Many readers will be aware of the ways in which the COVID pandemic has affected not just the ways in which people carry out their work but their fundamental attitude to it. Internationally this has been labelled as The Great Resignation. However, that can encourage us to think that it is a passing problem, that business as usual is just around the corner—a parallel perhaps with the GFC (global financial crisis). However, the consensus of this board and its executive team was that there had been a seismic shift to which they will have to adjust on a longer term basis.

Whether that is so or not, the observations of some of our northern hemisphere colleagues point to the need for boards to become more actively engaged in human capital management challenges. In this brief review we want to highlight some resources you can access to inform and perhaps extend your thinking about how your board needs to engage with the changing nature of work and people’s attitude to it—whether a tsunami of people problems has hit your organisation, or not.

We suggest you start with the first of three articles Scott Baldwin and his team at The Savvy Director are producing on human capital management (HCM). In Overseeing “Our Greatest Asset”, Baldwin observes that organisations have historically viewed their workforce through a financial lens; just another operating expense, despite the usual rhetoric that ‘our people are our greatest asset’. Boards are increasingly having to acknowledge that an organisation’s long-term success depends on attracting, retaining and engaging talented people. However, Baldwin highlights that this is significant for the way both board and management view their respective roles.

Historically, boards have seen ‘human resource management’ as an operational matter, subject to management rather than board oversight. However, to quote as Baldwin does, from another interesting read (EY’s How the Governance of Human Capital and Talent is Shifting):

“Human capital has moved beyond being a strategic asset to become a strategic imperative. Boards should embrace this change and seize the opportunity to help make the company’s people a greater strategic priority.”

Regulators have started to step into the space in a way that is already leaving the boards of publicly listed companies with little option. Reflecting growing investor interest in human capital as an essential asset and a key driver of performance, the SEC now requires companies to disclose human capital measures such as talent development, attraction and retention.

Listed companies, however, are merely the tip of the enterprise iceberg. So where should other boards start? Baldwin suggests several areas where a board might start to focus when it opts to make HCM a greater strategic priority:

• Compensation: While, professionally, we are sceptical about the efficacy of contingent remuneration, Baldwin suggests boards might consider tying executive incentive programs to the achievement of HCM performance (including retention) goals.
• Policies: In our experience, boards are now attending to a number of these because of the greater attention they have been paying to organisational culture (e.g. health and safety, codes of conduct, whistleblowing and sexual harassment). However, policies are now required, for example, to deal with remote work and employee engagement. Baldwin also suggests the board require evidence that these policies are working as intended.
• DEI (Diversity, Equity and Inclusion): Another area of increasing interest to many boards, this arguably requires active attention to, for example, statistics on diversity characteristics, as well as promotion rates for and compensation gaps across different demographics. As Baldwin suggests, the board’s own composition—and that of senior management—should be a particular focus.
• Systems and processes: Baldwin suggests boards should broaden their view beyond the chief executive position to include succession planning for senior management and other key positions. Other significant processes for board oversight could include talent management, leadership development and staff training programs, generally.
• Culture: Baldwin points to the need for boards to understand the organisation’s culture. This should extend to identifying the unwritten rules about how things get done and what behaviours are rewarded, punished or tolerated.

As hinted above, the need to strengthen their oversight of HCM will require boards to rethink their views on their fundamental role in this area. It is clear that these are no longer narrow operational concerns confined to the C-Suite. Each board must determine how involved it should be and there is no ‘one size fits all’. Board and management will need to work together to find the right balance. The board needs to fulfil its responsibilities—without diminishing the chief executive’s authority (in most organisations) as the employer.

Baldwin and his team address this more directly in their second article in the series (the third has not been published at the time of writing). The Talent-Savvy Board leans heavily on a framework developed by PwC (see A deeper dive into talent management: the new board imperative). The PwC framework is intended to help boards maintain a healthy balance between holding management accountable and stepping on their toes. This balance, according to PwC, shifts according to three different levels of the organisation:

• C Suite: Setting performance objectives and measuring executive performance in areas such as talent management, upholding ethical corporate values, and creating a diverse and inclusive culture, is critical.
• Up and comers: This is about the board ensuring as far as possible that the organisation has a robust talent pipeline for all executive-level functions, identifying and getting to know candidates ready to assume those positions now and in the future.
• Middle management: The board can provide oversight at this level by understanding the organisation’s talent philosophy, culture and needs for the future. Active board tasks can include reviewing retention strategies and compensation programmes, monitoring key performance measures, and asking probing questions about skills gaps and management’s plans to address them

Both articles contain a wide range of questions for directors to ask to help them engage in what will inevitably become a more active subject for board engagement.

The articles referred to in this introduction to the HCM challenge each contain useful references to a range of other contributions on this broad subject. We may review more of them in due course.