "A big rethink is currently going on about the value of the stack ratings systems -- particularly given the recent questions being raised. The problem is that it's a system developed for the slow moving companies of the 1980s and not for the flexible fast moving companies we're seeing today. A ratings system is certainly needed, but should reflect the changes which have taken place in modern companies."

The questions raised by 'Vanity Fair' are not the only ones currently being asked about some common and widespread HR practices.

An increasingly regulated rights environment means HR departments have become more likely to resort to obtuse methods but critics say employees see through the ruses which staff are exposed to regularly through an increased frequency of redundancies while a surge in the publication of "HR revealed" books like Cynthia Shapiro's 'Corporate Confidential' have also made staff more suspicious of HR.

Writers like Shapiro, herself a former HR manager, allege that some HR departments may be doing more damage than good for their employers.

A perfect example is the "special project" method of managing people out, as highlighted in Shapiro's book.

HR managers create a "special project" into which they channel employees earmarked for disposal. In this way the employees are removed from their existing teams without a fuss. The "project" is designed to fail and therefore give the company a cover to lay them off. The end result is that employees in some companies now run a mile from a "special project" even when a genuine ground breaking task is actually required.

A senior office manager with an international software company based in Dublin adds: "It's getting ridiculous. They channel the people they don't want into the marketing department before letting them go, but people services (HR) don't seem to care that everyone knows this -- we call marketing "the departure lounge".

Another American process embraced in Ireland is the "box up" removal. The unsuspecting employee is called to the HR office, told their contract is terminated, given a cardboard box and sent to clear their desk (often in the company of security) and are summarily ejected from the building.

Although designed to reduce disruption in the workforce, critics like Shapiro says it does the exact opposite -- creating stress among remaining workers who believe, however wrongly, they could be next.

Recent figures from the CIPD state that while absenteeism has fallen this year, presenteeism (coming to work sick) is on the increase and for the first time this year, stress has become the main reason for workplace absences.

Shapiro also reports that many HR managers place large pictures of their children facing the "guest" chair in their office to spark conversations about family commitment and sometimes offer to walk job candidates to their cars -- to see whether it has child seats.

Again, employees have become wise.

One British company based here has a HR manager who hugs to those being laid off -- done for the purpose of having it noted on the record as evidence that the employee departed on good terms.

"The problems come when a company's HR message is out of tune with reality," says McDonnell. "Employees quickly learn to distrust a company if they're consistently telling them they care about people when this is intrinsically not the case. In Ireland it often happens with companies whose staff policies are driven by short-term gains or goals -- whether that be paying big bonuses designed at elevating share prices in the short term, or abrupt departures which leave remaining colleagues alienated. If a company gets a bad reputation in how it treats its staff, it will suffer in the long run and talented people who do have a choice in the job market will avoid them."

HR departments are also responsible for shepherding company culture, which of late has been blamed for crass and even criminal practices in big Irish firms.

All over the world "company culture" is currently under scrutiny, most recently at the BBC where it has been blamed for compromising the safety of children, at Enron where it created a criminal class of employees, and at Anglo Irish Bank where staff believed they were in the right because they adhered to internally promoted but ultimately damaging practices.

Shapiro concludes that bad HR creates "Stepford" companies full of "brown noses" -- boss-pandering sycophants who don't make waves. "Love your boss is the number one way to keep your job these days," she advises employees.

What the 'Vanity Fair' article means is that, for the first time since the Eighties, companies are shining a spotlight into their hitherto unquestioned company HR practices and the professional sector itself is also beginning to re-evaluate. As for the staff -- they'll just agree with whatever HR thinks is best.

Indo Business