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HR Leadership Column

Preparing to Lead

More and more boards of directors are focusing on people-related issues -- and not just executive compensation. Here are some suggestions chief human resource officers can consider for helping to drive their organizations' human capital agenda.

Monday, October 3, 2011
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Over the last decade publicly traded companies and their boards have been confronted with a landslide of significant new mandates.

Imposed by public policymakers largely in response to financial crisis in the markets, environmental disasters and felonious acts by corporate executives, the new requirements have been imposed in an effort to increase the accuracy of financial reporting and disclosure, and to provide greater transparency to investors.

Sarbanes Oxley will be 10 years old next year, and entirely new accounting sub-specialties have developed as audit firms and their clients worked to meet the obligations imposed by the law.

More time is now spent by boards on risk management -- ensuring that management has systems in place to consider (and document) potential risks to the enterprise. More time is spent on board governance -- on how the board itself is operating.

And, as a result of Sarbanes Oxley's requirement that companies disclose whether or not its board has at least one audit committee financial expert, boards are much more likely to have members with deep accounting and audit experience.

Perhaps closer to home for HR executives, the new mandates of the past decade have required greater transparency on executive compensation. An example is the annual proxy statement disclosure requirement of the amount and type of compensation paid to the CEO, CFO and the three other most highly compensated executives.

Companies now also must disclose the criteria used in reaching executive-compensation decisions and the relationship between the company's executive-compensation practices and corporate performance. Say-on-pay has given shareholders a means to express their views on executive compensation.

And here, too, a new sub-specialty has developed for executive-compensation experts: drafting the compensation discussion and analysis for the SEC and proxy statements.

But what do "good" boards do when they oversee human capital management -- as opposed to the financial management -- of an organization? Beyond the obvious obligations imposed by SEC and other reporting requirements, what topics do they cover?

A recent research report by Toronto-based Creelman Lambert Research offers some insights. The study (PDF) involved interviews with CHROs, CEOs and board members from a cross-section of 27 U.S. and U.K. companies.

The goal was to find out how boards are tackling oversight of how well executives get the best out of people, how boards are practicing what they might be expected to preach in terms of their own governance, and how it might affect their interactions with HR functions.

The report goes on to offer some insights into the implications for CHROs.

The good news: The research confirmed that, "In the best-run companies, boards are paying increasing attention to how people are managed, at the top and throughout the organization." Creelman Lambert found that good boards spent 25 percent to 35 percent or more of their time on people-related issues. Many of the CHROs interviewed felt that their boards were applying a "people lens" to business issues.

The research also found that the top three reasons boards were taking human capital management seriously were "to get good business results, to enable good risk management and to achieve good organizational governance."

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However, "only in a few instances did we find evidence of boards taking the initiative in probing about people issues -- such as ensuring that talent supply is sufficient to match a growth strategy." More often, they found, the CHRO is key to helping to drive the human capital agenda.

The Creelman Lambert research offers some suggestions on how CHROs can do this.

First, CHROs should understand that they need to help the board by driving for improvement. Recognize that this is part of their role as CHRO for the enterprise.

Second, recognize that many board members may be unfamiliar with human capital metrics and issues. Every opportunity to present information to the board should be carefully crafted so that it educates as well as informs.

Third, CHROs should embrace the opportunity to demonstrate how much greater a CHRO's contribution can be, demonstrating the capacity to be a truth teller, someone who can work with executive teams to increase their effectiveness, and to be a "people risk expert."

While financial analysts may still be slow in assessing and valuing the human capital management strategies of an enterprise, the Creelman Lambert research confirms that in successful businesses, boards are ahead of the analysts.

And where a board is still slow in focusing on human capital management issues, there's a real opportunity for CHRO leadership. In those situations, the only question will be whether the CHRO is prepared, willing and able to lead.

 

Susan R. Meisinger, former president and CEO of the Society for Human Resource Management, is an author, speaker and consultant on human resource management. She is on the board of directors of the National Academy of Human Resources.

 

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