UK boards run the risk of having their reputations damaged by a “people insight deficit” , a new report from CIPD has warned.
The value of people expertise on corporate boards report, found that only a quarter (25 per cent) of FTSE 350 firms have executive or non-executive board members with experience in human resources, and only 2 per cent have an HR director on the executive board.
It also found that many chairs and senior independent directors have financial rather than HR backgrounds.
Samantha Mulllins, director of Latitude HR, said unfortunately a lack of representation of HR at the board level has been a problem for far too long, sending the impression that people and culture are not a business concern. “At worst it creates toxic cultures, however even when this doesn’t happen the impact on the performance of the organisation is significant,” she said.
“As HR professionals, we have a key role to play in getting representation at a board level,” she added, as “for too long, investing your people has been seen as a business cost and a nice to do, we need to change that perception and demonstrate the importance of thinking about people at all levels”.
But, according to Nadeem Khan, programme director, MA board practice and directorship at Henley Business School, HR directorship qualities can be more often perceived as generalist rather than specialist. “Intangible assets such as people capabilities, culture and team engagement are more difficult to measure,” said Khan.
However, having an HR representative on the board of directors may help to advance key strategic innovation, positive diversity and inclusion and wellbeing leadership, Khan added.
HR representation elsewhere?
Additionally, the report discovered a lack of HR representation on remuneration committees (23 per cent) as well as nomination committees (20 per cent) despite the fact that both are concerned with the key people issues of reward and talent.
These findings echo those of the Women on Boards UK’s Hidden Talent report, which highlighted a lack of skills diversity on company boards. Just 2.3 per cent of executive board members, both men and women, hold roles other than chief executive, chief financial officer, or company secretary.
The CIPD warned that a lack of HR representation at the very top of an organisation harms corporate governance efforts, especially given that the majority of financial reporting inquiries on board performance address people issues.
Wendy Dean, CEO of Strategi Solutions, said with HR directors being responsible for reporting on gender pay gap and being pressed to improve diversity, it’s ironic that so few actually have representation on remuneration committees let alone nomination committees.
“During the pandemic, businesses relied on HR teams to deliver more than ever in terms of business survival, good culture, communications and employee relations, but despite this, that seat at the table is still elusive,” she said.
Companies that have embraced HR as an essential component of organisational success will have higher retention rates, fewer absenteeism, and a better grasp of equity and inclusion, Dean added. “It's not enough to ask HR to create EDI policies without having the authenticity to measure their impact and ensure continuous improvement,” she said.
Human skills needed at the top
In response to the findings, the CIPD urges for chief people officers to have “right of access” to remuneration and nomination committees, and all company boards hve regular “input, support and advice from senior-level HR practitioners on critical workforce issues” in order to ensure that organisations develop a positive corporate culture and manage workforce risks.
Susannah Haan, senior corporate governance adviser at the CIPD, said it is often said that “people are a company’s valuable asset”, but the makeup of boards simply doesn’t reflect this at the moment.
“Effective boards require a diverse range of skills and perspectives, so it’s concerning to see how few boards have people with HR expertise,” she said, adding that this lack of “people insight” can lead boards to overlook people's risks and thus to significant “reputation damage”.
A previous People Management article evidenced the importance of human resource skills from the very top of an organisation, as according to the Women on Boards study, while the majority of employees (82 per cent) turn to board members for leadership on people and culture, just a quarter (27 per cent) stated a chief people officer or similar position was brought in to help.
There is clearly a “people insight deficit on UK boards”, Haan stressed, who added that a much higher emphasis on people and HR knowledge is required if businesses are to survive and develop in a changing world of work and adapt effectively to external challenges.
Idris Arshad, people and inclusion partner at St Christopher’s Hospice, said looking at some of the recent examples of toxicity at global organisations, HR can play a proactive role in ensuring these issues are recognised early, while also working to put preventative measures in place to promote excellent working cultures and effective leadership.
However, this position becomes more “challenging” when you are not present during “decision-making conversations”, he added.
“The longer the drivers and rewards for companies are money related, then these cultures go against valuing people beyond than just a resource to make money,” Arshad said, suggesting that organisations be rewarded financially depending on people-related metrics, such as: level of employee relations, levels of sickness and absence, wellbeing of the organisation, training and support offered and engagement levels.
“When these things are too high or lacking, it is a breeding ground for bad cultures which often show themselves in the unfortunate stories we have heard for far too long.”