In the last five years, more and more CEOs have recognized the strategically critical role the human resources function plays in many of the issues they face, including mergers and acquisitions, corporate restructurings, talent management, increased board oversight, and new governance and reporting requirements. In response, many forward-thinking chief executives are making structural changes to how HR fits within their organizations—and significantly raising the bar regarding what they expect from their HR leaders.
To better understand how that move is unfolding and its implications for senior HR executives, Russell Reynolds Associates conducted in-depth interviews with nine CEOs who are leading the way in leveraging human resources in their organizations, to find out how they are aligning human resources with business objectives and what their expectations are of their HR leaders. Based on those expectations, our competency-based research and our consulting experience, we identified the skill sets needed to succeed in this more demanding environment. Finally, we examined the competency profiles of 100 top human resources leaders to assess the readiness of the existing talent pool in the face of these new requirements.
A combination of forces puts the focus on HR:
Human resources’ elevated place on the CEO agenda is due to the convergence of two factors unfolding simultaneously in the global business arena. First, well-documented demographic shifts—the aging of the workforce, global economic expansion, a heightened demand for tech-savvy workers and a decrease in employee loyalty—are making the successful identification and retention of talent more difficult than ever and a powerful source of competitive advantage for those who can do it well. “
The cost of labor and benefits is horrific and there are increasing liabilities for all companies that employ large numbers of people,” observes Northrop Grumman Corp. Chairman and CEO Ronald D. Sugar. “How do you stay competitive? How do you treat your people right? How do you get people who want to work for you? How do you not bankrupt your financials by doing it? That’s an important challenge for HR.”
Second, boards are acutely aware that many of the issues for which they have oversight—from acquisition strategy to succession planning—succeed or fail based on the quality of the people involved. As Brian C. Cornell, CEO of Michaels Stores, Inc., notes,
“Organizations that have the highest-quality and highest-caliber members on their team are the ones that are going to win.”
Either one of these two factors would be enough to put human resources on the boardroom agenda. The combination, however, results in a talent supply-demand unbalance that is causing corporate leaders in all sectors to rethink this function.
- That rethinking begins with the job description of the HR leader. Gone are the days when the role was defined by the minutiae of record keeping, benefits administration and the establishment of a vaguely understood “corporate culture.
- CEOs want the HR leaders. “HR executives should realize that they become valuable members of the executive committee and have earned a seat at the table not just by recruiting and retaining talent
” HR has to play a more proactive role and not a reactive role,” comments Ronald E. Logue, Chairman and CEO of State Street Corporation…..Of course, these new demands are in addition to, rather than replacements for, the traditional skills and capabilities that have long been expected of HR executives “….
Campbell Soup’s Conant sums up the challenge facing today’s HR leader :
“ You have to be brilliant in the management of human capital and be very savvy in the ways of business. That’s a tall order.”
New competencies for new opportunities:
In order to assess how the competencies of the current crop of HR leaders stood up against these new standards, Russell Reynolds Associates’ Executive Assessment Practice examined the competency profiles of more than 100 senior HR executives assessed over the past six years. Results indicate that while HR executives tended to score higher in interpersonal skills when compared with a pool of executives across all functions, they scored lower on strategic vision, business acumen and global orientation—confirming that HR executives have significant catching up to do if they are to meet the requirements for a seat at the senior management table.
“ Your head of HR has to be one of the best people in the organization,” says G. Kennedy Thompson, Chairman, President and CEO of Wachovia. “It’s one of the most critical jobs and affects the whole organization. If you don’t have great HR, it drags down every part of the organization.”
A culture that supports HR’s strategic role:
CEOs recognize it is not merely a question of asking their HR leaders to rise to the challenge of new capabilities and responsibilities. If they want HR to deliver at a higher level, they have to create the environment that allows that to happen.
“ Historically, there’s been an issue where the HR person is the lowest member of the senior team and not a peer,” comments Eppinger. “Right off the bat, you’ve got a problem. You need someone who can carry themselves as an equal.” Corporate chiefs are employing a range of strategies to shake up such outmoded thinking. At The New York Times Company, for example, “The organization was restructured to accelerate a change in the culture, to increase accountability and to improve the goal-setting process,” says Robinson.
“That restructuring, which included expanding the Executive Committee, created disciplined HR initiatives that were led by the senior-level executives of the company. These initiatives were designed to drive performance and innovation and advance the company’s transition to a multi-platform media company.”
State Street’s Logue, meanwhile, made his head of HR a direct report and an integral member of the 10-person Operating Group that manages the company on a day-to-day basis. Logue also moved his HR leader just a few doors down from his own office and in close proximity to the other senior executives.
“You have to foster the communication,” Logue explains. “The other senior members of the team have to appreciate the value that is brought by the head of HR.”
Matthew Emmens, CEO and Chairman of the Management Committee of Shire plc, has successfully integrated his HR leader and the HR function. “I’ve been privileged in my last three positions to not only select the person in that spot but also to create the management structure around it,” he comments. “In doing that, I’ve made the person not just an HR professional but created an organizational structure and an expectation that that person participates as a full business partner.” In fact, “Every unit has a business partner from HR on its management team. We deploy them through our units,” he adds.
Henry L. Meyer III, Chairman and CEO of KeyCorp, also stresses the importance of integrating HR into the various business units within the company. “HR isn’t a floor or a bunch of offices. It sits with the business groups. Each business group has a generalist HR person who is an integral part of their strategy.”
And, as at many companies, the talent review process at Wachovia is driven by the firm’s HR leader. Critically, however, it is not siloed in HR but central to the firm’s strategic planning. “We’re two years into a talent identification and succession planning process where we assess and discuss the talent two to three levels below me across all of our lines of business,” says Thompson. “Each line of business talks about their people in talent review discussions with other lines of business so we know our talent more broadly, understand our collective bench strength and can move talent across lines as necessary to meet business needs. We also do succession planning three levels into the company within the lines of business.”
However the elevation of the HR profile occurs, it requires a commitment from the top. “Setting the tone about development as a CEO is everything,” says Hanover’s Eppinger. “A lot of people talk about that, but most companies don’t have an explicit commitment from senior management to make their people better. And that’s part of the contract here.” That commitment must also include the financial backing to support the success of HR in attracting, retaining and compensating top talent.
Meyer of KeyCorp puts it plainly : “My head of HR can’t run a top-flight HR organization if the company won’t spend money.”
Solving a talent shortage:
Not surprisingly, the demand for HR leaders meeting this stringent set of requirements far outstrips the supply. Appropriately, forward-thinking companies are finding that the solution lies in making the silos between departments more permeable. Promising HR executives are rotated out into line positions in sales, marketing or operations; returning to their home departments with a broader perspective, they codify and institutionalize their knowledge and thus bolster the HR talent pipeline. At the same time, some organizations are bringing in executives from sales, finance or marketing to take HR leadership roles, betting that they can get up to speed on domain-specific knowledge while leveraging their business perspective.
The latter approach has been used successfully at Northrop Grumman. “You take an operating executive of enormous potential and put them in a key HR role somewhere in the organization and allow them an opportunity to develop and mature from that position,” Sugar says. “It brings you immediately into the inner sanctum, and you learn what’s really happening, who knows what and who the key people are. And when you roll back out to run a business, you have some additional skills.”
Robinson at The New York Times Company agrees that HR leaders who have worked at companies that have “gone through monumental transitions” have a lot to offer. “I think you are advantaged when you attract people who enjoy rolling up their sleeves and view their positions as being agents of change,” she notes.
“I think transitions can bring out the best in HR professionals when they are willing and eager to step up to the challenges. They should view themselves as critical leaders in the change process,” Robinson says.
Seizing the opportunity:
While a rapidly shifting and complex business environment is forcing talent management to the top of the CEO agenda, those CEOs are responding by driving change in a function that has been historically relegated to second-class status. They are elevating the HR function to give it full membership in the inner circle and are raising expectations accordingly.
HR leaders with the full complement of skills and perspectives necessary for success are in short supply, causing companies to develop innovative strategies for identifying candidates for positions that will not wait. At the same time, the human resources profession needs to apply its expertise to itself—expanding its skill sets, establishing best practices and developing a culture of knowledge sharing— to successfully grasp this opportunity. And in that challenging transition, the CEO may be HR’s biggest advocate.
“The HR person has a wealth of knowledge of the capabilities of the organization,” says Shire’s Emmens. “There are a hundred things they can bring to the table because they are, in many ways, the central nervous system of the company. They’re the eyes and the ears. They’re great observers. So they’re often aware of issues, problems and roadblocks ahead of the people in the room. And if you listen to them, I think you can make much more intelligent decisions around the human assets in a corporation.”
Perhaps Campbell Soup’s Conant sums it up best : “ If you believe that leading & managing your people is the most important thing you do, then not only does HR have to be at your table, it has to be at your right hand.”