Recently, corporate boards have become more involved in overseeing human capital management. Still, it isn’t always clear how boards can and should do this without overstepping their boundaries and taking on tasks that should be under the purview of the management team.
As 52% of boards intend to spend more time discussing HCM, the following recommendations can help directors figure out how to navigate this topic and create a winning strategy.
Human Capital Management: The Shift From HR to Competitive Strategy
There are several reasons why boards are becoming increasingly invested in human capital management.
For one, over the last few years, businesses have had to contend with workforce shortages that have severely impacted their ability to attract top talent. In addition to this shortage, companies are facing:
- Employee sentiment shifting more toward work-life balance and learning and development opportunities
- Record-high turnover among C-suite executives
- A digital transformation that requires talent with deep knowledge of emerging technologies like artificial intelligence and machine learning
- Tightening regulations like the Security Exchange Commission’s proposed rule that would require disclosing human capital risks and resources
As a result, human capital management is more than ever tied to leadership selection, innovation, compliance, and reputational risk — which means that HCM has gone from being purely an HR issue to a matter of competitive strategy. To remain relevant, boards have been forced to step up their HCM oversight.
5 Strategies That Boards Can Use for Effective HCM Oversight
Directors looking to steer HCM in the right direction will need to strike a balance between strategic action and hands-on management. With that in mind, here are five concrete ways boards can exercise effective HCM oversight at every level.
1. Hire a Chief Human Resources Officer
Having a human resources professional in the C-suite can immediately elevate the HCM conversation, ensuring that it’s a frequent topic of conversation and a key part of business strategy.
For example, when discussing the adoption of new initiatives, the chief human resources officer will be able to offer insight into the talent strategy necessary to meet those demands. It’s recommended that you leave time and space for the CHRO to provide such insights for every new initiative.
2. Use Metrics and Data to Measure Executive Performance
Collecting data relevant to human capital management will be critical to board oversight for several reasons.
First, it will help you maintain compliance with the SEC’s new rules. Second, it will facilitate voluntary reporting and disclosures, ensuring shareholders have access to insights on DEI, ESG, and other critical issues.
Finally, these data and metrics can be used to monitor C-suite performance and hold executives accountable for diversity, talent development, succession planning, and other areas.
A few data points that may be beneficial to keep track of include:
- Employee engagement
- Employee satisfaction
- Succession plan failure rate
- The average duration of position vacancies
- Turnover rates (especially for high performers)
Though this isn’t an exhaustive list, this is the type of data that will help directors understand where HCM initiatives are improving and what work still needs to be done.
3. Develop Talent Identification and Development Plans for C-Suite Positions
C-suite executives obviously play a key role in shaping the organization and its culture. After all, they’re the ones responsible for executing the HCM strategy set forth by the board.
This means that it’s vital to fill these positions with strategic-thinking high performers who have innovative, future-focused ideas. Therefore, it’s prudent for the board to have a heavy hand in identifying talent throughout the organization who are a good fit for a seat at the table.
Directors should also create individualized development plans for these future leaders to ensure they have the knowledge and experience needed to move to the next level. They should be given opportunities to work on special projects, make presentations, and get to know board members who can mentor them as they progress.
4. Engage With Employees and Gather Feedback
While it’s unfeasible to know every single employee personally, directors should welcome the opportunity to engage with employees at every level of the organization.
This can be done through events like town hall meetings or informally at functions like social get-togethers.
Either way, it’s important to observe employee dynamics up close and understand how they feel about new initiatives.
This can tell directors a lot about what parts of the HCM strategy are working and what still needs improvement.
Board members can then take these observations to the C-suite and help refine the strategy.
5. Tie Executive Compensation to Talent Management Initiatives
Tying compensation to talent management performance helps to hold executives accountable for progressing initiatives and meeting goals in DEI, employee engagement, turnover, pipeline management, and other areas.
This also ensures that the right tone is set from the top and that forward-thinking behavior is modeled at the highest level of the organization. When middle managers see that executives are taking HCM and talent development seriously, they’re more likely to mirror that attitude, which goes a long way in making sure these plans are carried out consistently across the organization.
A Proactive Approach to Human Capital Management Is Now a Business Imperative
As human capital management goes from just being an HR function to becoming linked to organizational innovation, regulatory compliance, and the company brand, it’s more crucial than ever for boards to maintain oversight over talent development strategies.
Key to this approach is hiring the right personnel, including a strong chief human resources officer. This goes a long way toward keeping HCM front and center, especially when it comes to company-wide initiatives. Boards should also ensure they’re keeping track of HCM-related data and metrics (as well as firsthand employee sentiment) to assess progress and hold executives accountable.
With a comprehensive approach that closely aligns HCM with business strategy, board members and organizational leaders can have confidence in knowing they’ll have a workforce that’s capable of helping the company make its future vision a reality.
