Expert Perspective by Grahall OmniMedia Editorial Board
In the December 14, 2009 Wall Street Journal article “HR Executives Suddenly Get Hot“ author Joann S. Lublin says: “Once considered denizens of a corporate backwater, more human-resources executives are being tapped to serve as outside directors because many have become strategic players with bottom-line impact. U.S. companies wooing them seek their insight on hot-button issues such as executive pay, management succession and integrating acquisitions. “
In our response to this article we thought we might channel some Charles Dickens and his classic story A Christmas Carol. Let’s start with some Ebenezer Scrooge-like skepticism.
In our experience, it is likely that only the top decile of HR executives would be well qualified for a place on a Board of Directors. Strategic thinking and business acumen, among the skills necessary for highly effective board members, are not always the primary strengths of HR executives. So why then might companies be looking to add HR executive to boards when few might be truly qualified? Perhaps these companies are suffering, as are many, from the growing mismatch between the demand for and supply of exceptionally qualified directors.
Couple this with the fact that with all the media attention about and investor anger over executive pay, there is a strong desire for Boards to justify and possibly “sugar coat” their decisions. Having an HR executive on the board might lend some much needed credibility to these decisions.
Lastly, Boards are seeking to create balance on Boards – gender balance and race balance in particular. With many HR executives being women, might the Boards be “checking a couple of boxes” when they offer positions to HR executives?
The real question is are these members sitting as “alternates” or actually involved in the discussions and decisions. And and are they truly equipped to participate fully?
Even Ebenezer Scrooge came around by the end of the book and we too see a potentially positive outcome of having HR executives on Boards. There is no question that eight years ago Sarbanes Oxley dramatically raised the profile of the Board’s Audit Committee. SarBox improved the committees’ required credentials, their pay and their impact.
It is logical to think that an outflow of the issues that have been raised over executive pay will increase the profile of the compensation committee members. The compensation committee could possibly replace the audit committee as the “focal point” of Board activities. We have recently seen some subtle broadening of the Compensation Committee charter to include considerations such as succession planning and other important “people strategies”.
There is no question that individuals with an HR background might be well suited to help work through these issues, assuming the HR executive has the right credentials.
So what credentials should an HR executive hold to be an effective board or compensation committee member?
1) Borrowing heavily from the “HR Jargon Dictionary”: the potential Board member should have a “demonstrated track record in strategically addressing people strategy issues”. (Note to Board selection committees: HR folks are constantly talking about strategy and impact but for the most part that they are not “walking that talk”. So if that is what the HR executive claims to have done, dig deeper).
2) The HR Executive needs the ability to think “differentially”. That is, to discern what roles are critical to the organization’s success.
3) He or she should be strategic allocators of resources, particularly with regard to creating a succession plan that organically grows executives from within the organization. This “organic” succession planning approach has been proven to be cheaper and more effective than hiring from the outside.
We will see you in the New Year. Have a safe and happyholiday season. And as Dickens wrote: “God Bless us every one!”
Contact Grahall’s OmniMedia Editorial Board at firstname.lastname@example.org