Topics:   Corporate Governance,Leadership,Strategy

Topics:   Corporate Governance,Leadership,Strategy

May 9, 2019

A Three-level Approach to Better Board Oversight of Talent and Culture

May 9, 2019

Corporate boards have traditionally been reluctant to delve too deeply into talent issues, viewing them as the purview of senior management. But in my recent conversations with directors, it’s clear this is changing.

“If a board starts and stops at CEO succession, that’s only a small part of the role they should be playing in talent development,” one director told me during a panel discussion at PwC’s Corporate Directors Exchange in January. “If you look at any company that’s landed in the headlines because of a scandal, you will likely find there were cultural issues not being fully shared with the board.”

Corporate scandals are one reason directors have begun taking a greater interest in workforce issues. Transformation is another. As technological advancement continues to accelerate, companies are getting the chance to completely rethink what their workforces will look like. Which functions will they automate? Which ones will they augment? Which functions can be performed by contingent workers?

“As AI and automation take greater hold, boards need to understand where the capability to perform business functions will come from,” another director said during our Corporate Directors Exchange. “In 10 years, we may find ourselves with 100 employees and billions in revenue because so many things have been automated.”

The need for greater board oversight of talent and culture boils down to one word: strategy.

Now more than ever, a company’s culture and its ability to attract and manage talent is critical to implementing its major initiatives. So, although in the past it might have made sense for the board to be more hands off on these issues, today’s directors need to be more involved as part of their long-held responsibility to oversee strategy.

But talent management and corporate culture are huge issues. And directors only get glimpses into what’s really going on within the company. How can directors provide more substantive oversight without stepping into the role of management? 

It starts by viewing these issues through the three levels of the organization: the C-suite, the up-and-comers, and the larger workforce (middle management, for instance). From that vantage point, here are some steps directors can take to improve their oversight:

1.The C-suite: Directors are already pretty clear on their responsibilities for managing and developing the company’s top executives. Where they can play a greater role is in ensuring that these top executives are making talent development a high priority—particularly in the face of skills shortages and other workforce challenges. They can do this by:

  • Requesting that management include an assessment of talent and culture in every new strategic initiative they present to the board. This can spark discussions about whether the company has the right leaders to execute the strategy and if the workforce has the right skills and capabilities. An area often overlooked is whether the culture of the organization will be receptive to the initiative or transformation.
  • Elevating the chief human resources officer to a more strategic role and asking for regular updates on talent issues.
  • Encouraging the establishment of specific people-development goals in areas like diversity and inclusion and employee retention—and making them key performance indicators for executive compensation.

2. Up-and-comers: Directors are also well aware of their duty to make sure the company has a strong talent pipeline for all C-suite functions. This is easier said than done, and boards need to continue their efforts to get to know these high performers and assess their capabilities by:

  • Having them present to the board on major initiatives, work on special board projects, and attend board dinners.
  • Using tools like a “C-suite Readiness Chart” to map out the senior executives who could assume C-suite positions now, as well as one to five years in the future.
  • Making it clear to the CEO and other C-suite members that a big part of their job is grooming their successors.

3. The larger workforce: Getting a grasp on talent management at the middle management level is particularly difficult for board members. This is where they will need to do the most work to increase their oversight. Here, the board’s focus should be understanding the company’s talent philosophy, future talent needs, and culture. Assessing culture can be particularly challenging for board members, which is why PwC’s Governance Insight Center has written an entire paper about it. Here are the highlights:

  • Ask management for a culture assessment, such as a “culture thumbprint,” that identifies five or six dominant cultural traits within the organization.
  • Review the culture assessment to determine whether it supports the company’s strategy. Ask management: Which traits are most important to executing our strategy? Which behaviors would create the culture we want? And what’s standing in the way of achieving our ideal culture?
  • Monitor company culture using a tool like a culture dashboard. The dashboard should include metrics like employee engagement and customer satisfaction survey results, turnover rates of high performers and the nature of the complaints being made through the ethics hotline. (For an example, see our report referenced above.)

Broadening board oversight of talent and culture is doable when you break it down into manageable pieces. And companies will benefit from greater focus on these issues. In fact, their future depends on it.

For more tips on how directors can better oversee talent, read our report, A deeper dive into talent management: the new board imperative