Leadership, human resources, values and standards, openness, trust, communication, collective responsibility, job roles, remuneration, knowledge, skills, recruitment and selection, performance review, succession planning, induction and updating, relationships …
No, these are not words taken from a company’s people strategy. They come instead from the new combined code on corporate governance, issued last month by the UK’s Financial Reporting Council. All being well, this will apply for company reporting years beginning on or after 1 November 2003.
Thanks to the Higgs review of the role and effectiveness of non-executive directors published earlier this year, this new combined code makes the management of people on company boards compulsory for the first time.
Although he doesn’t officially have the title, Derek Higgs could in fact be viewed as UK plc’s first-ever human resources director.
Given the general lack of interest among company directors in the importance of human resource management to company performance, it is noteworthy that Higgs’ proposals have been so quickly and widely accepted. No doubt the recent spate of corporate scandals on both sides of the Atlantic can at least partly account for this. After all, Enron, Marconi, WorldCom, Vivendi, Railtrack and many other companies have provided eye-opening revelations about what has really been happening inside businesses and on corporate boards.
The search has been on for ways to reassure investors that they can trust and rely on business leaders to manage performance, as well as reporting on it accurately.
The new combined code is clear: the management of board performance requires much more than numbers and analytical tools. It requires direction – strategic aims and business objectives, values and standards. It requires organisation – committees, executive and non-executive director roles and company secretary roles with explicit responsibilities. It requires behaviour – entrepreneurial leadership, openness and willingness to learn. It requires the competence that comes from visible results – oriented processes, boardroom appointment, succession planning, performance review, remuneration, induction and updating.
It requires a framework of controls. It requires information flows and communications. And it requires the kinds of relationships that can facilitate everything else. The management of board performance is all about the management of people.
If UK plc’s first human resources director can add value to UK boards as a whole, perhaps it’s time to consider whether the same could be true for individual companies.
Most companies in the UK of significant size, or with growth aspirations, have a human resources manager on their executive management team. But expertise in the messy business of getting the organisation and people to perform seems to be limited on the boards of many companies. At the end of 2002 only 13 FTSE100 companies had a director with a specific human resources brief.
Yet the new combined code is explicit that the board ‘is collectively responsible for the success of the company’. It states ‘the board should ensure that the necessary human resources are in place for the company to meet its objectives’ and that ‘the board should review management performance’.
Given these overall board responsibilities, how might a director with a ‘human resources’ brief and expertise add value to the performance of the company’s board, and through the board to the company as a whole?
First, he or she could be expected to focus on the board’s management of its own performance. This would mean more than an interest in whether the board is following the letter of the corporate governance code.
It would also mean working with the chairman and other directors to ensure the spirit of the code is being pursued, that is ‘that the company’s obligations to its shareholders and others are understood and met’. Typically, this might involve shaping the company’s strategic aims, values and standards, so that they respect and reflect aspirations that encourage people to give their best. It also means contributing to decisions about board appointments, about how to make the board’s own people management processes most effective, and about how to review the board’s own performance to best effect.
Second, such a director could be expected to focus on the threats and opportunities people can create. More specifically, he or she might focus on ensuring that the company’s framework for assessing and managing risk pays enough attention to the opportunities and threats that can arise from the behaviour of people, and particularly behaviour generated by their relationships with their managers.
Third, this director could be expected to focus on the successful implementation of business strategies and plans. This would mean bringing to bear an understanding of why up to 90% of change initiatives fail to achieve some or all of their objectives, and why the majority of mergers and acquisitions fail to create value. It could also mean stewarding the creation of an ‘organisation and management’ review process that is fully integrated with the business planning processes of the company.
Fourth, he or she could be expected to focus on ensuring that the company has the essential basics of organisation and people management in place.
Extensive research has repeatedly shown that the pace and scale of improvement in productivity and business performance depends on the use of a number of key human resources practices. But most companies do not yet use the majority of these practices. This director could be expected to champion the identification and implementation of these practices that are key.
But here’s a word of caution. Just being there, on the board, isn’t enough.
The board must be able to use the expertise of all its members. If a director is not seen by other board members as adding value, this is an important signal to the chairman – and indeed to investors: the way the board is managing itself leaves something to be desired.
- Nickie Fonda, strategy and business development adviser at the Chartered Institute of Personnel and Development.
Does Darwin's theory apply to taxation? Colin ponders...
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states
Accountancy watchdog the FRC has dropped its investigation into the former chief financial officer of Tesco, nearly two years after the supermarket was engulfed in an accounting scandal
Colin imagines how Apple's logo might change in the wake of the EC's ruling over its Irish tax arrangements