Today’s low unemployment rate means job openings in many fields continue to outpace the number of workers interested in and qualified to fill them. Companies that do manage to recruit strong performers must fight fiercely to keep them in a market characterized by rampant job-hopping and where employee loyalty is now an antiquated concept. Meanwhile, more and more companies are also realizing that the workforce that got them where they are today may be vastly different from the one they will need to succeed in the future.
These new realities demand that boards, in turn, equip themselves to take a more vigilant stance on monitoring and managing workforce strategy, says Johnny Taylor Jr., president and CEO of the Society for Human Resource Management and member of Gallup’s board. “Because we have a knowledge-based economy, which makes us more reliant on people, smart boards are beginning to say we’ve got to start adding really qualified HR executives on these boards to ensure that our human capital strategy is just as shored up as our financial capital strategy,” he says.
Meredith Miller, chief corporate governance officer for UAW Retiree Medical Benefits Trust—the largest non-governmental purchaser of retiree healthcare in the U.S., covering over 860,000 members—says the directors she is engaging with are looking at elevating the roles of CHROs, if they haven’t already. “Boards are interested in integrating human capital metrics into oversight responsibility, and they understand that investment in the workforce is an asset, not a financial liability.”
That would be good preparation for possible new reporting requirements. At the moment, all companies have to report on human capital is how many people they employ. But in 2017, the Human Capital Management Coalition (HCMC), which represents 25 institutional investors with $2.8 trillion in assets, submitted a petition asking the SEC to require companies to report human capital metrics that drive shareholder value. While the petition has not yet resulted in changes to requirements, Cambria Allen-Ratzlaff, corporate governance director for UAW Retiree Medical Benefits Trust, and part of the HCMC, is pushing for the new regulations. “Human capital management reporting has appeared on the agenda for the last two meetings of the SEC’s Investor Advisory Committee,” says Allen-Ratzlaff. “And Chairman [Jay] Clayton has also given opening remarks noting the importance of the issue. We view this as a very positive sign.”
A Matter of Composition
To adapt, some boards are broadening the responsibilities of the nomination and governance or compensation committee. “We’re seeing the classic compensation committee is now becoming the organizational development and compensation committee,” says Eva Sage-Gavin, a senior managing director at Accenture and the former corporate director at recently acquired Broadsoft. In some cases, boards create subcommittees charged with developing strategic workforce agendas, she says.
Boardroom talent discussions that once focused primarily on the C-Suite are also now digging more deeply into the talent pipeline. Thomas Bakewell, CEO and board counsel at Thomas Bakewell Consulting, says regular talent reviews enable the board and management team to establish the need for top talent as a priority for the entire organization. “Board members need to be actively engaged with management,” says Bakewell, who sits on the advisory board of FirstBank Holding. “They have to know that management is hiring the right team.”
To assess the company’s current talent and what adjustments are needed to support dynamic changes in corporate strategy, boards and management should review workforce strategy on at least an annual basis. “During these talent reviews, each C-Suite leader needs to take more responsibility for the future talent supply in their business,” says Dean Stamoulis, leader of Russell Reynolds Associates’ Center for Leadership Insight. In addition to assessing how well the current workforce aligns with corporate strategy, those conversations should also identify which workforce considerations are most important to carry out the company’s mission, to maintain efficiency standards, to keep workers engaged and productive and to stay competitive within its industry.