August 5, 2019 – Boards of directors are, in theory, supposed to be able to offer advice and guidance to a CEO on any aspect of an organization. One can look at any board in the Fortune 1000 and find current or retired experts in finance, strategy and marketing. That’s why boards are typically filled with current or former CEOs. Two decades ago, after major changes in accounting rules, many boards added chief financial officers.
These days, thanks to growing challenges and opportunities online, boards are looking for experts in technology and cybersecurity.
But one business function that still doesn’t get much representation on boards is human resources, says a new report by Korn Ferry’s Dan Kaplan and Dennis Carey. Indeed, of the more than 10,000 directors on the boards of the Fortune 1000, fewer than three percent are either current or former senior human resources executives. Experts say that the absence of CHROs as directors is curious.
“Historically, boards haven’t entirely understood the CHRO role, and companies of old were often more focused on operations or products instead of the people who ran or created them,” the report said. “These days, though, of course, an overwhelming number of critical business decisions revolve around finding top talent, developing a healthy corporate culture, and other people-related issues.”
“It’s a gap that should be addressed,” said Mr. Kaplan, a senior client partner in Korn Ferry’s CHRO practice. “Heads of HR are at the confluence of a lot of issues that help or hurt a company’s ability to grow and evolve. Their skills-set, many point out, are not interchangeable.”
Focused on Culture
“Directors with HR expertise bring in the ability to ask questions that others won’t think of, especially about culture,” said DJ Schepker, assistant professor of strategic management in the Darla Moore School of Business at the University of South Carolina and research director of the school’s Center for Executive Succession. “In today’s environment, that’s probably the top issue that boards are focused on.”
Why Your Board Needs a CHRO
Board members often lack experience in executive succession and rely on the skills of a director with a CHRO background to bring that expertise to the CEO recruitment process. That’s where a top HR leader can add tremendous value to boards, says a new report by DHR International.
Historically, the one aspect of the top HR executive’s job that board directors focused on was overseeing the compensation plan for C-suite leaders and the board itself. That role would get a CHRO into the boardroom, albeit briefly. Mike D’Ambrose, who first became a CHRO in the late 1990s, remembers his interactions with the board back then mostly because each experience was so short. “I was just in the compensation committee meeting, not in front of the whole board, and it was just for a portion of that meeting,” said Mr. D’Ambrose, the current CHRO of the agriculture giant Archer Daniels Midland.
A CHRO View on Building Great Teams, From Inside and Out
Managing a large workforce at any company is no easy task. But when that workforce is 32,000 strong, it requires the steady hand of a top human resource leader who will keep everyone motivated, engaged, intact and forward thinking. And that’s across 160 countries encompassing every cultural nuance imaginable.
This is the domain of Michael D’Ambrose, chief human resources officer (CHRO) for Archer Daniels Midland Co. (ADM), the $67 billion agricultural processing giant based in Chicago.
Hunt Scanlon Media editors sat down with Mr. D’Ambrose recently to discuss how ADM builds and shapes its bench strength through a range of range of tools – from skills training and mentoring to coaching and professional development. Promoting from within has big advantages at ADM. Mr. D’Amrose walks us through it, revealing how failure – what he refers to as “misses and mistakes” – can act as its own teaching vehicle in a collaborative, people-focused culture. Internal recruiting is a critical component of ADM’s insatiable drive to find talent and we find out why each employee at ADM is viewed as a recruiter.
An HR person as an actual director was rare. In the past that happened only if there was a major people-related issue at the company, said the Korn Ferry report, such as if the CEO was about to leave and the company didn’t have a successor in mind. In the minds of many boards, what HR did wasn’t critical to the success of the company. HR leaders picked investment options in retirement savings plans, oversaw how employees were hired and managed the firm’s health-insurance program. “Sure, these people issues were important, many directors thought, but the business didn’t revolve around them,” said Mr. Carey, vice chairman and co-leader of Korn Ferry’s board services practice. “If HR people didn’t have business acumen, what good would they be as board directors, whose whole purpose is to advise management on the company’s business strategy?”
Korn Ferry offers way CHROs can make themselves more attractive as board directors:
- Establish a good reputation with the compensation committee. The compensation committee is often the first exposure a CHRO will have to their board.
- Put HR updates in a broader context. Using metrics, show how changes in hiring or engagement affect returns on investment.
- Emphasize how you can be a good coach. The best CHROs get the entire C-suite to work well together; they can do the same for a board.
Changing Perception of CHROs
Several trends are starting to change the perception of CHROs. In the report, Mr. Schepker cited one key incident: Oscar Munoz had been CEO of United Airlines for just 37 days when on Oct. 15, 2015, he had a major heart attack. It was unknown when, if ever, Mr. Munoz would return to the role. The situation made board directors at other organizations recognize that they didn’t have comprehensive succession plans of their own, Mr. Schepker said. (Munoz had a heart transplant and returned to work in early 2016.) “Since boards drive CEO succession plans, having a director with significant HR experience gained more urgency,” Mr. Kaplan said.
Suddenly, HR performance is positioned to influence a company’s overall performance. HR leaders find themselves under heavy pressure, which calls for new skills, competencies and profiles across the practice. There is also a special focus on HR senior management in charge of driving organizational changes medium and long term. Find out what human resources abilities and competencies need to be in place within your company and what HR leaders should be doing to support those competencies ….Here’s further reading from Hunt Scanlon Media.
7 Critical Competencies to Help HR Leaders Manage Change
Today, many global companies are embarking on their own journey forward, leaving behind the effects of the recession and setting sail for growth again. Management and HR leaders, however, know the game has changed and, if anything, uncertainty looms larger than ever.
Beyond health scares, there has also been the growing realization that there aren’t enough women on boards in general. While women still have low representation in most of the C-suite, many of the country’s top human resources executives are women. “Adding female CHROs to boards not only helps diversify the board but brings an HR expert into the boardroom,” said Mr. Carey.
“Relatedly, the #MeToo movement, along with some high-profile instances of harassment, have put a spotlight on how a bad culture can hinder a company’s financial performance. Putting a top CHRO on the board can help confront both those issues,” said Mr. Schepker.
“But the biggest trend is the realization that HR executives are doing more than just back-office work. Indeed, the best CHROs have a hand in shaping the firm’s business strategy, capital management, and even financial structure,” said Mike Feiner, who was head of HR at Pepsi for 20 years. “They recognize that to get the best out of a company, the company needs to get the best out of its employees. The top CHROs “are change agents. They have a passion for making the world of work as fulfilling as it can be.”
According to both Mssrs. Kaplan and Carey, more directors are acknowledging that the areas HR leaders focus on—culture, finding and retaining top talent, employee engagement and succession—are integral to a firm’s ability to execute a business strategy. “Boards are realizing that talking about strategy without people would be useless,” said Mr. Carey. “And as they seek out more information on people issues,” added Mr. Kaplan, “it only makes sense to turn to the people whose whole career expertise is getting the most out of people.”
Mr. D’Ambrose said that business-focused CHROs can bring a unique perspective and set of experiences to the boardroom. ‘I would envision that the number of CHROs on corporate boards will increase appreciably in the next five years,” he said.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media