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HR must be on the top rung of the corporate ladder to boost profits

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first_imgHR must be on the top rung of the corporate ladder to boost profitsOn 23 Oct 2001 in HR transformation, Personnel Today Previous Article Next Article Comments are closed. Related posts:center_img Features list 2021 – submitting content to Personnel TodayOn this page you will find details of how to submit content to Personnel Today. We do not publish a… The figures below show that firms with HR board members are well ahead ofthe rest of the terms of share value. The profession asks, what more proof do CEOs need of its value?  By Mike BroadHR is a bit-part player at best if it does not have a seat in the boardroom,claimed one executive director of a FTSE 100 company. It only becomes part of the big picture when the HR director sits alongsidethe financial director as an equal, he added. HR directors believe the function needs to sit squarely in the foreground ofthis big picture – with a confident smile on its face – following the releasetoday of groundbreaking research by Andersen Human Capital UK, releasedexclusively to Personnel Today. It reveals that the average increase in earnings per share (EPS) of FTSE 100companies with HR directors on the board between 1996 and 2000 is nearly doublethat of those without them at that level. EPS increased by 88 per cent for those companies with boardroom HR, based on31 August 2001 figures. This compares favourably with the 44 per cent increase in EPS for all FTSE100 companies during that four-year period. Board-level HR directors interviewed by Personnel Today expressed reliefthat there was proof that when HR becomes involved in strategic decision making– which usually occurs at board level – there are quantifiable profitabilitygains. For some the need for board level HR is obvious. David Bell, director forpeople at publishers Pearson, and one of three executive directors on theboard, explained, “Companies like ours are brain driven and creative. Itis all about ideas and turning that into productivity, and to succeed we needpeople and money. “Our aim is to find, keep, and inspire the best people in our sector.It is as simple as that.” Cadbury Schweppes is a good example of a FTSE 100 company that has drivenforward productivity with the help of a board level HR director. It launched amanaging value programme in 1997 aimed at increasing EPS by at least 10 percent per year, generating more than £150m of free cashflow and doublingshareholder value every four years. HR played an integral role in its £1.3bn acquisition activity in 1999 and2000 aimed at growing its core business, and the restructuring of its seniormanagement. Strategic development has been separated from operational performance andthe new strategy team was given a wider remit, ranging from M&A planning todeveloping e-commerce and knowledge management. Bob Stack, chief HR officer and board member at Cadbury Schweppes,explained, “The HR role was extremely significant. Our chief executiveJohn Sunderland believes that creating shareowner value is 80 per cent aboutpeople and only 20 per cent analysis. “In many of the key elements of building capability, such asleadership, change management and management culture, HR played a leadrole.” The company surpassed its first two aims and achieved 84 per cent growth inshareowner return in four years. The managing value programme has been extendedto 2004. “Our company values mean that it would be inconceivable not to have HRon the board. Almost all strategic proposals that come in front of it have apeople capability aspect to them,” he added. The need for HRto sit on the board, and its ability to affect the bottomline, is clearly far greater in people-oriented businesses. Board-level HR has also played a central role in Scottish & Newcastle’sdrive to grow its core business and become a large multinational brewer. Thegroup employs more than 40,000 staff following the 1999 acquisition of thelargest French brewer Brasseries Kronenbourg, and Alken Maes, the secondlargest Belgian brewer, the following year. Henry Fairweather, group HR director of Scottish & Newcastle and boardmember, explained that boardroom HR has helped develop the appropriateorganisational cultures for these acquisitions and nurture a senior managementteam capable of running a multicultural business successfully. This has beenvital to the strategy’s success, he said. It is not just in an acquisition phase that board-level HR can contribute tostrategy. Supermarket giant J Sainsbury employs 140,000 staff and is attemptingto recover lost market share. Its HR and IT director John Adshead, one of four executive directors on theboard, said, “In a strategy that is about transformation and recovery oflost ground, and trying to become the best if not the biggest supermarket,individual and team capability has to be of the highest level. HR is playing acritical role here.” While a few companies realised the importance of HR many years ago – CadburySchweppes, CMG and J Sainsbury have all had an HR director on the board formore than 20 years – many have failed to promote it to board level. Despite the strong correlation with profitability, only 16 of the 60companies which have been in the FTSE 100 since 1996 have an HR director at thetop table. This could change however, albeit slowly. George Battersby, group HRdirector and board member of biotechnology company Amersham, believes that HRdirectors are increasingly being considered for board-level positions. He said, “It will probably continue, but it is dependent on the HR rolebeing seen to add value at that level. These days, enlightened chief executivesare looking for HR directors to be strategic business partners, not justservice providers.” A key way that HR can add value in the boardroom is in assessing whether thecompany will be able to execute an ambitious business plan. Cadbury Schweppes’ Stack explained, “It is less about functional inputas being able to assess the capability of the company to implement strategy,based on the number of people, skill levels, and employee relations.” Boards are also better able to foster staff commitment if HR is representedand this can have a direct impact on productivity. Most of the HR directorsinterviewed by Personnel Today won board support for encouraging staff tobecome stakeholders in the business. “In our 21st-century company, we want all our employees to work withthe company, not for it. We have evolved the master-servant relationship, andmany staff passionately believe that the firm is theirs – 96 per cent ownshares,” explained Bell. Communication of staff issues is also important. “If the whole boardspeaks with one voice and in the same language, it is likely to come across assincere to the staff,” said Ian Taylor, HR and organisation director ofconsultancy giant CMG. But Neil Roden, HR director of Royal Bank of Scotland, questions theimportance of board level representation. He is not a board member. He said, “Our board only meets a couple of times a year and I thinkthere are more important factors for HR. The head of HR has to report to thechief executive. We have two board subcommittees where 99 per cent of the bigdecisions are taken. “Furthermore, it doesn’t matter what position the HR director holds ifthey don’t have the ability to influence the organisation.” Amersham’s Battersby agrees that HR’s ability to influence profitabilitydepends on respect, not warming a seat on the board. He said, “It isn’t essential to be on the board, but HR does have to beseen as a top player in the senior management team. The HR role cannot beperformed effectively unless you are at the heart of the business agenda.”But there are concerns that HR professionals don’t have the skills to get tothe heart of the business agenda and make a contribution. Stack, who has an HRbackground, is concerned about the trend for senior personnel roles to befilled by directors from other disciplines. He said, “While companies are starting to recognise the importance ofpeople as part of the business, they don’t have the confidence to use HR. “Wider business skills need to be identified and nurtured early in anHR career so they can progress to senior roles and influence performance.”www.andersen.com Feedbackfrom the boardWhat are the board level skillsneeded by HR to improve company profitability?John Adshead, HR and IT directorof J Sainsbury”A combination of commercial understanding, technicalskill and ability to influence others is needed to succeed at board level. Itis vital that HR develops its commercial understanding so that it knows whereincome and profits flow from.”David Bell, director for people ofPearson”It makes a big difference if you come in from outside HRbecause you have experience of being a line manager and understand the issuesinvolved in managing a large number of people.”George Battersby, HR director ofAmersham”Firstly you need commercial ability, and secondlyspecialist professional skills. There is no point in pursuing an HR agenda thatis leading edge if it is not connected to the business agenda.”Henry Fairweather, HR director ofScottish & Newcastle”While you don’t have to be a whiz kid economist oraccountant, you do need to understand the strategic vision of the business.It’s also important to be a diplomat. All organisations have tensions betweendifferent divisions and personalities, and HR is well placed to get people tosee both sides of an argument. HR can be the oil in the wheels of the seniormanagement team.”Ian Taylor, HR and organisation director of CMG”Leadership, business acumen and strong people skills arerequired. You’ve got to be a leader and say, ‘the answer is this, this is whatwe need to do, this is the direction we’re going, and this is our peoplestrategy’. The HR director needs to have a clear vision and carry the boardalong.”Bob Stack, chief human resourcesofficer of Cadbury Schweppes”You need to be a business person first. It’s important tomake the linkages between the needs between the needs of the business and theappropriate HR solution.”last_img


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