Date: December 15, 2015
Author: Ian Cullwick
For the first time since it was tracked, the Conference Board of Canada in its 20th Edition publication on governance trends and practices in 2014, noted that the prevalence of HR Committees as a core governance component was comparable to that of the Audit Committee. So what explains this emerging interest and focus on HR governance, and equally, if not more importantly, what are the implications?
Since the 2001/02 technology sector meltdown and the 2008/09 global recession, the broader topic of “good governance”, and more specifically, human resources governance, has received considerable attention from business leaders, boards of directors, shareholders, media and regulators alike. All recognized the need for more effective management of private and public entities, stronger and more active governance oversight, and a growing acknowledgement that contemporary “human capital” strategies drive better business practices and results.
Beyond these historical economic milestones and the various stakeholder responses that have been widely observed, there are also a number of other strategic factors that have converged to drive the “emerging talent decade” and a new era of HR governance. Fundamentally, private and public sector leaders have recognized that a combination of our current demographic profile and increasing need for knowledge-intensive skilled labour has created the performance imperative that the quality of an enterprise’s human capital will truly drive success and sources of competitive advantage. Further, and especially in today’s economic climate, progressive employers also recognize that critical workforce roles and top talent have a disproportionately bigger impact on performance, and that enabling HR governance and strategies are needed to optimize this intended outcome.
It is with this contextual background in mind that Boards of Directors have become focused on the human capital agenda and enhanced HR governance. In fact, over the past ten years, it has been fascinating to witness how our HR governance system has evolved. From a narrowly framed and historical executive compensation mandate to one that is increasingly defined by a broader terms of reference, contemporary HR governance now includes enterprise-wide HR strategy risk assessment, talent and succession management, and compensation policy.
While increased CEO and Board attention to both the importance of human capital performance and related HR governance have indeed been impressive, the implications and requirements for realizing this emerging state of HR governance are not well understood and need more attention. The old saying – “you better be careful for what you hope for” – has never been more true.
To create and sustain a contemporary approach to HR governance, there are a number of implications to be aware of and related requirements that need to be considered:
The roles and interdependencies between the Board and its standing committees, and the risk of duplication and fragmentation. There is a need to confirm the HR Committee’s role and document the same in a Terms of Reference. This articulation must also address interdependencies with other committees [e.g. Audit and Finance], including the HR Committee’s delegated authorities and linkages to the Chief Executive Officer and the CHRO.
A common understanding on how HR-related governance “conversations” and processes are going to flow – will they need to follow the formal hierarchy of HR Committee Chair to Board Chair to CEO to CHRO, or directly between the HR Committee Chair and the CHRO? And how will exceptions be governed, and to what extent do they need to be documented in the HR Committee’s Terms of Reference?
“Agenda misalignment” between the HR Committee and the priorities and capacity of the CHRO and HR function. Given the consequences, the risk of misalignment needs to be recognized and addressed quickly.
Enterprise-wide risk management strategy and practices, and the extent to which they are used by the HR Committee and CHRO to guide HR risk assessment and mitigation strategy development.
Enabling measurement and reporting practices to feed the HR Committee’s requirements, and the extent to which these practices are developed for the HR Committee’s needs alone, or whether they can also be used by the CHRO and management.
HR strategy and compensation knowledge and skill requirements of the HR Committee, and are members equipped capable of providing “educated and informed” oversight on some very complex issues?
Understanding that some HR governance practices won’t necessarily run through the HR Committee itself – for example, CEO performance management, workplace health and safety, and [compensation] financial management may be governed through other standing committees.
Finally, the need for patience and time to have the right conversations, prioritize and allow core HR governance practices to mature.
While the trend to more sophisticated HR governance will require more structure and oversight, it represents an unprecedented opportunity to better align workforce, human resources and organizational strategies with the essence of the business. It should also help organizations develop more progressive HR strategies to strengthen workforce engagement and performance, optimize talent attraction and retention, and address pending waves of skilled labour shortages. Put simply, paying attention to the implications and requirements necessary for good HR governance will indeed drive a stronger employment brand and pay “dividends” for all stakeholders.
To realize the benefits and to address the implications of good HR governance, a number of key priorities need to be addressed. HR Committee terms of reference and interdependencies need to be drafted and approved; key practices need to be agreed to and implemented; the HR Committee Chair and CHRO need to be aligned on the agenda; Committee skills and competencies, and any related gaps, need to be understood and addressed through investments in training and education. Finally, the HR Committee in exercising its fiduciary oversight role can also serve to inspire and set the tone for a high performance and engaged culture that can truly make a difference across the organization.
This article originally appeared in Human Resources Director online magazine.
About the Author
Ian Cullwick is a senior associate with the Conference Board of Canada and a partner with Mercer Canada.