Equilar Institute

The Need for People People

The current megatrends driving the need for greater HR representation on corporate boards
By Jon D. Rickers and William L. Sparks

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Significant trends in the workplace point to more focus on people and on helping employees find meaning and purpose in their work. When these trends are considered along with the primary responsibilities of corporate directors, it seems very likely that companies in the near-term will enhance their financial performance by adding “people” experts to the boardroom.

Organizations today are more agile, purpose-driven and people-focused than at any point in history. Generational differences, changes in technology impacting the way we interact with each other and the “war for talent” all contribute to a shifting landscape that places a premium on people. Indeed, we have entered the fourth industrial revolution where rapid technological advances and the digital economy are progressing faster than most people and organizations can keep up. These challenges will certainly impact corporate boards, where changing employee attitudes and expectations related to intrinsic satisfaction, such as finding meaning and purpose in work and service to the community, will significantly impact recruitment and retention aimed at attracting, developing and retaining top talent. In this article, we will outline how these shifting trends, when coupled with delivering the current responsibilities of corporate boards, necessitate an increase of HR or “people” expertise at the board level.

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Current HR Board Representation

According to a 2016 study conducted by Equilar, 93.7% of companies in the S&P 500 have a board member with a background in finance. This large percentage is not surprising since the Sarbanes-Oxley Act of 2002 required that a “financial expert” be identified on the audit committees of every public company. However, it is surprising that in this same study only 22% of board members in the S&P 500 had experience in “HR/Compensation/Talent Development” (see Figures 1 and 2). Another study by the Corporate Executive Board (CEB) in 2013 shows that the number one topic discussed in board meetings is executive compensation, suggesting the need for greater HR representation. While the CEB study found that HR executives are frequently asked to present to the board, only 5% of chief human resources officers (CHROs) currently serve as directors on Fortune 1000 boards.

Shifting Trends in Corporate America

Organizations are facing rapid changes in how, who and why we work. Advanced technology is quickly changing how people work, explosive population growth in Africa and Asia is shifting the geography and diversity of workers, and the growing Generation Y and Z employees bring a new focus around purpose and meaning in the workplace. More than ever, the employee experience matters and so does having the right CEO, a solid succession plan and a talent strategy that focuses on people. Revisiting the current trends that today’s organizations are facing, the board of directors will need to weigh in and guide decisions around employee experience, diversity and talent management deeper in the business, not just at the executive ranks.

What Is the Role of the Board?

The primary purpose of the board is to ensure the company’s financial success by collectively overseeing the company’s affairs and supporting the interests of its shareholders and stakeholders. Essentially, the board hires the chief executive officer (CEO) who is responsible for overseeing the day-to-day operations of the business. The board will also ensure appropriate procedures and overall strategies are in place. The board cannot and should not attempt to run the company. Peter Browning, a seasoned director with experience serving on 14 public company boards and the author of The Director’s Manual: A Framework for Board Governance, states that there are three essential questions to the board must consider. Browning states, “While there are a number of responsibilities directors have that can vary based on the company or industry, there are three critical questions that must be considered:

1. Do we have the right CEO?

2. Do we have a robust succession plan in place?

3. Do we have the right strategy and talent to execute effectively?

The Role HR Can Play in the Boardroom

When these three primary responsibilities are considered alongside the near-term trends that are impacting talent and organizational performance, it seems logical that having greater HR representation will positively impact director deliberations and board performance.

For the question “Do we have the right CEO?,” HR’s role in assessing performance is straightforward. Robyn Mingle, Chief Human Resources Officer of CommScope, states that “The great equalizer for all CEOs today is their talent, and the culture that permeates from that talent. Without question, enlightened CEOs understand they are the ultimate architect of creating a competitive advantage through differentiated talent. CHROs are on the front line of assessing talent and organizational performance, and as such, further enabling the CEO’s performance related to creating a talent-driven culture.”

When considering the second responsibility of directors, “Do we have a robust succession plan in place?” Kathie Patterson, Chief Human Resources Officer of Ally Financial, states that “supporting purposeful work—whether it’s an entry-level employee or the very top of the house—should be one of the top three priorities of any HR team. That inevitably bleeds into succession planning, which is grounded in a strong and diverse bench of talent. It also requires recognition, support and active board participation in the process. Our board at Ally is very much active, vocal and appreciative of the importance that HR plays in the process. That level of checks and balances helps push thinking, opens our collective minds to new possibilities and, ultimately, creates a robust and deliberate succession plan that supports our long-term goals as a company.”

Finally, in reference to the third question “Do we have the right strategy and talent to execute effectively?” Michael Arena, Chief Talent Officer of General Motors, states “finding and leveraging talent might be the greatest strategic risk that boards face over the next decade. As a result, they will need to ensure that organizations are bringing in the best people possible, while at the same time bringing out the best in the people they have. This can only happen if the board is more directly engaged in critical talent strategies.”

HR’s Potential Board Role in the Future

In addition to providing insight and expertise into the three primary responsibilities of corporate boards, there are additional key drivers that necessitate greater HR participation at the director level, including attracting and retaining top talent, developing talent in part of the overall succession strategy and in creating meaningful work that addresses the intrinsic needs of employees, especially the younger generations.

Financial expertise will continue to be critically important for corporate boards. In addition, people and human resource expertise will become even more important over the next decade to support shifting trends and a heightened focus on people at work. It is well documented by top organizational thinkers such as Jim Collins, Malcolm Gladwell and Edward Hess that talent is a differentiator and can give an organization a competitive advantage or bring its downfall. Based on these changing times and demands on business, we predict that corporate boards that leverage the experience and insight of CHROs at the director level will reap both financial rewards for shareholders and a more “human” experience for the employees.