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Boards as overseers of human capital; Directors don't get enough of the right data, nor are enough experts sitting on the board. Improvement is needed: this was true before the recession, and even truer now.

Article Excerpt
ONE OF THE MOST important assets, if not the most important asset, of corporations is their human capital. CEOs and board chairs recognize this and frequently make such statements as "People are our company's most important asset." Confirming this, researchers have shown that intangibles account for an increasing percentage of the market value of corporations; and, of course, human capital, along with the knowledge and intellectual property they create, is one of the most important intangible assets that corporations have. This was true before the current recession and it is still true.

This recession has forced and will continue to force many companies to make a number of critical decisions about their human capital. Decisions concerning layoffs, the funding of retirement plans, reductions in training, retention of key employees, and so on all have both a short-and long-term impact on the performance of corporations. They can boost or destroy a company's reputation as an employer and can lead to the wrong talent leaving an organization (e.g., financial advisers in brokerage firms).

Given the many critical decisions that need to be made, it is important that a board carefully monitors the condition of the organization's human capital and how it is being managed. Indeed, it might be argued that even in today's economy, boards should spend as much time focusing on human capital as they spend on the financial and physical assets of their corporations.

An information deficit

In order to determine how much and what kind of attention boards give to their organizations' human capital, the October 2008 Heidrick & Struggles/Center for Effective Organizations' annual survey of board members focused on human capital. It surveyed board members of large U.S. corporations and received responses from 116 firms.

The results of the survey suggest that boards have been and continue to be largely missing in action when it comes to monitoring human capital. They do focus on succession planning at the top, and many of them do see this as an important activity of the board. But, when it comes to monitoring most of the talent in the organization, its condition, and how it is managed, the situation is very different. In order to be effective in managing human capital, board members need information about management practices and the results of these practices as well as knowledge and expertise in human capital management. Survey results suggest that boards lack both information and expertise.

Board members are confident that they receive sufficient information to carry out their board responsibilities--90% say they do. But, their reports concerning how much data they receive about their...

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