Workforce Wire
To join the CNBC Workforce Executive Council, apply at cnbccouncils.com/wec.
Workforce Wire

Directors with HR skills are becoming more important for companies amid Great Resignation

Key Points
  • More companies are looking for board directors that have human resources experience.
  • The share of directorship roles across companies in the S&P 1500 with specific HR skills increased from 11.3% in 2020 to 19.4% today.
  • The push to have more HR expertise on the board comes as the SEC is requiring more transparency on workforce issues.
Monkeybusinessimages | Istock | Getty Images

Company leaders are being pressed from every side to explain how they plan to attract and retain the talent they need amid rampant job reshuffling. They're increasingly turning to members of their board for that guidance.

Research shows that companies are welcoming more directors who have actual human resources experience into the boardroom. For decades, the composition of most corporate boards leaned heavily towards current and former CEOs, CFOs, lawyers and academics. The folks managing the talent — CHROs, chief people officers, and others — were rarely at the table.

That's beginning to change. The share of directorship roles across all companies in the S&P 1500 with specific human-resources skills increased to 19.4% in January compared to 11.3% two years ago, according to ISS ESG, the responsible-investing arm of Institutional Shareholder Services. These directors also better represent the demographics of the workforce. In 2016, 11% of directors with HR skills were under 55; today that figure is 29%.

The trend makes sense. Corporate leaders are facing an avalanche of workplace issues with no easy answers. The scramble to find workers, offer pay and benefits to keep them from quitting, all while navigating a new remote-hybrid-in person work arrangement is unfamiliar territory for most chief executives. Bringing on directors who deal with these issues every day makes sense.

"The issues around workforce metrics and human capital management are becoming more complex," says Bonnie Saynay, global head of ESG investor research and data strategy for ISS ESG. "Boards are really seeking HR knowledge and expertise to better grasp what's happening and how it affects the decisions they're making."

And directors are spending more time on people issues. A director survey from PricewaterhouseCoopers shows that talent management is now the top area that needs more time and attention in the boardroom, beating out strategy and crisis management for the first time.

Demand for transparency

The push to have more HR expertise on the board also comes at a time when the SEC is requiring more transparency on workforce issues. In 2020, it voted that public companies must disclose more about their workforce in annual filings so that investors have a better idea of risk factors in this area. Institutional investors are also continuing to evolve in their focus on workforce issues. "They are prioritizing the 'S' in ESG," says Saynay, "demanding more transparency, disclosure, and engagement on these topics from the companies they own in their portfolios."

Boards are really seeking HR knowledge and expertise to better grasp what's happening and how it affects the decisions they're making.
Bonnie Saynay, global head of ESG investor research and data strategy, ISS ESG

Having more talent and workforce expertise on the board is long overdue, say industry experts. It's not that the topic hasn't been on the radar of boards, explains Ginnie Carlier, EY Americas vice chair of talent and a member of its board. "Today the involvement is much more explicit," she says. "You're seeing that with the interaction of CHROs with boards."

She cites an EY board survey from 2019 that showed that 80% of directors, even pre-pandemic, said their boards spent more time discussing talent strategy than they did five years earlier.

The seismic shifts that have taken place in the labor market in the wake of the pandemic have focused the attention on talent like never before. Beyond seeking guidance on attraction and retention strategies, corporate leaders are now looking to their HR executives for a host of talent-related issues. Among them: how to create fair and sustainable remote and hybrid schedules, wellness programs to battle burnout, and how to redesign offices so that workers actually want to come back.

"Organizations are really having to double down on how they operate to support their people, how to operate to engage this labor force, and that's part of the fiduciary responsibility of the board," says Carlier.  "That's why they're having to spend more of their board agenda on true talent and HR matters."

Saynay of ISS ESG says there are a number of companies that stand out in her research. HP, she says, now has four corporate directors with HR experience and a functioning sustainability committee. Citigroup has 11 directors with human resources expertise, State Street has two directors with HR skills, and Bank of America has eight directors with an HR background.

Whether this trend continues long after the war for talent simmers down is certainly debatable. Tight labor markets are cyclical and eventually the pendulum will swing the other way. But Carlier is confident that the changes we're seeing now, and the importance of boards having directors with HR skills, is a permanent shift.

"Companies are not just having to look at benefits for their employees, it's really around benefits that help the entire household," she adds. "Our new hybrid way of working makes the household their office. The alignment that companies have to have with societal issues and wellbeing is not going away."

To join the CNBC Workforce Executive Council, apply at cnbccouncils.com/wec.