Source | Hema Ravichandar (The Mint)
With boards now expected to take ‘people decisions’ for the core management team, chief human resource officers will have to shore up their own key competencies
The Companies Act, 2013, and the amended Clause 49 of the Listing Agreement have brought in their wake new requirements. Boardrooms across the country are grappling with the implications and trying to put in place the mechanisms and policies to address these amendments by next month. Of particular relevance to this column, however, are certain key functions now required of the board.
Sub-clause (I) (D) (2) of Clause 49 highlights the key functions to be performed by the board, including “selecting, compensating, monitoring and when necessary replacing key executives and overseeing succession planning; aligning key executive and board remuneration with the longer term interests of the company and its shareholders”. The board’s mandated nominations and remunerations committee (NRC), as per Section 178 of the Act, is expected to support the board in performing these functions.
With this, the Act has expanded the scope of the remuneration committee. It will not just identify and decide remuneration for directors (both executive and independent), it will also recommend the appointment and removal of senior management personnel, and the philosophy that will govern their performance management and compensation, including incentive pay. Further, Section 178 of the Act has defined senior management as all members of the core management team, one level below the executive directors, including functional heads.
So the board will now take responsibility for the corporate life cycle of its “senior-most human resources”.
Implications of the enhanced scope
Whether this was warranted is in itself a matter of debate. The concern is whether it was appropriate to put what was until now clearly in the radar of executive managerial responsibility into the realm of board governance. But without pushing that argument further, the intent of this article is to explore what the assigning of this core human capital agenda to the board means for human resource departments (HRDs) and chief human resource officers (CHROs).
Progressive boards have always taken a strong interest in the talent strategy of the companies they govern. They have, at regular intervals, assessed the robustness of the leadership pipeline, succession planning models and remuneration policies. What has changed through the Act is the nature of board governance; from basically that of review and recommendation to one of significant oversight and decision making for the development of C-suite executives.
Changing landscape for CHROs
It is in the context of this revised role that one needs to recalibrate the board’s expectations from the CHRO and his/her team. At one level, for the function and its head, it might be perceived as a loss of autonomy and a harbinger of more testing times; in the long run, however, it may actually be for the better.
For starters, it means greater exposure and face time for CHROs with the board. Unless, of course, they command a seat at the board table, this has been limited, at best, to clarifications on attrition trends or industrial relations scenarios, the rare queries related to the annual managing director’s compensation review (resolutions that company secretaries or chief financial officers normally shepherd with much aplomb) or an auxiliary role during the chief executive officer’s (CEO’s) talent review and leadership pipeline presentation. But now, with several key HRD dimensions for senior management on the board’s radar, the CHRO’s role, the policies he/she authors and the processes they manage will come under far greater board scrutiny.
The resolution of certain key human resource (HR) issues for C-suite employees, where the final authority earlier was just the CEO, will now typically also involve the board, making it a multilateral decision-making process. To avoid confusion, duplication of functions and juggling of myriad calendars, it is advisable that CHROs define the required board involvement in each of these key processes going forward, sharply outlining responsibility holders and time commitments.
Clear articulation and documentation of HR policies and practices as they apply to senior management executives and key managerial personnel is recommended. This includes job descriptions, role competencies and attributes, documentation of performance management systems—essentially policies critical for the NRC to perform what the Act requires it to, in letter and in spirit. Such documentation is normally readily available in as far as it applies to junior and middle management resources. But for senior levels the policies are more in practice than in print, carried forward traditionally more by word of mouth than the rigour of documentation.
This will, therefore, need to be addressed if it is not in place.
Competencies that will come in handy
CHROs would be well advised to shore up on some key competencies for themselves and their teams, to address these challenges.
The ability to be in sync with the board is a great strength. To understand a board’s mindset, relate and respond to it, requires a strong strategic perspective at the CHRO level, an understanding of market dynamics and a pulse on what wins the ultimate customer. Initiatives to future-proof the organization, corporate culture as an enabler for market success, and talent strategies which create a unique winning proposition for the organization will all resonate well with the board. CHROs should consciously orient their teams’ attention to these.
There is a need to consciously embrace a data-driven mindset rather than the more common anecdotal trap many HR professionals fall into when analysing a problem, spotting a trend and, more importantly, driving home the point in the boardroom. Deploy the discipline of metrics and the power of analytics in putting forward the HR point of view and influencing key decisions in the boardroom. Inculcate in the team the culture of external benchmarking, beyond the traditional compensation surveys, when presenting and evaluating alternatives.
HR heads are naturals when it comes to influencing skills through the socialization of ideas to build consensus. However, what will be critical in driving decisions in the boardroom will be the display of conviction that comes from deep HR domain knowledge and the ability and experience in applying them to practical dilemmas and solutions.
And finally, the ability to capture succinctly, tactfully and with clarity, discussions around the table—also known as the fine art of minuting. This becomes critical because given the sensitive nature of these discussions, the CHRO becomes the most logical choice to take on the role of secretary of the NRC, especially for deliberations related to appointment, remuneration, performance evaluation and succession planning of senior managerial personnel. Here they would be well advised to take a cue from their colleagues, the company secretary and the chief financial officer, who are well-versed in this art.
To hold true to the sacred covenant between boards and management requires a mature and balanced approach from both partners—the managerial role holders and the ones carrying the governance baton at the board level. A responsible, responsive and skilful CHRO can make a significant impact in maintaining this fine balance in the realm of people decisions that the board will now have to make, and in ensuring that ultimately the wood is not forgotten in detailing the timber.
Hema Ravichandar is a strategic Human Resources Consultant and a HR Thought Leader. She is a renowned Leadership Coach and serves as an independent director and an advisory board member for several organizations. She was formerly the global head of HR for Infosys Ltd.
First published in The Mint.