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How can HRDs enhance board effectiveness?

For the second in our governance insight series the focus is on what makes an effective board and where the influences and pressures on boards are emerging from.

The increasing focus on the longevity and sustainability of a company and its culture have led to a reframing of board effectiveness to emphasise the strategic, behavioural and capability challenges, and this is where the HRD can be influential.

An effective board is responsible for setting an organisation’s strategy, determining its risk appetite and monitoring business and management performance. The ability to engage and constructively challenge in an emotionally intelligent way is an increasing feature of board dynamics and capabilities. An impact of the higher female representation on boards has been an increase in the areas of engagement, debate and effective challenge, which is also positive for good governance. 

The Nomination Committee

In governance terms the Nomination Committee has been in a backwater, typically only becoming actively engaged when the chairman or CEO is to be replaced, and then used primarily as a selection committee. This is changing significantly. The Nomination Committee has been at the forefront of the drive to meet the Davies 25% gender targets, with a more structured and proactive approach to company-wide succession.

The Nomination Committee is also at the forefront of the emerging engagement with the company’s executive succession and development pipeline, looking beyond an annual review of the HR succession plan and employee survey, and towards a more proactive, long-term strategic approach. Strong NED candidates will be required to support this increased workload.

Sustainability and longevity

Both shareholder and investment communities – encouraged by the regulators – are looking to a governance regime that focuses on long-term sustainability and reputational management of the company. One of the emerging governance issues for boards is who owns, controls and shapes the long-term executive pipeline of talent. This is a practical sustainability and longevity issue, which goes beyond the tenure of a CEO and the immediate executive team. 

Boards will be looking to develop strategic approaches, requiring effective negotiation without stepping on the sensitive toes of executive authority and responsibility, a very familiar area to most HRDs. Additionally, there is a long-term focus on developing diverse talent as a solution to the changing leadership model. Boards, following the success of the Davies 25% gender targets, are increasingly willing and able to use their strategic clout.

Strategic remuneration

A second area of high-profile corporate governance is remuneration. The issue of executive remuneration is a battle ground between increasingly activist shareholders and boards. Public spats are primarily about remuneration of the CEO, but are spurred on by significant changes in the underlying rules of the Remuneration Code published by the Financial Reporting Council (FRC).

What is less well-known is the increasing emphasis, beyond the CEO, on a coherent and longer-term executive remuneration strategy, which now applies to public companies and requires an explanation in their published accounts. Engagement on this issue is taken on by the chairman of the Remuneration Committee, and requires an understanding of strategic compensation, the ability to guide and manage remuneration and tax consultants, competence in effective communication with board colleagues, the mediation skills to square the circle between activist shareholder groups and the CEO, and finally confidence in front of the media. This could be the job specification for a group HRD.

Culture and reputational risk

A third important emerging corporate governance area concerns corporate culture and reputational management. This covers not only the most recent, ethically wayward incidents in the banking sector, but also the supply chain issues of ethical sourcing, tax issues and extension of the Health and Safety culture, all of which are increasingly hitting the press.  Fortunately, the skills of culture change and assurance, the ‘rules’ of Health and Safety pyramids, the reputational risk assessments of employee engagement, and the legal and contractual pitfall of resourcing and employee contracting are the daily ‘meat and drink’ of most HRDs.

Clearly, these issues present many opportunities for the HRD to bring their skills into play, to support the performance of the company and the board. This bodes well for an HRD with the skills and ambition to make a contribution at board level.

Helen Pitcher is chair of Advanced Boardroom Excellence, a consultancy that focuses on individual and collective director effectiveness

Further reading

What every HRD should know about board governance

Advanced Boardroom Excellence is sponsoring an exclusive HR in the Boardroom networking event on maximising your impact at the board at The Dorchester, for HR directors interested in finding out more about the programme. Contact publisher Sian Harrington for more information: sian.harrington@markallengroup.com