‘People insight deficit’ puts firms’ reputations at risk

The CIPD is urging business leaders to have board-level HR representation or input to ensure there is the necessary expertise and ‘people insight’ to develop positive corporate cultures and manage workforce risks such as sexual harassment. This is the unsurprising message in a new report from the CIPD ‘The value of people expertise on corporate boards’. It claims just a quarter (25 percent) of FTSE 350 firms have a board member (both executive and non-executive) with an HR background, while only 2 percent have an HR director as an executive board member.

The report is released as the Treasury Committee launches an inquiry into sexism in the City, exploring what role firms, the Government and regulators should play in combatting sexual harassment and misogyny.  It finds that there is a ‘people insight deficit’ at board level in many firms. Many chairs and senior independent directors tend to have financial rather than HR backgrounds. There is also a lack of HR representation on remuneration committees (23 percent) and nomination committees (20 percent), despite these both being focused on the key people issues of reward and talent.

The report suggests this lack of HR representation undermines firms’ corporate governance, particularly given most questions on board effectiveness from the Financial Reporting Council concern people issues.

This is reflected in the CIPD’s report, with chief people officers noting some common problems or knowledge gaps among non-HR board members, including:

• a lack of in-depth understanding of people issues
• an overfocus on the financial skillset
• an ‘overenthusiasm’ around employee engagement, leading to interference with management
• a lack of emotional intelligence
• a lack of awareness and discomfort around EDI issues.

There is an increasing need for boards to understand and manage key people-related challenges and risks. These include improving equality, diversity and inclusion and workforce health, addressing skills shortages, adoption of AI and automation and the need to transition to net zero operations.

In response, the CIPD is calling for the Financial Reporting Council to consider refinements to the UK Corporate Governance Code* and accompanying guidance. Specifically, boards should be made up of professionals with a variety of expertise and should reflect the growing need for greater input, support and advice from senior-level HR practitioners on critical workforce issues.

The CIPD’s report also claims that a ‘people insight deficit’ means organisations may fail to fully recognise the value of their workforces or manage people-related risks effectively. This is often reflected by falling levels of investment in workforce training and plays out in disappointing levels of productivity growth in the UK.