Link between HR execs and bottom line

A new Australian study shows that having an HR director on your executive committee pays off for the company.

AUSTRALIA — Australian companies with a human resources director on the executive committee are achieving higher shareholder returns than companies with no HR representation at senior levels, according to a new study by Andersen Human Capital.

Andersen studied the top 50 companies on the Australian Stock Exchange to determine whether there was any correlation between senior human resources representation and business performance.

The study showed that the companies who included a human resources director on their executive committee experienced more than twice the growth in earnings per share than those who did not.

Thirteen per cent vs. five per cent
Companies with a human resources director on the executive committee — the level at which the most important strategic decisions are taken — enjoyed median annual growth in earnings per share of 13 per cent over a five-year period, compared with just five per cent for companies without human resources representation.

On an earnings-per-share scale, the top quartile contained twice the number of companies with HR representation. Conversely, more than twice the number of companies without HR representation were located in the bottom quartile.

Similar results in U.K.
The results mirror findings of a similar study conducted by Andersen Human Capital U.K. That study found that the average increase in earnings per share between 1996 and 2000 FTSE 100 companies with HR directors on the board was 17 per cent, compared with 10 per cent for companies without HR representation.

The findings provide strong evidence for HR directors seeking to demonstrate the importance of human resources in strategic decision making, said Jon Scriven, Andersen Human Capital Partner responsible for the study. “These results show that when strategic human resources is placed on the boardroom agenda the business reaps the rewards,” he said.

Despite the strong correlation with profitability, only just over half of the companies surveyed — 27 of the 50 — had appointed human resources directors to their executive committees.

“I think it’s partly symptomatic of the evolution of the human resources function and the role it plays in the organization,” said Scriven.

“While many companies are coming around to the idea of human resources as a strategic, rather than an administrative function, it does take time, ” Scriven added

However, he cautioned against companies thinking that they could achieve these results by simply appointing a human resources director.

“The key element here is that human resources directors are contributing at a senior level in a strategic capacity. If you have a human resources director who is not a member of your executive committee, you’re unlikely to see the same impact on your bottom line.”

While human resources is clearly enjoying growing influence at the executive committee level, Andersen notes that not one of the 50 companies surveyed had an executive human resources director on the board of directors.

The U.K. study, however, was based on human resources representation at the board of director level, and found 16 of the top companies had executive human resources directors on the board of directors.

The study examined earnings per share between 1997 and 2001 to determine the rate of growth.

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