Is a move from HR director to chief executive a bridge too far?
David Woods, November 01, 2011
Can you imagine what it would be like if your HR director ran your business?
Would it be a strategic, forward-thinking utopia - or a backwater that focused on tissues, teabags and time and attendance?
An undignified way of describing anybody's job, you may say, but if the latter is the view taken by any CEO, it doesn't bode well for an HR director hoping to take the top spot in a business. And the number of CEOs in the FTSE 100 with a career history in HR comes in at a dismal zero...
While the old chestnuts, 'HR isn't strategic enough' or 'HR doesn't have enough business acumen', might have been an acceptable excuse 15 years ago, nowadays there are HRDs forcing their way onto executive teams and Plc boards. Surely there is an argument that if HRDs don't reach CEO, MD or even COO level, it is that they simply don't want to?
Sara Edwards, who was formerly HR director worldwide at hospitality chain Orient Express Worldwide, was last month promoted to VP HR, gaining her an invitation to the firm's board meetings and group executive meetings.
She explains: "I tell my HR department we are not just HR managers, but business managers and we need to be involved. I have spent the past two years making HR central to the business. I had to prove my levels of acumen and participate fully and knowledgeably in all the strategic discussions."
Given her forward-thinking views, could one assume her next ambition would be a residence in the CEO's office?
"This is not an avenue I would want to go down," she muses modestly. "But I think there is a big change afoot for HR - if HR directors can move away from being seen as a policing department and understand how the business operates, I could see more moving into a CEO position."
But Áine Hurley, head of the HR practice at executive search firm Odgers Berndtson, says: "Being a CEO is about challenging the market - the HR role is not that broad."
Euro Disney provides evidence to the contrary. Philippe Gas has been CEO of Euro Disney since September 2008. He joined Disney in 1991 and, by 2006, had become EVP HR diversity and inclusion, Walt Disney Parks & Resorts worldwide. He went straight from a career in HR to a position of CEO, but examples such as this are few and far between.
In the UK, some of the industry's biggest hitters have left an HR role this year, only to continue their careers in HR. You don't get HR departments much bigger than in the NHS, but its HR director Clare Chapman left in August to take on the head of people position at BT. Angela O'Connor and Martin Tiplady, two of the most high-profile public sector HR directors (of the National Policing Improvement Agency and the Metropolitan Police respectively) have moved to consultancy and interim management, with O'Connor launching her own advisory business. And Neil Roden, Royal Bank of Scotland's previous HRD, joined the HR practice at PwC.
Patrick Wright, William J Conaty GE professor of strategic human resources in the Industrial and Labor Relations School at Cornell University, has carried out research into the role of the chief human resources officer (CHRO). His thoughts on the HRD-to-CEO transition make grim reading for (over?) ambitious HRDs. "There are few CHROs that have the commercial acumen to be considered for promotion to CEO," he says. "Many of the ones that do have that acumen are also career line executives who have been placed in the HRD role. Career HR professionals who are in the HRD role really are not likely to be even considered."
Wright gives examples of non-commercial HRDs who have moved to CEO positions, only to lead their organisations into turmoil. He says: "One terrible story is the CEO of Delta Airlines, Ron Allen. He led the airline to destroy its competitive advantage by slashing payroll and ruining a tremendous culture. He was not a career HR person, but had held the role prior to his promotion. Another is the former CHRO of Krispy Kreme Donuts, Scott Livengood, who was promoted to CEO, then led the company on a too-fast expansion that resulted in charges of accounting fraud."
These embarrassing examples have led commentators to agree industry knowledge and business acumen are essential for any HR director hoping to move up in their business.
Ines Wichert, a senior psychologist at the Kenexa High Performance Institute, explains: "HR is not dissimilar to functional roles. HR professionals will have a lack of core operational experience - the part of the business that makes money. It is easier to move from general management into a support role, such as HR, than the other way round."
And research published in March this year by Robert Half International shows financial skills are "key" to becoming a CEO. Its survey of FTSE 100 CEOs found half (49%) have financial backgrounds. And of the nine FTSE 100 CEOs who have been appointed over the past year, six came from finance, including Andy Harrison of Whitbread and Nicandro Durant of British American Tobacco - both ex-FDs.
"As the economy continues to improve, we are seeing an increasing demand for leaders with a strong financial skill set to guide organisations through a challenging operating environment and drive competitiveness so they emerge a stronger business," explains Phil Sheridan, MD at Robert Half UK.
"Could an HR director address a group of financial analysts?" challenges Odgers Berndtson's Hurley. "Could they present to the City?"
Cornell's Wright adds: "On the one hand, one really needs profit/loss accountability and experience to serve as MD or CEO, and the more of such experience, the better. Some HRDs may have spent some time outside of HR and gained such experience, but usually this is two to four years at most (other than the career line executives who hold the HRD role, who have more than 20 years of experience outside of HR).
"So it is just natural that if a board is looking at a new CEO, the HRD simply does not have near the relevant experience in a profit/loss role. On the other hand, this is a good, if not great thing. They have to be the trusted confidant of all the executive team members."
And Hurley elaborates: "The reason HR directors have carved themselves a position of trust from the CEO is because the CEO will see them as the only director who won't take their seat."
As far as Wright's interviewees are concerned, the top spot is not an option. But boards are getting smaller, with the trend towards only the CEO, COO and financial director, along with non-executive directors.
But even taking on the role of a non-exec - which could expand an HRD's knowledge of business operations - has proven a challenge to HRDs. Chris Spencer-Phillips, MD at specialist provider, First Flight Non-executive Directors, explains: "An HRD who doesn't attend board meetings will struggle with management meetings. HRDs need to be aware of board dynamics, they should consider roles as school governors, charity boards, take courses in how to be a non-exec and read books on board dynamics."
Paul Sparrow, professor of international HR management at Lancaster University Management School, says: "HRDs are not in the only position that cannot move up; R&D, IT and marketing directors are in the same position. But HRDs have been made responsible for managing business transformation. They understand the complexities of the business and if they articulate this, their voice has every chance of being heard on the board - but the reason they are not often making it to CEO level is down to the individual. Running an HR department is more complex than other departments - it is like running a business in itself. That is why I believe HRDs will be more likely to run an HR organisation [like Jackie Orme, ex-HRD of Pepsi-co, now chief executive of the CIPD, or Kevin Green ex-HRD of Royal Mail, now CEO of the Recruitment and Employment confederation]."
In most organisations, Sparrow goes on to suggest, HR directors just don't have their eyes on the prize.
"Apple's Steve Jobs had a technical background, so he ran a tech business. Why would an HR director want to run an IT business, if their interest is in people?" Sparrow asks.
Wright continues: "The HRD is just trying to get the team to work well, not to cut people out to further their own career. This presents an aura of independence that makes for effective HRD functioning. So, while they generally would not be in the running for the CEO role, they don't want to be considered because it would undercut their independence."
But when HR magazine put this theory to HR Most Influential Practitioner, David Fairhurst, chief people officer Europe at McDonald's, he is emphatic: "I couldn't disagree more," he says.
"This is such a small part of the HR director's role. Progressive HR skills such as talent management and people practices are moving to the top of the leadership agenda."
And turning to the idea of finance directors being those most likely to take the CEO role, over HR, he adds: "Nobody should expect a seat at the table because of the title they hold. It should be about the value they bring, rather than their position - a CEO should know all the workings of a business and a finance director can't know everything."
But the future is far from bleak for HR directors, as Hurley explains: "There is a shift - the role of finance director is more than 100 years old, HR in its current form is less than 20 years old. I am fighting for the HR cause, but we have to be realistic. Two years ago, HRDs were fighting to have a seat on the board. Now I know of HRDs chairing remuneration committees - dealing with one of the most challenging issues in business and they are right at the heart of strategy."
Wright agrees: "As the field of HR attracts more people who are really interested in business and choosing a career in HR, they will move back and forth from line to HR, and thus gain the necessary profit/loss experience they need," he says. But that is a long-term proposition, and again, it may not be the best thing, at least not for that company during that time, as the HRD would not be as trusted as a confidant to the other members of the team."
Some HRDs who have cut their teeth in the business have reaped the benefits. One example is John Hofmeister, US HRD at Shell, who went on to take over as president of Shell Oil, the US subsidiary. His role focused on external and government relations rather than acting as an operating authority, but it illustrates how the interpersonal skills may be important for some senior executive roles outside HR.
Wright comments on Ann Mulcahey at Xerox, who served as CHRO before becoming CEO: "Mulcahey was not a career HR professional, but she developed a deep appreciation for the role HR could play in driving organisational success."
Kevin Green joined the Recruitment and Employment Confederation (REC) as CEO in 2008, after four years as HR director of the Royal Mail, which, at the time, employed 165,000 staff and had an annual turnover of £7.2 billion.
Prior to that, he ran his own consultancy for 12 years and clients included Unilever, First Choice, Fuji and Orange.
He explains: "I was a businessperson before I was an HRD and I employed about 25 people in an SME. You should have some experience of line management before you become an HR director anyway. I have to be honest - I am not sure how many HRDs want to be CEOs, though. It's not a case of the business misjudging their skills - the additional responsibilities are huge. It is about making life-or-death decisions. I am not sure HRDs put themselves forward for this. The rewards of being a CEO are great, but the career can be short."
If that is Green's belief, is it a case of businesses not having a talent management strategy for HR directors? He seems to think so. "The business is missing talent," he says. "If someone has been an HRD for 20 years, I would suggest giving them different career patterns to develop visibility and capability - perhaps running a division of the business. Employers need to have conversations with HRDs to discuss how they talk about themselves and their HR colleagues - they need to be able to come out and demonstrate line management."
Another important UK example is Martyn Phillips, CEO of B&Q and a non-executive director of global recruiter Hydrogen. He was operations and HR director at B&Q before taking on the role - not to mention chair of Hydrogen's remuneration committee (see box, 'The CEO', below).
So where do HR directors go? Portfolio work, non-exec roles, retirement, consultancy, small business owners are all common options - as well as, of course, advancing further up the FTSE in HR.
Peter Cheese, chairman of the Institute of Leadership and Management (ILM), is recruiting for a new chief executive - and he is not ruling out appointing an HRD into the position. He tells HR magazine: "Business today is better connected and we are seeing more movement of execs between departments. The business partner model has caused HR to become more strategic - and less 'siloed'."
A board-level seat is unusual for a function head - but HR directors are increasing their network of senior managers and, increasingly being seen as a more integral function in the business, are bringing more business knowledge to the top levels of the organisation.
"The recession has certainly sharpened the focus - HR issues are now firmly seen as business issues and HRDs have taken on a greater sense of urgency," says Cheese.
"While I don't believe 'pure HR' could equip someone to run a business, if they have led divisions and understand the nuts and bolts of business, they can bridge the 'unbridgeable gap' between HRD and CEO - this is the ultimate measure of HR's success."
A change is coming and it seems it is only a matter of time before yet another HRD takes up the challenge and moves into the hallowed position of CEO. When that telephone call comes, or the press release lands in the HR magazine inbox, we can believe the HR industry has the talent and the courage it aspires to.
The entrepreneur: Angela O'Connor
Angela O'Connor was chief people officer at the National Policing Improvement Agency for eight years, prior to which she was HR director at the Crown Prosecution Service. In 2006, she was president of the Public Sector People Managers' Association (PPMA).
In September this year, O'Connor launched her own consultancy, The HR Lounge and became its first CEO.
"I gave my decision to leave the NPIA a lot of thought," she says. "I don't think it's about an HR director's ability that stops them from becoming a CEO, but choice. It is entirely possible for an HR director to become a CEO, but they have to understand the business, rather than live within the people bubble - this is not an end in itself.
"They have to 'get' finance and realise the shareholder - not the staff member - is their customer. I have been in rooms with HRDs and when company cashflow comes into the conversation, the room goes quiet - this can't be a barrier. There are incredibly commercial HRDs out there who are immersed in the business, rather than immersed in people strategy.
"In emerging markets, especially, managers are taking on more general roles and if HRDs are overlooked here, it would be tragic.
"Over the past year, I have been offered a number of other HRD roles, but I chose to set up a business because I wanted to do the things I loved about my job. As an HRD, I found it frustrating when providers tried to sell me 'solutions' that didn't work in my business and I wanted to change that for others and work with senior clients."
The CEO in waiting: David Fairhurst
David Fairhurst, chief people officer Europe at McDonald's, has been ranked number one practitioner in HR magazine's Most Influential list for the past four years. In 2011, David was appointed to act as a commissioner for the UK Commission for Employment and Skills by business secretary, Vince Cable.
So, given his influence, has Fairhurst got his eye on a CEO position? "I would consider it," he says. "But I am not a great believer in precise career planning. I am focusing on my contribution to the business… but I have worked in retail and I have an interest in how businesses work. Any HR director should think: business first, HR second."
Considering the contribution of Steve Easterbrook, until last year the CEO of McDonald's UK, Fairhurst adds: "He was an accountant and then a COO before he became CEO. But he took the time to build his team, to learn about HR, worked with the CBI and had a depth of knowledge. I wonder if most HR directors are curious enough to do this.
"HR directors have particular strengths - but many will not be interested to work beyond their department's boundaries.
"There is still an old school of thought about HR directors, where they are seen as a sounding-board for the CEO. They have to move away from this and think about the broader agenda - they have no right to be on the board, let alone be the CEO, until they stop worrying about adding value to the business and demonstrate this value.
"If an HR director wants to be a CEO, they need to have curiosity, courage and charisma. They need to know about marketing and finance - perhaps having managed a division or a subsidiary.
"Businesses need to be porous and break down silos, so directors can see different parts operating. A CEO needs to reconcile irreconcilable dilemmas, have ethics, reputation, trust and leadership qualities. This could be the role of an HR director… actually, the role of an HR leader.
"When one HR director takes this sort of role, others will follow."
The consultant: Neil Roden
Neil Roden was group director of human resources at Royal Bank of Scotland for 11 years. He left the company in January to become a partner at professional services firm, PwC.
He explains: "I had been doing HR for 25 years - and when it came to working out what I could do going forward I realised I could keep on doing a corporate job, retire, become a coach or consider a portfolio career as a non-executive/HRD.
"I was lucky, because after I announced I was leaving RBS, I had six months still in the job while I was recruiting my replacement. The company gave me career coaching - which is unusual for an HRD - and I had the opportunity to speak to a lot of people about my options. Then PwC contacted me and threw that idea into the mix.
"HRDs planning the next step need to think and challenge themselves - non-exec roles are interesting, but not for everybody. You might want to do art in Tuscany, complete a history degree or move into HR academia."
And how does Roden find the consultancy environment?
"I still think I am doing corporate HR," he laughs. "I can't think of myself as a consultant yet. There are some really technical people in consultancy, but I can talk across the spectrum as a client - about the things I did as an HRD - without the consultancy speak."
But although it is not for him, Roden has given some thought to the opportunity for an HRD to be a CEO.
"In order to be a CEO, you might have to be a COO first," he adds. "You have to be very commercial, comfortable with numbers and not wedded to HR. There is a lack of HRDs in CEO roles, because this is not the sort of person the profession attracts in the first place. It is about choice.
"There are notable CEOs that came from HR, but they are the exception and that is why they stand out."
The CEO: Martyn Phillips, B&Q
"I have enjoyed a 17-year career with Kingfisher and during this time I have made the move from HR director at B&Q to operations director and now CEO for B&Q UK and Ireland.
At B&Q, our people are our biggest assets - that is what makes us so successful. As HR director, I was responsible for employing a strong and diverse workforce, and so I have gained strong people and interpersonal skills, as well as being the best coach I can be to employees. A good sense of all aspects of the company's operation is also a vital quality to have if making the move to CEO - they are all valuable skills which I have transferred to my new role as CEO at B&Q.
The skills and abilities of a good HR director and those of a good CEO, they aren't that different. Both must be able to shape an organisation and achieve profitability through leveraging the workforce. There is one big difference, however, between HR and CEO, which is the weight of the accountability. No matter how well prepared you think you are in HR, you are always one step removed from the real responsibility of your people. It is important to ensure you have a good understanding of the wider business by making a move laterally out of HR for a period of time, as I did, having made the move to operations director at B&Q before CEO.
I aim to use the skills I have gained through my time as both HR director and ops director to role-model the sort of business we need to be for customers and colleagues.
There is no reason we shouldn't see more HRDs make the move to CEO and I definitely think we will see more CEOs coming from an HR background in the future.
As is the case at B&Q, it is people who make successful companies and here is where HRDs have the advantage - knowing their workforce and ensuring only the best and brightest employees are taken on board.
It is also good for business to recruit their CEOs from within, where possible. It gives the business continuity and the employees already know the person - this was especially important at B&Q, where our people are at the heart of what we do."
The non-executive director/retiree: Anne Minto
When HR magazine interviewed Anne Minto OBE, she had just weeks to go before her retirement as group HR director at Centrica, after 10 years with the company.
"I didn't want to be here when I was 60 [she is 57]," she says. "Or for people to think I was never going to go. I wanted to pass the baton on. This year was the right time to do it.
"I am not going to be worried about who is running the business."
She says it is "virtually certain" we will see her in some governmental advisory role soon.
Minto has previously been a non-exec at Northumbrian Water and recycling and resource management company SITA UK, and she will continue being a non-executive director at specialty biopharmaceutical firm Shire, where she is chair of its remuneration committee. "It enriches you; it is a missed opportunity not to try something such as this," she imparts. "But it is also a poor reflection on chairs of companies, if they don't see HRDs as being able to give them something back.
"I am in discussions to take on other NED roles and any company I did join would have to have exemplary ethical and CSR credentials. That is something I am not prepared to compromise on."
But how does she sum up her career in HR? The highs, she says, include knowing that 30% of Centrica's graduates now come from its summer placements, or that 500 apprentices train each year. Even the lows (such as when its call centres were consistently voted the worst), have provided her with opportunities. Today, Centrica's Cardiff contact centre has just been voted best in Europe for an unprecedented second year running.
"The point is, I have always been pragmatic," she says. "You have to have credibility, and you have to do your homework, and you have to ask all the questions of stakeholders. Only then do you have the right to be able to say you have helped your company become an employer of choice."
(Anne Minto interview by Peter Crush)