Today more than ever, executive leaders need to understand what makes people tick. Could this mean it’s prime time for HR leaders to take the top job?
What does it take for a CEO to succeed? If you had asked that question in a boardroom 20 years ago, the answer would probably have been very different from the one you’d get today.
A CEO candidate’s track record was once expected to include swathes of administrative, legal and financial expertise, with little focus on people skills.
However, the unique challenges businesses have faced in recent years have fostered a need for more human-centric leadership, and leaders are increasingly dependent on HR to advise on people management. Organisational culture and employee wellbeing are now core indicators of a company’s health, and, as a result, HR’s relationship with the C-suite has been transformed.
“In the last few years, I’ve talked a lot about how every time the board sneezes, the CHRO gets a cold,” says Patrick Wright, Department Chair, Thomas C. Vandiver Bicentennial Chair and Professor of Management at the University of South Carolina.
“Now, when boards have to struggle with an issue, most often it has something to do with the people of the organisation, which means the CHRO gets called in to play a greater role. That’s why when something big happens in society that boards have to react to, it always ends up changing the role of HR.”
Wright gives the example of pay scandals during the early 2000s, after which HR leaders were given a greater role with compensation committees. Similarly, after severe corporate culture issues were exposed at large corporations such as Uber and Wells Fargo in 2017, many CEOs began to engage in closer consultation with their HR leaders about the health of their company’s culture and potential future risks.
And then, there was COVID-19. HR leaders stepped up to manage immediate work-from-home orders and employee safety concerns during the toughest times of the pandemic, and thus gained a say in executive decision-making that had been out of reach to many before, says Wright.
Currently, HR’s role in the process of figuring out return-to-work strategies and navigating sweeping changes to employment law and industrial relations has only increased its visibility and credibility further.
HR’s increased proximity to the C-suite means many companies are now seeing the value of a CEO with an HR background. For example, last year, fashion giant Chanel announced the appointment of Leena Nair – a former CHRO – as its new CEO.
However, it takes more than people skills to succeed in the top job. For HR professionals to become viable CEO candidates, there are several essential capabilities they’ll need to develop in order to step into an executive leadership role.
New measures of leadership
While there’s little concrete data on the functional areas CEOs were in prior to taking on the job, anecdotally it often seems to be the Chief Financial Officer or Chief Operating Officer who gets tapped.
But, according to recent research by Russell Reynolds, companies have significantly redefined the roles of C-suite executives over the past two decades.
The study, done in association with Harvard Business Review, analysed nearly 5000 job descriptions to assess the expectations that recruiters had of CEOs and other members of the C-suite.
It found that, while traditional capabilities such as management of financial and operational resources were still highly sought-after, when companies today search for top leaders, they attribute less importance to those capabilities than they used to and instead prioritise one qualification above all others: strong social skills.
These include high levels of self-awareness, the ability to listen and communicate well, the ability to work with diverse groups of people and the capacity to infer how others are thinking and feeling.
Based on his own research on CEO succession, Wright has also identified a trend towards a more empathetic and people-centric view of what constitutes a leader.
“While maybe they used to [look for] charismatic or even narcissistic leaders, a lot of boards are now saying they want someone who is more down-to-earth and able to connect with people,” he says.
As well as people skills, CHROs can also bring an enterprise-wide perspective to the role that may be lacking in a candidate with a different functional background, he says.
CHROs’ knowledge of human behaviour might also give them the edge when it comes to assessing and placing talent. The importance of this skill should not be overlooked, as a CEO is only as effective as their team.
“In the same way a CEO with a finance background will ensure they have a strong CHRO, a CEO with a HR background can ensure they have a strong CFO.” – Clare Murphy FCPHR, Executive Director, Organisational Enablement, EACH
Clare Murphy FCPHR, a former HR Director who was appointed Executive Director of Organisational Enablement at community services organisation EACH, says companies are coming to realise that financial and technical expertise aren’t the only skill sets valuable to a CEO.
“What I’ve experienced is people saying, ‘How are you going to lead the corporate services areas when you’re not an accountant and you don’t have an IT background and you haven’t run capital projects?’” says Murphy.
“My answer is that I don’t need to. It’s about my ability to lead a team and to make sure the technical expertise is within my team. In the same way a CEO with a finance background will ensure they have a strong CHRO, a CEO with an HR background can ensure they have a strong CFO. As our CEO Natalie Sullivan, who used to run hospitals, says, she didn’t need to know how to do brain surgery. The role of the CEO is a broader skill set than just managing finances.”
Another unfamiliar expectation placed on leaders has arisen in recent years, says Wright – one that will only make life harder for CEOs who lack people skills.
“The new big issue we’re hearing about with regard to CEOs is the ability to navigate the social environment. We’re seeing the rise of ESG [environmental, social and governance], and companies being asked to take a political stand on this or that issue.
“CEOs have never had to do that before. It’s never been a company’s job to make a statement about whether or not we should have abortion rights, for example. Now, CEOs are being asked to make these statements. And so [they need] the ability to navigate that environment, the discretion to know when you should speak out versus when you shouldn’t.”
HR’s experience navigating difficult and sensitive issues with employees is likely to afford them more diplomacy and care when it comes to ESG, he says.“In the same way a CEO with a finance background will ensure they have a strong CHRO, a CEO with a HR background can ensure they have a strong CFO.” – Clare Murphy FCPHR, Executive Director, Organisational Enablement, EACH
Charting a path from HRD to CEO
While CEOs with an HR background are likely to take naturally to the human-centric aspects of leadership, there’s no avoiding the fact that becoming a CEO means gaining experience in being accountable for profit and loss (P&L).
“The major obstacle to [HRDs or] CHROs becoming a CEO is that, at some point, they have to actually take on a P&L role and demonstrate that they know how to run a business,” says Wright. “I would say that it really has to start early, or at least early to mid-career. That is, you take on some type of P&L role or roles outside of HR, if nothing else, to develop a reputation.”
For Cassandra Hatton, who was recently promoted to Chief Operating Officer at the St Vincent de Paul Society in Victoria after working as its General Manager of HR and then EGM Strategy, Innovation and Organisation Development, it was necessary to consciously venture out of the HR sphere to gain the P&L experience she needed.
“The feedback I’ve had consistently on my journey is to be really skilled in finances,” she says. “Sometimes, even if you’re strong in that area, it can be difficult to convey your skills and experience when you’re working in HR. So finding opportunities to develop and then demonstrate that skill is really important when you’re transitioning.”
Hatton also made the most of being an internal candidate.
“There’s great benefit in broadening your remit when you’re internal, because you’re already trusted and you already understand the business,” she says. “People who apply externally might not get a look in, but if you’ve got trust and credibility internally, you get those opportunities.”
As we head into the future of work, she stresses that HR should embrace opportunities to integrate more with different departments to expand its remit and increase its visibility.
“[For example], going forward, there’s probably a greater relationship to be had between IT and HR,” says Hatton. “IT has become more people-focused than ever, because it’s now at the centre of how organisations operate.
“And at the same time, people teams have had to become more IT-focused because they want to be more productive and efficient in how they deliver their services. So I think we will probably see an overlap of those different teams and a sharing of those skill sets.”
Murphy advises HR professionals looking to become C-suite leaders to engage in conversation with the CEO about their interest in having a broader portfolio and advocate for their own involvement in diverse areas of the business – both of which helped her in her own journey to leadership.
“When I started EACH, I specifically requested to be on the finance, service quality and risk committees of the board,” she says. “I said to the CEO at the time, ‘Our labour costs are 70 per cent of the budget. Why wouldn’t you have the person responsible for the strategy around our workforce being a part of those conversations?’
“Through my career, board involvement helped me learn how to pitch business cases at that level and view people matters strategically through a whole of organisation lens. I can sit in a board meeting and talk to EACH’s finance reports – because I’ve built that skill set by being involved.”
By being intentional about their development and having the courage to step into new spheres of leadership, CHROs and other HR leaders could indeed be well-placed to succeed as CEOs.
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