Human Capital Outlook

HR increasingly deserves a place on the Board of Directors

Why HR increasingly deserves a place on the Board of Directors

Vikram Bhardwaj

Here’s a trend we are hearing only too often. A Billion $ leading Indian Pharma Major based in Delhi loosing key R&D Professionals, a BPO firm based in Chennai was left without its top management due to a competitor offering almost double, an IT Services firm in Mumbai –unable to smoothly bring about the post merger integration and loosing almost all the key blokes of the acquired firm. Also, it is safe to assume that there exists a co-relation between the loss of people at the top level with the general morale of the ones left behind. Somewhere these trends are pointing towards a common conclusion. But before getting to that, here are some startling findings from the world of recruiting and retention:
First, in the IT and BPO sectors, more than 60% of employees are willing to change jobs given the right opportunity and compensation. A company can keep adding headcount, keep recruiting as many as it likes but if the leakage in the pipe has a flow which is stronger than the inlet, there is no way the company is in a stable footing. What comes across in these high growth sectors may only mirror future trends in other sectors in times to come

Second, according to another statistic, in these companies only 75 % of the workforce is engaged in their work productively, the new recruits are less productive for a lengthier time than the old incumbents and it serves well to suggest that how challenged employees feel in their jobs has a direct correlation with how committed they are.

Forget Consumer confidence. There seems to be a crisis of confidence amongst employees in a situation where say the CEO walks out with the top team. Given the fact that restaffing takes time and does not yield an ‘optimal scenario’ as the new team takes time to acclimatize, there has to be a common bind between the ones who decided to stay back.

Despite all the debate of corporate governance taking its place in India Inc., nothing has been said about how companies can protect and sustain their Human Capital assets. The discussion has focused on assuring financial integrity and safeguarding shareholder investments. While this is clearly appropriate, an institution which is impacted by a lacking capability to attract andretain committed people can’t accomplish its mission and ends up as a ‘hollow enterprise’. For all the efforts, we should not land in a situation where the current wave of board reforms only ensure that we have a more accurate reporting of the financial performance of companies who lack the talent to get the job done!

It is this unpleasant scenario that leads to the following proposal: As Boards move to increase the number of external directors and establish independent audit committees with the knowledge to oversee financial reporting; they should also go a step forward and add the Head of Human Resource as a member of the board. The role of this executive {instead of reporting on labor management issues and benefits costs,} would be to make the status of the organization’s human capital asset visible to the board. In other words, this person would not be an expert counselor on administrative and legal matters relative to HR management, but rather to analyze and constantly bring out the morale, commitment and capabilities of the organization’s workforce and lead the firm proactively with strategies that enhances them.


Such a change would almost immediately have a two fold effect.

Firstly, it would for the first time expand the board’s visibility beyond purely financial measures while gauging the organization’s health. This will also lead to a tilt in the pointer towards de facto metrics of performance rather than performance measurement post haste. A proactive look at the company’s human capital assets would help the board to focus on avoiding problems before they occur.

A top level and permanent human capital asset committee should be constituted and charged with assessing the morale, commitment and capability of the organization’s human capital and report to the board on its findings and the likely impact on the organisation. Additionally, any proposed investments can be vetted by this committee.

The second dramatic impact this would have is to make the HR accountable and responsible for the morale of its people. Despite the latter being the stated intention of the HR function, its objectives are often blurred by the more transactional and administrative requirements of payroll, compensation & benefits etc.

Thus by ensuring that this critical function gets representation on the board, the company’s human capital direction can be gauged and monitored.