Should your board include a CHRO?
Should your board include a CHRO?
Insight

Should your board include a CHRO?

Board Leadership Center Senior Advisor Annalisa Barrett evaluates the case for adding a director with human resources experience to the board.

As board leaders examine their board composition to ensure that they have directors with the optimal mix of skill sets and experience as well as diverse backgrounds, they have expanded their director candidate pools beyond current and former CEOs to include other senior executives and members of the C-suite. 

At the same time, companies and investors have intensified their focus on human capital, talent development, and corporate culture. One way to address both of these issues is to include an independent director with experience serving as a chief human resources officer or vice president of human resources (referred to hereafter as “CHRO”) on the board. Although there are relatively few current and former CHROs currently serving on boards, we believe that this is likely to change as boards realize the benefits of having human resources expertise in the boardroom. 

Of the more than 10,000 directors on the boards of the Fortune 1000, fewer than 3 percent are either current or former senior human resources executives, according to executive search firm Korn Ferry.1 Still, there has been a significant uptick in the prevalence of directors with HR experience. Executive compensation and corporate governance data firm Equilar identified 243 directors with HR experience serving on the boards of Russell 3000 companies in 2017, compared to 146 in 2007 and 189 in 2012.2

Human resources issues addressed by the board

Among the board’s most important responsibilities are to hire/fire the CEO, design executive compensation and incentives, and monitor talent development. A director with human resources expertise can provide valuable guidance and oversight in addressing these issues. CHROs can draw upon experience developing hiring and screening processes to ensure that the CEO recruiting process includes the steps necessary to identify the right CEO for the organization and help him/her integrate into the role with the best chance for success. The CHRO’s experience with compensation plan design can be invaluable, especially as it relates to identifying and setting the performance measures and goals for the CEO’s incentive plans. These plans help set the tone for the compensation structure and incentives throughout the organization.

Furthermore, CHROs can bring tremendous value to the CEO succession planning process, including the identification and cultivation of internal candidates for the CEO and other key leadership positions. A business leader with HR experience can help the board assess whether the company’s talent strategy is aligned with its business strategy. Moreover, CHROs have valuable experience in cultivating a strong corporate culture, making them well suited to ask the right questions to help identify concerns related to employee satisfaction, sexual harassment, and workplace safety.

A recent report from the Center for Executive Succession at the University of South Carolina Darla Moore School of Business highlights research by Frank Mullins that found that companies with human resources expertise on their boards were more likely to engage in diversity-related activities, such as “hiring CEOs and managers from underrepresented groups and creating inclusive workforce policies regarding people with disabilities and sexual orientation.”3

The importance of human resources issues to the financial success and sustainability of the company has been underscored by calls from institutional investors—and a proposal from the SEC—for more disclosure about companies’ human capital management practices. As companies respond to these demands, CHRO-directors can help ensure that companies provide disclosure that is meaningful to investors and other stakeholders.

CHROs can provide the business acumen as well as the specialized expertise to ensure that the board addresses the human resources challenges and opportunities facing the company. In considering business leaders with HR experience to serve as corporate directors, it’s important to assess their current or prior exposure to the boardroom, their ability to partner with and challenge a sitting CEO, and to effectively address cultural challenges or HR-related flash points. We believe that as more boards review their composition and compare the skill sets of their current directors with the company’s long-term strategy, current risks, and business purpose, more CHROs may be tapped for director seats.

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Should your board include a CHRO?
Companies and investors have intensified their focus on human capital, talent development, and corporate culture. Should your board include a chief human resources officer? KPMG Board Leadership Center Senior Advisor Annalisa Barrett shares her views.

 

1 “Wanted: A human resource on the board,” Korn Ferry Perspectives, 2019.

2 “HR Executives on US Public Company Boards Hits Record High,” Equilar, Inc., 2017.

3 Patrick M. Wright, et al., “2018 HR@Moore Survey of Chief HR Officers,” Center for Executive Succession, Darla Moore School of Business, University of South Carolina, citing: Mullins, F. (2018). HR on board! The implications of human resource expertise on boards of directors for diversity management. Human Resource Management, 57(5), 1127-1143.