Please read the article entitled "The Emerging Role of HR in the Boardroom."

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PEOPLE + STRATEGY36

By Julie J. Chen, Ph.D.

We conducted an online survey in partnership with the National Associa-tion of Corporate Directors (NACD). More than 100 directors who are either members or chairs of the compensation committee responded. What we found was surprising. Despite all that has been written and studied from HR’s perspective in recent years, directors—at least those who participated in our survey—still view HR pretty much as they always have: a very transactional support function that often does a terrific job on compensation and benefits, but one which is not perceived as playing a more strategic role in the boardroom. The results depict HR as still pigeon-holed in a very tight, tactical box, but viewed as generally irrelevant or lacking in major influence when it comes to strategic issues that top the board’s agenda.

To be sure, the results might well be skewed, to a certain extent, by the respon- dent group provided to us by NACD—chairs and members of board compensation committees. Nevertheless, the members of this committee almost always sit on other board committees, as well as on the full board and, in the case of the chairs, on the board executive committee. So it is highly unlikely that their sole interaction with HR is through the compensation committee; ideally, they should be interacting with HR in multiple settings on a wide variety of issues. If not—if their dealings with HR are limited exclusively to compensation and benefit matters—that in itself is reason for significant concern.

Numerous studies have surveyed HR leaders about their views on the board’s interest and engagement in HR-related issues, and many articles have suggested ways that HR can aspire to increase its involvement and influence in the boardroom. However, few have asked similar questions from the board’s perspective, a line of inquiry we suspected might produce some thought- provoking responses for directors, CEOs, and CHROs as they seek answers to some important questions: • In what areas do directors think HR

should productively engage with the board to provide the greatest value?

• How well is HR serving that role? • Going forward, what would help

CHROs play that role more effectively?

The Emerging Role of HR in the Boardroom

VOLUME 38 | ISSUE 2 | SPRING 2015 37

Results Overall, our findings indicate that the majority of board members gave their CHROs high ratings as functional managers. Specifically: • Seventy-one percent of directors rated the CHRO as

being a good or excellent leader of the HR function. • More than two-thirds of directors (68 percent) rated the

CHRO as demonstrating consistently superb execution by the HR function, and slightly fewer (64 percent) rated the CHRO as demonstrating his or her standing as an integral member of the senior management team.

• As might be expected— especially given the respon- dent pool—directors rate HR as providing the greatest value in employee compensation and benefits, as well as executive compensation, with 65 percent of respondents rating HR as providing good or very great value in both areas. Neverthless, the results indicate that directors view

the CHRO’s impact as fairly narrow, suggesting that most CHROs have a long way to go before being viewed by their board as a strategic partner: • Fewer than one-third of respondents (31 percent) re-

ported that the CHRO has a good deal or great deal of inf luence on the board’s decisions.

• Just over one-quarter of respondents (27 percent) described HR’s role in relation to the board as being fairly or primarily strategic in nature, while one-third of respondents (33 percent) described it as being fairly or primarily transactional. The remainder (40 percent) described it as equally transactional and strategic. In a 2008 SHRM study of HR professionals, only 6

percent of HR professionals described themselves as being primarily strategic in nature, 61 percent as equally trans- actional and strategic, and 33 percent as transactional; out of the same group of HR professionals, 15 percent believed the board of directors view HR as being primarily strate- gic in nature (SHRM 2008). While our findings are more favorable than those, and indicate that some directors con-

Methodology In partnership with the National Association of Corporate Directors (NACD), we invited approximately 1,000 directors who are either members or chairs of the compensation committee to participate in an online survey consisting of 62 closed-ended items on five-point scales and one open-ended question; we received responses from over 100 directors. Approximately two-thirds of the 103 respondents (64 percent) serve on boards of public companies, while the rest (36 percent) serve on boards of private companies. More than half of participants (59 percent) are on boards of mid-size companies ($300 million to $5 billion), just under one-quarter (23 percent) serve on boards of smaller companies (less than $300 million), and just under one-fifth (18 percent) serve on boards of larger companies (over $5 billion). More than half of participants (61 percent) are members of the compensation committee, while the remaining participants (39 percent) are chairs of the compensation committee.

TYPE OF COMPANY

Public

Private

64%

36%

ROLE

Member of the Compensation Committee

Chair of the Compensation Committee

61%

39%

SIZE OF THE COMPANY (in annual revenue)

Smaller (Less than $300 Million)

Mid-size ($300 Million - $5 Billion)

Larger (Over $5 Billion)

23%59%

18%

SURVEY ITEM Overall, how effective is the CHRO as the leader of the HR function?

Rating Distribution

Very Poor/Poor

21%

Average

21%

71%

Good/Excellent

71%

Most CHROs have a long way to go before being viewed by their

board as a strategic partner.

PEOPLE + STRATEGY38

sider their CHRO to play an inf luential and strategic role in relation to the board, most still do not, and this stands in contrast to the literature published in the years since, in- dicating that CHROs are interacting more with the board, need to play a more pivotal role in impacting the business, and must step up to the responsibility of being a strategic partner (Creelman & Lambert, 2012; Dunn 2008; Gross- man 2007; The Korn/Ferry Institute 2013; Kristie 2009; KPMG 2009; Stockton, van Berkel, Bowman & Lissak, 2013; Vosburgh 2010; Wright, Nyberg, Schepker, & Ulrich 2013).

Particularly when it comes to the topic of risk, which tops nearly every list of board concerns, HR leaders are missing what might well be one of their biggest opportuni- ties to have a serious impact on the board’s work: • Only 12 percent of respondents rated HR as providing

good or great value to the board when it comes to risk management.

• Only 35 percent of respondents reported that their CHRO ensures that talent considerations are integral to the board’s consideration of enterprise risk. Given how much boards are focused on risk these days,

these findings are especially concerning. (Our survey found that 82 percent of di- rectors rated the chief risk officer’s role as being more or significantly more important than it was five years ago.) Furthermore, the board really isn’t even thinking about risk in HR terms. Even though only 12 percent of respondents feel HR is providing good or very great value to the board when it comes to risk management, it also draws only tepid interest in increased interaction; less than half (46 percent) feel HR should be interact- ing more with the board with regard to risk management.

In other words, HR has failed to make the case that talent is an essential issue in risk considerations. And this is a problem because anything that impacts an organiza- tion’s ability to retain, attract, develop, or re- ward talent to support its strategic business goals will have serious effects on its bottom line—whether from a strategic, operation- al, financial, reputational, regulatory, or legal standpoint. NACD has formed a Blue Ribbon Commission on risk governance recommending that directors understand the specific risks facing the organizations they serve, making sure that boards and management have processes in place to address these risks. Likewise, CHROs and their CEOs must do their part in educating boards that HR is a critical component in the risk equation.

Further underscoring the point that CHROs are missing important opportu- nities to make an impact on boards is the finding that more directors believe that the

CIO, CRO, CFO, and General Counsel have become more important to the board’s work in the last five years than the CHRO. The Chief Marketing Officer (CMO) is the only C-suite executive whose importance rating was lower than the CHRO.

What else might account for some of this lessened impact? CHROs are not seizing key opportunities to build their own credibility with boards: • Less than one-third of respondents (32 percent) report-

ed that their CHROs are keeping their boards informed about innovations in the HR world that merit consider- ation internally.

• Less than half of respondents (48 percent) said that their CHRO articulates a comprehensive talent strategy linked directly to the overall business strategy. Bringing the board’s attention to best practices and

innovations in the HR world can be a relatively easy win in helping HR leaders build their credibility with boards— there are a number of professional associations available that share research, information, and educational pro- grams to keep members up-to-date on the full spectrum of

SURVEY ITEM Overall, how would you describe the current nature of HR’s role in relation to your board?

Rating Distribution

11%

22%

Primarily strategic

11%

22%

Primarily transactional

Fairly transactional

Equally transactional and strategic

Fairly strategic

40%

21%

SURVEY ITEM What level of influence does the CHRO have on your board’s decisions?

Rating Distribution

Very little or no influence

LIttle influence

Some Influence

A good deal of influence

A great deal of influence

16%

46%

23%

Very little or

LIttle

16%

Some

46%

A good deal of

23%

A great deal

VOLUME 38 | ISSUE 2 | SPRING 2015 39

HR practices. That external expertise, coupled with HR’s intimate knowledge of the organization and being able to clearly align talent with business and risk considerations, creates a powerful combination to allow CHROs to provide more strategic value to their boards.

There are also significant opportunities for CHROs to contribute further to key areas of CEO succession plan- ning, where the CHRO’s inf luence and involvement ought to be substantial. Directors rate the value currently provided by HR in CEO succession planning to be fairly low—only 37 percent of respondents say that HR provides good or great value in this area. Furthermore, across all aspects of

CEO succession planning, the CHRO’s value to the board is rated favorably by less than half of respondents, and rated unfavorably by about one-third of respondents.

That is, when it comes to conducting objective candidate assessments, helping with an external search, facilitating a talent review discussion with the board, advising on the overall succession process, creating candidate develop- ment plans, ensuring board exposure to all candidates, providing personal counseling to the CEO on emotional aspects of succession and transition, advising on the timing and logistics of the transition, and creating the profile of the future CEO, fewer than half of respondents feel HR is providing good or very great value in these areas. HR is rated least favorably with regard to the latter two activities: creating the profile of the future CEO (30 percent favor- able; 41 percent unfavorable), and advising on timing and logistics of the transition (39 percent favorable; 31 percent unfavorable). As more boards take on leading roles in CEO succession planning, they often start by seeking out expert advice on how to design and implement an effective pro- cess; the question is whether they will be looking to their own CHROs for that kind of guidance, the first step toward playing a major role throughout the process.

Employee compensation and benefits

Executive compensation

Leadership development and talent pipeline

Overall talent strategy

Organizational culture and climate

CEO succession

CED evaluation

Ethics/compliance/governance

Corporate social responsibility

Board succession planning, recruitment, development, and coaching

Risk management

44%

53%

38%

28%

42%

40%

19%

16%

15%

17%

27%

44%

22%

36%

39%

23%

32%

35%

31%

19%

65%

12%

25%

27%

34%

36%

37%

49%

54%

Very little or no value

Very great value

Overall, how much value do you believe HR currently provides to your board in each of the following areas?

Survey Item Average Rating Distribution

3.82

3.77

3.66

3.48

2.98

2.94

3.13

2.88

2.51

2.58

Risk Management 14% 41% 46%

To what extent do you believe HR should be interacting with the board in each area?

To a very little/ no extent

To Some Extent To a good or very great extent

HR has failed to make the case that talent is an essential issue in risk

considerations. And this is a problem because anything that impacts an

organization’s ability to retain, attract, develop, or reward talent to support its strategic business goals will have

serious effects on its bottom line.

54%

PEOPLE + STRATEGY40

CIO

CRO (Chief Risk Officer)

CFO

General Counsel

CMO

CHRO

18% 82%

1% 16% 82%

1% 31% 68%

3% 30% 67%

4% 52% 45%4% 52% 45%

Please rate the importance of each function to your work as a board member, compared to what it was 5 years ago.

Survey Item Average Rating Distribution

4.18

4.05

3.96

Significantly less important

Significantly more important

3.48

3.83

To what extent does your CHRO strengthen his/her standing as a trusted advisor to the board by successfully:

Survey Item Average Rating Distribution

Avoiding presentations that overwhelm the board with an excess of overly technical data

Demonstrating consistently superb execution by the HR function

Demonstrating his/her standing as an integral member of the senior management team

Exhibiting a board room presence that is comfortable, confident and responsive

Deftly balancing the sometimes difficult tension between providing independent judgment without being disloyal to the CEO Acting as an informed advocate with a distinct and thoughtful point of view

Maintaining strong relationships with key directors without overstepping any boundaries

Articulating a comprehensive talent strategy linked directly to the overall business strategy

Ensuring that talent considerations are integral to the board’s consideration of enterprise risk

Keeping the board informed about innovations in the HR world that merit consideration internally

15%

14%

16%

15%

18%

16%

27%

28%

21%

23%

22%

25%

28%

25%

36%

38%

40%

72%

68%

64%

61%

59%

57%

48%

35%

32%

3.83

3.71

3.64

3.61

3.53

3.50

3.45

3.12

To a very little extent

To a very great extent

3.02

3.84

To repeat the cautionary note mentioned earlier: These findings on CEO succession might possibly be a ref lection of our respondent sample, which consisted of compensa- tion committee members and chairs, rather than nominat- ing and governance members and chairs. However, there is usually enough of an overlap in membership between the two committees that we are confident in these results still being a directionally valid representation of directors’ attitudes toward HR’s role in the CEO succession planning process.

We also collected information from directors on how much interaction HR currently has with the board versus how much interaction directors think HR should have with the board; we then compared that gap against the areas

where directors feel there is greatest value in the interac- tion. While board members would like to see more interac- tion with HR across all areas, results show that: a) organiza- tional culture and climate, b) leadership development and talent pipeline, and c) overall talent strategy are the three areas that directors value most highly where significantly more interaction is desired.

When examining just the value ratings, only about half of participants rate HR as providing good or very great value when it comes to each of these areas: leadership development and talent pipeline (54 percent), the overall talent strategy (49 percent), and organizational culture and climate (49 percent). These findings are fairly surprising, as each of these areas is usually considered within HR’s

VOLUME 38 | ISSUE 2 | SPRING 2015 41

“sweet spot” where boards traditionally look to HR for insight and where there is ample opportunity to take on a more strategic role.

In contrast, employee compensation and benefits and executive compensation are the areas that are valued most highly where the current level of interaction is closest to the level of desired interaction. Again, we find that risk management is low on the board’s radar when it comes to interacting with HR—it is rated as relatively low in val- ue and board members are not looking for much more interaction with HR. Similarly, board succession planning, recruitment, development, and coaching, along with corpo- rate social responsibility, are also valued relatively low and where not much more interaction with HR is desired.

CHROs Need to Be More Engaged, Less Transactional Overall, these findings suggest that CHROs generally are doing a good job of taking care of the transactional, operational basics, and are viewed as performing well as head of the function. At the same time, relatively few have successfully reshaped their board’s traditional perceptions of where and how the CHRO adds value; the role is seen as largely transactional, seemingly operating in a vacuum and unable to help the board make the essential connec- tion between talent strategy and enterprise risk. Overall, the CHRO’s inf luence with their boards is minimal, from the perspective of: a) traditional areas where HR would normally be expected to make a significant impact, and b) where boards are focusing their energy these days.

CHROs need to be more engaged in the CEO succession process, especially as boards become increasingly involved

in leading succession planning efforts. From the initial stages of the process all the way to the end—initiating the conversation about succession, identifying and developing candidates, assessing candidates and selecting a successor, planning the transition, and supporting the new CEO—the CHRO should be playing a key role every step of the way.

CHROs can provide guidance in understanding and imple- menting best practices, objectively assessing and developing talent, and identifying the critical skills needed in a future CEO to successfully lead the organization based on the strategy and direction of the business. And when it comes to grooming the next generation of senior leaders, boards want to hear more from CHROs about leadership develop- ment and the talent pipeline. To effectively do that, there must be a focus on the overall talent strategy and ensuring it is tied to the overall business strategy.

Results also indicate that organizational culture and cli- mate is the area of greatest value where boards want more interaction with HR. Typically, HR’s explicit involvement in culture and climate comes in many different forms—em-

Rate the value HR provides to your board in each of the following aspects of CEO succession planning:

Survey Item Average Rating Distribution

Candidate development plans

Ensuring board exposure to all candidates

Personal counseling to CEO on emotional aspects of succession and transition

Personal, candid assessment of candidates

Advising on timing and logistics of transition

Creating the profile of the future CEO

Very little or no value

Very great value

32% 25% 44%

37% 21% 42%

39% 19% 42%

32% 28% 40%

31% 31% 39%

41% 30% 30%

3.03

3.08

2.85

3.00

2.98

3.15

Advising on the overall process 34% 21% 45%3.16

Facilitation of talent review discussion with the board 31% 24% 45%3.22

Help with external search 35% 19% 46%3.11

Objective candidate assessments (including use of outside resources)

33% 20% 47%3.21

Not only do directors need to make sure they are considering talent issues in managing risk, but CHROs also need to do their part in educating the board on HR’s vital part of the risk equation.

PEOPLE + STRATEGY42

Current Interaction vs. Target Interaction

Survey Item Average

Overall talent strategy

Risk management

Corporate social responsibility

Executive compensation

CEO evaluation

Board succession planning, recruitment, development, and coaching

Employee compensation and benefits

CEO succession

Ethics/compliance/governance

Leadership development and talent pipeline

Organizational culture and climate

To a very little extent

To a very great extent

3.64

3.91

4.30

3.83

2.86

3.51

3.30

3.49

2.79

3.34

2.73

4.29

4.22

4.45

4.37

3.45

3.90

3.76

4.17

3.53

3.86

3.24

Rating Distribution

17%

14%

12%

10%

35%

21%

30%

18%

42%

29%

46%

14%

15%

18%

16%

17%

33%

24%

17%

28%

35%

20%

21%

25%

28%

21%

18%

15%

20%

41%

16%

20%

17%

31%

13%

19%

59%

69%

84%

62%

29%

59%

49%

56%

31%

50%

36%

85%

78%

67%

89%

46%

70%

63%

82%

53%

71%

49% -0.51

-0.52

-0.74

-0.68

-0.46

-0.59

-0.39

-0.54

-0.15

-0.31

-0.65

Gap

ployee engagement surveys, culture change initiatives, and vision, mission, and values definition, to name a few—and are more critical than ever, as corporations turn their attention to building cultures that are more focused on managing risk, and as businesses update their strategies to accommodate shifts in the marketplace. CHROs are in a unique position to be able to provide the pulse of the organization to the board and CEO as they make critical decisions about the direction and priorities of the business; this is important to ensuring that culture is taken into account when implementing business initiatives.

But perhaps the biggest and most concerning finding from this study is that, despite the heavy board focus on risk management these days, HR’s role in risk management is simply not on the board’s radar—HR is not providing good value in this area, nor is it ensuring that talent consid- erations are integral to the board’s consideration of enter- prise risk. Not only do directors need to make sure they are considering talent issues in managing risk, but CHROs also need to do their part in educating the board on HR’s vital part of the risk equation.

As the role of boards changes and becomes increasingly

Current

Target

VOLUME 38 | ISSUE 2 | SPRING 2015 43

Value HR curently provides to the Board

II LESS VALUE LARGE GAP

I LESS VALUE SMALL GAP

IV MORE VALUE LARGE GAP

III MORE VALUE SMALL GAP

11 10

Sm al

le st

G ap

La rg

es t G

Very Little or No Value Very Great Value

Legend 1. Overall talent strategy

2. Employee compensaton and benefits

3. Executive compensation

4. Leadership development and talent pipeline

5. Risk management

6. CEO succession

7. CEO evaluation

8. Organizational culture and climate

9. Corporate social responsibility

10. Ethics/compliance/governance

11. Board succession planning, recruitment, development, and coaching

G ap

- Ta

rg et

In te

ra ct

io n

m in

us C

ur re

nt In

te ra

ct io

complex, it is even more important that CHROs establish themselves as strategic, trusted advisors to their boards. Our findings suggest that by focusing on these key areas, CHROs can make great strides in further demonstrating their value and building their credibility as advisors to the board.

Julie J. Chen, Ph.D., is the director of Consulting Services and Analytics for Nadler Advisory Services, a firm that consults with boards of directors, CEOs, and executive teams on issues of leader- ship, governance, and team effectiveness. She advises senior lead- ers across various industries in the areas of organizational change, executive talent management, leadership assessment and develop- ment, C-suite succession planning, and board effectiveness. Julie can be reached at [email protected].

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Vosburgh, R.M. (2010). The evolution of HR: Developing HR as an internal consulting organization. Human Resource Planning, 30(3), 11–23. Retrieved January 28, 2015, from http://c.ymcdn. com/sites/www.hrps.org/resource/resmgr/p_s_article_pre- view/hrps_issue30.3_evolutionof hr.pdf.

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