Strengthening Human Capital Oversight For the People: Employees and All Stakeholders

It’s no surprise that talent concerns are ever present; the COVID-19 pandemic changed the workplace as we know it. Employees gained more freedom with an abundance of remote work options at the onset of the pandemic and in the years since, and have shown more agency through the Great Resignation, “quiet quitting,” “loud quitting,” and other workplace trends. Now, an uncertain economy and disruptive technologies, such as artificial intelligence, are leading to employee concerns about lack of stability and potential loss of employment and leadership conversations about layoffs, upskilling, and more.

Indeed, when asked what trends directors foresee having the greatest effect on their companies over the next 12 months, 38.3 percent said the increased competition for talent was a top concern, according to the NACD 2024 Board Trends and Priorities Survey. Directors also recognized shifting workforce demographics (14%) as a top concern. Moreover, in the NACD Quarterly Survey: Q1 2024, 33 percent of directors said that competition for talent was among the top business issues on their board agendas in the upcoming quarter. Workforce demographics (9%) and diversity, equity, and inclusion (5%) also made the list.

Establishing protocols for human capital management (HCM) and oversight within the business and the boardroom may seem like a daunting task. Yet, given the increased shareholder focus and regulatory pressure on human capital, it is imperative that boards take this step to avoid any unwanted reputational or legal damage. Perhaps more importantly, focused talent oversight can also improve employee engagement and productivity. The nexus between a company and its people has reached a new level of significance. In fact, according to Mercer’s Global Talent Trends 2022, 81 percent of executives and employees believe that the business agenda and the human capital agenda have never been more intertwined. To position themselves for success, boards must acknowledge this connection and integrate human capital oversight into the boardroom and in decision-making processes throughout the organization.

Boards can consider taking the following actions to improve their oversight and establish a solid governance foundation.

Build a better relationship with management, specifically the chief human resources officer (CHRO). Good people management stems from a company’s human resources (HR) team. As HR deals with employee issues daily, they are able to recognize, report, and address any employee or culture problems before an incident can cause an organization avoidable issues.

For example, at The Boeing Co., an alleged deterioration of a corporate culture of safety and a lack of transparent communication between different levels of management led to, at least in part, workforce and work quality issues. After a door plug fell off a new Boeing 737-9 MAX plane earlier this year, 171 737-9 MAX planes were grounded, the Federal Aviation Administration undertook an investigation, and David Calhoun, Boeing’s CEO, announced that he’d step down at the end of the year.

“Forming a better relationship with the CHRO and building strong connections between the board, C-suite, and HR starts with the board having a better appreciation for and knowledge of HCM, and particularly HCM strategy as it impacts overall business strategy,” said Allan Schweyer, principal researcher of human capital at The Conference Board. “Board involvement in HCM is crucial for effective people management and for mitigating culture and reputation risks. The most effective partnership between the CHRO and the board is one that respects the board’s limited time by limiting discussion to the most critical elements of HCM. Better connections and collaborations can be created through regular and transparent communication, alignment on strategic goals, board involvement in HR strategy, and fostering a culture of trust between the board and the CHRO.”

In particular, it may be helpful for the chair of the committee responsible for overseeing talent to cultivate a transparent and trusted relationship with the CHRO and establish direct reporting from the CHRO to the committee to ensure that the board receives complete and focused data and updates. Executives can also express their concerns to the board outside of official meetings through this established line of communication to help mitigate any potential cultural issues that may arise before a reputation crisis occurs.

A trusted relationship between the board and management, in which managers feel safe voicing concerns, can only improve the board’s ability to be effective in overseeing talent and culture.

Craft a human capital agenda to streamline discussions and connect human capital to the broader company strategy. Having a dedicated human capital agenda can ensure that no important discussion topics are overlooked during board conversations with management. While such an agenda often includes reviewing employee surveys and other talent data, directors should dive deeper into the data provided by management. This includes reviewing the company’s employee programs, such as health insurance and the 401(k) program, to see if they are competitive and effective compared to peers, as well as reviewing the reasons why employees rate the company in specific ways during engagement surveys. Digging deeper into talent data provided by the CHRO can expose broader themes in the company’s culture and employee experience.

“A human capital agenda should include talent management; leadership development; and plans surrounding diversity, equity, inclusion, and belonging. There should be an oversight of culture and engagement, succession planning (for the CEO and other senior executives), and performance metrics,” Jorge Titinger said during the April 9 NACD-hosted webinar, “Learn With Your Peers: Evolving Human Capital Oversight.” Titinger is the lead independent director of Axcelis Technologies and a board member at CalAmp Corp.

While it is important to break down the board’s human capital agenda into such digestible pieces, it is equally as important to ensure that the human capital strategy is linked to the company’s overall strategy. The Conference Board’s Telling the Human Capital Management Story: Toward a Strategic Competitive Advantage 2022 report found that while 47 percent of study participants were working to develop a human capital strategy, only 21 percent had their boards review that strategy.

“Boards should incorporate [human capital] into the broader strategy through their words and actions; if the board makes HCM a priority, it naturally becomes a company priority. Moreover, a board that has candid, thoughtful, and informed discussions of key HCM issues can influence the broader culture through its leadership and values,” Schweyer said. “Boards should ensure that there are adequate reporting systems to enable effective board oversight of HCM performance against strategic goals and measurable key performance indicators.”

By crafting a human capital agenda and working to ensure that human capital is embedded in the company’s strategy, talent and culture are placed front and center, and management can be held accountable for improving related metrics and working conditions.

Clearly outline responsibilities for committees and the full board to avoid gaps in human capital management. If a company does not have a designated human capital committee, responsibilities must be clearly delegated to an appropriate committee or to the full board to avoid unnecessary and time-wasting overlaps in oversight. Despite an already full workload, the compensation committee often takes on human capital oversight when there isn’t a dedicated committee as it traditionally owns related functions such as CEO succession planning and setting executive compensation.

“We don’t have time for any board member to be doing double the work, and you don’t want any gaps. Very definitively, very purposefully define the role of the committee in this space…. Where do each of these elements lie [within the] committee structure of the whole board?” said Beth Albright, NACD.DC, during the April 9 webinar. Albright is the former CHRO at The Chemours Co. and is now the founder and CEO of Saidia and a board member at Darling Ingredients.

Clearly outlining committee responsibilities for human capital oversight in committee charters and ensuring roles are defined can remove barriers that lead to duplicate conversations about—or accidental neglect of—important talent issues.

Speak directly to employees to learn more about culture—and not only during official sight visits. Sight visits are often rehearsed by management and employees so that they look their best for the board. By taking time during or outside of these visits to communicate directly with employees and gain their candid opinions, giving assurance that their words won’t negatively impact their employment, directors can gain even greater insight into company culture beyond the metrics.

“Some [site visits] are very staged and choreographed, but it’s hard to do it right. I’ve seen board members stop and tap people on the shoulder, saying, ‘Hey, do you have a few minutes to talk?’ It’s great because they get unchoreographed answers to their questions about what it’s like to work here,” said Diane Gherson, CHRO of IBM Corp. and a current board member at Centivo, The Kraft Heinz Co., and the National Academy of Human Resources, during the webinar.

Some questions directors should consider asking employees on unofficial site visits to learn more about company culture include the following:

• Do you feel that can speak to your manager whenever you have an issue or concern?
• What was your favorite day at the company? What was your least favorite day?
• Do you feel supported in your role? If not, what can be done to improve your experience?
• Do you think the company values you and your role?
• If you could change one thing about the organization, what would it be?

Now more than ever, boards must take an active role in human capital oversight and ensure that corporate culture supports the company’s talent needs and strategy. By considering the steps outlined above, boards can more effectively navigate their evolving role in human capital oversight.

To learn more about the board's changing role in human capital oversight, read Board Oversight of Human Capital. 

Heather Kierzek is the assistant editor of Directorship.