If your organization hasn’t yet realized that your people are your number one asset, you are behind your competitors. Companies that systematically invest in attracting, developing, and retaining the best people create a differentiated advantage in the market. Yet in our experience, many companies are underutilizing a powerful weapon in their arsenal: their board of directors.
Having assessed and advised more than 21,000 executives, we have the privilege of working with some of the most experienced board members in the business world. Conversations with dozens of them over the last year have illuminated this lost opportunity. “Boards need to consider additional ways to engage with management beyond just an annual review of talent,” as Rodney Adkins, who is chairman of Grainger’s compensation committee and a member of the UPS compensation committee, shared with us.
How do you get the most out of your board to create a sustained talent advantage? We’re seeing an emerging trend of companies tapping into the talent management experience of their directors with more rigor. For example, some companies, including JPMorgan Chase, Walmart, and DuPont, have expanded the mandate of their traditional compensation committees into hybrid structures with titles such as “compensation & management development committee” and “people & compensation committee.”
We believe there is opportunity to go even further. Creating a broader and more dynamic board-level “people committee” will deliver that sustained advantage.
What Does a People Committee Do?
Your people committee is on the hook to ensure management delivers today’s employee strategy and tomorrow’s leadership bench. Think of it as an umbrella committee that helps you create an advantage by setting priorities, tracking progress, and driving accountability in the talent domain.
As a critical talent attraction and retention tool, compensation should remain a core responsibility of the new committee, ensuring SEC compliance and aligning leadership performance and potential with rewards and long-term incentives. But the people committee would reach beyond compensation in a number of areas to add differentiated value in three areas:
1) CEO succession.
With billion-dollar implications, CEO selection is a board’s single most important responsibility. Having guided hundreds of successful CEO successions at ghSMART, we all too often see boards that are late to the game in planning: They lack clear and robust processes and operate with blind spots regarding the capabilities and potential of internal candidates.
Without consistent, rigorous challenging of the succession plan, a false sense of security can catch companies off guard when CEOs announce a departure. Of the 100+ CEO successions our firm has assisted with over the past three years, more than half of the boards ultimately determined that the previously perceived “obvious” choice was not ultimately the best candidate for selection.
An invigorated people committee should institute a proactive and dynamic succession development process that builds alignment on the skills needed by future CEOs. It should maintain a relentless focus on the succession plan, selecting complementary leaders for key executive roles and developing a sustainable and diverse pipeline of capable internal candidates.
For example, DuPont’s people and compensation committee has tied talent reviews to operating reviews in order to enable the board to develop perspectives on key leaders throughout the organization. “The process…allowed board members to gain insight into leaders overseeing key businesses and to have a sense of the talent pipeline in the organization,” explained former DuPont CHRO Darrell Ford, who is now CHRO at UPS.
2) Driving cultural accountability.
The people committee should also have a mandate to ensure company values are infused throughout the organization. Social pressures for companies to lead on cultural issues have heightened, with institutional investors calling on management to show sustained commitment to diversity and inclusion, ESG, and corporate social responsibility if they want access to capital.
Yet, in our work, we frequently see such initiatives spun up in response to crisis or external pressure, then passed down from the CEO or an ad-hoc executive task force to lower levels of an organization where they often languish. “There needs to be a standing process that is not people-dependent or leader dependent and should continue past the tenures of CEOs and leadership teams,” as one leading board director shared with us.
In our experience, the most effective boards collectively influence the culture, values, and principles of an organization and hold their executive teams accountable to those values. Boards can drive cultural accountability by adding cultural outcomes and metrics to CEO scorecards, highlighting successes within key business units, and measuring and holding executives accountable for engagement and buy-in from employees at all levels. Adding a people committee with chartered responsibility to monitor and develop adherence to institutional culture will ensure initiatives sustain beyond the tenure of any one leader and filter throughout the entire organization.
3) Shaping the workforce of the future.
People committees can also drive focus on long-term strategic initiatives that require near-term capital allocation, including shaping the workforce.
For example, before the pandemic, record low unemployment and fierce competition for talent, coupled with advancement in technology and automation, raised worker training as a top-level concern for nearly every CEO. Many companies struggled with funding worker reskilling, seeing it as a short-term expense, even though long-term payoff was likely. The World Economic Forum estimated the cost of reskilling to be $24,800 per worker, which could add up to a meaningful amount in a single year or quarter depending on the size of the labor force but is minimal compared to the long-term costs of high turnover, loss of key talent, or waste due to the inefficiency of having the wrong set of skills.
Chartering your people committee to oversee evolving workforce demands can provide the institutional commitment to training and developing your workforce to meet the needs of tomorrow.
The Way Forward
Take a minute to consider if your organization has fully tapped into the board’s full richness of experience, perspective, and knowledge on people and culture.
As you consider the creation of a people committee charter, consider two guiding principles: 1) keeping management focused on long-term people priorities even when under pressure for the next quarterly goal; and 2) ensuring strategic people planning permeates every level of the organization. By forming a people committee, you take a big step toward creating a differentiated and sustained people advantage that endures beyond any one individual CEO.
