Five Critical Human Capital Management Questions

Questions Every Board Must Address

“Given the pace of business change today, companies increasingly need agile boards with the expertise to guide the company amid emerging threats and opportunities. And investors increasingly expect that boards will embrace rigorous practices to ensure they have the right expertise in the boardroom to respond to evolving market and competitive demands. The highest-performing boards will adopt a continuous improvement mindset, ensuring that their composition evolves in light of new strategic imperatives.”

Global Governance Advisors (GGA) works with its clients to address the challenge of meeting these threats head on and taking advantage of the opportunities to gain a competitive edge by addressing five human capital management questions for boards of directors.

Five HCM Questions for Boards of Directors

How does your organization approach these five questions?

  • How can our board better impact the success of the organization?
  • Have we fostered an environment that encourages individual directors to think critically about their contributions and the relevance of their skills to the company strategy?
  • Are we using our annual board assessment and regular executive sessions to assess the culture and dynamics in the boardroom and identify ways to operate more effectively?
  • Does our board have a platform to analyze and scorecard senior management compensation plans?
  • Does our board have access to an oversight vehicle for shareholder engagement activity that makes valuable information readily available to the board – in real time?

GGA’s offers a unique approach of weaving together a blend of services that address board productivity, governance and develop Senior Management compensation (incentive) plans to deliver outcomes that align with company goals.

Defining Board and Management Responsibilities

Making Sense of Your Role

To ensure good governance practices, Board members must acknowledge and adhere to three primary fiduciary duties, which was the message that I recently delivered in education sessions to public pension plan trustees and board members for not-for-profit organizations.

  1. Duty of Loyalty;
  2. Duty of Prudence; and
  3. Duty of Impartiality.

Part of making sure that you are fulfilling your primary fiduciary duties is to make sure that you and your Board are following proper operating processes. As has been said many times by governance and legal experts, you cannot be sued for the decisions you make as a Board, but you can be sued for not following proper processes in making your decisions.

One key problem area for boards of all sizes, in all industries, is the separation of roles between the Board and management. Often boards get too far down into the weeds on operational issues that can be better delegated to management and, as a result, do not spend the necessary time focusing on the important strategic issues facing the organization. This pattern of behavior can lead to several negative outcomes, including:

  • The loss of influence of your Top Executive over implementation and operational decisions, which can ultimately hurt them in commanding the respect of other senior staff members.
  • Friction between the Top Executive and the Board that ultimately leads to a lack of trust on both sides.
  • Potential loss of key talent due to the dysfunction between the Board and management.

The common mantra in governance circles is for boards to have their “nose in and fingers out,” which refers to a board’s obligation to be on top of all governance matters, but to not stray down into trying to manage the day-to-day operations of the organization. In recent years, a new term: “nose in and fingers on the pulse” has emerged. This describes a board that succeeds by playing a role in overseeing the execution of the strategic vision, while simultaneously keeping on top of strategic developments that will affect the organization. In either case, it is important that Board and management have a clear understanding of their responsibilities, which starts with identifying situations where the Board is being over-active and straying too far down into management issues.

Signs of an Over-Active Board

Four ways to spot an over-active board

  1. Too much time is spent in Board meetings discussing operational issues.
  2. Board meetings are constantly running behind schedule.
  3. Your Top Executive’s relationship with the Board is strained.
  4. You find yourself, as a Board confused, over your responsibilities vs. management’s.

If you spot any of these situations you need to discuss your concerns with your fellow Board members, as well as management, to see how you can improve.

Starting points to consider when delineating between Board and management responsibilities

Common Board Responsibilities

  1. Review and approve annual and long-term objectives for the organization.
  2. Review and approve policies and procedures that govern the organization.
  3. Review and approve strategic plan and annual operating budget.
  4. Hiring, firing and compensation for the Top Executive.
  5. Provide direction and strategic input to the Top Executive and management.
  6. Monitoring performance and risk of the organization.
  7. Setting and approving the organization’s overall Board governance framework.
  8. Review and approve required public disclosure documents.

Common Management Responsibilities

  1. Initial formulation of annual and long-term objectives for the organization.
  2. Initial formulation of policies and procedures that govern the organization.
  3. Prepare Board reports and draft annual operating budget.
  4. Provide continuous input into the strategic plan of the organization.
  5. Hiring, firing and compensation for staff below the Top Executive.
  6. Managing risk and monitoring performance of the organization.
  7. Preparation of required public disclosure documents for the Board’s review.
  8. Run the day-to-day operations of the organization.

Real-World Application

Let us consider the responsibilities of the Board and management as it relates to setting the annual operating budget. In this case, it is management’s role to develop the budget by considering all the potential areas to allocate funds on while balancing that with consideration of the fiscal constraints that the organization faces. Management must also draft the budget quickly enough so that the Board has adequate time to review and ask questions about the budget before it needs to be finalized. Once the budget is drafted and presented to the Board, by management, it is the Board’s role to ask management good questions about the assumptions, omissions and estimates used to draft the budget.

The following are types of questions that the Board should ask at a strategic, not granular, level to better understand the budget and ultimately be able to approve it. Please note that the Board should not be asking questions on every single line item of the budget.

  • What did management consider including, but ultimately decide to exclude from the budget and what was their rationale?
  • What is the impact on the budget if a certain estimate is missed?
  • What are the key variables that will impact the organization’s ability to meet the budget?

Ultimately, better defined roles lead to a positive working relationship between the Board and management, which should lead to better decision-making, a collaborative approach to solving issues, candor in speaking about difficult issues and a high level of trust on both sides.

We all desire clarity in our day-to-day lives, why shouldn’t we ask for it in the Boardroom as well?

Women CEOs in Top BC Firms: GGA’s Arden Dalik Featured in Business In Vancouver Magazine

GGA’s Senior Partner Arden Dalik is featured in the latest Business In Vancouver magazine, where she provides her commentary on the latest findings on the number of women CEOs in BC’s top firms. .

As Arden states, “‘the CEO is still a position where we are really lagging behind, obviously, versus the demographics of the population …'”

That said, she points to the growing number of women in senior executive roles as an indication that things have been changing over the last 10 years.

“One of the top positions in Eldorado Gold is occupied by a very strong, very capable woman,” she said. “They also have a woman on their board now in a very technical, male-dominated industry.”

You can read the full piece, authored by Nelson Bennett, here.

GGA Thought Leadership on Board Diversity Featured In First Annual Survey With The Calgary Herald

GGA’s Arden Dalik was once again the featured expert, along with Governance Studio’s Sylvia Groves on a range of pieces published which focused on the results of GGA’s unique collaboration with the Calgary Herald, surveying board diversity within Calgary’s top 100 publicly traded companies. The survey is the first of any project of its kind published in collaboration with a Canadian newspaper.

Deborah Yedlin’s piece, which featured a video interview with Arden and Sylvia, can be found here.

Sylvia Groves’ op ed on board diversity trends and issues can be found here.

Amanda Stephenson’s story on the energy sector preparing for new guidelines for diversity can be found here.

Arden’s op ed can be found here.

Amanda Stephenson’s piece on who’s leading the way on board diversity can be found here.