Greater Expectations

In the last decade-plus, CEOs have come to ask for -- and depend on -- greater strategic-leadership capabilities in their CHROs. Unfortunately, too many HR leaders still lack the skills and knowledge to become true business partners of their top leaders.

Tuesday, May 1, 2012
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Tim Jernigan remembers sitting on a worn couch in the back office while attending board-of-directors meeting nearly 30 years ago. At the time, Jernigan was personnel director at Half Price Books in Dallas, with 20 employees under his wing.

Now, the 40-year-old chain of 115 stores selling new and used books in 16 states employs 3,000 people. Jernigan, now executive vice president and human resource director, still holds the top HR job. But while the company has significantly changed over the years, he believes his role is still the same as it was back then -- to help run the business.

He says the company's president and CEO, Sharon Anderson Wright, expects him to be the voice of fairness by presenting opposing viewpoints, settling employee disputes and ensuring employees are fairly compensated. He also continues to review company financials, not something many chief HR officers can do.

"Maybe not as many [CHROs] have that return-on-investment perspective," Jernigan says, explaining that he analyzes HR line items from a cost-and-benefit standpoint. "They need to learn to read company financials like profit-and-loss statements, determine which expense lines are their responsibility and understand why they may have increased over the years. They're expected to help run their company, not just process payroll."

Many CEOs expect their top HR officer to be their business partners, aligning HR's programs and policies with the company's strategic goals. But some CHROs don't speak the same language, still focusing on the same administrative tasks performed decades ago.

In today's highly competitive market, CHROs need to prove their worth by driving performance, strengthening business results and helping their company compete in a rapidly changing global marketplace. This can make the difference between CHROs who succeed in their jobs and those who barely survive.

"I always looked to the head of my HR [function] for culture-building . . . to make sure that we were moving our company ahead with a culture that drove toward results," says Denny Strigl, who served as president and CEO of Verizon Wireless from 2000 to 2006, then as president and COO of Verizon Communications before retiring in 2009.

"In the old days, it was never that way, but I always looked at HR being in lockstep with every one of our other organizations, from marketing and sales to engineering or . . . the legal team."

Strigl, also author of Managers, Can You Hear Me Now? and a prolific blogger, remembers the early 1980s, when personnel directors were expected to do little more than hire and handle pay and benefits. Due to competition for talent and other factors, he says, CEOs now require their heads of HR to focus on far more difficult tasks, such as boosting diversity, and planning for talent gaps and succession.

Though many CHROs are now using workforce analytics to predict organizational behavior and talent needs, crunching employee data was never really on Strigl's radar screen.

Throughout his career, he says, he was driven more by his belief that the key to HR lies in building a culture that treats employees right and drives the right results -- which, in turn, drives organizational success across the entire human capital spectrum, from attracting the right talent to delivering the right services and products.

Culture-building, he adds, involves many components, starting with the development of an appropriate compensation plan -- one that not only pays employees fairly, but also motivates them to exhibit behaviors that reflect the organization's core values. Union avoidance and building a diverse workforce are also high on Strigl's list.

Over time, he says, "we needed to make sure people were paid fairly [and] didn't look to a unionized workforce as the only way they could get properly paid." He says he always expected his CHRO to establish effective employee relationships by promoting open-door policies and ensuring that no employee groups felt left out or treated unfairly.

"Compensation was very high on my list," he says, "and making sure we were fair and consistent in what we said and did. You [can't] change the game on your employees every month."

Although CHROs need to clearly understand each business function's needs, not all do; some think, "HR first, business second," Strigl says, when it should be the other way around.

"The [CHRO] has to really be a businessperson first," he says, adding that the next evolutionary step for CHROs may be transitioning into COO and CEO positions. "HR is such an important function today that it needs to rise out from being a staff function and into an operations function. When it does, your best and brightest HR heads will be those who also can move into the top slots in corporations."

Sink or Swim

Since 2009, Patrick Wright, The William J. Conaty GE Professor of Strategic HR at Cornell University, has conducted annual surveys with CHROs in Fortune 500 companies. Last year, 220 responded, mostly from the United States, United Kingdom and the Netherlands.

One of the survey questions focused on the CEO's agenda for HR. According to Wright, 92 percent of CHROs in the United States and 96 percent in Europe listed finding and keeping the right talent as their CEO's key focus.

"It's so clear that this is a major agenda item that CEOs have for the HR function," says Wright, adding that cost control and employee engagement ranked second and third, respectively. "In general, they're talking about people who are at high levels and can have a large impact on their organizations -- how to attract, select, motivate, retain and develop them."

Although predictive analytics can help CHROs achieve those goals, their HR systems are virtually untapped, says Nik Shah, principal at PricewaterhouseCoopers in Washington.

"HR sits on an absolutely massive set of data but doesn't analyze it in a way to understand what employee behavior will be like," he says. "That's a major shortcoming."

So is the inability of many CHROs to interact with their boards of directors, especially when questions regarding succession planning, governance and executive pay are usually best addressed by them, says Wright.

Curiously, with some of these skills and talents still lacking in many HR leaders, organizations do a better job of training internal staff to step into senior roles in non-HR disciplines than into CHRO positions. According to the survey, Wright says, only 36 percent were internally promoted to the top HR job, compared to 65 percent of CEOs and 56 percent of CFOs.

Likewise, responding CHROs said the most important task they weren't prepared for when assuming their role was dealing with the board of directors, followed by leading the HR function.

Since HR professionals usually don't attend board meetings until they're CHROs, they might be "stepping into what could be a potential dicey situation with no experience base for what to expect," Wright says.

"One CHRO," he adds, "described [the situation] as walking a tightrope without a net."

And some fall off, which may explain why CEO expectations of CHROs are shrinking, says Peter Cappelli, management professor at The Wharton School of the University of Pennsylvania in Philadelphia.

"There aren't too many companies where HR has gotten more important," he says, adding that, since the mid-1980s, the perceived value of HR has steadily declined. "CEOs are more or less saying, 'Go away, unless you can prove you're doing something that's adding value to the organization.' "

He cites one survey conducted several years ago that asked about CEO and CFO perceptions of the HR function. The results were rather surprising. The survey, he says, found only one-third of CEOs involved HR professionals in layoff decisions.

Likewise, in Accenture's global High Performance Workforce Study in 2010, of the 674 senior executives in 24 countries who responded (55 percent of them being CEOs, COOs, CFOs and CIOs), only 8 percent rated the ability of their HR function to effectively support the larger enterprise's pursuit of business goals as industry-leading.

If HR wants to shine, it must prove its worth. "Show that you're saving the organization money or adding value," Cappelli says. "If you can't do that, you're losing the battle."

Even today, with so much attention being given to the need for HR professionals to be business-savvy, only about 25 percent of them actually are, says Hal Johnson, chairman of the human resource center of expertise at Korn/Ferry International in New York, a global executive-search firm.

"HR was always a sore-arm ballplayer, worrying about the tactical stuff," he says. "CEOs' frustration is the HR group they've got is not ahead of the curve. Change management is a very high demand within the HR function and not many people have [those skills]."

One way CHROs can build value is to figure out what keeps CEOs awake at night, and then fix those things, says Johnson.

"Take a courageous stand and be willing to take the consequences," he says, adding that CHROs must approach their jobs differently than somebody who simply maintains harmony, which was more common 25 years ago. "The tranquility-driven HR leader is going to fail [today]. It's a big problem, a constant complaint of CEOs."

So is constant agreement. At TD Bank, which employs 26,000 employees nationwide, Michael Carbone, regional president who oversees roughly 6,000 employees in the Pennsylvania/New Jersey market, expects his CHRO -- Sandy Sharman -- to help him consider the implications of his actions, both good and bad.

"I want somebody to push me back and say, 'Hey Mike, did you think about this or that?' " he says.

"HR has to understand our guiding principles . ... Be proactive from the head of HR down to all the employees," says Carbone. "When you have that type of leadership in HR, it makes our jobs in delivering and executing for our customers very easy ... ."

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A Case of Confidence

CEOs are not the only ones with expectations. Boards of directors expect CEOs to create shareholder value.

Dave McGlade, CEO at Intelsat in Washington, tries to leverage his human capital to drive financial performance for the benefit of shareholders and customers. The global 1,100-employee company uses satellites and other technologies to help organizations deliver information and entertainment worldwide.

McGlade entered the industry in the early 1980s. His first employer never had an HR department, he says, adding that the CEO "didn't believe in HR."

Nearly 30 years later, businesses and CEOs have grown up and need CHROs to be their business partners.

The best way for them to ensure performance and drive results, says McGlade, is not by analyzing employee metrics, but by aligning HR initiatives and employees' goals with the company's strategic goals.

"Sometimes, [CHROs] don't have the confidence to break out of their defined roles that they, [helped by their companies], boxed themselves into," he says. "If they have the confidence to break out, then they'll start to be accepted."

As an example, McGlade points to his company's senior vice president of HR and corporate services, Michelle Bryant, who accomplishes tasks outside the traditional scope of HR, such as managing mergers and acquisitions. He says mergers sometimes fail because CHROs lack the skills to prepare effective plans to integrate companies.

Bryant, who possesses a law degree, believes that inaccurate perceptions of CHROs are among the profession's biggest barriers.

"I would hope that CHROs are engaging in the [business] dialogue with their CEOs," says Bryant. "If [CHROs don't do this], it's really hard to achieve the potential of HR within an organization. Or, if HR is removed in layers of reporting to the CEO, that would be a reason why they might not be living up to the expectations of their CEO."

Today's business environment is no longer as forgiving as it was 25 years ago, when companies could make mistakes, yet still flourish, says McGlade. Everyone -- including HR -- must do things better, smarter and cheaper, or they will miss opportunities to improve performance, he points out.

Meanwhile, HR professionals simply aren't learning fast enough, experts say. HR requirements have accelerated over the last two years and will probably grow more complex, says Brett Hooper, senior vice president of HR at JDSU, a global 5,000-employee organization based in Milpitas, Calif., that creates and markets diverse technologies.

The many things his CEO expects include employee engagement, strategic insight and talent acquisition. But it's the "relentless prioritization" that is his biggest challenge, he says.

"If you prioritize right, you can develop the right HR solution to solve that business problem," says Hooper. "If you solve that business problem, you bring business value, which generally brings better returns that can be invested to expand your [company's] scope and delivery."

Perhaps CHROs at global companies are the most in need of skills upgrades. Manufacturing, sales and engineering departments, for instance, typically reside in different regions or countries. Still, they must work together every day, operating "seamlessly and flawlessly," Hooper says. Product cycles are also shorter, and different cultures and generations now work side by side. Nothing stays the same.

"[HR] is relying too much on the past," he says, adding that, to keep ahead of the curve, he has developed healthy relationships with JDSU's business leaders and also belongs to an ad-hoc committee of HR professionals in the technology industry who meet quarterly to share current challenges and best practices, and to discuss human resource topics. "Getting HR up to speed, using the right tools and [adopting the right frame of mind] is definitely an issue," says Hooper. "And it's only going to get worse."

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