Boards and C-Suites have arrived at the same fork in the road as HR

The HR department has always had a bad press. I should know, I’ve been working in the field for nearly forty years and have had to suffer the flawed diagnoses and simplistic prescriptions from writers who have never worked in the field. In 1996 Thomas Stewart, management writer (and subsequent Editor-in-Chief at Harvard Business Review), suggested in Fortune magazine – “Why not blow the (HR) sucker up?” About ten years later, in 2005, Fast Company ran a story entitled ‘Why we hate HR’. The thrust of both was that HR merely ‘talked a good job’ but did not deliver value and had arrived at a fork in the road – become influential in the C-Suite or face oblivion. What they failed to mention (or realise) was that the problem was not with HR people, per se, but the entire Board and C-Suite. They were getting the HR functions they deserved because they had never been taught mature human capital management from any business school they had attended.

Ten years further on (2015), Larry Beeferman and Aaron Bernstein of Harvard Law School produced a seminal review of the literature on the ‘The Materiality of Human Capital to Corporate Financial Performance’. Neither of them are HR specialists but their methodology was clearly evidence-based. When it comes to the question of the materiality of human capital management practice (i.e. do such practices cause an improvement in the value of the business) they had to conclude that – “In sum, the debate over causality remains a contested one”. The implications of their work are immense, suggesting that CEOs and CFOs have yet to make human capital material to their business. Instead, C-Suites continue to pass the buck to the HR team, whom they do not respect, and so the vicious cycle turns once more. That is why Larry and Aaron turned to the Maturity Institute in search of better answers. The buck stops here.

Here’s a case in point from my email inbox today. One of our MI Associates recently contacted the CEO of a manufacturing business to introduce them to mature thinking on performance management (the specialist subject I lead for MI). I followed up this introduction directly with the CEO, only to be told to contact their HR Director. I responded – ‘I’m happy to speak to your HRD but actually mature leadership and management has to start with you.’ The CEO declined the invitation. This is a very common feature of MI’s evolution over the last five years – CEOs who take no ownership of human capital nor its implications for corporate governance.

Meanwhile, MI’s Lead on Integrated Reporting, Nick Shepherd (an accountant) is trying to convince CFOs that they need to change their thinking if they are to report on human capital effectively. The IIRC international framework already specifies an integrated report must include human capital management but it has yet to produce one that is any more convincing than those found by the Harvard study. So, rather than wait any longer, MI developed its own multi-disciplinary, multi-perspective integrated report on AT&T (at the request of our Harvard colleagues) that blends human capital seamlessly with conventional financial reporting. We call it a Human Governance Report and fully recognise that it has to form a major part of Corporate Governance.

So, it is not just HR that still has to make its mind up, they are not the only ones currently stuck at the crossroads; wondering which way to turn. Human governance and whole system management is the only way to go. It’s time for Boards and C-Suites to make their way decisively down the mature road and ensure they have equally mature people looking after HR.

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