Preparing for the Board: The CEO-CHRO Dialogue

A Roundtable Discussion

New Delhi July 24, 2009

In a session titled Preparing for the Board The CEO-CHRO Dialogue, CEOs and HR heads from more than 30 companies spent the first half of the day engaged in a contemporary and thought provoking debate. They explored what was holding back the CHROS, custodians of talent, the most important asset of any organisation, from getting their rightful place under the sun. While observers have always acknowledged the criticality of HR, it seems that HR leaders dont get enough recognition and this raises several questions. For example, why are HR leaders mostly absent from the board of directors? And then, does this absence matter? Does the onus lie on HR leaders to walk the extra mile to get their due? What role does the CEO play? Would P&L responsibility make them more business savvy and strengthen their case to join the board? The session, co-hosted by SHRM India and 9.9 Media, examined these and related issues in a candid and free-wheeling discussion.

The past decade saw one of the more spectacular phases of economic growth. Ironically, the world also saw a huge talent crunch, as companies found it difficult to find the right people to fill its evergrowing needs. As a result, HR started assuming greater criticality than ever before its inputs were vital in meeting the challenges of attracting, recruiting and retaining talent. But while HRs functional importance grew it remained absent from the C-suite (albeit cosmetically). A look at the visiting cards in any folder reveals that while there will be an assortment of designations CEO, CTO, CFO, CMO, among others there is rarely a Chief HR Officer, or CHRO! Mostly, the head of the human resource function is called by many other names but this. This is ironic, considering HRs transformative role in the recent past. It is widely believed that a function reaches its pinnacle when its leaders presence on the Board is considered mandatory. But conventional wisdom neednt always be right; and so, this group of senior leaders debated the validity of this perception and asked whether presence on the Board was as important as it is often made out to be. The fact remains, that the under-representation of HR leaders on the board is not a matter of idle speculation. It is borne out by data. Only seven of the 30 companies in the BSE Sensex have their HR heads on the boards! Todays HR leaders, therefore, face three critical questions: 1. How important is it for them to be part of the board? Can they add value regardless of any formal board position? 2. Does heading a function qualify a leader for the board? 3. Keeping the above in mind, how can HR leaders chart their growth path, going forward? According to G. Ravindran, MD, SHRM India, almost all CEOs would list people issues as one of their top 3 concerns. Yet there is a vigorous debate on whether HR Heads should be on the board! But a functional head requires a lot more than technical expertise to join the board. The discussions proceeded to discover what those skills might be. The evolving HR role HR has seen an extraordinary evolution in the past two decades. Once confined to personnel management and administrative tasks, HR roles today have evolved to include Talent Management Officers, Talent Acquisition Officers, Rewards Officers, Coaches, Mentors and finally, the CHRO. The most effective CHROs are those who dont aspire to be CEOs, because they can then be very neutral about their peers and the CEO himself. Why are CHROs not on the board today? Today, a significant number of CHROs are not on the board of directors. The primary reasons appear to be: a) Perception of being a cost centre rather than a revenue generator b) An assessment that business skills are lacking in HR professionals c) Little experience in other business functions, such as finance, sales and marketing CHROs can become confidants only if they develop a nonthreatening relationship with their peers and CEO. R. Sankar, Executive Director, People & Change Management, PricewaterhouseCoopers

One of the key reasons why HR leaders have not been on the board is that HR is often seen as a soft and easy skill, while some of the other functions have closed themselves into impermeable complexities, based on data, analytics and numbers. HR faces a distinct choice today, as it struggles to tear away from its cost centre image and move to take on more risks and be responsible for revenue generation. Simply being a cost centre for many years has hindered the CHROs progress to the board. Embracing risk and measuring performance with metrics could help resolve this situation. Anil Sharma, Vice-President HR, ITC Hotels argued that only people who understand the business should be on the board. And this understanding could be gained only by practice, learning and action. Sometimes, HR leaders are not strong enough to prevent professionals from other roles stealing their function. Over the years, according to Biplob Banerjee, Chief HR Officer, Dainik Bhaskar, this has diluted the function. The approach to identifying HR leaders has also changed. Earlier, companies such as Unilever India, P&G etc. were looked up to for producing good managers whether in sales & marketing, finance or HR. The practices of those companies are such that they develop wholesome managers. But in todays environment, that is not possible. There is much more instability and movement across jobs, which prevents identifying the right HR leaders to groom. Also, very few institutes exist that specially train HR professionals. Thus, while professionals start with a certain amount of competence, this functional competence takes a backseat as they grow to a senior level. What becomes more important is the ability to understand business. There is a perception that HR leaders have lagged behind in this situation. While past hiring in India, up to the 1990s, involved working in multiple functions, across finance, sales and marketing, operations etc. increased specialisation these days has robbed professionals of gaining expertise across multiple functions. Thus, even the natural path to gain business expertise has been hampered. Thus, for HR professionals to join the board, they must have business acumen. Holding a P&L responsibility is a critical step in that direction. Furthermore, accountability for the bottom-line would ensure credibility, which the HR leader can leverage in his quest for a board position. Fundamentally, a person who is on the board should have the capabilities of functioning as a CEO. Very few CHROs eventually became CEOs. These included Subir Raha (ONGC), Anil Khandelwal (Bank of Baroda), Arun Balakrishnan (HPCL), K. Ramachandran (Philips India) and Manoj Kohli (Bharti Airtel). Most people who have made a big difference to the way HR is practised in India have very deep insights to offer. It must be pointed out that while understanding the business is important, it has to be in conjunction with a deep knowledge of HR. Otherwise, there is a danger of a person simply focusing on ROI and ignoring the other softer issues, which are still vital in implementing good HR practices. It remains an open question whether HR leaders have risen to the challenge, despite their aspirations to be part of the board. While HR is a stepping stone for a person aspiring to be on the board, HR departments in most companies are far less involved in strategy. Every HR department may not necessarily be proficient in managing critical issues like change management, strategy and organisation design. Thus, critical skills to be successful in the board may be absent from the HR leaders portfolio.

CHROs on the board: A necessity or a nice-to-have? The normal assumption is that when an enterprise wishes to have a certain kind of competency on the board, the person heading the function that represents those competencies joins the board. Thus, the Chief HR officer must have the ability to represent HR competencies on the board. When a company values human capital, the board of directors should have access to: a) Expertise and information needed to understand talent issues at all levels b) Understanding of human capital and research related to human resource management c) Inputs on key challenges like succession planning, etc. While the HR leader should have a very broad background, the companys circumstances remains a key determinant of whether the HR head is on the board. Having a single person at the helm of affairs representing the competencies is becoming irrelevant. In todays complex and dynamic environment, visionary business heads and managers at all levels who know how to manage their people is the need of the hour. HR is also one approach to implement business strategy. If functional heads can demonstrate that they can run a business successfully, they are confident of adding value and hence will be a natural choice for the board. Running businesses and profit centres build credibility. In general, the business head has to leverage available resources to achieve his goals and managing the available talent becomes a key challenge. This is where an HR specialist can play a complementary role to the business manager. Having the HR head on the board or on the management committee is not as critical an issue as ensuring that each enterprise has the HR specialist who can manage talent in a strategic manner. This is vital as such specialists play a key role in ensuring a smooth transition after a merger or acquisition, or in managing an outsourcing relationship. The challenge is that while the demands on the HR function are changing constantly, the approach to HR, both from HR heads as well as top management is evolving much more slowly. Characteristics of effective CHROs According to D.P. Singh, Director-HR, IBM Daksh Business Process Services, the HR leaders selfperception is very important. Singh saw himself as a business leader who is performing an HR function. An IBM survey revealed that growth markets, such as India were 50% behind the developed markets when it came to judging the business acumen of their HR function. HR analytics therefore becomes important and HR leaders need to demonstrate the business and financial impact of their decisions, as this would have a positive impact on the CEO. Today, the CEO needs a set of trusted advisors, coaches and people who can help him make the right decisions. If HR leaders understand and demonstrate the business impact of their actions, they become closer to the CEO. Gagan Jyot, Head-HR, RMSI, a company that has consistently topped many great places to work lists revealed that its very important for an HR head to understand business and talk the language of business. Although she came from an organisation dominated by engineers, she realised it was imperative for HR to talk the language of business to gain credibility. Although she is not formally on the board, the CEO and other business leaders constantly look to HR for its help and support in almost all activities. She aspired to create a niche for HR in RMSI and took a conscious decision to make a strong effort towards understanding the business, technology and markets. She participated in client meetings and gained a better understanding by her interaction with RMSIs business leaders

during such meetings. Thus, HR has to align itself to its client and business needs in order to generate more value. THE NEXT STEPS... Managing the CEOs expectations and enhancing the CHROs strengths While HR heads can certainly implement many initiatives in their preparation for the board, the CEO has an equal, if not more vital role to play. HR functions in enterprises are at various levels of evolution. Some play a supporting role (beyond personnel and administration), others partner meaning that they are reactively responding to the needs of the business and some proactively try to understand the needs of the organisation to enable better decision making. Ultimately the CEO gets influenced by what his functional heads say. And for the functional head to gain that traction, the people in his function have to say and believe that it adds value. Therefore, the entire HR function that has to work as a single unit, believing it is a vital cog that generates value, rather than act as a support function. Being an HR leader therefore is a lot about protecting the functions mandate. The leader has to fight for his territory as nobody else will carry the torch for a particular mandate. For instance, the CFO is meant to fight for financial prudence at the cost of other things. So HR heads also need to identify their core issues early and ensure that the CEO gains insights into competing functional demands. Thus, an HR leader, in addition to nurturing his own aspirations, needs his CEOs support and guidance to make this journey. Sanjeev Bikhchandani, CEO & MD, Info Edge, emphasised that HR leaders need to understand what their customer, the CEO, wants and deliver on those expectations. Some CEOs are supportive of and recognise the critical role that HR plays in an organisation and they will ensure that HR has a significant say in the business. However, this may not necessarily translate into a seat on the board. This is because few CEOs understand fully the tasks and strategies of HR. Also, there is very little regulatory or shareholder pressure to have the CHRO on the board. Hence, the HR leaders should work towards making themselves indispensable to their CEOs and demonstrate how they add value to the organisation. This would give a better picture to the CEO, who, in turn would be more likely to recommend the CHRO to the board. The CEO may need to play the role of Prof. Henry Higgins in Pygmalion and help nurture and support the CHRO. This can be done in many simple ways, such as giving the HR department business problems to solve. A leading global coffee chain once asked its HR department to study and solve productivity disparities in its multiple outlets. Through extensive research and study, the HR department submitted a set of recommendations, which when implemented, began to boost productivity in the low-performing outlets. Hence, if HR leaders are asked to stand and deliver, they will take the opportunity to prove their mettle to their other CXO peers and consequently, rise to the board. Another way by which the CEO can support the HR functions growth is to actually not allow those with less than 5 years of experience to join HR. These younger employees would then gain exposure to other business functions. As and when they join HR, they would have already obtained the business knowledge which is apparently lacking right now.

Additionally, the HR leaders should also show more initiative to demonstrate their value to the CEO. One of the participants described how his HR department asked for the SOWs (Statements of Work) from the various units, to understand how employees were being utilised. While some of the units were not very happy with the request, they complied. HR then demonstrated that there were almost 300 more people on the projects than required, leading to cost overruns. Thus, HR managed to create business value by showing areas where costs could be cut quickly. But the fact is companies are different, with some more dependent on people than others. Those that depend heavily on people (large service enterprises like Infosys) have developed cutting edge HR practices. Moreover, the CEOs of such companies are also very focused on people management, recognising that talent is a key driver for success. Many CEOs are unaware of what HR can do and hence they may fear giving a challenge to their CHRO. To mitigate this, there should be more open dialogue between the CEO and CHRO. HR heads expect the CEO to have long-term thinking, and any CEO who is a long-term thinker cannot afford to ignore HR. Short-term oriented CEOs are more disruptive for HR, as they may focus on HR only in the downturn and not pay attention to it in the boom period, when it is important to consolidate systems and processes. A CEO who is forever looking at the Sensex will have little respect for people issues. CEOs are urged to think of the softer aspects of management, in addition to hard financial numbers. When the eminent philosopher, J. Krishnamurthi was asked, Should a man operate from the mind or the heart? he replied, You must think through the heart. That is what the CHRO expects the CEO to do. Conclusion Thus, the consensus was that while HR heads believe it is a great opportunity and form of recognition to be on the board, they are currently more interested in generating value for the enterprise. The next session will explore if the goals set are too low and whether aspirations can be set at higher levels. What are the current limitations that HR needs to overcome to earn its place under the sun? How can one separate the individual from the function and decide which aspect is deserving of a seat on the board? Should a CXO, who is competent, deserving and trustworthy be part of the board as long as he or she adds value? Should the function he heads be of any consideration? A survey on the board readiness and strengths of CHROs will follow in the next few weeks to take these and other questions forward.

For any feedback and other queries, please write to: Rajeshwari Sharma, Editor, SHRM India at Rajeshwari.Sharma@shrm.org Mahesh Ravi, National Manager Research, 9.9 Media at mahesh.ravi@9dot9.in
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