The beginning of the 21st century has been an exciting time for HR. As we get ready to enter the third decade, cultural, financial, competitive, and regulatory pressures are rewriting the HR playbook. Corporate governance is growing from mere headcounts and compensation to encompass the capability of the workforce to deliver present and future value.
Regulatory Governance Drivers
In today's world, a company's intangible assets, including human capital and culture, have become a significant portion of its market value.
The U.S. Securities and Exchange Commission Is proposing requirements for more disclosure of the value of human capital and how it drives long-term value.
According to the EY Center for Board Matters, Global investors and frameworks such as the Global Reporting Initiative, the Embankment Project for Inclusive Capital, and the Sustainability Accounting Standards Board (SASB) identify human capital as a crucial value driver.
The Evolving Workforce
The changing perception of the value of life and work has forced organizations to rethink the concept of workers as simple economic units. Businesses have become social enterprises that pursue value far beyond shareholder returns.
Today's labor force includes many types of non-employee and contingent workers. The freelance economy is growing, except in areas where heavy-handed regulation makes it too complicated.
In the past, HR operated on three assumptions that are no longer true:
- work outcomes are stable,
- jobs are predictable,
- People are fungible.
Work today is in a continuous state of reimagination, jobs are fluid and dynamic, and humans are no longer interchangeable cogs in an organization.
Entire industries and the entire world are undergoing a digital revolution that is changing the way we conduct business, our social interactions, health, government, and everything else we do.
The HR function has transitioned from its perception as a back-office function to a strategic partner in the business. That transition requires a new breed of forward-looking human capital analytics and metrics that operational reporting can't deliver.
We've been talking about these trends for over ten years. While many organizations have made significant progress, there is still a significant gap between knowing the importance of the organization's relationship with its people and HR's readiness to handle it. In Deloitte's Human Capital Trends 2020 report, 75% of respondents said the role of HR was essential to their success over the next 12 to 18 months, but only 11% said HR was ready to address it.
Board of Directors Role in Workforce Governance
To remain competitive, organizations need to develop a framework that provides clarity and accountability for workforce readiness and performance at every level of the organization. It begins with the Board of Directors.
The Board sets the tone of the organization in human capital and culture. It should have sufficient expertise in workforce management and organizational culture to support and enable the organization to shape and develop the workforce to meet both known and unknown challenges.
It should ensure that the company consistently communicates and lives its culture and values throughout the organization, so each individual understands his or her responsibilities and accountabilities in achieving the company's purpose.
The CHRO has the same responsibility concerning the workforce that the CFO has in finance. That means providing the Board with regular updates on crucial workforce and culture, metrics, and financial reporting. It should also include discussions of the framework for HR Governance.
The HR Governance Framework
For many people, the perception of governance is command-and-control, but that way of thinking will no longer serve your organization. The dynamic, changeable state of the workforce and HR's need to be forward-looking and agile demand a framework that enables rapid decision-making, experimentation, and collaborative thinking. A governance framework pushes decision-making down the organization to the people closest to the need.
How you structure your framework depends on your industry, your organization, and your culture. For example, a company with a CHRO in the C suite would probably have governance led by that role. Where HR is two or three layers down the organization, another CXO such as the CFO may lead. How you structure steering committees and ad hoc committees will differ from one organization to another.
We offer a sample high-level diagram of an HR governance framework. Modify it or throw it out and start from scratch.
The Governing Council
What you name your governing body is up to you. Use a name that reflects your culture. We'll call it a Council for convenience, but you might call it a committee or a governing body.
The Council has final approval and oversight of the way your organization manages human capital:
- articulating the vision for the workforce,
- aligning HR strategy to business objectives,
- approving and overseeing policies and practices,
- risk management, and
- ensuring committee memberships include stakeholders and that each member has a voice.
You may have one Council or several. You will most likely have standing committees that report to it and ad hoc committees for governing things like technology projects.
Including executives and managers from outside of HR may give you perspectives you wouldn't otherwise have. It could also slow things down when you need speed and agility. Balance those needs with the need to prevent insular perspectives that may create a perception that HR is doing HR for HR's sake.
Including only senior HR leaders risks teaming failures. Be careful to monitor team dynamics so each member can exercise their strengths and imagination.
Whatever you call them, committees put the Council's direction and guidance to work by developing processes, procedures, and practices that provide the operating framework for the people who get things done. The aim should be to create an environment where people feel empowered to make decisions about how to make the right things happen.
The same cautions about the membership of the Council apply to committees, as well. Committees should also strive to:
- Optimize decision-making with multiple perspectives and feedback from stakeholders.
- Improve bidirectional feedback through all communication channels to make sure that HR is getting the business perspective.
- Eliminate silo thinking with broad exposure to other parts of the business.
- Foster an environment where people can innovate rapidly and capture opportunities immediately when they happen.
Governance, done well, will open new avenues of communication throughout your organization. It can also provide boundaries that give your people the freedom to innovate and experiment within them. Let your governance framework be a springboard so your people can create a bright future for themselves in your company.
Pixentia is a full-service technology company dedicated to helping clients solve business problems, improve the capability of their people, and achieve better results.