Handling people risk in boardroom

Many boards do little in the way of human capital decision-making but they should be, finds Knightsbridge survey
By Melissa Mancini
|Canadian HR Reporter|Last Updated: 06/12/2012

Beyond the CEO – People Risk and the Role of the Board

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Vince Molinaro, managing director of the leadership solutions practice at Knightsbridge Human Capital Solutions, led a panel discussion about the role of boards of directors when it comes to succession planning and talent management at a recent Strategic Capability Network event. For more information, visit

www.scnetwork.ca

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HR needs to report to CEO (Organizational effectiveness)

Momentum builds slowly but steadily (Leadership in action)

What boards need from HR (Strategic capability)

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Boards of directors think they have a role to play in succession planning but few boards actually provide this oversight for the organizations they help steer, according to a survey by Knightsbridge Human Capital Solutions.

This paradox was explored by a panel of experts at a Strategic Capability Network (SCNetwork) event in Toronto in February.

About 55 per cent of the 242 Canadian board directors surveyed said their boards have a plan in place for CEO succession, according to Beyond the CEO: The Role of the Board in Ensuring Organizations Have the Talent to Thrive.

But less than 60 per cent feel confident their succession plan will ensure seamless leadership in the organization.

“I don’t know about you but I think that’s a risk,” said panel leader Vince Molinaro, managing director of the leadership solutions practice at Knightsbridge in Toronto.

While it may be uncomfortable for board members to bring up the CEO’s future at the table when he is in the room, almost three-quarters (72 per cent) of board directors say the CEO is supportive of board succession endeavours, even if he isn’t planning to leave, according to the survey.

But even with those numbers, it can still be a tough conversation to have.

“Intellectually, we understand it’s an important conversation and an important process that needs to be active in all times. But when you’re a week or two on the job and the board wants to talk to you about succession as CEO, that’s a pretty weird place to be,” said panelist Kelly McDougald, managing director of career solutions at Knightsbridge.

Only 39 per cent of board directors believe they have identified suitable successors for all executive positions and 47 per cent do not review the organization’s processes or succession plans for high-potential candidates for key positions, according to the survey.

“I’m a little gobsmacked by the fact that so few boards have a succession plan in place,” said McDougald. “Research shows that for CEOs that are recruited externally, the average tenure is less than four years and if you’re really trying to return shareholder value, if you’re relying on that kind of… instability because you failed to do your job as a board director or board chair planning succession appropriately, I don’t think (you’re) servicing the shareholders or the constituents very well.”

The role of boards in talent management should be bigger than it is, said panelist Beth Horowitz, a director on the board at HSBC Canada and former president and CEO of Amex Bank of Canada.

Boards should be spending more time contributing to human capital in two key areas — succession planning and culture, said Horowitz. With succession planning, it’s not enough to stop at the very top of the corporate ladder, she said.

“It’s not really sufficient for the succession plan review to stop at the CEO level.”

Horowitz has sat on some boards that looked carefully at the individuals working in the company at the level below the CEO, she said.

It’s important for boards to interact with that senior level, said Horowitz. At HSBC, the board accomplishes that by changing the locations of board meetings, having dinners proceeding board meetings with senior management and attending client lunches, she said.

Culture is another area where boards should focus more time. More than 70 per cent of management share the results of employee engagement surveys with boards of directors, found the survey.

But often boards will discuss the results of engagement surveys and not spend enough time looking at any gaps, priorities and action plans, said Horowitz.

A smaller percentage of boards (58 per cent) discuss the results and provide feedback to management. Less than one-half (49 per cent) spend time with employees to understand the culture of the organization.

“We live in a really fast-changing world in many ways, whether it’s technology, market unrest… there’s so many things happening that can affect the culture and perspective within a company and these things can get away from the board if there’s not regular monitoring of what’s happening in the culture,” said Horowitz.

One of the primary barriers to having boards more involved in human capital decisions is lack of time, found the survey. Board members said meetings are too focused on operational details and 69 per cent said time constraints are a barrier to the oversight of human capital.

But that reasoning is a bit flawed, said panelist Sylvia Chrominska, group head of global human resources and communications at Scotiabank Group in Toronto.

“I’m always mystified by that response and certainly, when I read the survey, I was surprised because boards really have the opportunity to set the agenda. And if they’re saying they don’t have time and they’re not spending enough time on the right types of things, then one wonders what they’re doing in the room,” she said, adding boards should be asking about human capital and requesting presentations on topics such as leadership development.

“I feel that boards have an accountability and responsibility to ask the right kinds of questions, which would include the hiring and managing of people,” said Chrominska.


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SCNetwork’s panel of thought leaders brings decades of experience from the senior ranks of Canada’s business community. Their commentary puts HR management issues into context and looks at the practical implications of proposals and policies.

HR needs to report to CEO (Organizational effectiveness)

By Barbara Kofman

At the heart of the success of many organizations is a well-informed, dynamic board that is fully cognizant of the critical role it plays in stewarding the success of the company it serves.

Given the murky record many boards have had in fulfilling this role effectively (think Enron, RIM or Nortel), it came as no surprise to learn an alarmingly high number of directors are not aligned with the responsibilities they have or are not qualified to address those responsibilities, as members of a board.

One wonders how much of this is engendered by the prevalence of representatives from the old boys’ club. It is not unusual for individuals to hold directorships on numerous boards but too few seem to be questioning whether this practice is beneficial or may, in fact, be contributing to the malaise of these boards and their dependence on outdated paradigms.

It was, therefore, somewhat ironic that three very capable women were elected to address the topic of the evolving role of the board, and impossible not to wonder how reflective of the norm their views were or those of the boards on which they serve.

The role of boards

It’s difficult to comprehend why some of the key HR-related issues identified by the Knightsbridge Human Capital Solutions survey and highlighted by the panel are not being addressed in 2012. Issues include: the failure by more than 50 per cent of board members to recognize their role in mitigating people risk; the correlation between an organization’s success and the effectiveness of its talent management/human capital practices; and the key role played by culture.

Even more troubling was the statement made by one panel member that many board members, despite the financial crisis of the past few years, continue to focus on short-terms results and metrics such as shareholder value.

Enhancing board effectiveness

Several panel members pointed out that, to be part of the solution, HR needs to be prepared to make the business case to the board as it relates to human capital management issues, such as the high cost of attrition. However, to do so, it’s incumbent CEOs recognize that for HR to be a strategic business partner, it needs senior visibility and, therefore, must report to the top.

Some of the barriers to board effectiveness identified in the survey were a lack of time, inadequate understanding of the importance of human capital and insufficient financial resources. As a first step to addressing these impediments, it’s time for board members to find the time and money to prove their knowledge of board governance is up to snuff and commit to attending board governance programming on a regular basis to remain current on best practices — or get off the board.

When it comes to ensuring an organization is well-positioned to reach its potential and not caught short by a board that failed to do its homework, it is evident giving board positions to the old guard and just a smattering of outsiders is no longer an option.

The process of appointing all board members, in both public and not-for-profit organizations, would gain from being based on clearly articulated and tested criteria for success as a board director and following best practices hiring procedures.

Barbara Kofman is SCNetwork’s lead commentator on organizational effectiveness and founding principal of CareerTrails, a strategic coaching and HR Solutions organization focused on enabling individuals and organizations to resolve their work-related challenges. She has held senior roles in resourcing, strategy and outplacement, and taught at the university and college level. Barbara can be reached at (416) 708-2880 or bkofman@careertrails.com.


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Momentum builds slowly but steadily (Leadership in action)

By Dave Crisp

There is a slowly evolving understanding by directors on boards that their HR role involves more than choosing a CEO and setting his (or occasionally her) compensation.

But, as panel leader Vince Molinaro’s findings show, there is a disconnect between the proportion of directors who see a greater role (about 60 per cent to 80 per cent) and those who are actually taking any actions on these issues (about 30 per cent to 50 per cent). I’m broad-brushing with the numbers because they vary depending on the specifics of the question.

The panelists at the SCNetwork event were puzzled by this disconnect because they were chosen from organizations that have progressed beyond this divide and now take for granted directors should be more involved.

The level of director belief in the value of HR and a director’s actual engagement are not surprising. Directors are not generally young executives geared to learning new trends and practices, especially in HR areas.

They have their part-time hands full just keeping up with the changing accounting and governance rules around quarterly and annual financial reports, the ingredients of financially oriented strategies and results that fit into those requirements.

Even with the best will in the world, there is little time for anything but keeping up with the numbers for a director who attends half-a-dozen meetings per year and may live hundreds or thousands of kilometres from the head office where he most likely encounters the next-tier executives he should be getting to know well.

Experts disagree strongly on what should be reported to boards, what should be included in engagement or employee surveys, for instance, and how far boards should attempt to intervene in policies and practices or dictate how CEOs structure HR reports.

Where experts disagree, you can imagine how widely board members views diverge and how unlikely it is they will reach consensus on what must be attended to in these areas.

At least rapidly changing requirements for reporting financial numbers are legislated, to a large degree.

Lawyers can give definitive opinions on what to look at, ask for and include. Board members may disagree, even be incensed by all this, but they have to comply — at least to some extent.

But it’s not so with HR parameters.

So, I’m surprised the panelists would be puzzled by these findings. In fact, it was surprisingly heartening to hear that as many as 60 per cent to 80 per cent of board members see a clear need — and not at all surprising that with board members split, many boards are not taking any concrete steps.

Boosting director consensus

If we can get director consensus to 90 per cent or more, consistently, I predict a similarly high rate of actual action to carry out these activities.

When the tipping point is reached, there is no doubt directors will demand information and set policies, and organizations will immediately find ways to provide material and rationales.

Suddenly, nearly 100 per cent of CEOs will become as expert in HR as they are now in financial areas and they’ll be leaning on their CHROs as often as CFOs.

To directors still sitting on the fence, I’d say, “Try it, you’ll like it.” And to CEOs still wavering, I’d say, “The sooner you educate your directors and start supplying information they can act on, the sooner you’ll be regarded as worth the compensation they’re struggling to find ways to give you.”

People drive results in organizations and results, ultimately, drive pay and prestige. While it’s still true we don’t have all the keys to best practices in these complex areas, those who begin working it out now will stay in the lead for many years to come.

Dave Crisp is a Toronto-based writer and thought leader for Strategic Capability Network with a wealth of experience, including 14 years leading HR at Hudson Bay Co. where he took the 70,000-employee retailer to “best company to work for” status. For more information, visit www.balance-and-results.com.

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What boards need from HR (Strategic capability)

By Karen Gorsline

Boards of directors are increasingly under pressure to become more involved — and be more vigilant in exercising their duties and responsibilities — as a result of government legislation and shareholder pressure.

When it comes to HR issues, boards struggle with how to exercise oversight without interfering with operational accountabilities. Issues such as employment equity, pay equity, compensation transparency, safety and talent management might be on the radar but there’s no consistent, comprehensive sense of the HR health of the organization.

Boards need the HR function to exercise leadership to help them answer key questions around infrastructure, sustainability and change in a concise and consistent way.

Infrastructure

To answer the question of how adequate the policy and procedural infrastructure is, information and metrics that could be supplied by HR include:

a form of HR policy and program audit or benchmarking that illustrates the relative adequacy and competitiveness of the HR infrastructure framework

• an update on the response to past or pending legislative changes

• a plan for the ongoing maintenance of HR infrastructure.

Sustainability

As to what the organization is doing to ensure workers will contribute to ongoing sustainability and growth, the following information or metrics could be included:

• workforce planning

• engagement/employee survey

• retention/turnover

• education strategy

• knowledge/intellectual capital development and retention

• leadership development and talent management

• succession planning with a focus on senior executive and key positions.

Change

Boards of directors will likely want to know about the flexibility and capacity to meet potential scenarios such as business expansion, changes in competition or a reduction in staff. Information and metrics to help on that front include:

• per cent variable workforce — contract/consultant/outsourced and assessment of any business risks

• core workforce — survey information or other indicators related to culture and response to change

• strengths/gaps capacity assessment based on sustainability data for potential scenarios

• update on status of major changes pending or in progress, such as acquisitions, outsourcing, new business units, major product or distribution change and downsizing due to cost reduction.

Finally, for information or approval, the HR function needs to identify high-level short- and long-term priorities based on the above information and share the business case for any significant investments.

This type of approach requires HR to be disciplined with respect to information and data development, as well as keeping an eye on the whole picture, from the effectiveness of basic operations to the development of a robust organization prepared to meet business challenges and opportunities.

With this information — stated in crisp business terms — the board can exercise its oversight in a disciplined, time-efficient way and develop confidence and understanding related to human resources, without becoming overly involved in direct management.

Karen Gorsline is SCNetwork’s lead commentator on strategic capability and leads HR Initiatives, focused on facilitation and tailored HR initiatives. She has taught HR planning, held senior roles in strategy and policy, managed a large decentralized HR function and directed a small business. She can be reached at gorslin@pathcom.com.


Upcoming events

Want to attend one of SCNetwork’s sessions? Here’s a look at what’s coming up:

Social media and employee engagement:

The myths and realities of social media as a lever for employee engagement, and measuring the impact of technology.
(April 24, 7:30 a.m. to 9 a.m., Toronto.)

Visit www.scnetwork.ca for more information. If you belong to a formal or informal group in your local community and would like to receive SCNetwork webcasts, please contact Ian Hendry at ian.hendry@scnetwork.ca.

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