In the Board meetings I have attended, it’s been obvious (and this has been corroborated by many, many Board members I have asked) that the quality of the discussion on people matters is extremely poor compared to the dialogue that develops over, say, a finance topic. Starting from neglect in the casting of the agenda and the shortness of time allocated, going on to the lack of mental energy expended and culminating in the shallowness of the outcome, value-addition to HR is clearly the Cinderella of the Boardroom.
The neglect has consequences. Even if most CHROs are happy to escape an additional layer of scrutiny, they are also missing the counsel and guidance that years of HR experience in other organizations can bring to the table. Leaving aside direct guidance to HR, unless Board members are aware of the true people strengths of the organization or, contra-wise, of the myriad engagement-eroding policies and people that destroy morale and sap team-effectiveness, are they really discharging the duties shareholders expect from them? More generally, can Boards meet their oversight responsibilities if they are unable to assure themselves that the people in the enterprise are chosen, organized, incentivized and governed by processes that permit them to contribute optimally to the fulfillment of its strategy?
In the absence of the Board’s informed involvement in people matters, they also lay themselves and the company open to the risk of major non-compliance surprises and reputational risks.
Three substantive changes are necessary for the way we constitute and operate our Boards if they are to be capable of making a genuine contribution to the human side of the enterprise. These changes relate to improvements in the Board’s:
- Checking (whether it’s getting a true picture)
Some parts of this program can be mandated through changes in the company law. That, by itself, will, however, not be sufficient to effect improvements nor will it be necessary if companies realize how much it is in their own self-interest to have effective Board governance of HR.
Imagine a meeting that has been called to plan a major military operation. Now imagine your surprise if, as you look around the table, there is not a single person with senior-level military experience. One thing that should not surprise you then is that the operation ends in disaster. Should we not expect equally unpalatable outcomes when Boards that apply their minds to critical HR matters do not have a single member who has actually been a senior HR practitioner? It can be claimed, of course, that the Board can tap the HR expertise available within the company itself. But that is true of major financial decisions as well. Yet it would be the rare Board that didn’t have at least one or two financial experts as its members.
It’s vital that the Board is able to provide independent oversight of the organization and objectively evaluate the decisions placed before it. It cannot do so if it is limited to asking only the proposer of the decision about its advisability. An experienced HR professional of standing can always ask questions from a fresh perspective and make suggestions to improve what’s proposed. This kind of value-addition happens repeatedly on decisions relating to operations and (somewhat less frequently) on strategic matters such as acquisitions. The independent directors of the company are collectively expected to have amongst themselves the competencies likely to impinge on the major issues facing the company. Unless there is a sprinkling (at least one) of independent directors who have been senior HR practitioners, we cannot expect Board decisions about HR to improve.
Much more difficult to tackle is the issue of 'independence'. It is on issues relating to people that the independent directors’ independence is most needed and most frequently found wanting. There are indeed several model independent directors, including a few who have chosen to give up their directorships rather than sacrifice their independence. Unfortunately, they are outnumbered by the ones who can best be described as the 'promoter’s poodles' or the 'CEO’s Siamese'. I believe there is a cure for this subservient mind-set but since this patron-client bond affects all decisions the Board needs to take, I shall keep it for a future column. For similar reasons, I shall set aside the suggestions I have for effecting improvements in the pathetic prevailing practices of Board evaluation.
It is no use pretending that the addition of senior HR practitioners to Boards will happen anytime soon. Moreover, even when we do have one or two such experts on each Board, it is not so obvious that their points of view will fall on fertile soil unless the other Board members are attuned to think from a people perspective. It’s not sufficient if they have generally positive feelings about people and the desire to 'do the right thing' by employees — though these attitudes are necessary too. All Board members must understand the basic principles and key processes of HR management, its links to the strategy of the company and the potential benefits and risks of people-related decisions. The agenda-driven bustle of a regular Board meeting is not the right forum for the HR expert on the Board to share such insights.
It is, therefore, both vital and urgent (since it can yield quicker results than compositional changes) to provide some Board-relevant HR concepts to its members. Of course, many Directors will have picked some of these up in their distinguished careers. All the same, going over a quick refresher together with their fellow Board members will give them a shared understanding and vocabulary which can be invaluable when people from different corporate lineages discuss nuanced topics in HR at future Board meetings.
Imparting the critical concepts necessary for meaningful dialogue and questioning of HR matters need not take much time for people as intellectually capable as most Board members are. What is necessary can be covered in three to four half-day sessions, possibly appended to a series of regular Board Meetings or all together in the course of a Board retreat. These sessions need to be supplemented by occasions where individual Board members immerse themselves in internal meetings and events where company employees who they don’t come across at Board meetings are active. Cumulating over, say, a week, these opportunities can hugely improve the Board’s feel for the talent and culture within the organization.
Of course, when new Board members are inducted, they will need to go through these briefings separately but, if the coverage and the resource-person remain the same, much of the shared-concept advantage can be retained. Until the absence of experienced HR practitioners on the Board is remedied, at least one of the members on the committees dealing with HR (preferably the Committee Chairperson) should have access to HR guidance on a more continuous basis. For such individuals, ongoing mentoring can be arranged with professionals who have held substantive CHRO responsibilities and Board roles themselves. The topics to be covered in the sessions and the mentoring should include:
- Strategic HR
- Productivity and Performance
- Talent Management.
- Executive Compensation
- Employee Relations
- Checking and Assurance
While five of these subjects are self-explanatory, the last one, about the manner in which the Board can get a grasp of the reality of the organization, is a relatively neglected topic. We will look at it in more detail in the next section.
Checking the Reality
It is vital for the Board to have its own feel for the reality of the situation relating to people within the organization. If the Board is to add value to HR matters and prevent unpleasant surprises, it needs to use both non-intrusive as well as openly Board-linked measures to keep itself abreast of the HR reality within the company.
Given below are some of the most important non-intrusive measures the Board should tap regularly:
- Organizational Assessment surveys (frequently called engagement or climate surveys)
- 360° feedback for the top team as well as for those holding supervisory roles in areas identified for scrutiny
- Exit interview reports for people leaving above a certain level and for high-attrition/ low-engagement units
- Inquiry reports of the Internal Complaints Committee under the Sexual Harassment of Women at Workplace Act
- Reports for improvement provided by independent evaluators when the organization competes for HR/Best Employer awards
While these processes should continue in their normal fashion, there is one important rider to be added to the operation of the first three sources if they are to provide an unbiased information-feed to the Board. The individuals and agencies responsible for these should have a pre-exercise briefing from the concerned committee of the Board and direct access to it at all times. The Board should also have the authority to terminate their contracts if it has doubts about the integrity of the process and its reports.
While there is a strong case for placing hitherto unavailable information before the Board, it must be emphasized that much of it can be extremely sensitive and, apart from strict confidentiality, it should be shared only after the Board has been through training in its interpretation and use.
The openly Board-linked measures will have to be delivered through the engagement of an independent firm of HR evaluators. Until there are statutory guidelines, each company Board can obviously decide the terms of the engagement and what precisely should be covered. To save themselves from spending time on reinventing the wheel, Boards would be well-advised to consider adopting (with some tweaking) one of the robust HR excellence models that are in regular use and to demand quarterly reports such as the ones statutory auditors provide. Since there is an adequate number of trained and experienced evaluators for such models available throughout the country, this idea can be implemented virtually overnight.
Protect the People
What are the gains for organizations that implement the three-point program suggested here?
Perhaps the most fundamental anti-insomnia benefit for a Board that keeps itself aware and engaged with the HR agenda of an organization is that it receives no sudden shocks. However, it is not only freedom from painful surprises that contributes to unworried rest. Board members with consciences can sleep easy only after they assure themselves the organization is fair to all its people and doesn’t exploit them (sometimes under the guise that some are not really its employees).
Board members, however, have to move on from the peace of a restful night to the satisfaction of contributing to the running an effective business enterprise. To do so they must convince themselves that the HR engine of the organization they are superintending is firing on all cylinders. And even that is not enough. The HR motor must be connected and responsive to the business strategy driving the firm and transmit people power in support of that strategy through the most effective architecture and processes.
Finally, have we not seen situations where the CEO has a particular people-bee in his bonnet, or there is a fad-conscious CHRO or there is an outrageous demand from an activist shareholder (e.g. to slash headcount) or union (e.g. to boost salaries) which exigencies prompt the management to appease? It is precisely in situations like these that a knowledgeable and quietly assertive Board can save the future of the company. James Madison said the objectives of having an upper house of the US Congress were "… first to protect the people against their rulers, secondly to protect the people against the transient impressions into which they themselves might be led."1 Whether we use 'employees' or 'shareholders' to substitute 'people', these words succinctly capture the ultimate safeguard an independent and competent Board provides.
1. Debates in the Constitutional Convention, Philadelphia, Pennsylvania (June 26, 1787) Journal of the Federal Convention, ed. E. H. Scott (1893), pp. 241–42.