Article: Why aren't there more CHROs on the board? Yashwant Mahadik explores challenges, key questions and areas of improvement


Why aren't there more CHROs on the board? Yashwant Mahadik explores challenges, key questions and areas of improvement

At a session during TechHR PULSE Mumbai 2024, Yashwant Mahadik, CHRO at Lupin, identifies key questions, debates, and areas for improvement regarding the absence of CHROs on company boards.
Why aren't there more CHROs on the board? Yashwant Mahadik explores challenges, key questions and areas of improvement

“The recent tech shake-up has underscored the essential need for CHROs on boards” Yashwant Mahadik, CHRO at Lupin, while taking a session on ‘The Rising Stars: Why aren't more CHROs on the board,’ at TechHR PULSE Mumbai 2024. Highlighting the latest industry trend of having CHROs on the executive board, he talked about how this change will address the risks linked to talent shortages, workforce disruptions, and employee relations issues.

How India is doing as compared to the world? 

Setting the context for understanding the situation of CHROs on the board, Yashwant shared his experience of different geographies, “In Europe, the board structure typically includes a supervisory board ( known as the statutory board in India), and a management board, and this is a robust dual-board system. Additionally, the CEO and CFO from the management board also serve on the supervisory board, with the CEO always being a member and sometimes the CFO as well. 

Similarly, in North America, including the US, Canada, and Puerto Rico, most companies adopt a structure similar to the European model. However, they do not refer to it as a supervisory board; instead, it is commonly known as the company's board. In addition to this, they established management committees, essentially mirroring the European system. 

In the context of India or Asia, while many practices were initially modelled after the UK, the UK quickly realigned with Europe about three decades ago. However, in India and Asia, these structural changes did not occur. So, what was predominantly visible in India 30 years ago was the company board regulated by the Companies Act, resembling more of a supervisory board or what is also referred to as the statutory board. However, during that time, not many Indian companies had established management boards or the secondary layer known as the management committee.

He added, “Over the past 15 years, and particularly in the last decade, Indian companies have increasingly developed these robust structures. There’s the company board and the managing committee or management board, known as the executive leadership team or the management of the company, where senior leadership, including the CEO and all direct reports, convene. 

Understanding this structure is crucial because it sheds light on the role of the supervisory board or statutory board. As outlined in the Companies Act, and upon deeper examination of its regulations, the role of the supervisory board leans heavily towards compliance, governance, and ensuring effective company management while safeguarding investor wealth from misuse. 

And that forms the core or essence upon which the company boards are structured. This principle is universal, as boards do engage in strategic matters, although to a lesser extent compared to management boards or committees. Strategy remains a crucial aspect of a company's long-term and medium-term success. Considering this context, the board's primary responsibility is to ensure a sound strategy and its effective execution. With this in mind, the question often posed is, what holds more significance for a working professional: being on the management board or the statutory board? In my view, the pivotal role lies in being on the management board. Whether one serves on the statutory board is inconsequential for a working executive.”

Sharing an example, Yashwant added, “There are regulations stipulating that one-third of the statutory board must consist of independent directors who are neither promoters nor executives within the company. For instance, in a board comprising nine members, three should be independent directors, or a fractional representation rounded off to the nearest whole number. Therefore, in a ten-member board, four would be independent directors. Independent directors are individuals with no financial stake in the company. This ensures they cannot receive stock options from the company, highlighting the importance of their impartiality. In India, where many organisations are promoter-led, the executive members typically include the promoter family, the CEO, and sometimes the CFO, given the heavy compliance focus of their roles.”

Absence of CHRO on the management board, what’s the real problem? 

Yashwant has served on the J&J India’s company board, where he observed that the board is of minimal value as compared to the management board. He explained, “The real action that includes - the strategy, execution, and day-to-day management, occurs at the management board level. Therefore, the absence of the CHRO on the management board, managing committee, or executive leadership team could indeed pose a problem. It's crucial to clarify this distinction. For instance, Hema Ravichandran served as the CHRO of Infosys, and after retiring, she joined various company boards. Similarly, many retired HR professionals and CHROs take on roles as independent directors on company boards post-retirement. Why? Because it's a legal requirement for boards to have four subcommittees - an audit committee, nomination and remuneration committee, stakeholder relationship committee, and the CSR committee. Some companies have expanded beyond these four, creating additional committees such as a science and technology committee. However, some companies have also restructured due to concerns about board overload. Upon retirement, individuals can become independent directors, but they are typically limited to serving on a maximum of four boards due to the significant workload involved. Serving on a statutory board is challenging, as committee members must be available for discussions related to senior appointments and compensation.”

What is the key question when it comes to having CHROs on the board? 

The HR leaders joining a company’s board face several challenges, Yashwant shared, “As an executive, as a CHRO, as a member of the executive committee and the management board of the company, I don't even have time to attend or address conferences. Where would I find time to be a board member? And what value would it add to me or to the company for me to be on the company's board or even on my company's statutory board? That's the question to ask. Sometimes, I feel we ask the wrong questions. The real question should be: Is HR represented on the management board of the company? Is HR part of that crucial core management that includes the CEO, CFO, and CHRO? Are all the important decisions being discussed by these three before involving others? If that's the case, then you're in a good position. If not, then you're not in a good place.”

He emphasised the whole debate about having a seat at the table, is not even discussed. Why? “Because any company I've worked for in the past 10 years, and even before that when I was a CHRO, I always had a seat at the table because I worked for companies that respected HR in that manner. But if you're still having that discussion today about whether HR has a seat at the table or not, then something is not right. There's no point in asking that question or discussing it because that debate is over.”

The real debate should focus on what HR does after taking a seat on the board or the management board. Because, 90% CHROs today are on the management boards of their respective companies, or the executive committee, or the management committee. But what do they do after they attain that position? What value do they create for the company from their role as a CHRO? And what value do they create for their function as a CHRO, as a representative of the management board? 

What are the essentials for HR leaders on board? 

Sharing advice/ ideas for HR professionals aspiring to be on a company’s board, executive team or the management, Yashwant said, “I have learned over the last three decades of my experience that becoming a very capable, competent HR professional is the threshold. It is a ticket towards creating more value. In addition to this, the essentials include:

#1 HR capabilities - your ability, not just to understand business and how business works, but to work in multiple business areas (for example marketing, sales, or operations) as you elevate to a CHRO role. This ability will set you apart when you are in that position, which all future CHROs are going to come not just from HR, but from HR professionals who have worked in business roles. 

#2 Business transformation - The second aspect is apart from HR, what is your ability and capability in business transformation as a functional skill? Today, business transformation is being led by HR in companies, which is a separate functional skill that has evolved entirely. They should learn the essentials of changing the business models, redesigning the operating models, process orientation or simplification, or building of processes. This is because some companies are process-heavy, and streamlining them is essential. While some companies may lack these processes and needs strengthening. So, business transformation is all about transforming your organisation, transforming the business model, and operating model of your company so that it stays relevant and creates more value. This has become a crucial role of a CHRO.

#3 Business networking - The third aspect is how well are you networked, you cannot be a CHRO or a member of the management board of your company and say that you don't have a network outside, relying solely on consultants for benchmarking. If there is a discussion happening in your company and your management committee asks a question, ‘How do these five companies do it?’ you should have the ability to reach out to five people working in those companies at senior levels within four hours. This way, you can provide feedback to the committee promptly. This is where networking helps in creating value in your organisation. For example, checking references on consultants, if you have a great network, the CEO depends on you as they will come to you asking, "Hey, McKinsey or BCG just gave an example of this XYZ company. Do you know someone in that company, and can you check what they feel about BCG or McKinsey when they did this work?" You should be able to have that network to get there. If you don't have that, your CEO will win you off the board, or should win you off the board. So networking isn't just attending conferences and socialising, or for your own career progression. It's about knowing people for which you may have to attend conferences like the CIO level or the WEF level, to build that network. After that leveraging this networking comes into the picture, for the company or for the team. For example, helping your team digitise the HR process, not only should you be able to give your opinion, but also list top-class HR tech companies from your network that can help your team. Therefore, networking is not just for camaraderie or progressing your own career but also leverage it for your company, CEOs, and your team. Also, you should be able to help your network leverage you too, for example, a small company investing in medical devices plans expansion, and asks you to recommend a CHRO or CFO with medical devices experience? It could consume your time, but that's an important role you play when you're representing your company at the board level (the management board)

#4 Commitment to learning - The fourth one is how nimble, how committed are you towards your own learning? Now, within our community, I have just gone out and worked out of HR into operations, manufacturing, sales, only for a period of six years. But in my past 34 years, barring those six years, I have only worked in HR, despite opportunities in other functions, I chose HR. Because I am a committed professional, I love the community. But, I also do not mince my words in sharing certain things about the community, which includes me, as we are very weak at learning new things, especially in digitisation and other technological areas. Willing to learn something about a different industry altogether, how does this industry operate? In addition to our core expertise in talent management, performance review, succession planning and other aspects of HR, we need to learn other areas of businesses like gen AI. This helps you stay relevant, valued by your CEO and your management board. This comes when they ask your opinion, critical reviews, and make you a key part of decision making on the board, which may have nothing to do with HR. 

#5 Flexibility and openness to new opportunities - The fifth one is the ability to be mobile and chase very different experiences and exposures, when an opportunity to relocate to new geography arises, be open to accept it. Be mobile, figure it out and gain exposure and new experiences. 

If you focus on these core areas, you will not only become a successful professional and a CHRO, but you will become an effective board member in your company."

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Topics: C-Suite, Leadership, #HRCommunity, #TechHRPulseMumbai

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