Canadian Directors Divided on Board Involvement in Human Capital Oversight beyond the CEO

Oct 04, 2011

Risk management is an increasing priority for Canadian boards, but directors are divided on the board’s role in helping to mitigate human capital risk and improve organizational performance beyond the CEO level.

This is according to a new research report, “Beyond the CEO - The role of the Board in ensuring organizations have the talent to thrive,” by Knightsbridge Human Capital Solutions (Knightsbridge) and the Clarkson Centre for Board Effectiveness (CCBE), in partnership with the Institute of Corporate Directors (ICD).

Courtney Pratt, Knightsbridge Board Chair said: “CEO compensation has been dominating the board’s human capital agenda to the detriment of other critical human capital issues. The rapidly growing war for talent combined with an increasingly competitive business environment, has made the quality of an organization’s human capital a key driver of competitive advantage.”

The study revealed that there are key disagreements among directors about the board’s responsibilities, and inconsistencies between the board’s desired and actual oversight, specifically:

- While there is unanimous agreement about the board’s responsibility for CEO hiring, compensation and succession, only about two-thirds of directors believe boards should monitor or provide oversight on other human capital issues and risks.
- Of those surveyed, only 65% agree that boards should monitor compensation across the entire organization, and only 63% agree that boards should monitor the succession of critical positions below the CEO and top executives.
- Despite unanimous agreement that CEO succession is a key board responsibility, only 55% of the directors surveyed agreed that their board had identified suitable potential successors.
- Almost half (46%) of directors believe that the board is directly responsible for ensuring  that the organization’s strategic plan sufficiently addresses talent-related risks, while the other half (54%) believe that a monitoring role was more appropriate.
- There are also important gaps in strategic oversight with 30% of boards stating they are under-equipped to assess the effectiveness of their organizations’ HR strategies, while 25% feel their organizations do not have sufficient talent to achieve key objectives.

The directors surveyed also identified three primary barriers to overseeing human capital risks such as lack of time due to operational matters; lack of directors with sufficient human capital expertise or financial resources to hire external expertise; and a belief that human capital oversight beyond the CEO is not within the board’s scope.

David Beatty, Conway Director, Clarkson Centre for Business Ethics and Board Effectiveness said: “In our ten years of research into Canadian boards, we have seen many broad improvements, but as this study shows, there is still much work to be done to ensure that board processes result in the desired outcomes. This is particularly true for talent oversight; an area that directors universally embrace as a core duty.”

Stan Magidson L.L.M., ICD.D, President and CEO of the Institute of Corporate Directors said: “We hope that this report will serve as a catalyst for boards to consider how they can most effectively oversee human capital issues and risk. In an increasingly competitive global economy, recruiting, retaining and growing the right talent truly matters.”

John Thompson, Former Chairman of the TD Financial Group and Fellow of the ICD commented on the study: “Focusing on human capital not only mitigates strategic risk, but also contributes to superior performance. There are many industries in which competing companies have similar strategies, offer like products and services, share the same customer base and draw from the same talent pools. Why then do a few of the companies consistently outperform? I believe that leadership, organizational culture, and talent development are the difference.”