Formal evaluation of the board, as recommended in the Higgs review into the
effectiveness of non-executive directors, would make it easier for HR to exert
a stronger influence at the top end of a company
In the wake of the WorldCom and Enron scandals, there was much speculation
as to whether HR could have raised the ethical culture enough to prevent such
debacles.
The problem then, as now, is that HR’s ability to affect the conscience of a
company could at best be viewed as marginal. In most cases, HR simply isn’t
close enough to the action, or lacks the necessary clout to box the relevant
boardroom ears.
Yet the much-trumpeted Higgs Review into the effectiveness of non-executive
directors makes a clear recommendation that boards should consider appointing
high-flyers from HR. If this review does lead to a brave new world in UK
corporate governance, then HR will undoubtedly have an important role to play.
Higgs, who is a former investment banker, says that the absence of
professional development in British boardrooms is one of the factors hampering
their effectiveness. This is an HR issue.
In addition, Higgs strongly recommends a formal evaluation of the
performance of individual directors and the board as a whole. If this becomes
common practice – and it should – HR will have a strong influence at the
highest level.
Historically, boards have been reluctant to commit to the rigorous
evaluation processes that they often propose for their middle managers.
According to researchers PIRC, only 5 per cent of the UK’s leading companies
employ board appraisal procedures.
Many boards would justify this omission, stating that a board’s performance
is judged by its ability to increase shareholder or stakeholder value.
However, this is only one element of board appraisal. Boards are
increasingly being held accountable, both internally and externally. Demands
for greater transparency, authentic leadership, individual evaluation and the
performance of the board as a whole, are key elements that have arisen from
this.
HR has the opportunity to advise the board on the appropriate measures and
methods to carry out these formal evaluations.
Irrespective of the recommendations made by the review, companies that do
not have rigorous performance measurements at board level shouldn’t bank on
getting the winning results demanded of them.
The learning curve is important for those at the top, but so is the
‘forgetting curve’, according to management guru C K Prahalad. Individuals and
organisations sometimes need to forget certain things they have long held to be
true.
Boards must continuously develop new skills. Professional development should
not be the sole preserve of those aspiring to make it to the board. The level
of performance and behaviour that enabled an individual to reach the top of the
organisation, may no longer be appropriate or effective once they are there.
Fundamental to the issue of corporate governance is the question of who is
represented on the board. Higgs makes the assumption that moving more
high-flyers from HR to the board will translate into greater female
representation. Given that evidence shows more than 70 per cent of FTSE 100 HR
chiefs are male, this assumption would appear to be without foundation.
Yet, regardless of whether more women make it to board level or not, this
proposed new system will undoubtedly strengthen boardrooms by challenging the
‘old boys’ network’.
Suggesting that the review will lead to HR acting as the corporate moral
guardian, as some people have done, is probably a little way short of the mark.
But nonetheless, HR should welcome the Higgs report.
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If it becomes a reality, then HR will have a greater role to play in
influencing corporate policy, and so will be enabled to fulfil its true
potential.
By Richard Finn, Director, Penna Consulting
