The Advisors' Blog

– Liz Dunshee

As we’ve talked about on this blog before, express board oversight of “human capital” is becoming more common – and it frequently falls to compensation committees. This Willis Towers Watson memo confirms that directors are now viewing employees not just as a cost – but as a fundamental asset to business success, which needs board-level attention. If anything, the pandemic has accelerated “human capital” as a priority. Here’s an excerpt:

Directors we spoke with in the U.S. shared how COVID-19 highlighted cultural issues in the context of HCG that could harm their company’s reputation. Better governance on human capital and understanding the drivers of a suboptimal culture have become priorities to turn the business around.

One challenging aspect of this oversight role is getting a sense for corporate culture and how it impacts employees. I blogged yesterday on our “Proxy Season Blog” on TheCorporateCounsel.net about a new report from CII that looked at disclosure about director interactions with employees as a way to gauge corporate culture oversight. The report is also posted in our “Human Capital Management” Practice Area on this site.

Another challenge for boards is collecting and interpreting appropriate data about the workforce and management’s day-to-day actions to support workers. This KPMG memo offers sample questions for the board or comp committees to consider, particularly as companies are navigating “return-to-work” plans and potential business disruptions:

1. Is management’s return-to-work strategy agile enough to withstand the constantly changing conditions? What risks does this plan present to employee health and safety and to the company’s reputation and long-term strategy, and how are these risks being mitigated?

2. What metrics does the board receive on employee health and safety (e.g., whistle-blower complaints about working conditions, employee absences related to COVID-19, unplanned turnover due to caretaking responsibilities)? How frequently is management providing the board with these metrics (e.g., a weekly email from the CEO, a COVID-19 dashboard on the board portal)?

3. What long-term changes is management considering implementing permanently after COVID-19 subsides (e.g., talent development strategy, digital strategy, flexible work strategy)?

4. Where does management feel pressure in balancing the short-term versus long-term interests of the corporation? How is management considering stakeholder priorities and social issues in light of the company’s financial condition?

5. Which roles are crucial to the company’s strategy and would present significant risk if vacant or filled by unqualified employees?

6. What skills are necessary to perform these roles? Do the individuals currently holding these roles possess the required skills?

7. Are there succession plans to fill these positions should they become vacant unexpectedly? Are employees cross-trained on these mission-critical roles so they can immediately step in?

8. In light of COVID-19 and business model disruption, have there been changes in the company’s strategy that make some positions more critical or others less so? Should any mission-critical roles be redesigned or automated?