More boards need to recruit NEDs with HR experience argues the CIPD's Katie Jacobs

‘Our people are our greatest asset.’ I have lost count of the number of times I’ve heard that phrase in my interaction with leaders as a business journalist and when reading through annual reports. It has become meaningless at a time when it has never been more imperative to embed such sentiment as genuine and truly linked to strategy.

The external context in which UK organisations operate is shifting, driven by the shockwaves of the 2008 crash that are still reverberating. There are regulatory shifts, such as gender-pay-gap reporting, pay-ratio reporting and likely ethnicity-pay-gap reporting, and changes to the Corporate Governance Code that require PLCs to explain how they are engaging their workforce and capturing employee voice. This is compounded by ongoing socio-political complexity, decreasing public trust in ‘big business’ and the rise in climate activism.

It’s why, in the US, the Business Roundtable group recently announced a shift away from a focus on shareholder value to the value created for all stakeholders. And it’s why two of the world’s most influential fund management bosses recently called for a rethink of capitalism’s obsession with constant economic growth. 'We need to reshape capitalism' risks becoming as much as a cliché as, 'our people are our greatest asset.'

All this means that people and culture issues are rising up the business agenda like never before. At the CIPD, where we represent the people profession, we have long argued these are board issues. The challenge is moving beyond a tick-box approach to culture. That requires moving ‘people’ from a cost-centre to a value driver, seen through the strategic lens of risk and opportunity, rather than as a cost to be managed or asset to be sweated.

The role of HR: exec and non-exec

I spend most of my time with chief HR and people officers in a range of organisations, from FTSE 100 companies to central government departments to large third-sector bodies. I’m witnessing a sense that the opportunity has never been greater for these people leaders, these culture experts, to add value to boards.

Much of this is via their executive roles. Although chief human resources officers (CHROs) rarely hold executive board positions, they are working closer than ever with the board and committees. While much of this is driven by exec remuneration, the new Code requirements mean culture and voice are critical.

The CIPD has been working with the Financial Reporting Council to bring together CHROs to discuss culture and governance. There are no easy answers as much in this area is, by necessity, fairly intangible, but there is some progressive work going on around embedding the right behaviours (with the focus on the ‘how’ as much as the ‘what’) and creating 'clean' businesses – as one CHRO put it – sometimes by making tough decisions around unsuitable leaders. In 2018, PwC research found that, for the first time, more CEOs were ousted due to ethical lapses than financial performance or struggles with the board.

We have also seen a steady increase (more of a trickle than a flood) of HR leaders taking up board positions as NEDs, proving the value that a deep understanding of people and culture, plus wider business expertise, can bring to the governance of an organisation. There is opportunity for more HR leaders to take up this challenge, given the increasing focus of governance frameworks on culture and behaviour, as well as pressure over executive pay.

Elevating people issues

There remain barriers to genuine change. Some leaders view corporate governance as a box-ticking exercise. In uncertain economic times, people budgets (for example training and development) are often – short-sightedly – cut. HR is not always seen as a relevant route onto boards, due to a persistent perception that those in the profession are uncommercial (true of some, but in no way fair to those at the top of their game). And, despite positive noises around Environmental, Social and Governance (ESG), many investors still prioritise short-term financial metrics over longer-term ones related to sustainable business. As one CHRO said to me recently: “We get asked nothing about whether we actually have the capability to deliver on our strategy.”

If we want to create long-term, sustainable organisations that create value for all stakeholders, we need to elevate people and culture issues to the very highest level, on a par with the financial. Consider whether your board has the expertise to be able to deliver that, and whether a people leader might provide much needed challenge and diversity of experience.

Katie Jacobs is senior stakeholder lead at the CIPD, the professional body for HR and people development. She is an expert on workplace issues and a former business journalist. She was previously editor of HR magazine and has written for several publications, including the Financial Times and The Times

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