CHRO Succession at the Crossroads

What confidence can stakeholders have in the succession plan of the enterprise when more than half of the nation's CHROs fail to put sufficient energy into identifying and grooming their own replacements?

Sunday, September 16, 2012
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Succession planning is difficult. Even when the process is mandated by law -- as for CEOs of public companies -- few organizations go past the bare minimum of filing a paper plan. So it's perhaps little wonder that even fewer put significant resources into succession planning at the chief human resource officer level.

It shows, and not in a good way. In 2011, 54 percent of CHROs in America were hired from outside the enterprise, according to the Chief Human Resource Officers Survey, published by the Cornell Center for Advanced Human Resource Studies at Cornell University in Ithaca, N.Y.

If you view a company decision to hire an external CHRO as a failure of the department charged with managing the succession planning for the organization, that represents a breakdown of the first order.

Skeptics have suggested that, in terms of internal promotion, CHROs fare no differently than the occupants of other C-suite offices. Not so. CEOs and CFOs have far better records at developing their successors than CHROs.

CEOs and CFOs, on average, are internally promoted at significantly higher rates than CHROs and hired from outside at much lower rates, according to the Cornell study. Only 36 percent of American CHROs have been internally groomed and promoted into the role, compared to 65 percent of CEOs and 54 percent of CFOs.

The statistics are indisputable. The same organizations that have figured out how to identify and develop successors for the CEO and CFO from within the organization seem unable to replicate that record within HR.

Maybe these results are predictable, given human nature and the challenges facing CHROs, says Manuel de Miranda, head of the HR practice at executive search firm Egon Zehnder. (In other words, CEOs and CFOs have their heads of HR to coach, cajole and otherwise hold them accountable for keeping them on their succession paths. CHROs usually have no one, outside themselves, to crack that whip.)

"It's one thing to plan the succession of someone else. It's quite another to do it on your own behalf," de Miranda says.

In today's business world, the talent stakes are higher than ever. Boards of directors have mandated that the CHRO recruit and field the most capable individuals on a global level, align diverse people with the values and culture of the enterprise, and lead them to execute as self-managed teams internationally.

Over the past few years, issues such as executive compensation and succession planning have emerged as critical decision points for the board's consideration. Progressive organizations have rewarded CHROs by giving them a seat at the table and more visibility at the board level.

Businesses need HR leaders who play conspicuous roles in preparing the organization for growth. Developing the right talent to deliver on this promise is critical to HR's being seen as an indispensable partner. "Without a real succession plan to build the right HR leaders for the future, businesses will have a gap in their leadership," says Patti Johnson, former chief people officer for Accenture HR Services and currently CEO of PeopleResults, a Dallas-based HR consultancy.

The expectation is that CHROs take themselves seriously by defining their roles to include the delivery of strategic competitive advantage by creating human capital solutions that yield measurable results.

The challenge is to be sure HR isn't an afterthought on succession; that while the CHRO is planning for the rest of the organization, succession planning within the HR function is not overlooked. And that means ensuring an orderly succession plan within the HR function to enable the creation of shared services and true senior level business partner roles.

Healthy Planning

Carole Watkins, CHRO of Cardinal Health Inc., is a product of such an orderly succession plan and she, in turn, is the steward of a process that is grooming her eventual successor.

Watkins joined the Dublin, Ohio-based healthcare-services company in 1996 as HR lead for Cardinal Distribution, its largest division.

Founded in 1971 as a food wholesaler, Cardinal Health has grown into a major healthcare-services company, generating revenues of $108 billion and employing more than 30,000 people worldwide. It is currently ranked number 21 on the Fortune 500 list of the world's largest companies. 

Prior to her role as CHRO at Cardinal, Watkins served as corporate senior vice president of HR and, before that, as head of HR for Cardinal Pharmaceutical Distribution and Provider Services, a major business unit.

Mentored by Anthony J. Rucci, former president of strategic corporate resources and chief administrative officer, she was promoted to the increasingly responsible roles mentioned above.

Rucci, currently clinical professor of management and human resources at Ohio State University's Fisher College of Business, recalls that Watkins was at first reluctant to move from a line HR role to the corporate senior-vice-president-of-HR role. "That initial reluctance just increased my confidence that we had the right candidate to assume the top role," he says. "I assured Carole that, by making this move, she not only wouldn't distance herself from the businesses, but she would have a better platform from which to ground corporate HR in what the operating units need."

It's clear the HR function has benefitted from Rucci's stewardship in three ways. First, Rucci encouraged Watkins to expand beyond her HR job. "Carole was very valuable in the HR role, but I assured her she would only be more valuable if she had direct leadership exposure to other parts of the company."

Second, Rucci was generous in providing Watkins, as the new CHRO, with access to the CEO and board. He recommended that Watkins immediately become a member of the 11-member executive committee, a new development for Cardinal Health.

Third, breaking with tradition, Rucci arranged for Watkins to regularly participate in meetings of the board of directors' compensation committee.  

Visibility, Long-Term Outlook

Watkins encourages and expects her senior leaders and key operators within HR to get visibility with the board, as well as the CEO and CFO, when appropriate.

"The reality today is that HR leaders have to display technical knowledge and experience in the hot-button topic of executive compensation," Watkins says. "Ten years ago, an HR leader could have gotten by with a cursory background in executive compensation; now, that experience has to be a mile deep and a mile wide if the leader hopes to be seen as a strategic resource."

Just as she herself was encouraged to get out of her comfort zone by expanding into non-HR responsibilities, Watkins has structured the HR function to force managers out of generalist HR roles into highly visible centers of expertise/excellence: enterprise-wide talent management, total rewards and executive compensation.

There are two key benefits of rotating HR managers throughout the enterprise, according to Watkins. First, the managers will obtain key skill sets that will position them to become more valuable to the organization on a strategic business level.

A secondary benefit of rotation is that the HR leaders develop personal relationships with a growing network of key players, one of whom may well ascend to a position of executive responsibility and will reach out to the HR leader on the basis of their shared experience.

All this requires a long-term outlook. "The process you develop in a center of excellence takes time to play out before the organization sees real benefits," Watkins says. "The corporate culture that encourages that long-range perspective has to come from the top."

Paradoxically, a long-range perspective has a downside. As they are being trained for advancement, recruiters can swoop in and poach the developing talent.

Watkins has lost some promising managers along the way. One HR manager was recruited by a bank; another departed for a Cardinal spin-off business. "It's easy to train someone too well," Watkins laughs. "It becomes easy for well-trained people in current seats to be sought out for bigger challenges with different companies."

The recruiting pressure is often ratcheted up when a CHRO becomes known throughout the industry as someone who does a good job training HR managers.

Ironically, a marker of a CHRO's performance is the eagerness with which recruiters target his or her people for new opportunities. Corporations with reputations for strong HR leadership -- General Electric and Shell come to mind -- become known as talent academies.

Watkins herself had been recruited many times over the years she was being developed for the top HR role at Cardinal Health. The signals that she was being given persuaded her to stay on the track that was so clearly being invested in on her behalf.

The only antidote to poaching top HR talent is for the CHRO to demonstrate, by decisive action, that key players can expect to be developed for success. That means that, while the need to run an efficient HR function remains at the forefront of every HR leader's responsibilities, the company also recognizes the importance of developing HR leaders who have demonstrated their abilities to contribute to the financial success of the company.

The result of a sound succession plan that leads to a CHRO replacing him or herself with an internal colleague reinforces morale and preserves institutional memory. These are the leaders, brought up within the culture of HR, who tend to be the best qualified CHROs and who, in turn, are the best stewards of rising talent within the HR organization.

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"The role of CHRO is to deliver global talent, keeping pace with the high velocity at which needs and opportunities arise in today's organizations," says James Bagley, global leader of Russell Reynolds Associates' HR practice.

The result of CHROs whose human capital solutions match what CEOs look for, is in fact, simple to measure: "They grow investor wealth," Bagley says.

Field-Proven Executives

Richard "Dick" Antoine retired as CHRO of Procter & Gamble in 2008. "Among a significant number of CEOs, a belief persists that the CHRO position is not that demanding and, therefore, such CEOs are not as concerned about bypassing the internal candidate in favor of someone from outside HR," he says.

This is not just a rhetorical question for Antoine, who spent 30 years at P&G in a variety of product-management roles before switching to HR. "I'm an example of what I'm talking about," he says. "I didn't work in HR until I was named Procter & Gamble's CHRO."

Replacing the CFO with someone outside of finance would never occur to a CEO -- and for good reason. "What does it say about HR that CEOs routinely replace HR chiefs with executives from outside HR?" Antoine asks.

From his current position as the president of the National Academy of Human Resources, Antoine says the perception business leaders have of CHROs will not shift until HR actually starts generating field-proven executives who are ready to think, communicate and partner on the strategic level.

That means investing in an appropriate training curriculum. Procter & Gamble, for instance, established a program not unlike an internal MBA program to teach HR people to think and talk in financial terms. HR leaders coming out of that program are expected to be able to articulate the drivers of total shareholder return (asset utilization) and calculate operating profits or cash flow from an HR perspective. A number of benefits of the program have been:

* Productivity increases as HR improves the mix of talents and capabilities that the business really needs.

* If HR leaders think more like business people, they tend to run leaner organizations.

* When CHROs understand the business levers that the CEO is pulling, they are more effective coaches to the CEO as well as more effective mentors to junior managers.

Whose Responsibility Is It?

But setting up the right system for choosing and grooming the strongest CHRO successor is still difficult and hard to control.

"All executives agree that succession planning is a necessary responsibility. But it makes it easier when the responsibility is someone else's," Egon Zehnder's de Miranda says, adding that that someone is almost always the CHRO.

Then there's the issue of priorities. The CHRO is responsible for managing three or four layers of succession planning: the CEO, CFO and perhaps one or two other key officers. Given all the other responsibilities of managing a department, it's not surprising that the incremental task of replacing themselves often falls far down the list of priorities.

An HR organization shaped by a sound internal-succession program encourages the function to get out of the day-to-day operations and spend more time engaged in the business -- which is essential for building the next generation of HR innovators. "These are capabilities that aren't built overnight, so it's important to start early if you want the next generation of CHRO leaders to be developed internally," PeopleResults' Johnson adds.

It all starts with hiring, says Patrick Wright, long associated with CAHRS at Cornell University and now with the University of South Carolina, where he is the Thomas C. Vandiver Bicentennial Chair in the Darla Moore School of Business. "The long-term proposition is to begin hiring the level of talent into the HR function that will be on a par with every other area of the business and then developing them over their careers," Wright says.

Wright is encouraged that a number of highly successful former CHROs are now in educating boards. "People like Bill Conaty (GE), Mike Peel (General Mills) and Dick Antoine (P&G) who have been successful at developing internal successors are now out coaching boards, CEOs and other CHROs around these issues," he says. Programs from the NAHR and Cornell University's report, Understanding the Top Seat: Challenges and Strategies for the Modern CHRO Role, are helping to prepare near-term successors to take the top HR jobs, Wright says.

There are signs for optimism, says Peel, who's now vice president for human resources and administration at Yale University. "The best HR executives are becoming more sensitive to succession for their own replacements, and ideally want that successor to come internally," he says. Before joining Yale, Peel was executive vice president for worldwide human resources and business services at General Mills, where he was instrumental in the development of his successor, Mike Davis. Over several years, Peel ensured that Davis worked closely with the presidents of General Mills' business unites in initiatives involving talent management, employee relations and executive recruitment.

"The new industry standard is that our replacements have to be better than the incumbent; not just as good, but better. That's the goal," Peel says.

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