Talent Management: An Emerging New Board Responsibility

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In days of old, the Board’s responsibility for managing the talent of their organization began and ended with their top executive, the CEO. Any other responsibilities for “talent management” fell to the CEO. That’s because up until the governance implosion of 2001, it was the governance ‘party line’ that the Board had responsibility for only one employee, the chief executive officer. But a lot has changed since that time. Boards of publicly listed corporations in the United States and elsewhere must now take responsibility, through their audit committee, for the direct hiring, supervision and compensation of an internal auditor. And an examination of the causes for the collapse of such firms as Enron, WorldCom and Tyco has revealed that they could not have happened without the complicity of the Chief Financial Officer, or CFO.

As a result, savvy Boards take a deep interest in who their CFO is and demand increased oversight when it comes to his recruitment, compensation, and termination.

Other than these major changes, however, most Boards’ interest in their organizations’ “talent management” has remained relatively low. Until now. A recent study of over 1000 company directors identified talent management as being their most significant strategic issue, beating out the usual ‘hit list’ of concerns such as competition, technology, regulation, and risks. There’s also recent hard evidence to support this change in thinking. Research has shown that there is a strong correlation between the quality of an organization’s talent management practices and its financial performance.

Companies with outstanding human resource practices have been found to have a significantly higher market value, profitability, and employee productivity/engagement when compared to those organizations not so concerned with their talent. Additionally, market analysts increasingly cite an organization’s ‘total management and leadership strength’ — and not just the CEO — as one of their key considerations in making their recommendations to buy or sell a stock. When companies have “profound leadership depth AND breadth”, the reward is robust sales and profitability. Accordingly, while Boards in the past have been reluctant to extend their leadership attention beyond the CEO for fear of overstepping their bounds, they now need to change that point of view. Indeed, failure to do so could put their organizations at extreme competitive risk.

So what does this new oversight responsibility for their organization’s talent management involve? At the most basic level, it involves Board members more actively deploying their #1 behaviour when engaging their CEO on this topic, which is of course, to ask questions, and more specifically, questions about the quality and effectiveness of their organization’s talent management practices. Such areas of inquiry should include the company’s effectiveness in: attracting, assessing and hiring top talent; developing, rewarding and retaining talent; and aligning talent tightly with the mission, vision and values of the corporation. Research has shown that the more effective an organization is with respect to these areas of talent management, the more successful it is. Unfortunately, a recent study conducted by the Harvard Business Review has also shown that when it comes to talent management, most Boards would give their organization an “F”! This, of course, begs the question of what Boards should do to turn this situation around.

A useful starting place is for the Board to request a “talent assessment” of their organization, on an annual basis, with sufficient time allocated on the Board agenda to give the assessment results a thorough discussion. The Human Resources and Compensation Committee should lead the talent assessment process on behalf of the Board, setting out the parameters and expected outcomes of the evaluation, perhaps beginning with the talent management practices listed above.

For those doing this for the first time, it’s usually best to begin by simply asking the CEO to self-report on the state of the organization’s current talent management practices. But beware of the CEO who concludes the enterprise has no talent management issues or problems. It’s a telltale sign of a CEO who feels he cannot be totally forthcoming with his/her Board. That’s why a truly robust talent appraisal process must ultimately engage and gather the opinions of the rest of the senior management team, preferably through an anonymous survey. Their “collective responses” on the organization’s talent management practices can then be compared with those of the CEO and used to identify areas of contention and concern.

It is especially important to keep in mind, however, that the goal of any talent assessment conducted by the Board is not to lay blame but for the Board to help the CEO turn his “F” talent management grades into “A’s”! To do so, the Board must, at a minimum, ultimately figure out how to how to factor talent management issues into the design of the CEO’s compensation if such issues are ever to be corrected or improved. After all, what gets rewarded, is usually what gets done!

So here’s the big, uncomfortable question for Caribbean directors: to what extent does your Board currently understand both the importance of effective talent management to your organization’s success and the quality with which it is currently being carried out? If you think that there is room for improvement in the way your Board carries out this important governance oversight function, you might want to consider sending them to one of the corporate governance training programs currently available in the region – like the 3 day Chartered Director Program currently being offered by The Caribbean Governance Training Institute. After all, it’s not education which is expensive, but rather ignorance. •

Dr. Chris Bart, FCPA is a recognized global governance authority, the author of two best sellers, and Co-Founder of the Caribbean Governance Training Institute. The Institute is currently providing throughout the Caribbean an intensive 3 day corporate governance program leading to the prestigious, internationally recognized, Chartered Director (C.Dir.) designation. For more information visit CGTI’s website: www.caribbeangovernancetraininginstitute.com or phone Lisa at 758 451 2500

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