Nose In, Fingers Out, and Ears to the Ground: The Rising Mindset of Boards Overseeing Culture and Talents

Next Generation BoardsFamily Business GovernanceShareholder Stakeholder EngagementBoard and CEO AdvisoryBoard Effectiveness
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January 18, 2023
8 min read
Next Generation BoardsFamily Business GovernanceShareholder Stakeholder EngagementBoard and CEO AdvisoryBoard Effectiveness
Executive summary
With the increasing ambiguity organizations face today, boards should be involved in talent management strategy and oversight.
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Traditionally, directors have focused their talent management efforts on the C-suite, leaving oversight of the broader workforce to the management team. But in the post-pandemic economy, investor pressure to advance diversity and inclusion efforts, as well as the pace of business and digital change have made it critical for boards to provide greater oversight of talent management at multiple levels of the organization.

The success of major organizational transformations, including M&A, digital transformation, and strategic realignment often depend heavily on managing the “people” side of the strategic organizational development.

With the ever-increasing uncertainty and ambiguity that organizations face today, do boards need to adjust human capital approach and oversight? If yes, how should boards adjust?

In this paper, we will explore some common themes of what and why this change is happening, what this means for board composition, and how it affects board and senior leadership role definitions. We will also discuss how boards can play the role of facilitator or inhibitor for successful transformations, thus setting the right organizational tone.

 

What are the organizational risks if boards only focus on traditional C-suite matters, leaving oversight of the broader workforce purely to management team?

In the past—and, to a large extent, still today—many boards give talent oversight completely to management team. At a recent Russell Reynolds Associates (RRA) Board Leadership Conference convening of over 800 stakeholders around the topic of board leadership in Asia, it became increasingly clear that theory had been overtaken by real practical practice in this topic for the first time. Boards are shaping the talent agenda and executive team, while a few years ago, it was the other way around.

“Deloitte Governance Framework” research discusses five elements of board oversight: performance, strategy, governance, talent, and integrity. Here, talent is not just one of the five elements; it is the central point of all these elements. Without the right talent, high performance will not be achieved and strategy can’t be carried out.

Management teams know how important it is for organizations to attract and retain talent. However, if boards do not understand human capital matters, it will be challenging to attract top talent, making it difficult to lead the transformation changes that many organizations are going through. When we look into cases of organizational failure, it is often due to human factors—lack of competency, lack of oversight, and a culture that has gone wrong—for which boards are ultimately accountable. Sadly, for many organizations, corporate culture only comes into play after there is a crisis and subsequent investigation that reveals cultural failings.

Due to the increasing focus on organizational culture, equity, inclusion, social responsibility, and employee empowerment, we have seen more boards shift their talent oversight. The boards who have made the shift have an edge in attracting and maintaining an empowered workforce, while those who have not will lose out in long run.

Considering this, boards should proactively assess the health of their corporate cultures before a crisis hits, investing the proper time and resources in human capital development throughout the organization whole year round. Additionally, boards should confirm that its organization has an effective and robust talent management program capable of delivering value for shareholders. Executing active oversight regarding the strategic elements cannot be delegated to management alone.

So what do boards need to do when overseeing talent management?

 

Boards should be responsible for approval and decision making on key talent matters, focusing on a big picture approach.

1. Provide C-suite oversight: Going beyond the traditional C-suite compensation, immediate succession and business performance discussions, boards should incorporate talent needs into strategic discussions, making this part of management team’s OKR and holding the CEO & C-Suite accountable for company’s performance on talent management, tracking long term initiatives.

2. Build the succession pipeline: Boards can utilize their succession planning committees and nomination committees to ensure that they always have a strong C-suite pipeline, helping them execute the corporate strategy without gaps or lags. Talent should be viewed on at least a 10-year horizon. This will prepare the organization for future impacts as well as today’s talent needs, making succession a governance issue as much as a performance one.

3. Set strategic talent management: Set direction and objectives around talent management, including upskilling, ESG & DE&I policy, upholding healthy organizational values and culture, and helping the organization attract, develop, and retain talent. Today, merely outbidding competitors with attractive salaries will not be enough to attract high performers. Instead, organizations need to provide a holistic work experience, including growth opportunities, a sense of community, and work/life balance. Boards can help management teams set the right organizational culture by modeling these behaviors.  

4. Embed DE&I into the organization: Board should create clear criteria and ensure any unnecessary barriers to succession are removed, maximizing diverse perspectives to ensure a broad pool and balanced assessment tools that remove human bias and provide fair evaluation. According to Russell Reynolds Associates 2022 C-Suite Performance Research, 77% of nomination committee chairs say that DE&I expertise is important for senior executives; however, according to PWC Annual Director’s Survey 2021, less than one-fifth of board directors give their own companies a great score for organizational efforts in recruiting a diverse workforce. We believe this mismatching is due to a misalignment between the board and management team.  

For example, a northern European company has successfully driven DE&I initiatives by establishing four strategic pillars for the organization: sustainability, learning & development, DE&I, and digitalization. The chairman regularly meets the global top 100 executives, reenforcing this strategic focus. On DE&I front, vacant positions are published globally to ensure equitable access to new opportunities. These board-dictated policies ensure a broader pool of candidates.

5. Foster a strong board & corporate culture: To strengthen corporate culture, boards need to help organizations create an environment that encourages training and development and the psychological safety to flag problems when they first arise. Boards should also improve its oversight of talent-related risk, like organizational reputation risk, business regulatory risk, and management team style. For example, in private equity companies today, an increasing number of boards have advised the management team to do people-related due diligence, in addition to financial and reputation due diligence, before making an offer to avoid any surprises down the line.

6. Ask for regular updates: Boards can elevate the chief human resources officer (CHRO) to a more strategic role and ask for regular updates on the status of their organization’s talent management, including talent retention strategies, training & development programs, workforce demographics, incentives, and compensation so to better understand the organizational culture. Boards need data and accountability to ensure that their talent management efforts align with their corporate strategy. Either the full board should take responsibility for it, or they can delegate it to a committee so that it will be addressed and monitored throughout the year. Some boards even ask their CHRO to report to both the CEO and the board.

The holding board for one of our clients, a 200-year-old conglomerate, signs off on policies around whistleblowing and DE&I, endorsing talent capital strategy and formulation. The board’s remuneration and nomination committees meet with the C-suite three times a year. The first meeting of the year is a week-long offsite focusing on C suite talent review, where board & executive team jointly develop talent strategy; the other two subsequent meetings are shorter reviews of said talent strategy’s implementation.

7. Ensure that the board has talent management skills within its ranks: Over the last two years, we have observed many boards recognizing the need for digital, technology, and key culture capabilities in their ranks. However, a talent management capability within the board’s ranks is just as important. While adding talent management to board capability matrices is on the rise, it’s not increasing fast enough.

One of our clients, a global top sportswear company, realized that they were struggling to understand current young consumers. They decided to add a young technology leader to the board, in order to understand this demographic, as well as to understand the disruptive use of technology. Boards should think hard about what is missing from their skillsets and work fill the gap. While in the past, boards focused more on attracting legal and audit backgrounds expertise, we see more boards adding CHROs or people who understand systematic talent management to their ranks.

What brings energy to a company are its employees, leaders, and its culture. Therefore, the ability to attract, develop and retain top talent has become a critical business differentiator. A greater focus on “people” issues—which includes business excellence, quality, talent management, health & safety, diversity & inclusion—means that board members need new skills, experiences, and team dynamics for effective decision-making and oversight. As boards and management teams partner on talent management, boards should keep their “nose in, fingers out and ears to the ground”, described by our panels at the Russell Reynolds APAC Board Leadership Conference on the Board’s Role in Talent subject. It means - board should understands what is going on, set strategic direction, review and listen to what is happening in the organization, while leaving the implementation to the management team.

 


 

Authors

Lucy Lei is a member of Russell Reynolds Associates’ Board & CEO practice. She is based in Shanghai.

Co – author, Grace Cheng is a senior member of Russell Reynolds Associates’ Board & CEO practice. She is based in Beijing.