Closer connection: why the CEO and CHRO can have more impact as equals.

The HR function and its leaders are in a period of rapid change. No longer a support function, but quickly embracing a future as a strategic partner in the business.

The truth is that HR leaders were rising in influence even before the pandemic accelerated that elevation and they became an indispensable part of the reaction to the lockdown and associated crisis.

“The pandemic showed vividly that HR and its leaders are as relevant to business success as typical core functions like R&D, sales, or production”, says Gabriele Stahl, Partner at Odgers Berndtson Germany.

Maximilian Contzen, Principal at Odgers Berndtson Germany mentions that “other factors make the case for CHRO’s growing influence too: tight talent markets, digitization of the workplace, social issues like diversity and inclusion, and ESG. All impact business performance, all fall into the remit of the CHRO and team”.

Big impact, more responsibility

Executive Networks’ Global CHRO of the Future research reports that 93% of CHROs agree that the impact of the HR team on business results is just as important as the finance team.

Surely then, the CHRO should now be firmly established in a more elevated position, true partners of the CEO? However, not all CEOs see that new relationship as one of equals.

As HBR reports, there is research by McKinsey and the Conference Board that consistently finds that whilst CEOs worldwide see human capital as a top challenge, they consistently rank HR at most the 8^th most important function in at their company.

HBR argue that is the CEO’s responsibility to elevate HR and to bridge any gaps that prevent the CHRO from becoming a strategic partner. Much like when the CFO was invited and encouraged to make a similar step-up.

“The critical question is: how will I add value to the business as a CHRO?” asks Ramona Kraft, Principal at Odgers Berndtson Germany.

The answers to that question will begin to be answered when the CEO and CFO put together plans and budgets.

The questions will come thick and fast for the properly engaged CHRO. What are the people needs to deliver on these plans? What kind of skills mix will be required? How might the workplace change after the next years? And crucially, are the right people in the right jobs for the future?

Identifying the jobs that matter

The company’s future performance will depend largely on the fit between people and jobs.

It’s up to the CHRO to advise on what a particular job requires and assessing whether the assigned person is up to that challenge.

And not just any job. It’s the most important ones, the ones that can offer the most return in driving towards set goals, these must be the critical focus.

Some say that 2% of the people in a business drive 98% of the impact. It’s a figure that illustrates the importance on getting the fit right. What’s more, the wrong person not only fails to deliver, but inevitably affects their team and wider network negatively.

Think differently on remuneration

HBR suggests that when it comes to incentives and remuneration, it might be worth thinking differently. “The CHRO, with the CFO, should also consider whether the key performance indicators, talent assignments, and budgets are the right ones to deliver desired outcomes. If necessary, the pair should develop new metrics. “

Yes, financial performance is  most commonly the  basis for incentivizing and assessing performance. Of course, because it’s easy to measure.

But how about people being paid in proportion to how much value they contribute to the company?

If the company needs to do something specific to get ahead of the competition in a particular area, market of geography, and that has a specific value, then measuring the performance of the manager responsible becomes more like measuring value to the company.

Identifying the fault lines

CHROs are also in a good place to analyse what has happened when things don’t go well. Their insights can help make the critical distinction between whether a leader’s misstep was just that, or an indication of being fundamentally unsuitable for the job.

That is important intelligence that, combined with keeping an eye on the health of the general social eco-system of the company, can provide important data for decision-making.

As HBR puts it, “CHROs who bring dysfunctional relationships to the surface are worth their weight in gold”.

That dysfunction might be the very reason why a plan is failing. Not because it’s not worth doing, but that people are working in a non-collaborative way, even working at cross purposes.

Slow rise reaps rewards

Not all HR leaders will be able to function at such a high, influential level instantly. Many don’t have business experience outside of the HR silo.

“An enlightened CEO will be open to broadening the CHRO’s experience by including them in broader discussions, so they gain a greater understanding of the business and its leadership”, says Gabriele Stahl.

It will take time, and it might mean reducing their load of the transactional and administrative work of HR. But a CEO who gives their CHRO a chance to grow into a freshly imagined role will reap the rewards as people start to power their organization more efficiently.

If you want to discuss these issues and how they affect your talent and leadership planning, or perhaps want advice on your own career trajectory, please get in touch.