Not long ago, boards of directors focused mainly, if not exclusively, on financial capital and maximizing shareholder value over the short term. However, some boards have begun to look at business priorities in a new light recently.
Modern boards increasingly prioritize talent management, as well as environmental, social and governance (ESG) strategies. These shifting priorities represent an opportunity for CHROs, who have long recognized the importance of culture, talent and ESG in driving business success.
By helping boards address these new people-focused concerns, CHROs can show they are strategic business partners. CHROs can leverage the credibility they build with boards to drive the culture and talent initiatives their companies need to thrive in a changing economic landscape.
CHROs can help their boards lead more effectively in uncharted territory by:
Leveraging people analytics data to help boards make more informed decisions.
Encouraging boards to take a more active role in talent strategy.
Weaving environmental, social and governance priorities into the company culture.
Leverage People Analytics Data to Help Boards Make More Informed Decisions
Boards today are tasked with steering their companies through one of the most uncertain periods in recent history, including geopolitical tensions, economic uncertainty and changing workforce dynamics. They must minimize the risks these forces impose on their organizations to rise to the challenge.
To minimize risk, boards need to identify reliable information sources and relevant metrics they can use to better understand — and navigate — the new realities of business. CHROs can be critical players in this process because they have knowledge board members don't.
"Most board members don't have human capital backgrounds or expertise," says Lisa McGill, former CHRO of CrowdStrike and a current advisory member on multiple boards. "The board, in a sense, doesn't know what they don't know."
Armed with relevant people analytics metrics, CHROs can supply the context that boards often lack when making tough decisions. Fabienne Smolinski, CHRO and ESG officer at Pelican Products, Inc., points to more granular workforce planning as one area where CHROs can help minimize risk. Instead of providing only general turnover trends across the business, CHROs should also dive deep into the data to understand how turnover trends vary between locations and markets.
Because conditions can drastically differ between labor markets today, Smolinski says, "a one-size-fits-all approach may not be the best strategy." CHROs can use high-level people analytics data to give boards an understanding of how the global organization is doing. They can use local market data to help boards zero in on trends in specific populations, offices, departments and other subsections of the business.
What Metrics Should CHROs Share with Boards?
CHROs communications to the board should include the following:
- Revenue per employee.
- Employee productivity and engagement scores.
- Employee net promoter scores.
- Leader effectiveness.
- External talent market data.
- External workforce trends.
That said, it's important not to give the board more data than it needs. CHROs should limit their reporting to metrics directly related to the board's objectives.
"You don't want to inundate the board because their role is primarily oversight, and they already receive considerable amounts of company information," McGill says. "I would always link what I provide directly back to company strategy. Ask yourself, 'What is the focus for this quarter? For this year?' And limit the data you share to what is most relevant at the time with the appropriate context."
Encourage the Board to Take a More Active Role in Talent Strategy
Talent is an essential ingredient in organizational success. As former McKinsey Senior Partner Mary Meany said, "In today's world, strategy is relatively easy to replicate, and capital is relatively easy to access. What gives you a real source of competitive advantage is your talent and culture."
Boards know this, and they're starting to take a deeper interest in organizational talent strategies beyond executive compensation and succession planning. In a 2022 survey, the HR Policy Association found that 67 percent of companies had expanded the roles of their boards' compensation committees to include new responsibilities like culture, employee engagement, reskilling and retention.
Many boards are concerned about the potential impacts of skills gaps on long-term company success. The CHRO's role is to assure the board that the organization's people and business strategies are aligned and that the organization has plans to handle any skills gaps.
"Aligning the strategic objectives with the people strategy is critical to building trust and support," Smolinski says. "It needs to be more than buzzwords. The talent strategy needs to include specific actions that support each aspect of the business strategy."
McGill agrees on the need to be concrete. She suggests that CHROs focus on how digital transformation, digital trends and competitor behaviors affect the company. CHROs must clearly articulate to the board how the company's talent strategy is responding to these pressures.
As boards focus more on understanding how the company's talent strategy is aligned with its business strategy and execution, McGill recommends having discussions, particularly at the committee level, around the appropriate incentivization to motivate the right behaviors and outcomes with corresponding metrics for accountability.
"We need to ensure the board is overseeing decisions relative to these incentives and metrics and that the company is investing adequately in hiring or developing the right talent and skills," she says.
How NOT to Win Over Your Board
What CHROs don't do when building board credibility is just as important as what they do. Avoid these common pitfalls:
- Don't speak HR: "Many CHROs are focused on HR strategies and initiatives and not talking enough about the business strategies," Smolinski says. "A strong CHRO will know the business, the financials and the strategic priorities."
- Don't be too risk-averse: "Many CHROs lead with why we shouldn't do something instead of trying to find the best solutions for all stakeholders," Smolinski says. "You have to be comfortable living in the gray areas. Any CHRO who starts a discussion with 'we can't' is likely not going to keep the seat at the table for too long."
- Don't sidestep the CEO: "Sometimes the board and CEO have conflicting priorities, so the CHRO might feel compromised. It's critical never to hide anything, and the CHRO and CEO should be in lockstep," McGill says. "However, a rift is inevitable if the board goes straight to the CHRO and circumvents the CEO."
- Don't surprise stakeholders: "Neither the CEO nor the board wants to be surprised," McGill says. "Vet things first with the CEO or relevant stakeholders before presenting anything to the board — especially if it's something someone is going to be measured or incentivized on."
Weave Environmental, Social, and Governance Priorities into Company Culture
According to one recent report, 79 percent of Americans believe corporations have a responsibility to drive positive social change. New global regulations, such as the European Union's Corporate Sustainability Reporting Directive and the SEC's developing climate disclosure rules, mandate that companies treat sustainability data with the same rigor as financial reports. Worldwide market volatility has also rendered some "tried-and-true" business strategies ineffective, such as just-in-time supply chains.
These factors are motivating boards to pay more attention to ESG concerns, and for companies to succeed today — and in the future — boards must continue to adopt this broader perspective. According to Peter Gleason, president and CEO of the National Association of Corporate Directors (NACD), "Shareholder value is not created in a vacuum: the interests of customers, employees, suppliers, and communities matter in the pursuit of long-term growth."
Many CHROs were ahead of the curve in recognizing the positive effects of corporate social responsibility on talent and retention, which means they're well-positioned to help bring effective ESG initiatives to life.
"A CHRO can help influence ESG through education and mitigating the fear that organizations have when starting their ESG journeys because it can be very complex and daunting," Smolinski says. "The first step is building the case for why the company should care, and the entry point is that consumers and employees want it. Don't lead with the environment. Always lead with the why: ESG has a direct impact on building a long-standing, thriving, profitable business."
Studies have found correlations between ESG performance and profitability, and the experiences of some individual companies throw this fact into sharp relief. For example, 3 M's Pollution Prevention Pays program — which aims to reduce and recycle the organization's manufacturing waste wherever possible — has saved the company an estimated $2.2 billion since its introduction in 1975.
As with talent strategy, CHROs must show their boards that ESG initiatives align with and support broader business objectives. To ensure ESG doesn't become a narrowly focused HR initiative, CHROs must work closely with the rest of the C-suite to drive ESG efforts collaboratively.
"CHROs are accustomed to focusing on the employee lifecycle, but ESG needs to adopt a broader perspective," McGill says. "CHROs need to partner with key business leaders to examine the full product lifecycle and employee lifecycle and look for opportunities to create and implement ESG goals throughout each."
For example, business leaders could review their supply chains to identify more sustainable and cost-effective ways to obtain resources like raw materials and energy. Boards are more likely to support ESG initiatives with tangible business benefits like saving money.
Boards are also more likely to support ESG initiatives if they keep producing results. Toward that end, CHROs need to involve the whole company — every employee, department and process — to impact business performance.
"Don't just overlay it on top of what you and company are already doing," McGill says. "Weave it into the fabric of the organization. Embed it into the culture so that it is not viewed as additive. It's viewed as part of what you do."
A Business Can't Thrive Without People
As the social impact of business increases and talent takes on heightened importance, CHROs need to embrace their position as strategic business partners. The pandemic threw a spotlight on this dynamic. As Harvard Business Review reports, CHROs gained new visibility during the pandemic. Many used it to help their companies successfully manage the changing workplace dynamics and talent relationships that threatened to upend their businesses.
But CHROs can only gain that visibility with C-suite and board support. That's why it's imperative for CHROs today to prove their value by helping boards address their most pressing priorities. Luckily for CHROs, they're singularly equipped for the moment.
"HR has a unique role in an organization, where it touches all disciplines," Smolinski says. "A business can't thrive without people. The CHRO needs to be able to communicate that their people strategies are in direct alignment with the business strategies. They are not independent HR initiatives, but people strategies designed to support overall company goals."