Joëlle Warren, Executive Chair of Warren Partners, reflects on the changing role of HR leaders in contemporary organisations and whether they should be on the board.
A strong, cohesive and balanced board underpins the vision and strategy of every successful business or organisation. But should the HR Director (HRD) be a member of the board, or are there other ways in which HRDs can influence the boardroom without actually being in it?
There are very few HRDs on the main boards of major companies, although they are frequently part of the senior executive team and sit on divisional or subsidiary management boards.
The shift towards smaller, more independent boards brought about by the Higgs Report in 2003, with greater representation for NEDs and fewer executive directors, limited the scope for executive board directors. HR, IT, legal and sales/marketing often have to compete for just one or two executive roles on streamlined boards.
Appointments to the board are also seen as a succession planning mechanism, with potential successors to the CEO being developed for the top job through this route.
HR’s place on the board agenda
In research for the All Party Parliamentary Corporate Governance Group (APPCGG), published in March 2011, a third (37%) of the non-executive directors questioned at FTSE All Share companies felt that more time should be spent on human resource oversight by the board.
So does this mean the HRD has to be on the board to ensure HR issues and oversight are always high on the agenda? In my view, the answer is no. I believe a capable, well-rounded HRD should have the skills to influence the board, through his or her role as part of the core senior executive team, and also by working directly with board members. The key issue for me is that HRDs have to be able to exert influence without being on the board.
Chairs find it invaluable to have expert HR input as part of the process of appointing NEDs and developing their contribution to the board. HRDs can play an important role in supporting the Remuneration and Nomination Committees, as they deal with the challenging issues of performance/reward and succession planning.
HRDs can also be a valuable sounding board for the Chair and the NEDs in relation to the impact of strategic decisions on the workforce or the company’s industrial relations.
Engagement outside the boardroom
In some respects, not being on the board can strengthen the HRD’s role as a key part of the senior operational team. In a high-performing senior executive team, the HRD often forms a very strong triumvirate with the CEO and CFO to develop the corporate strategy.
It would be hard for the HRD to play this role but then have to challenge the senior team’s agreed strategy as a board member. It would cause friction at the least, and possibly even the breakdown of trust and openness between the senior team members.
A related point is that if the HRD is on the board and answerable to the NEDs, this can also cut across the close relationship the HRD has with the CEO. Having a foot in each camp is something of a precarious balancing act.
These are my thoughts, based on personal experience and extensive conversations with both Chairs and Executive Directors. However, we also approached a broad range of client Chairs, CEOs and HRDs to get their views.
Benefits of being independent of the board
One CEO in the food industry was quite clear about HR not being represented on the board. He has two reasons for this:
The most senior HRD in any organisation is the CEO. He sees his primary role as having the right people in the right places in order to deliver the strategy and vision he sets.
He also feels that the CEO needs a ‘sounding board’ to discuss issues in relation to board members. In this context, his HRD is his ‘right-hand man’ and, if the HRD were a board member, he believes that this relationship would be much more difficult.
Another client, who has held several HRD roles at major PLCs including Thomas Cook, Boots and B&Q, echoed and amplified these views. He referred to the 'triumvirate' of the CEO/CFO/HRD.
“The CEO is in a lonely position and wants some close confidants and usually has two: the CFO and HRD.”
He believes that the HRD's zone of influence is 90% around the senior executive team. Therefore, they need to be on the executive committee and have fantastic relationships with fellow members. In fact, one CEO said to him that:
“The last thing you want is to be on the board as you'd spend 25% of your life preparing for, and going to, meetings.”
There were some voices in favour of having HRDs on the board, but a Group HRD who said HR should be in the boardroom made the point about credibility. She felt that the HR function has struggled to persuade the business leadership that it is more than just a people function.
An HRD who sits on the executive team of a major infrastructure group, and has a lot of interaction with the board, believes that HRDs need to be clear about why they want to be on the board. She thinks a board position is not necessarily connected with the degree of influence an HRD can have on the strategy of the business, going forward. It is more around their future aspirations to move into a CEO role, given sufficient breath of operational and strategic experience.
What value can HR add?
Another key area for reflection is how HRDs are regarded and what they can bring to the boardroom. Several people we spoke to highlighted the problem of HRDs being ‘less commercial’ than other executive team colleagues.
The HRD of a major service provider observed that there is a difference between being in the boardroom and contributing/adding value on broader business issues. He felt this is sometimes hard for HRDs, who do not have much commercial experience to really deliver on.
Gary Fisher, who mentors senior executives, agreed that most companies do still see HR as operational, and that the profession struggles to get the message across about its strategic dimension.
This point was echoed by a technology company HRD who sits on her company's board. She characterised her role as:
“Business Manager first and HR Leader second.”
Ultimately, with the right skills and experience, HR leaders can influence the top table without having a permanent seat on the board. Talking to boards, I've found that they are increasingly aware of the key contribution HR makes to their decision-making. They appreciate that an effective HR strategy, good employee relations and success in the ‘war for talent’ are fundamental to delivering excellent customer products and service, and shareholder value.