Oversight of human capital
A guide for boards and HR committees in addressing human capital risks and opportunities
Human capital board oversight: evolution or revolution?
Boards recognize the crucial role they play in human capital matters. They learned their lesson through the major scandals of the 1990s and early 2000s and ultimately the 2008 financial crisis.
In 2011, a large-scale study was conducted into the role and effectiveness of human capital oversight among Canadian boards of directors. The vast majority indicated their boards have direct responsibility for CEO compensation, performance management and development, including succession planning. But they believed that it went further than that: boards should also monitor strategic talent management areas such as HR strategy, organizational culture, employee engagement, succession planning and development.1
Boards also acknowledge the important role talent and culture play in the company’s risk. In 2013, EY held a series of roundtable sessions with leading board members from across Canada to get their perspectives on the role boards play in overseeing risk. These discussions confirmed that a robust, systematic risk management process is a necessity, but to be truly effective, the board must address three key risks: culture, talent and strategy. It also confirmed that boards must take a broader view of risk, adopt more leading practices such as understanding and reviewing the end-to-end people strategy, monitoring its success with robust metrics and analytics and ensuring the corporate culture is a lever of corporate sustainability.
A 2014 global survey of more than 770 directors performed by McKinsey2 indicates that high-performing boards have strategy, organizational health and talent management, business risk management, core governance and compliance on their agenda.
So the question is: is this an evolution in the board’s role or is it a revolution — a dramatic and wide-reaching change?
Each organization has to define how it can best manage its human capital risks and priorities, and there is no one-sizefits-all solution. What is clear, though, is that boards are looking for ways to provide insight, oversight and foresight in matters of talent and culture. It is our belief that by developing a better understanding of their companies’ and industries’ talent capacity and issues, boards will be in a better position to support the CEO and executive team in executing their companies’ talent strategy.
“Growth is the best people strategy, but people are the only growth strategy.”
Fiona Macfarlane, Chief Inclusiveness Officer, EY
This guide is designed to assist Boards of Directors (boards) as they look to add even more value to the corporation in the area of human capital. We provide board members and human resource (HR) committees with insights to understand their evolving roles and responsibilities, as well as leading practices used by boards as they provide the value to the company in their oversight role in talent and culture.
We also offer recommendations on the relationships that are needed to expose boards to the right information and the right insights. In addition, we provide a few tools, including examples of a human resources charter, an annual meeting planner and a framework for gender diversity reporting that we hope will be helpful to boards.
Even if some of the legal requirements apply to public companies only, the leading practices set forth in this guide can be useful whether your organization is public, private or not for profit, whether it’s large or small.
1. Knightsbridge Human Capital Solutions, Clarkson Centre for Board Effectiveness and the Institute of Corporate Directors, Beyond the CEO, The role of the Board in ensuring organizations have the talent to thrive, September 2011.
2. “McKinsey Quarterly, High Performing Boards: What’s on their agenda?, April 2014.