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TALENT WHY CHIEF HUMAN RESOURCES OFFICERS MAKE GREAT CEOS New research recognizes leadership potential that’s waiting to be tapped.

F or decades the corporate HR depart-ment was seen as a back-office func-tion, a cost center focused on mun- dane administrative tasks such as managing compensation and benefits plans. But over the past 15 years Ellie Filler has noticed a dra- matic change. Filler, a senior client partner in the Swiss office of the executive recruit- ing firm Korn Ferry, specializes in placing chief human resources officers (CHROs) with global companies. For years many of the HR chiefs she recruited reported to the COO or the CFO and complained that they lacked real influence in the C-suite. Today, she says, they often report directly to the CEO, serve as the CEO’s key adviser, and make frequent

First, in order to understand the impor- tance of the CHRO relative to other C-suite positions, including CEO, COO, CFO, CMO, and CIO, Filler and Ulrich looked at salaries. To identify the best performers, they found the top decile of earners in each role. Then they averaged the annual base compensa- tion of each group. No surprise: CEOs and COOs are the highest-paid executives. But CHROs are next, with an average base pay of $574,000—33% more than CMOs, the lowest earners on the list. “Great CHROs are very highly paid because they’re very hard to find,” Ulrich says.

The researchers also studied proprietary assessments administered by Korn Ferry to C-suite candidates over more than a de- cade. They examined scores on 14 aspects of leadership, grouped into three categories: leadership style, or how executives behave and want to be perceived in group settings; thinking style, or how they approach situa- tions in private; and emotional competency, or how they deal with such things as ambigu- ity, pressure, and risk taking. The researchers then assessed the prevalence of these traits among the different types of executives and compared the results.

Their conclusion: Except for the COO (whose role and responsibilities often over-

presentations to the board. And when com- panies search for new CHROs, many now focus on higher-level leadership abilities and strategy implementation skills. “This role is gaining importance like never before,” Filler says. “It’s moved away from a support or ad- ministrative function to become much more of a game changer and the person who en- ables the business strategy.”

To investigate the CHRO role within the C-suite, Filler worked with Dave Ulrich, a University of Michigan professor and a lead- ing consultant on organization and talent is- sues. In looking at several sets of data, they found surprising evidence of the increasing responsibility and potential of CHROs.

MAPPING LEADERSHIP STYLES The researchers analyzed 360-degree assessments of thousands of leaders in six C-suite functions—CEO, CFO, COO, CIO, CHRO, and CMO—in which each executive was ranked on 14 aspects of leadership on a scale from one to seven. The surprising result: The traits of CHROs matched up closely with those of CEOs.

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LEADERSHIP STYLES THINKING STYLES EMOTIONAL COMPETENCIES

30  Harvard Business Review December 2014

IDEA WATCH

lap with the CEO’s), the executive whose traits were most similar to those of the CEO was the CHRO. “This finding is very counter- intuitive—nobody would have predicted it,” Ulrich says.

The discovery led Filler and Ulrich to a provocative prescription: More companies should consider CHROs when looking to fill the CEO position. In the modern economy, they say, attracting the right talent, creating the right organizational structure, and build- ing the right culture are essential for driving strategy—and experience as a CHRO makes a leader more likely to succeed at those tasks.

The advice comes with some caveats. First, Filler and Ulrich studied only the best performers, so they’re pointing to a small subset of CHROs as having corner-office po- tential. They don’t see a path to the top job among people who have spent their careers in HR; instead, they are touting the prospects of executives who have had broad managerial experience (and P&L responsibility) that in- cludes a developmental stint running the HR department. They emphasize that any CHRO who aspires to become a CEO must demon- strate capabilities in a host of skills required of top leaders. “The challenge for CHROs is to…acquire sufficient technical and financial skills, in early education and in career steps along the way, if succession to CEO is a de- sired outcome,” they write in a white paper about their research. Indeed, some com- panies, including Zurich Insurance, Nestlé, Philip Morris, and Deutsche Bank, do put high-potential executives through a devel- opmental rotation in a high-level HR job. (For one view on facilitating such developmental opportunities, see “It’s Time to Split HR,” by Ram Charan, HBR, July–August 2014.)

Filler and Ulrich highlight two examples of prominent CEOs who had developmen- tal stints in HR earlier in their careers. Mary Barra, the CEO of General Motors, served as the carmaker’s vice president of HR for 18 months, and Anne Mulcahy, Xerox’s CEO from 2001 to 2009, ran that company’s HR operations for several years in the early 1990s. It’s no coincidence that both are women: According to the researchers’ data, 42% of

“IT’S STILL RELATIVELY RARE, BUT IT SHOULDN’T BE” Bernard Fontana has served as CEO of the Swiss cement company Holcim since 2012—and earlier in his career he spent three years as the chief human resources officer at ArcelorMittal, a 320,000-employee global mining and steelmaking company. He spoke with HBR about why a stint as CHRO is great preparation for becoming CEO. Edited excerpts follow.

Did you always aspire to work in HR? No. But when I was 30 I was working for a French company, and I traveled to Hong Kong with the CEO. During the trip he talked about how at one point in his career, he’d been asked to be the head of HR. “It’s not something to do all your life, but one day if you have this opportunity, I’d advise you to take it,” he said. “You’ll learn a lot, and it will be useful if you become a CEO.” He was right.

Why was serving as CHRO an important experience? Leadership is about transforming an institution, and if you want to have a sustainable transformation, you need to develop leaders who will continue the journey after you. HR is an essential part of that kind of generative leadership. My predecessor as CEO had been here for 10 years, and the board was looking for an outsider with this characteristic—the ability to develop people and generate new leaders.

As more companies do mergers or reorganizations, are HR skills a bigger part of a CEO’s skill set? Yes. Those transformations are times of opportunity for a company, but they’re also times of uncertainty for employees. That’s something you need to acknowledge and turn into a strength. With HR experience, you’re more aware of certain situations. You pay attention to the way you say things. During those times questions of company identity, values, and behavior matter a lot.

Do you put many of your up-and-coming stars into HR roles?  In HR you need a mix of experts who will spend their careers there and people who will go there for a short time for development and then return to running businesses. I do put executives into those jobs, but those

development roles are the minority in any HR department.

Should more boards consider hiring CHROs as CEOs? Yes. It’s still relatively rare, but it shouldn’t be. The ultimate responsibility of CEOs is to make sure that what they initiate will continue and that they develop the men and women who will carry on the work. So for me, it’s very logical to have former CHROs as CEOs, because they have experience developing people.

THE IDEA IN PRACTICE

FROM LOCKER ROOM TO BOARDROOM Fifty-two percent of female C-suite executives played a sport in college, according to a global online survey of 400 female executives. Just 3% of women in the C-suite never played a sport.

“MAKING THE CONNECTION: WOMEN, SPORT, AND LEADERSHIP,” BY EY WOMEN ATHLETES BUSINESS NETWORK AND ESPNW

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high-performing CHROs are female—more than double the share in the CMO position, the next highest (16%). One implication: If more companies envisioned CHROs as poten- tial CEOs, the number of female CEOs could dramatically increase.

In their white paper Ulrich and Filler also report on what CEOs and CHROs have to say about the changing nature of the top HR role. Several CEOs see the CHRO as C-suite con- sigliere. “It is almost impossible to achieve sustainable success without an outstanding CHRO,” says Thomas Ebeling, the CEO of the German media company ProSiebenSat.1 Media AG and a former CEO of Novartis.

“[The CHRO] should be a key sparring partner for a CEO on topics like talent development, team composition, [and] managing culture.”

Peter Goerke, the London-based group di- rector for HR at Prudential, agrees with Filler and Ulrich that although deep skills in mar- keting or finance might once have given CEO aspirants a significant competitive advantage, today a broader set of people-focused skills can be more useful. “Succession to a CEO role requires a balance of technical and people skills,” he says. “For all C-suite roles, and of- ten at least one level down, there has been a gradual shift in requirements toward busi- ness acumen and ‘softer’ leadership skills. Technical skills are merely a starting point.”

In spite of the historic bias against the CHRO function, the rising status of HR lead- ers is not entirely surprising. Over the past 20 years Jim Collins and other management theorists have focused on talent strategy as the prime determinant of corporate suc- cess—an idea Collins popularized in phrases such as “Get the right people on the bus” and

“First who, then what.” In her work recruiting CHROs, Filler has seen a growing recognition that those aphorisms hold true. “If you don’t have the right people in the right places— the right talent strategy, the right team dy- namics, the right culture—and if you don’t proactively manage how an organization works from a culture and a people perspec- tive, you’re on a serious path to disaster,” she says. Conversely, a top-notch CHRO can help a company plot a more successful future.

GLOBALIZATION IS YOUR PC “MADE IN KAZAKHSTAN”? Which countries have the “techiest” manufacturing economies? You might guess China—but you’d be wrong. Several smaller countries with less diversified economies have far more high-tech exports as a share of total manufactured exports (watch out for Kazakhstan and Costa Rica). Still, China’s number is growing, something that’s not happening in many places, especially in the West.

WORLD 17.6%

MEXICO 16.3% GERMANY 15.8%

BRAZIL 10.5%

RUSSIA 8.4%

UK 21.7%

SOUTH KOREA 26.2% CHINA 26.3%

CHINA 23.7%

PHILIPPINES 48.9%

MALAYSIA 43.7%

COSTA RICA 39.6%

KAZAKHSTAN 30.0%

UGANDA 20.7%

U.S. 17.8%

JAPAN 17.4%

WORLD 22.2% MEXICO 21.4%

GERMANY 17.5% BRAZIL 16.5%

INDIA 6.6%INDIA 6.2%

RUSSIA 19.2%

UK 31.7% SOUTH KOREA 31.5%

PHILIPPINES 74.2%

MALAYSIA 58.2%

COSTA RICA 36.6%

KAZAKHSTAN 11.2%

UGANDA 15.3%

U.S. 31.8%

JAPAN 24.8%

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THE LINES DEPICT THE HIGH-TECH EXPORTS OF SELECT COUNTRIES AS A PERCENTAGE OF ALL MANUFACTURED EXPORTS FROM 2002 TO 2012.

SOURCE THE WORLD BANK

BOSSES BURSTING BUBBLES Managers who feel inadequate in their jobs are often unreceptive to employees’ ideas and denigrate subordi- nates who speak up, according to research at a multinational energy company and a subsequent experiment. In such cases underlings might consider voicing their ideas in private so that bosses feel less threatened.

“MANAGING TO STAY IN THE DARK: MANAGERIAL SELF-EFFICACY, EGO DEFENSIVENESS, AND THE AVERSION TO EMPLOYEE VOICE,” BY NATHANAEL J. FAST, ETHAN R. BURRIS, AND CAROLINE A. BARTEL

IDEA WATCH HBR.ORG

32  Harvard Business Review December 2014

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