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 / Summer 2008 / Issue 51(originally published by Booz & Company)


The Talent Lie

A good comparison point is the presence on just about every board of at least one individual with financial expertise: someone who understands capital markets and can give advice on them. In addition, every board has someone with an accounting background. If a com­pany’s most important asset is its people, it is reasonable to expect that its board would have a similar level of expertise in human capital available to it.

Board members should receive regular information about the condition of an organization’s talent and the way it develops and deploys that talent. Among other things, this should include information about people’s attitudes and skill development levels; assessments of the availability of backup talent for key positions; and evaluations of the organization’s ability to attract, retain, and develop new talent.

Moreover, the board should spend at least as much time on human capital issues as it does on the allocation of financial and physical capital. It is particularly important that corporate boards spend time on succession planning for top-level management positions. Nothing is more important for the future of an organization than the type of talent it has available to fill its most senior positions. Thus, the board should have up-to-date, in-depth knowledge of what executive talent is available and how well developed it is.

Research on existing boards suggests that most organizations fall far short of these ideals. For example, although it is hard to come up with exact figures on how many boards have members with expertise in human capital management — from consulting, academic, or practitioner experience — my research suggests that most boards do not have many, if any, such members. Almost no U.S. boards have a member who has been or is a vice president of human resources with a major corporation. (Starbucks is a current exception, and TRW and United Parcel Service of America both formerly had their vice president of human resources on their board.) And virtually no HR consultants sit on today’s corporate boards. This relative scarcity stands in stark contrast with the number of venture capitalists and financial experts on corporate boards.

When it comes to academics being on boards, the pattern is similarly clear. Finance and accounting professors sit on numerous corporate boards, but membership on a board is a rarity among professors of HR management and organizational behavior. One of the few ex­ceptions is David Ulrich, a human resources management professor and consultant based at the University of Michigan, who sits on the board of Herman Miller Inc., the office and home furniture company. But Herman Miller is itself atypi­cally preoccupied with human capital issues; one of its former CEOs, Max De Pree, is known for his book Leadership Is an Art (Doubleday, 1989), which outlines a humanitar­ian approach to management.

When I ask board members who they rely on for HR expertise, they often mention one or more of the CEOs who are on their board. They point out that CEOs have considerable management ex­perience and therefore must have expertise in human capital. But CEOs rarely have a deep expertise in HR management. And the comparison to finance is revealing: Most CEOs have at least as much experience managing financial assets as they have managing people, but they are rarely the “go-to” experts on boards for decisions about financial capital. They simply don’t have the requisite depth of knowledge. If human resources is as important an area as many executives claim, why should it be treated any differently?

There is little question that boards spend more time on financial issues than on human capital issues, particularly since the fall of Enron and the passage of the Sarbanes-Oxley Act. Boards also spend more time on operations is­sues. One reason is that they do not get systematic information about the condition of an organization’s talent; they don’t see the results of attitude surveys, turnover analyses, and succession plans. In some cases, this is because those materials don’t exist; in others, it’s because management does not share them with the board. Particularly likely to be missing is good analytic data showing how HR metrics relate to organizational performance.

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