Human Resources in the Boardroom

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Author(s): Tom Sherwin is CEO of CEO Resources, Inc. Framingham, MA

All too often, human resources executives and managers have too little exposure to the board of directors until there is a crisis. Frankly, this is as much the board's responsibility as anyone's, because they may not be inclined to think of human resources as their province. This article addresses how the HR executive, the CEO and the board of directors can find common ground for a continuous dialogue.

Let's start by agreeing that the HR executive's role in relation to the board varies by size and style of company. Clearly, the large public company HR executive has a continuing role with the board often through the compensation committee, but likely in relation to other standing committees as well. Issues such as succession, labor negotiations, the spiraling cost of health care and so on keep boards awake at night.

The mid-sized company, especially those privately held, may not have as complex a board structure or necessarily the active board committees implied above. In such cases, the HR executive may interface with the entire board or do so through the CEO.

The smaller enterprise HR executive may find a less active board or one made up of just insiders or investor representatives. These situations present special challenges for visibility for HR as well as in fulfilling the HR executives' responsibilities.

What are the common elements? We can certainly begin with the obvious: compensation, employment policy, recruitment, retention and benefits. Recognizing that the HR executive in different settings may have more or fewer areas of responsibility, these make up a reasonable list of areas of interest to the board of directors, but about which they often are not up to date.

Boards are always interested in compensation issues. The higher up the table of organization the position is, the more likely the board will have a particular interest in including those matters addressed by the compensation committee. What they are often unaware of, but which HR executives could assist them with, is the competitiveness of wages in the middle and lower levels of the table of organization. This is a matter of strategic importance. By making a study of competitiveness and annually updating it, even if it appears only in the pre-meeting "board book," HR serves the board by keeping them abreast of changing trends.

Likewise, matters of dispute or causes for employee turnover may be related to out of date or even recently adopted employment policies. Perhaps only the boards of smaller organizations take a great interest in particular employment policies, yet it behooves the board to periodically review the key components of the employee handbook. When the HR executive knows certain policies are not consistent with other employers in the geographic area or the industry segment in which the company participates, it is helpful for the board to be reminded of the outlier policies and the justification for keeping them in force. The board may agree or have alternatives for consideration. In any event, the HR executive keeps the board informed and benefits from their input.

Access to and retention of human resources is an acknowledged strategic advantage in today's competitive environment. The nature of human resources in an increasingly technical age is driven by investment in knowledge and skills. Without sounding like a financial analyst, the HR executive is in a position to assist the board in seeing investment in people as akin to investment in technology, plant and equipment. Demonstrating the return on investment of attracting, developing and retaining the best people is immensely valuable to the board of directors. All boards are interested in this issue, but few will ask for calculations behind it unless it is offered by the HR executive.

No one has to sound alarm bells to get the board's attention to the skyrocketing cost of benefits. The HR executive can be of assistance to the board in understanding the implications of aggressive management of benefit costs and enrollment of employees in programs intended to dampen their effects.

So while we have made a good case for all the reasons the board should be hearing from human resources why is it that the HR executive is so seldom in the board room? Let's distinguish between being heard from and being in the room. Everyone knows boards never have enough time to do their work. They are distracted by all manner of strategic, operational and financial issues on a regular basis and more recently have found themselves, in the public company setting, overwhelmed by regulatory issues affecting the way they conduct themselves. Given that environment, getting HR issues on the agenda can be as much a victory as getting the HR executive into the boardroom.

Tom Sherwin (tom@ceoresourcesinc.com) is CEO of CEO Resources, Inc. Framingham, MA, a management consulting and coaching firm specializing in strategy, governance and CEO development.

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