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Why boards must be talent-first

CEOs rank the failure to attract and retain talent as their top concern this year. We increasingly find the allocation of people is just as important as the allocation of capital.
Why boards must be talent-first
Erik Kutcher

Leads McKinsey’s global High Tech, Media & Entertainment, and Telecommunications Practices, bringing engineering and enterprise technology expertise to help companies develop and execute growth strategies

CEOs rank the failure to attract and retain talent as their top concern this year. We increasingly find the allocation of people is just as important as the allocation of capital.

Boards need to recognize this priority and entirely rethink how they weigh talent and even the role they play in ensuring talent development. While CEO succession planning is one of the most important board tasks, they should increasingly focus on the sources of value (i.e., strategy), and, specifically, the talent required to capture value.

Top talent isn’t the top two percent of an organization’s people. It’s both the few (think dozens) of people in the critical roles that deliver value and the top 2% of employees (the truly special talent that disproportionately deliver greater impact) that serve as the talent pool from which companies fill critical roles. For many boards, I suspect these roles and the talent pool that feeds into them are blind spots – but ones they should seek to know and understand.

Directors should aim to get to know at least some of the company’s critical roles and ensure that effective compensation and development strategies are aligned to them. It is imperative that the board understands not just these roles, but the capabilities needed for these roles to thrive, and the assessment of talent against these capabilities. Boards also must understand the strategy to attract and develop the top talent to prepare them to take on these critical roles. In many ways, succession planning is more about filling these roles successfully today and tomorrow than it is about the top layer or two of talent.

One approach for boards to live up to these new responsibilities is to morph the compensation committee. To broaden its charter. To become an HR or “people” committee.

Just as importantly, the role of HR needs to be elevated, both in the boardroom and throughout the organization. Boards and CEOs must erase the stigma that HR is merely the handler of “soft” organizational issues, and directors must spend more time with the Chief Human Resources Officer (CHRO).

To elevate HR’s role, companies must rethink the development path for its leaders. CHROs must assume stints as line executives and receive broader training to gain a better understanding of a company’s core operations. Similarly, other business leaders must rotate through HR to learn the challenges and opportunities the company faces to attract and develop people.

One way boards (and CEOs) can elevate the role of the CHRO is to look to the Group of Three, or G3 – the CEO, CFO and CHRO – as the core trio to align on resources for driving value creation for both capital and talent, with close involvement of the board. The concept isn’t fanciful. The CEO and CHRO generally communicate on key people and culture issues, the CEO and CFO on resource allocation (and reallocation). What is missing is the CHRO and CFO connecting on the sources of value and talent to ensure value creation. This link is critical to defining and executing the strategy of the company!

This talent discussion triggers important questions for boards:

  1. How can boards better grasp the importance of talent and of HR’s essential role in helping attract, hire and retain superior people?
  2. How can boards elevate the role of the CHRO and, more broadly, that of HR? How do boards ensure they have the right CHRO?
  3. What role should the board play with regard to HR, talent, organization and culture? How can boards become an effective sparring partner to the CHRO, as well as the CEO and the CFO?
  4. Is the G3 concept one that would work in your organization, and what will that entail to succeed?

Transforming the role of boards requires a new mindset for directors and executives alike. I welcome ideas for how leaders are managing this transition to engage boards more deeply around talent.

Eric Kutcher is a Senior Partner based in our Silicon Valley office. This article originally appeared on LinkedIn.

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