Jay A. Conger, Ph.D. and Edward E. Lawler III, Ph.D.
Here is a chapter for the second edition of “The Handbook of Board Governance,” authored by Jay A. Conger, Ph.D. and Edward E. Lawler III, Ph.D.
It is a time-honored adage that CEOs often repeat: “People are our greatest asset”. But it is more than folk wisdom. Indeed, research has shown a linkage between superior human capital management practices and superior shareholder returns. It is estimated that the value of intangible assets in the global economy in the year 2018 alone was approximately $57.3 trillion. Chief among these intangibles is human capital. Along with the intellectual and knowledge property it creates, human capital has become the most important intangible asset that a corporation possess. Yet little time is spent on human capital issues in most corporate boardrooms. In our research, we have discovered that boards focus on two human capital topics: executive compensation and succession. When boards take important strategic decisions, they rarely consider the overall workforce and talent management issues that are related to these decisions. The senior human resources leader, the Chief Human Resources Officer (CHRO), typically plays an advisory rather than a leadership role to the board in most corporations. They are not perceived as true strategic partners by board members. As a result, their voice has a limited input on issues facing boardrooms like talent readiness, change management, corporate governance practices, critical talents gaps in cyber-technology and AI, and board governance effectiveness.