The Human Resources function at well run corporations adds strategic value and is considered to be a trusted partner by business leaders. CEOs like Jack Welch, when he was at GE, make it clear that effective people management is an integral part of effective leadership. As CEO, Welch was a key spokesman for core HR processes across the organization and he helped to embed world-class succession planning, talent management, and people development practices into the corporate culture. Over the years, CEOs at some of the best run companies in the U.S.—Roger Enrico at PepsiCo, Lou Gerstner at IBM, and Dick Harrington at The Thomson Corporation—have driven business transformations and results by partnering with HR to manage a resource that is increasingly critical to every organization’s success: its talent.
For many years HR executives sought a seat at the table with senior management. Today the HR profession has stepped up, and in most corporations HR has a seat at the table. It is hard to imagine a Fortune 1000 company where the top HR executive is not on the executive management committee or operating committee of the company. HR’s value is being recognized by some of the best companies whose top HR executives have risen to be one of the five named officers in the firm’s proxy statement. With total compensation packages for the senior HR executives at these firms topping over $4 million a year, it is clear that CEOs and boards have understood that effective HR is critical to business success and the HR voice is an important one at the company’s senior management table.
According to the NACD the top three issues for public company boards have remained the same over the past three years: strategic planning and oversight, corporate performance and valuation, and CEO succession. It is easy to see that many of these board issues have people implications as do some of the major responsibilities of boards.
While HR representation as a key member of the senior management team has become accepted practice today, there is surprisingly few HR executives adding value as members of corporate boards. Research presented at last year’s annual conference of the National Association of Corporate Directors (NACD), revealed that less than 2 percent of all director seats are filled with executives with an HR background. In fact Julie Daum, who heads Spencer Stuart’s corporate practice, has said that she estimates that the percentage of HR executives on S&P 500 boards is “minuscule.” There are a number of reasons for this lack of representation of HR on the board, but the point is that HR should have a seat at the board of directors table.
HR Proves its Worth
As a function, HR has clearly earned and retained a seat at the senior management table by adding value and making significant contributions that are recognized by the senior management team and the organization. To earn a seat at the boardroom table, the contributions made by HR executives must earn the same high level of recognition and esteem from board members as they have earned from their corporations. In the current business climate, boards are spending increased time and energy on a host of HR related issues, from CEO succession planning and executive compensation to managing large-scale layoffs and off-shoring without losing key talent and damaging the culture and reputation of the firm. This current difficult business climate presents a unique opportunity for exceptional HR executives to prove their worth at the board level.
Boards typically average 50 to 70 hours of face time together in a year. With so little time together all board discussions must be meaningful and productive to the organization. At board meetings today directors want to have an intelligent discussion on major issues rather than presentations of material sent to them prior to the board meeting. It is the dialogue and the important decisions that follow that are critically important.
One of the most important roles of the board, if not the most important one, is to make sure that there is a competent management team in place to manage the company’s business. Evaluating the performance and results achieved by the senior management team, especially the CEO, is probably the most critical responsibility of board members. When necessary, replacing and naming a new CEO is one of the key responsibilities shared by all board members. This means that the board has to be the driver of CEO succession planning. Attracting, retaining, and motivating CEOs through up-to-date, attractive yet reasonable compensation philosophies and plans is another key full board responsibility, even though the board compensation committee will study this and make recommendations to the full board for action and approval. While the board provides advice to the CEO in many areas, the board is responsible for making sure the company has a strategic direction, approving financial plans and results, major acquisitions and divestments, dividends and stock buybacks, compliance, risk and crisis oversight, and corporate governance. According to the NACD the top three issues for public company boards have remained the same over the past three years: strategic planning and oversight, corporate performance and valuation, and CEO succession. It is easy to see that many of these board issues have people implications as do some of the major responsibilities of boards.
It is obvious that board members’ responsibilities have grown significantly in the past few years as has the scrutiny of board actions by shareholders, especially in the area of executive compensation. This has been making headlines almost every day for TARP companies. To help boards deal with this intense pressure for board governance and excellence, board committees are spending more time meeting and taking on bigger roles. Two very important board committees are the audit committee and the compensation or human resources committee as some companies call them. This is certainly not meant to diminish the important roles other board committees play in corporate governance. Since Sarbanes-Oxley was enacted in 2002, the oversight responsibilities of the audit committee members have greatly increased. In fact, a SOX requirement is that at least one member of the audit committee have a finance background. There is no such requirement that the compensation committee have at least one member of the committee with a compensation or HR background, yet the responsibilities of the HR committee have also greatly increased.
One of the most important roles of the board, if not the most important one, is to make sure that there is a competent management team in place to manage the company’s business. Evaluating the performance and results achieved by the senior management team, especially the CEO, is probably the most critical responsibility of board members.
Most directors today come from the ranks of CEOs, whether active or retired. However, there are now consultants and head-hunters, including those at Heidrick & Struggles and Spencer Stuart, two of the leading board search firms, who believe that the assumption that CEO-level generalists continue to make the best directors may no longer be true. The big picture and general broad experiences of CEOs may not be enough to equip board members with what they need to guide the organization through increasingly complex and nuanced issues in some areas. From this perspective, two functional areas of expertise that should be represented on the board are finance and human resources.
While having financial expertise at the board level seems obvious, why HR? Because to be successful, companies must strategically manage compensation, succession, talent and talent development, labor relations, global operations, ethics, culture and integration of acquisitions, and change, just to mention the short list. Top performing companies never lose sight of the importance of these people-related management issues. CEOs, CFOs or other generalists or functional experts outside of HR can’t provide the strategic focus and oversight needed. Asking the right questions and providing the necessary leadership on discussions of these topics/issues in the boardroom requires a deep HR background. Similar to auditing, finance or law, mastery of HR management requires many years of senior-level HR job experience, including working closely with the HR committee of the board. Only after a successful career of such experiences does a person have the required HR skill sets for dealing with all of the people-related topics that are increasingly capturing board attention, e.g. managing CEO succession, compensation, change, organizational culture and global operations.
The Importance of Human Capital
How many times over the years have we heard that “people are our most important asset” and that the “quality of our talent is the key differentiating factor” of our company? Most people reading this article would have to say “many times and often.” Truly successful companies do think that way and manage their human capital very well. It gets the proper attention at all management levels and in the boardroom. Boards today require a diverse group of directors with diverse industry and talent skill sets. Having a board of only generalists, regardless of how much successful experience they may have, no longer makes sense nor is it good corporate governance. Independent directors are a definite requirement of the audit and compensation committees as is the need for the proper skill sets of members of those committees. It now should seem apparent that HR is, and always will be, a necessary skill set for every board-level compensation or human resources committee.
Like the glass ceiling for women on boards many years ago which has been shattered, the glass ceiling on boards for HR executives is starting to crack as the best of the best HR executives are proving their worth on boards. Executive search firm recruiters who do board searches say that they are now recommending HR executives to their clients looking to fill board seats. However, their clients still mostly request CEO and CFO backgrounds unless the search involves filling multiple board seats for a company. In those cases, a diverse background of skills and industries is often explicitly sought, and people with HR backgrounds are being considered and nominated to boards.
There are a few notable examples in industry today where directors with HR experience and backgrounds are adding significant value to the boards they are serving on:
- William T. Conaty serves as a director of Hewitt Associates. Bill spent his entire career with General Electric Company and served as the Senior Vice President of Corporate Human Resources from 1993 to 2007. He was the architect behind many of GE’s widely recognized HR practices and has been a role model for turning HR organizations into strategic business partners. Russ Fradin, the CEO of Hewitt, said “Hewitt specifically wanted Bill on the board because of his HR background and that now he is making significant contributions to the board discussions and decisions.” The obvious place for HR executives to serve on boards will initially be for those companies like Hewitt who serve the HR industry. These will be HR consulting firms, as well as payroll, executive search, and training and development companies.
- Jill Kanin-Lovers serves as a director on the boards of Heidrick & Struggles International Inc., BearingPoint Inc., Dot Foods Inc., and First Advantage Corporation. Jill is the former Senior Vice President for Human Resources and Workplace management of Avon Products Inc. Prior to Avon she held senior HR positions at IBM and American Express. Jill is a real HR thought leader having over 50 publications on HR and teaching in executive programs at Rutgers.
- Michael A. Peel serves on the board of the Select Comfort Corporation and is on the board of directors and an officer of the Walker Art Center. Michael is currently Vice President for Human Resources and Administration at Yale University. Before moving to Yale, he was with General Mills as Senior Vice President of Worldwide Human Resources from 1991 to 2007.. Under his leadership, General Mills appeared on Fortune’s list of “100 Best Companies to Work For” six times since 1997.
These few examples point out that there are some executives with HR backgrounds qualified to serve on boards. The HR talent is out there and available to serve on boards and the Compensation Committees of boards. Good corporate governance demands the appointment of directors who bring special skill sets and competencies to a more independent and diverse board. As we see in the news everyday, in today’s difficult and highly competitive dynamic global business environment, people issues – from executive compensation and CEO development and succession to senior management recruitment and bench strength to company values and culture, provide ample agenda items for board discussions and decisions. The number of these people related issues at the board level is increasing.
There is definitely a growing trend (even if slight) of HR talent serving on boards. This trend should increase and grow significantly in the near and long term future. It must be remembered that the people above and many more like them are basically business people first and HR experts second, having served on executive management and operating committees for a large part of their careers. This broad experience enables them to participate in the discussions and decisions on all topics which reach the board level, and not just the people related topics. They just happen to also have the experience and skill set to take a leadership role on the board for the most difficult and emotional topics the board has to deal with—those that require a lot of discussion where mistakes made are very costly and impact peoples lives – the people related issues. It is often effective management of these issues-and geting them right-that differentiates the best from the rest.
Bob Bogart is an HR executive currently working with Mullin associates as an executive coach and EVP of the firm. He previously worked for The Thomson Corporation as EVP, HR prior to the company’s acquisition of Reuters. He is also a volunteer of SCORE and counsels small business owners. He may be contacted at bob.bogart@yahoo.com.
Dear Bob Bogart,
I am delighted to see your article on “Value of an HR Voice” .
You have really kept abreast with this article,all the HR Executives all over the world.
I am a senior Faculty at a Business School named as PCMRD at Pune City in India.
Regards and Best wishes for the year 2010
Prof.Madhav Phatak