17 Apr Why a CHRO Will Be the Next Must-Have Role in the Boardroom
Traditionally, the makeup of corporate boards has followed a clear set of parameters: a CIO for technology strategy, a CFO for financial strategy, a CEO to teach your own chief executive how to move the company forward. Today, many of the challenges companies face make a compelling case for adding another must-have role to the board – a chief human resources officer (CHRO), who can provide guidance around talent acquisition and culture, succession planning, compensation, board structure and evaluation, and more.
Recent news has been full of stories about high-performing companies with cultures that enabled deceitful practices or toxic workplaces. Some of the CHRO areas of expertise, once considered “the soft stuff,” have become “the strategic stuff.” And with the very nature of work changing amid automation, visionary leaders see multiple reasons to attract top CHROs to their boards.
Increasingly, corporations are realizing they must incorporate the CHRO function on their boards. Below are four reasons why:
The primary job of any board of directors is to make sure the right leadership team is in place to drive the business, and the CEO is at the heart of that goal. A strong leadership bench is one with a succession plan in place, but this is a delicate topic. There are disclosure issues around such material information, of course, and some CEOs need encouragement to leave when the time is right – whether the change is contentious or not. Similarly, boards are often nervous about the timing of such shifts, particularly when they perceive a lack of a strong successor.
Managing through these issues doesn’t come naturally to many board members, but it does for experienced CHROs. Such executives can offer insights on planned transitions and how to navigate the process, from identifying internal candidates to talking about development plans to introducing these topics to chief executives. These processes are becoming more formal and documented, thanks to shareholder activism and regulatory requirements.
Jan Becker, an Athena Alliance member who was most recently the head of people and facilities at Autodesk, brought on a couple of new CEOs during her 17 years at the company, and she worked with the board on succession planning. She’s overseen transitions driven by internal planning and those driven by activist shareholders, and notes that while the two scenarios are different, they have one thing in common.
“Success depends on the quality of the decision-making discussion and the ability of the board of directors to hear each other and act as a real team,” Becker says. “When there is a CHRO on the board of directors, it makes it more likely the process and the conversations will be high quality.”
CHROs are experts in designing compensation and equity structures that incentivize, motivate and align the right behaviors and results. This is key for the CEO, as the role of the board is to manage the chief executive’s performance. However, it’s also critical for the overarching structure of the business. Often, the single most expensive line item in a company is its people. Optimizing spend to performance and outcome is essential for business longevity, and a CHRO is uniquely able to deliver insights in this area.
Board structure performance and evaluation
Strong self-governance is an increasingly recognized essential capability of the board of directors. CHROs are experts here, too, and can help the board operate effectively as a collective, evaluate individual and team performance to meet evolving needs, and ensure meetings are run well.
People, culture and the future of work
While many businesses have focused their board invitations on technical leaders who can guide them through technological transitions, companies need to be equally concerned about shifts in the workforce. Millennials now comprise more than one-third of employees, and they bring a different dynamic to the workplace. Meanwhile, rapid advances in robotics and artificial intelligence will transform many roles, while creating new ones.
The nature of work is changing, and shareholders are right in their increasing emphasis on talent and culture. As Athena Alliance member, recent PayPal CHRO and McKinsey Advisor Marcia Morales-Jaffe puts it,
“Often viewed as a threat, the rapid progress in automation really creates an opportunity for visionary leaders to embrace its enormous potential and develop action plans. Boards need to consider adding members fluent in innovation and its implications for the future of work. A CHRO with the right experience can be an invaluable asset to the board.”
Beyond transitions in the nature of work, the challenges surrounding people and culture crop up throughout the lifecycle of a business. Whether the company in start-up, hyper-growth or acquisition mode, leaders and boards need to ensure they begin with the end in mind in terms of talent and organizational culture.
Athena Alliance member Kathy Zwickert most recently served as the chief people officer at NetSuite, named in the top 10 of Bay Area Best Companies year after year. She says,
“When the company is growing organically, the tone from the top must be an imperative to hire the best talent, who are also aligned with the values and culture of the company. And when the business grows through acquisition, retaining key talent and integrating them should be one of the most important considerations. If the people and the knowledge leave the target business, the value of the asset could be seriously diminished. A CHRO on the board not only understands this, but will also hold management accountable to ensure deals increase shareholder value in the long run.”
The rise of the CHRO in the boardroom
In an article for Harvard Business Review (HBR) titled, “People before strategy: a new role for the CHRO,” the authors called for CHROs to take their place beside CFOs in terms of strategic value to companies. The writers – including the global managing director at McKinsey, an advisor to CEOs and corporate boards, and an HBR author – note, “It is up to the CEO to elevate HR and to bridge any gaps that prevent the CHRO from becoming a strategic partner.”
That same HBR article suggests that discussion of people should come before discussion of strategy. That is certainly happening – to a point. According to CEB and Gartner, 67 percent of U.S. public companies discussed talent matters in their 2017 Q1/Q2 earnings calls. And in the past six months, numerous companies in the communications, banking, manufacturing and other sectors have announced the appointments of senior human resources executives to their boards of directors.
Corporate boards need to include experienced chief human resources officers. For those corporations that don’t yet have directors capable of furthering people-driven conversations, it’s past time for a change.