The value of people expertise on corporate boards

There are increasing expectations around attracting and retaining talent, organisational change, upskilling, EDI, mental health and non-financial reporting on social aspects of the ESG agenda. 

In addition, corporate failings, such as sexual harassment, discrimination, bullying, and poor working practices, present key risks that can lead to serious reputational damage if not recognised by senior leaders. 

People professionals are ideally placed to advise and support on these matters. Despite this, our research shows that the majority of UK boards lack directors with people expertise and thus may not be fully equipped to deal with these risks and opportunities. In all, 99% of boards have a chief financial officer or a finance director among their board members, but just 2% have an HR director as an executive board member. We also find that only 25% of FTSE 350 companies have HR expertise on their boards (both executive and non-executive). 

This report looks at the current composition of UK boards and the challenges they face when dealing with people matters, as well as the interactions of chief people officers with boards and the experience of HR professionals as non-executive directors. We look at senior people professionals’ views on mistakes made by boards, how they can add value, and make recommendations to ensure that people expertise is available to support boards and board committees.

Key findings

• There is often a significant mismatch between the skills and knowledge of boards and those needed to understand the main people-related risks facing organisations. This ‘people insight’ deficit means that many organisations fail to fully recognise the value-creation potential of their workforces.
• While the expectations for competence around people issues at board level are growing, the majority of UK boards lack directors with a background in HR and people development, even on remuneration and nomination committees. While all FTSE 350 boards have members with finance or accounting backgrounds, only a quarter have a member with HR experience.
• CPOs have found that without HR expertise, boards can have a lack of understanding of people issues, an overfocus on finance, an ‘overenthusiasm’ around employee engagement, a lack of emotional intelligence and a lack of awareness around EDI issues.
• People professionals can add value to boards by giving insight on remuneration, succession planning, culture, people data, organisational performance and change, and EDI.

CIPD recommendations

• While it is not always essential to have an HRD or CPO as a main board member, boards should be required to have formal processes for accessing professional HR expertise when discussing workforce matters.
• CPOs should have the right of access to remuneration and nomination committees, in the same way that the Cadbury Report recommended that finance directors do to audit committees.
• The chair of the remuneration committee or the NED responsible for employee voice should have recent and relevant people experience, so that there is the same level of professionalism as in the audit committee.
• The board should ensure it has the necessary knowledge of workforce policies, practices, behaviours and data to inform its understanding of people risks, in the same way as it would have sufficient understanding of financial risks.
• The Financial Reporting Council (FRC) should consider whether the current structure of UK boards is imbalanced, with two few executive directors. We recommend that the UK Corporate Governance Code should be refined to emphasise the importance of boards having a balance of skills and experience, including both executive and non-executive directors.