Fixing HR

Essentials: The fifth of Chief Executive’s six-part series on boosting personal effectiveness

Part I: How To Use Your “New” CFO
Part II: Managing a CEO’s Scarcest Resource -Time
Part III: Transform Your Techie
Part IV: The View from Marketing: How to get the most from your CMO
Part V: The View from Social Media: Should CEOs Have Personal Blogs?

Key Takeaways

• The HR chief should be involved in planning business strategy from Day One.
• The HR chief can be the CEO’s most trusted confidante because of the sensitive nature of the information they share.
• The HR chief needs line-management experience.

Just 2 percent of chief executives today were promoted directly from a post in human resources, according to an estimate of Lewis Rusen, president of executive recruiter Korn/Ferry’s North American leadership and talent consulting business. And no wonder: Historically, even the highest-ranking HR person at a major corporation has been more of a middle manager, without the well-rounded business background of which other senior managers can boast.

That situation is gradually changing for the simple reason that CEOs increasingly realize they can’t afford a weak chair at the C-suite table. In an age of complex financial, consumer and regulatory demands, where people resources are more important than the natural kind, a CEO needs his or her HR chief to be as much of a business partner as the rest of senior staff.

Accordingly, new job criteria and responsibilities for top HR pros are beginning to emerge, ranging from advising on mergers to analyzing corporate weaknesses to sizing up the other top brass. At the most cutting-edge enterprises, the HR person is right there with the CFO and COO, helping to reposition the company. To fill this new role, businesses will increasingly need HR chiefs with line experience, MBAs and other qualifications far beyond the traditional experience of determining pay and health benefits.

Beyond Benefits—Way Beyond

“The HR role has to shift from being a technician-type role to being a more partner-type role,” says J. Puckett, the Dallas-based senior partner who heads Boston Consulting Group’s organization practice in the Americas.

However, it’s a huge shift, and it will happen only if the CEO pushes. “It’s about the changing mindset of the CEO and the CEO’s deliberate efforts to reposition the HR executive role and focus,” Rusen says.

The going is slow. Myrna Hellerman, a senior vice president at Sibson Consulting, a New York-based HR and benefits consulting firm, points out that people have been talking about upgrading the HR job for at least 15 years. Most HR heads still spend the bulk of their time in traditional functions, such as measuring employee performance, comparing compensation packages with those of competitors, administering payroll and “making sure that we win these awards that say we’re a best place to work,” she says.

There has, however, been some progress. Rusen estimates that 15 to 20 percent of companies are taking steps to rethink the function, up from around 5 percent three years ago. Probably, the best way to change the mindset is to have the head of HR work on redefining the company while also redefining his or her job.

For instance, the CEO could send the HR person to sit down with division, departmental or business-line leaders, one-on-one, for detailed discussions “to forecast the demand for labor in key job categories” in accordance with the company’s long-term plans, suggests Puckett. Together, the HR and business managers would analyze “the supply inside the company—taking into account attrition and growth—and then identify where the most strategic gaps are,” Puckett continues. “Then they could overlay different strategies on that model, whether it’s hiring or internal development.”

The CEO also needs to bring the HR person into more high-level strategy meetings—the inevitable bane of gaining more responsibility. This step is under way at Equifax, the giant Atlanta-based credit-scoring company, where chief HR officer Coretha M. Rushing says that sometimes she’s present when other top executives are not. For a sit-down with key investors, there might be just Rushing, the CFO and the CEO. At those meetings, “don’t have the people item be item 15 on the agenda,” warns Ravin Jesuthasan, the global head of talent management at the New York-based benefits-consulting firm Towers Watson. Instead, he suggests, “Put the people issues on a par with customer and financial issues.”

M&A Advisor

Mergers and acquisitions can especially benefit from skilled HR participation because it involves nitty-gritty corporate reorganization along with personnel integration. That’s been the case at Viterra, Canada’s largest agricultural conglomerate, along with a rare example of a pioneering HR chief. The Canadian conglomerate gobbled up more than 14 targets over the past four years, including three deals of $1.53 billion or more. Steven Berger, the senior vice president of human resources and transformation and a former management consultant, has been involved in every discussion “from the concept stage,” reports CEO Mayo Schmidt.

A typical example was the $2.26 billion purchase of Australia- based ABB Grain in 2009. During the 10 months of analysis, negotiation and implementation, Berger traveled to ABB’s headquarters more than a dozen times, often with Schmidt and chief operating officer Fran Malecha. Berger says he worked with his executive colleagues “to plan where all our synergies were going to come from.” In addition to tackling standard HR topics, such as ABB’s union contracts, he analyzed the prospects for increasing market share and combining back-office operations. Then, Berger and Malecha reorganized the Australian company into business lines and geographical centers.

“We can’t get two-thirds of the way along and then say to HR, ‘By the way, start planning an integration,’ ” Schmidt says. “I consider all of the enabling functions—HR, IT, investor relations—to be strategic advisors to the CEO.”

“The HR role has to shift from being a technician-type role to being a more partner-type role.”

It’s not that a CEO should seek the HR director’s strategic advice about which companies to buy. Even Berger doesn’t do that. Rather, the HR chief might analyze the long-term personnel implications before negotiations get too far along. Topics can range from management weaknesses in the target firm and the difficulty of integrating the two companies’ labor contracts to whether the acquirer has the talent to undertake the deal at all.

One factor making all this easier is that the HR job requires and hones unique talents that can be crucial in the enhanced role. After all, HR chiefs spend their careers explaining, listening to complaints, understanding what motivates people and dealing with confidential issues. Berger points out that he and Schmidt are constantly sharing sensitive information about other top brass, including “raises for the executive team, changes to the executive team and performance evaluations.” “There’s an implied trust with everyone around the [leadership] table, but it’s a different kind of trust, and a different kind of discussion, with me,” he adds.

Of course, working with the CEO to hire, fire, promote and transfer other executives has long been a principle part of the HR chief’s job. Nevertheless, at Ideal Industries, a $500 million family-owned manufacturer of electrical products based in Illinois, Roberta McQuade, the corporate vice president of HR, even acted as an executive recruiter to find a new CEO in 2007. Working directly with Chairman David Juday, she found a search firm, zeroed in on about five companies where she thought that firm would get good candidates and interviewed potential nominees. Ultimately, Ideal hired James V. James, its new chief executive, from Illinois Tool Works, one of the targeted companies.

CEOs should also take advantage of the HR manager’s people skills in dealing with the entire leadership group. “Call it the glue,” says Rusen of Korn/Ferry. He suggests one scenario: “CEOs could say to the HR person, ‘I want you to get to know better everybody on the executive team, how they’re feeling about how the business is going, whether they’re being fully utilized or not and how effective I’m being as a
CEO.’ ” Why would other managers open up to this person, whom they still don’t see as a peer? (Even worse, if the HR chief is a peer, then they may be rivals.) The advantage is that venting to the head of HR is safer than venting directly to the CEO, Rusen and others say—especially when promised anonymity. Besides, McQuade adds, “A good corporate VP of human resources knows how to communicate.”

Getting the Message Out

These shifts represent a huge change for HR leaders, as well as other executives and the CEO. “Many HR leaders don’t realize that the expectations are evolving,” says Puckett of Boston Consulting. “They haven’t been brought up to do this sort of thinking.”

Ultimately, it’s up to the chief executive to set the tone, determine just how important the HR person will be and convey that message throughout the company. This means telling department managers that HR now has broader functions and making it clear to the C suite that this person is a genuine peer. “Getting line leaders to think of HR in terms of the business, with multiple stakeholders, is a challenge of leadership,” says Jesuthasan of Towers Watson. He points to the CEO of one major U.S. airline who sends a voice mail to all 150,000 employees every week, specifically citing an HR-related topic—for instance, turnover statistics or “Here’s what we are doing to enhance your work experience.” When the words come straight from the CEO and the CEO makes such an effort, it sends a strong message that HR is important.

In theory, an enhanced HR officer could even become CEO someday. “This new way of defining the HR executive role will provide developmental experiences for HR executives, such that they will be viewed more frequently as CEO succession candidates,” says Rusen of Korn/Ferry. Rusen warns, though, that it will take at least three years to change the thinking throughout the business world enough for this opportunity to take place in significant numbers.

When Berger left his job as a management consultant to head Viterra’s HR department, his fellow consultants were skeptical. “They said, ‘Really? HR?’ ” He recalls, “I looked at it differently. I felt from Mayo that he understood that HR was the critical factor for the future for Viterra.”

CEO ONLINE EXCLUSIVE

Visit www.ChiefExecutive.net/HR for additional articles on the evolution of the HR role, including:

• Rethinking the HR Function at Small and Mid-Size Businesses
• CEOs’ vs. HR Chiefs’ View of the HR Role
• Hiring Your HR Chief—New Roles, New Requirements