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The War on Talent

A growing body of research suggests that CEOs share more relevant traits with Chief Human Resources Officers than with those of any other C-Suite position. But while CHROs may have a seat at the table, that seat’s occupant – more often than not a woman – is still least likely to become CEO.

WASHINGTON, DC – In the 1950s, during a very tight postwar labor market, American business executives voted Human Resources (HR) the most glamorous area in business. As Wharton School professor Peter Cappelli recounts, “90% of positions (and virtually all those in the top ranks) were filled from within – and 96% of large companies dedicated an entire department to planning for workforce needs.” When companies need talent, he argues, the prestige of HR goes up; when labor markets go slack, HR returns to benefits administration.

The labor market is very tight today, with unemployment rates in the United States at or below 4% since March 2018. In their popular 2018 book Talent Wins, former McKinsey global managing director Dominic Barton and his coauthors urge every aspiring CEO to gain serious HR experience and every corporate board to spend significant time on talent issues. Likewise, Ellie Filler of the consulting firm Korn Ferry and Dave Ulrich of the University of Michigan have found that CEOs’ relevant traits are more closely matched with those of Chief Human Resources Officers (CHROs) than with those of any other C-Suite position. CHROs, they suggest, should be considered when selecting CEOs.

This war for talent should be great news for women, because women dominate HR. In the US, there is also a much higher percentage of women of color in HR than in any other corporate department.

Overall, despite advances, women still account for only about 10% of top executive positions in US corporations. Only 4% of C-Suite leaders are women of color. In HR, by contrast, women are actually in the majority: 73% of HR managers, and 55% of CHROs. Roughly one-third of US HR professionals identify as non-white, and more than 10% of Fortune 100 CHROs are women of color.

So we have our solution to the women’s leadership gap, right?

Not so fast. The groundbreaking McKinsey study that predicted talent would be the most valuable corporate resource – and in short supply – was published more than 20 years ago. Growing appreciation for the value of talent has not been matched by growing appreciation for the value of HR. Despite efforts at rebranding (as “People,” “Employee Experience,” or simply “Talent”), HR’s reputation as a functional backwater persists. CHROs may have a seat at the table, but that seat’s occupant is still least likely to become CEO.

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Moreover, HR leaders are paid far less than their C-Suite peers, indicating that they are valued far less. According to the Chief Executive Group, CHROs at public companies earn less than 10% of what their C-level counterparts earn.

In short, human capital is highly valued, but the people in charge of human resources are not. One likely reason is that HR professionals are viewed as lacking business acumen. There is some merit to this perception. A historical focus on functions like employee relations and benefits administration has left HR with a reputation for straddling the line between risk-averse and mundane, hardly the function you’d want to lead innovative and forward-looking efforts that might determine the fate of the business. And relatively low pay has made it harder for HR – a rare path for graduates of top business schools – to attract top talent.

HR is also the functional embodiment of “office housework.” It is a discipline that has been asked to manage the lion’s share of hard-to-measure administrative tasks that advance the business but not the careers of those who perform them. It’s not surprising, then, that CEOs are only too happy to increase diversity (marginally) by hiring women, including a large number of women of color, for the housework job, one that requires lots of focus on messy relationships among employees. And, like all other professions dominated by women, it is then paid less and valued less. Under-resourced and inundated with transactional work, HR leaders have historically struggled to perform the strategic work now demanded of them.

The good news is that HR’s role is changing. For starters, it is much more quantitative. People analytics, popularized by former Google executive Laszlo Bock, is now an established tool, and HR departments routinely hire data scientists to inform critical business decisions. In addition, the HR tech field has exploded, creating an ecosystem of more than 4,000 software providers catering to HR professionals. This evolution, along with a trend toward outsourcing benefits administration, is fundamentally reshaping the HR function.

But when more technology and data are involved, requiring more quantitative skills, CEOs turn to men. Instead of tapping into the talent pool of women in HR, business leaders are tilting toward hiring “strategic” HR executives from non-HR backgrounds. Job descriptions for HR leadership roles increasingly cite “business acumen” as a necessary prerequisite.

Other companies have responded to a perceived talent gap in the HR field by taking pieces of the function and distributing them to other, male-dominated functions: payroll and benefits to the CFO, analytics to the CTO, software systems to the CIO, and so on.

Bringing fresh talent into the HR field and increasing cross-functional involvement in and support for HR is not all bad. It could mean more resources devoted to HR, more attention paid to what HR leaders actually do, and more competition for top HR roles. But it could also mean that we squander an opportunity to recognize the talent that already exists among HR leaders who have been systematically undervalued, and to empower and upskill the existing HR talent pool.

Last August, the US Business Roundtable announced its members’ intention to pursue “an economy that serves all Americans.” Central to that vision is an investment in fostering diverse and inclusive workforces.

As talent takes center stage, and as stakeholder capitalism gains momentum, women in HR, the most diverse function in corporate America, are poised to rise. It is up to their bosses to let them.

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