Building HR leaders from within is becoming increasingly important at the nation's largest companies as the value of the function grows to meet intensifying pressures.
Rare is the chief executive who denies the importance of leadership. Rarer still is one who fully supports leadership development, especially for human resources. Wachovia Corp., for one, is putting its money where its mouth is.
During the past two years, the nation's third-largest financial services company has revamped leadership development to bolster an uneven process, integrate diversity initiatives and give top executives a better view of the talent pipeline, says Shannon McFayden, senior executive vice president of HR and corporate relations, who oversees a 2,400-person department that includes corporate communications, community relations, marketing and customer research and analysis, as well as HR.
"Leadership is one of Wachovia's hallmarks," McFayden says, but Chairman and CEO Ken Thompson "didn't feel he had a clear line of sight below his direct reports . . . into who the strong high performers were." She says she didn't know her own department's talent well enough either.
To remedy this weakness, McFayden created a "leadership practices" area, which developed a new talent-identification process and honed leadership-development programs. A pilot project for Wachovia's 1,500 HR professionals has proven successful, says McFayden, who has used the new process herself to fill three top HR spots.
Executives and consultants say it again and again: Leadership matters. Less often heard is the corollary: HR leaders matter because the best ones drive business strategy by successfully guiding talent management, succession planning and other critical workforce issues.
"HR directors and vice presidents are in more strategically important positions than they were in a decade ago," says Michael Wakefield, a trainer for the Center for Creative Leadership, a nonprofit executive education institute based in Greensboro, N.C.
Yet many HR executives and managers are like the shoemaker's children, experts say, designing and implementing leadership-development programs for their organizations but getting the short end of the stick themselves. That practice is short-sighted, argue University of Michigan business professors Dave Ulrich and Wayne Brockbank in their 2005 book, HR: The Value Proposition.
"HR often advocates development for others but too often fails to invest in its own development. Investing in rigorous and thoughtful development will pay off, encouraging HR professionals to act professionally and learn readily," the authors write.
Leadership development in general and HR bench strength in particular are getting more attention as the largest companies in the United States face global competition, rapid change and other business pressures, consultants say. (See the chart showing this year's Top 100 largest companies.)
"Without question, organizations get more value through people than ever before. We're seeing a lot of boards of directors, CEOs and senior leaders putting an emphasis on who's in the organization and who's being developed," says Matt Paese, vice president of succession management at Development Dimensions International, a talent management consulting firm based near Pittsburgh.
As corporate value shifts from tangible assets, such as buildings and inventory, to intangibles, such as ideas and technology, "we've had a shift in people being the swing factor in whether or not an organization can stay competitive," he adds.
It follows, then, that effective HR leadership -- today and in the future -- is critical to a business' success. "We can't succeed and maintain what we've done without strong leaders. The same goes for HR," says Bob Brotherton, senior vice president and manager of leadership resources at Wachovia, based in Charlotte, N.C.
Room for Improvement
Surprisingly, few companies devote adequate resources to training their rising HR stars. Only one in seven organizations invests in critical skill-building for HR, and 55 percent spend $1,000 or less per person on it, according to a survey of nearly 200 chief HR officers by the Corporate Leadership Council, an HR research and education firm based in Washington.
The failure to develop a strong internal HR talent pipeline carries big risks, experts say. The brightest stars may leave for lack of opportunity. Companies may be forced to fill top spots from the outside. In fact, 10 of the 40 largest companies on Human Resource Executive®'s Top 100 list in 2006 filled the chief HR position with outsiders, says Robert Rodriguez, assistant dean of the Graduate School of Management at Kaplan University, a Chicago-based online university.
More important is the potential failure of HR to live up to a CEO's expectations as a strategic partner. "Executives know talent is key to their strategies. They've experienced painful situations where they didn't have the right talent," says Sue Gebelein, executive vice president of Personnel Decisions International, a Minneapolis-based HR and leadership consulting firm.
In general, senior executives use individual performance reviews, 360-degree feedback and assessments to look for high-potential employees with certain traits, including the ability to apply workable solutions, engage and motivate people, work collaboratively, think globally, take a stand and adapt to change. They also look for personal ambition because not every high performer is leadership material.
Increasingly, HR leaders must have not only the ability to manage HR functions well, but the vision and business smarts to act as strategic partners. "The most important role HR needs to move toward is strategy setting," says CLC Managing Director Jean Martin.
Many HR managers are proficient in operational support roles such as compensation or staffing, but don't have the more-valued ability to drive business strategy, according to the CLC. Its report points to three key areas HR staff should develop: applying business analytics, applying performance and development expertise, and leading people.
Some companies are starting to wake up to the need to better train HR managers. "We've seen a number of organizations expressing the need to up-skill their HR staff . . . to lead change, manage external relationships" and play other strategic roles, says Michelle Salob, a leadership consultant at Lincolnshire, Ill.-based Hewitt Associates.
Wells Fargo & Co., a San Francisco-based financial services company, developed a list of four critical competencies for HR leaders based on the company's business strategy and senior HR executives' memories of influences on their own development, says Jean Bourne, executive vice president and HR manager.
"This all came from our exercise in re-engineering our own careers. We used that as our lens to discuss our emerging talent," she says. "Now we have a really strong framework going forward."
The four competencies -- managing like a general manager, complex business thinking, leading cultural change and "personal impact" (or establishing credibility, taking risks and dealing with ambiguity) -- helped Wells Fargo identify about 30 HR high-potentials from a staff of more than 2,600 last year, two of whom have been promoted to senior positions, Bourne says.
HR executives there meet annually to identify their rising stars and discuss ways to develop specific individuals, whether it's mentoring, promotions, classes or other means, Bourne says.
Cathy Fraser, senior vice president of HR at Dallas-based Tenet Healthcare Corp., says she applies "some fairly rigorous scorecard metrics" to hospital-quality outcomes to identify high-potentials in HR and other areas. For the HR directors at each of Tenet's 66 hospitals, that means measuring and comparing their impact on the retention and performance of clinical staff, which are key to the company's success, she says. (Tenet plans to sell 11 hospitals and expects to own 55 later this year.)
Once identified, Tenet develops its future HR leaders through stretch assignments, promotions from hospital to regional roles and team work with non-HR executives.
Consultants and HR executives note that tomorrow's HR leaders don't always come from HR ranks. Individuals poised for advancement can come from line management in other parts of a company. Early-career HR professionals from undergraduate and graduate business programs can be developed quickly through their own leadership-development programs. (See sidebar.)
Grooming HR Leaders
When it comes to grooming future HR leaders, one size doesn't fit all employers or all individuals, but there are some tried-and-true techniques. Rising HR leaders generally go through the same process -- usually developed internally, as do their counterparts from other business functions.
CLC research confirms what many say is the best way to grow leaders: "stretch assignments" that place individuals in new roles with new people to test their abilities and teach them new skills. Such assignments can help identify high-potentials' "signature strengths" as well as their weaknesses, which can be targeted for more development, Ulrich says.
Other techniques include job rotations, coaching and mentoring, education at corporate and outside universities, "day-in-the-life" simulations, cross-functional teams and leadership-development programs for early-career HR employees.
Among 14 skill-building methods analyzed by the CLC, stretch roles had the highest impact, particularly those roles that force people to adapt to changing circumstances, creatively solve problems and lead teams.
"You put people in a position to have accountability and impact, and to work on teams," says Fraser. At Tenet Healthcare, it's not a sink-or-swim experience, but one designed to teach high-potentials to work with other HR and non-HR employees to tackle real-world problems, such as combating the nursing shortage or planning for a competitor's market entry, she says.
Wachovia also stresses learning through experience. "Most individuals say this is the area they're most uncomfortable with, but that they benefited from it the most," Brotherton says. "We're trying to move more in that direction."
McFayden recalls how she tapped a manager with experience in a limited number of HR disciplines to become interim HR chief of Wachovia's corporate and investment banking unit during the search for a permanent replacement. "It was because of this [talent identification] process that I knew I needed to stretch her, but I had no intention of making her permanent," she says.
Several months -- and 21 interviews -- later, the interim chief became permanent. "She has demonstrated she can manage across functions and solidified our perception of her," McFayden says.
In addition to stretch assignments, Wachovia trains leaders through programs targeted to the advancement of women and African-Americans (the latter in the works), and matches high-potentials with mentors and coaches "to be sounding boards and advice-givers, and to give feedback along the way," Brotherton says.
Whatever the technique, CEO involvement in training helps ensure success, according to a 2005 report based on a survey of 373 companies by Hewitt Associates, entitled How the Top 20 Companies Grow Great Leaders. "Organizations that do it well really see leadership development as a tool for running their business. Senior leaders are actively involved in coaching talent and getting to know people," Salob says.
Other best practices, Hewitt says, are the linkage of leadership development to business strategy, leaders' accountability for training's success via compensation, consistent execution and measurement of training outcomes.
Perhaps least effective is classroom training or job rotations without a way to apply what's been learned. Even Wakefield, of the Center for Creative Leadership, agrees: "Patterns of behavior do not change significantly because of a classroom event. The place you learn is on the job. But the classroom can be a catalyst." (The center offers a five-day leadership-development class in Colorado for HR professionals.)
Ultimately, companies must really care about leadership development to make it work, experts say. As the Conference Board wrote about its 2006 conference on the topic, "Ultimately, the essential ingredient is a sustained commitment to ensuring there is a pool of talented individuals at all levels of management, diverse in their capabilities, who have strong collaborative instincts and skills and are able to lead their enterprises in a challenging and increasingly complex global world."