Thought Leadership Australia Executive Outlook HR influence in the boardroom. Moving from being a service provider, to trusted advisor, to board director. 1 A heightened interest in executive performance, executive remuneration and the ever-present threat of the two-strikes rule has led to greater scrutiny of—and greater sophistication in—the remuneration and nomination committees of company boards. More broadly, boards are expected to be closely involved in determining and monitoring an organisations' culture and performance in relation to talent acquisition and development. Board directors rely on trusted advisors—internal and external—to help guide their decisions and support their processes. With so many of these key risk areas relating to people matters, the logical internal advisor would be the Chief Human Resources Officer (CHRO). Yet, Korn Ferry's experience working with boards, and our research into HR influence in the boardroom, suggests that the human resources function is not engaging with the board as much as it should. Korn Ferry's Board Services partners, Katie Lahey, Lynne Nixon, and Robert Webster spoke to 20 chairs and non- executive directors of Australian listed companies —many of whom chair the remuneration and nomination committees of their respective boards —to hear their views on the CHRO as a trusted advisor in the boardroom. The HR role has expanded. The contribution of human resources to the effective leadership of an organisation is understood and appreciated by enlightened companies and boards. In fact, there would be few organisations that do not have a CHRO as a member of the executive team. A full decade on from the 2008 Financial Crisis, which highlighted the risk inherent in poor talent management, the role of the CHRO has expanded significantly. They lead a human resources function that is closely involved and aligned with business strategy. They support and drive workforce management, organisational culture and organisational change to meet the needs of the business now and in the future. The best human resource programs drive growth and contribute to "great place to work" environments. The most effective CHROs are highly strategic executives who understand the complex nuances of aligning talent and business strategy, appreciate the disruption and opportunity of the digital revolution, and have a performance mindset. Their deep experience in human resources strategy and implementation is valued however, it is their
Transcript
Thought Leadership
AustraliaExecutiveOutlookHR influence in the boardroom.
Moving from being a service provider, to trusted advisor, to boarddirector.
1
A heightened interest in executive performance,executive remuneration and the ever-presentthreat of the two-strikes rule has led to greaterscrutiny of—and greater sophistication in—theremuneration and nomination committees ofcompany boards. More broadly, boards areexpected to be closely involved in determiningand monitoring an organisations' culture andperformance in relation to talent acquisition anddevelopment.
Board directors rely on trusted advisors—internaland external—to help guide their decisions andsupport their processes. With so many of thesekey risk areas relating to people matters, thelogical internal advisor would be the Chief HumanResources Officer (CHRO). Yet, Korn Ferry'sexperience working with boards, and our researchinto HR influence in the boardroom, suggests thatthe human resources function is not engaging withthe board as much as it should. Korn Ferry's BoardServices partners, Katie Lahey, Lynne Nixon, andRobert Webster spoke to 20 chairs and non-executive directors of Australian listed companies—many of whom chair the remuneration andnomination committees of their respective boards—to hear their views on the CHRO as a trustedadvisor in the boardroom.
The HR role has expanded.
The contribution of human resources to theeffective leadership of an organisation isunderstood and appreciated by enlightenedcompanies and boards. In fact, there would be feworganisations that do not have a CHRO as amember of the executive team. A full decade onfrom the 2008 Financial Crisis, which highlightedthe risk inherent in poor talent management, therole of the CHRO has expanded significantly. Theylead a human resources function that is closelyinvolved and aligned with business strategy. Theysupport and drive workforce management,organisational culture and organisational changeto meet the needs of the business now and in thefuture. The best human resource programs drivegrowth and contribute to "great place to work"environments.
The most effective CHROs are highly strategicexecutives who understand the complex nuancesof aligning talent and business strategy, appreciatethe disruption and opportunity of the digitalrevolution, and have a performance mindset. Theirdeep experience in human resources strategy andimplementation is valued however, it is their
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commercial outlook that makes the best of theCHROs stand out.
The confidence gap.
But why isn't the relationship between CHROs andboards closer? The directors' responses revealed awillingness to engage more with human resources,but a lack of confidence in the commerciality ofthe function. They understand the value humanresources can bring to a board, but are notconfident that the CHRO, who may be highlyexperienced in the core role of HR, has sufficientcommercial experience to be an advisor to theboard. The directors often compared the HRfunction unfavourably to the finance function interms of their profile at CEO and board level.
This 'confidence gap' presents an opportunity forCHROs and their human resources functions tobroaden their influence, support governancematters and be more involved in the strategicdirection of the organisation. The directors wespoke to were specific in their observations andtheir suggestions for how human resources canget closer to the boardroom and move from beinga service provider to a valued adviser. In thisExecutive Outlook, we look first at the issuesidentified by the directors, then share their adviceand our insights to help CHROs become moreinfluential at board level. We also offer advice toboards on how they can better engage withhuman resources and help develop thecommercial acumen they desire in CHROs.
Issues identified by Chairs andNEDs.
CHROs are not yet accepted as a trustedadvisor; they are viewed as an internal serviceprovider rather than an executive of equalstanding to others who are seen as drivingstrategy.
CHROs do not have the high level of skillsrequired (numeracy, strategy, commerciality) tobe the 'trusted advisor' to the board.
CHROs do not view—or are not perceived toview—the HR issues and outcomes theymanage in a commercial context.
HR should be leading remuneration supportedby finance, but it is mostly the CFO designingthe remuneration programs with HR in support.
The past ten years has seen advisers addingless value and bringing less innovation; NEDsare driving value-added advice.
Increasingly CHROs are on the executive teamhowever, they are often paid less than otherexecutives.
More CHROs are involved in CEO successionthan before. A strong CHRO will know theinternal candidates, be able to add value withtheir perspectives and lead ongoingcommunications on succession with the board.
HR should focus on strategic workforceplanning and be across the future needs of thecompany.
Boards rely on the CHRO to balance both thestaff and shareholders agendas regarding theLong-Term Incentive plan.
It's difficult for the CHRO to be frank with theRemCo on the CEO's pay if the CEO is inattendance; there should be time without theCEO in the room for this to take place.
Advice for CHROs:
Consider the broader challenges faced bycompanies and whether HR has the benchstrength to deliver what is required to helpmeet those challenges.
Understand what changes are needed andwhen, in areas of importance to theorganisation.
Step back from the day-to-day and deliver astrategic response to an issue or opportunity.
Be confident participating in high level strategicconversations and get more involved inbusiness planning.
Gain exposure to remuneration negotiationsand develop the required strategic approach forthe organisation.
Broaden your frame of reference. Try to talkinvestors and other external stakeholders tolearn their perspective of the organisation.
Understand the prism in which proxy advisers
For a CHRO to have the fullconfidence of the board,they need to shift from“competent technician” to“trusted advisor.”
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view remuneration and performance whencommunicating HR related measures.
Gain board experience—either by engaging withthe board of the organisation you work for orexternal boards.
Learn from your executive colleagues who areclose to the CEO and relied upon for theirinsights and experience.
Vary your experiences during your career tobroaden your commerciality. Try to work forsome time in line management that has a P&L.Direct experience running a business isinvaluable to a respected adviser.
Demonstrate analytical and numerical skills atboard and executive level.
Advice for CEOs and Boards
Choose the candidate for an executive HR rolewith an eye on their next role. Look for anexecutive with a broad business outlook,executive presence, development potential forline roles and a high level of financial numeracy.
Develop the leadership skills and experiences ofyour CHRO with the same care as other roles.This may involve making executive leadershipprograms (such as Korn Ferry's Executive toLeader program) accessible to HR professionalswho show the potential for a broader, strategicrole.
Ensure CHROs have the time to devote to newexperiences as part of their development. Ifthey remain entrenched in the day-to-dayminutia of their HR role, they won't have thetime to gain experience to spread their wings.
Value the broader expertise HR can bring to aboard and encourage the CHRO to presentprogress reports to the board. For example;leadership development programs; culturaltransition; remuneration trends.
Encourage a direct relationship with the CHROand Chair, not mediated by the CEO, or otherexecutives. The CEO should not be threatenedby conversations between the CHRO and Chair.
Be aware of the delicate balance a CHRO mayface when working with the CEO and the boardon CEO development, remuneration orsuccession matters.
Insist the CHRO has a seat at the table when
discussed.
Conclusion
The so-called 'soft' skills, such as managingculture, people and communications, arebecoming elevated at board level, perhapshardened due to the link between high riskworkplace behaviours and a lack of focus on theseimportant aspects of leadership.
Given that so much of the scope of a humanresources function now forms key components ofbusiness strategy, it is perhaps curious that therole of human resources isn't more prominent atboard level. The 20 NEDs Korn Ferry spoke to forthis paper all agree that it should be—and a shifttowards elevating the role of CHRO from technicalcompetence to key adviser would strengthen thework of the board.
For HR to play a key adviser role to the board,there needs to be a shift in three directions:
First, the role of the human resources professionalon the executive team needs to be elevated interms of scope and seniority. This will influencesourcing and succession for the CHRO role and, in
HR is consideredoperational and notstrategic when:
The CEO independentlyseeks external HR-relatedadvice.HR is 'coordinating' ratherthan leading importantsuccession initiatives.The CHRO doesn't have facetime with the board, but ispreparing notes for others topresent.The CFO is leadingremuneration strategy andexecution with HR in support.The CHRO earns significantlyless than their executivecolleagues.The CHRO is not included inhigh level developmentopportunities.
Korn Ferry is a global organizationalconsulting firm. We help clientssynchronize strategy and talent to drivesuperior performance. We work withorganizations to design their structures,roles, and responsibilities. We help themhire the right people to bring theirstrategy to life. And we advise them onhow to reward, develop, and motivatetheir people.
some cases, involve a longer commitment todeveloping the right person who can perform theirrole through a commercial lens.
The second shift must be driven by the CEO andthe Chair, who can set the tone for the board andother executive team members by showingrespect for the HR role and bringing the CHROinto the tent for sensitive and strategic matterssuch as remuneration and nomination committeediscussions. They can also help to develop the roleand the person in it by broadening its scope andexposure, and committing to development trainingand experiences for the CHRO.
The third shift concerns how the CHROs presentthemselves to the board. Confidence and trust arekey to a successful relationship and CHROs needto identify if there is a confidence gap and work toclose it.
Broader and deeper knowledge of the widerbusiness context is key here. A good CHRO willhave the specialist skills and experience expectedof someone who has worked their way to the topof the HR function. They will also have highemotional intelligence and excellentcommunication skills. An outstanding CHRO willhave those skills coupled with experience orinsight into managing a business and anunderstanding of the corporate governance issuesmanaged by boards.
Acknowledgements
Korn Ferry acknowledges the contribution to thispaper by the 20 Chairs and NEDs who shared theirviews. Collectively, they represent some 94 boardsof Australian listed and unlisted organisations.
Contributors
Commerciality is essentialin any executive role.CHROs who work in acommercial context are themost valued by boards.
