Topics:   Business Ethics,Corporate Governance,Strategy

Topics:   Business Ethics,Corporate Governance,Strategy

August 21, 2019

The CHRO Scorecard: Three Metrics Your Board Should Review

August 21, 2019

A chief human resource officer (CHRO) brings a unique skillset to any board. With deep knowledge of executive succession and the ability to maintain and engage individuals who execute business strategy, CHROs are an invaluable asset to corporate boards. Yet, there are only 28 active CHROs serving on the boards of Fortune 1000 companies.

Much like a chief financial officer might have to report on revenue or a chief marketing officer (CMO) on market penetration, CHROs should report to the board on specific, quantifiable metrics to show the value of their role and its impact. The CHRO’s greatest value often lies within the below fields:

1. Diversity and Inclusion: A commitment to diversity and inclusion (D&I) is apparent at many institutions today. Across North America, approximately 74 percent of corporate respondents in a recent PwC survey reported D&I as a value or priority within their organizations. Yet, to make serious progress, the drive for D&I must be underpinned commercially and financially by the board.

Numerous studies by strategic consulting firms consistently demonstrate that heterogeneous boards and leadership teams outperform homogeneous groups in value creation. For D&I to be truly embraced, companies must look to the old adage that “strategy drives structure.” This change must come from the top and be diffused throughout the company.

It is essential that the CHRO coordinate with the CEO to ensure that cross-functional project teams have diverse representation. A lack of quality D&I can represent a reputational risk to an enterprise.

High-performing companies generally expect D&I progress and enterprise goals to be a regular board topic and for the board to hold the CEO, the CHRO, and other senior executives accountable for the personal development of high potential diverse talent. Executive leadership should also be familiar with the development tactics of diverse talent at outside companies to round out the company’s succession strategy. The CHRO and the CEO should keep the board informed of external, potential talent from diverse backgrounds while also ensuring that its own talent development process is commensurate with the enterprise’s needs—and competitive with others’ programs.

Another way to ensure the progress of a company’s D&I objectives is for the compensation committee to consider including personal incentive objectives, tying executive compensation to the achievement of diversity goals.

When looking at how best to measure the success of D&I initiatives, consider sharing with stakeholders statistics that display the growth of high potential diverse executives in the succession pipeline and the number of senior executives mentoring diverse junior executives.

2. Culture: As Lou Gerstner states in his book, Who Says Elephants Can’t Dance?, “Culture is not the most important thing, it’s the only thing.”

While CEOs must serve as chief culture officers, the CHRO needs to serve as the steward of cultural direction. Corporate culture must complement the organization’s vision and its strategic direction. Any disconnect will seriously jeopardize the prospects for future success of the business.

As the culture steward, the CHRO can direct staff to conduct various audits to determine if the desired culture is being consistently embraced and followed. These audits may take the form of individual performance reviews, random interviews with employees at various levels, or employee surveys to determine which behaviors are being rewarded and how these behaviors align with the desired cultural transformation.

The CEO must require senior executives to reinforce cultural goals among their employees and call on human resources (HR) for support in embedding the messaging in company culture. Both the CEO and CHRO must have mechanisms in place to report to the board on cultural development. That said, culture change is not a quick fix. Milestones need to be set and understood widely to ensure appropriate progress is being made. An example of a milestone to evaluate would be the percentage change in annual revenue three years after introduction of a culture change.

3. Ethics: Today, as never before, corporate values and ethics have become major risk management considerations and require steadfast attention and monitoring. Recently, the business world has seen the loss of significant shareholder value stemming from sexual harassment claims, from lack of equal pay for equal work practices, and from improper management of consumer protection and rights—and the list goes on and on.

The intersection of corporate values and the executive team’s individual actions is of paramount importance. As with culture, senior executives must be the standard bearers of the stated corporate values, consistently modeling and monitoring the enterprise’s values and ethics. They may do this through small group meals or meetings with wide ranges of employees.

A vibrant culture is closely tied to the enterprise’s values and ethics. Any significant misalignment risks the erosion of shareholder value through the loss of talent, constituency confusion, and inappropriate behavior. What the organization truly honors and rewards plays out in its day-to-day behavior. The desired values and ethics must be lived daily from the boardroom on down consistently with the desired culture. Otherwise, the culture will break down and employees and constituents will become confused and disillusioned.

A CHRO may also consider utilizing employee surveys or setting up an outside service platform for employees to air concerns about breaks with the company’s stated ethics and values. The board as a whole could receive periodic reports from this service and as needed, provide feedback on matters requiring immediate attention.

Critical matters such as D&I, culture, values, and ethics, in addition to talent development, need to be receiving more board-level attention. The CHRO can be invaluable in making that happen by serving up specific metrics that highlight where a company stands—and where they need to go. Board engagement on these issues is not only good corporate citizenship, but also serves the best interests of shareholders and corporate longevity.

Comments

Ed JulineAugust 29, 2019

Excellent article Mike! Could I suggest a tool we've developed to help measure these three metrics with daily data? The KeenCorp Index is a real-time psycholinguistic AI algorithm that measures tension and personal involvement of employees. Signals are detected from the subconscious communication between employees and converted into stories for solutions.