The Board of Directors, Governance & The Talent Shortage

The governance role prescribed to the board of directors increasingly includes the need to manage risks associated with talent management.  The urgency to do so is perpetuated by labor market forecasts that continue to highlight an emerging and increasing “talent shortage” in many roles from skilled trades to management and executives. ¹   In the United States, it is estimated that 2 million manufacturing jobs are likely to go unfilled between 2015 and 2025 due to the unavailability of skilled workers.²    As the skills gap becomes more pervasive, talent management will continue to play a crucial role in preserving the long-term viability of a company.  A study of manufacturers that outperform their competition in profits and favorable asset returns showed that they differentiate themselves in their strategic emphasis on attracting and retaining talent.³  Although talent management is a factor that drives capital investments, organizational growth and a competitive advantage, recent studies show that directors rate their board’s overall performance as weak in this area.⁴

While the board of directors engagement in talent management is typically focused on the CEO and the board themselves, highly effective boards extend their engagement to that of ensuring processes are in place to build a pipeline of talent throughout the organization.⁵   Often, the board takes assurance from management that processes are in place without obtaining information that will aid in the board’s ability to assess and address many talent-related risks.  The following are some questions that can be used to stimulate a board discussion about talent management and risks associated with it.

1. What systems does management have in place for holding leaders accountable for talent      development?
• Do performance reviews measure a leader’s employee development activities?
• Is there a mentorship program in place and if so, is there accountability for outcomes?

2. Is there enough human capital and skill capabilities to support the company’s strategic goals.
• Has the demand for human capital changed, warranting the need to re-evaluate whether there is an adequate supply? For example, is talent sufficient to bring a product or service to new markets or complete an acquisition efficiently?
• Is there a system to identify and a plan to address gaps in current leadership capabilities and future strategic goals?

3. Is management using a number of data sources to accurately assess talent-related risks?
• Does management use internal data sources to perform risk assessments and identify trends? For example, are they using HR metrics to measure turnover data, cost per hire, etc.
• Does management have systems in place to respond to trends identified?
• Is data compared to industry benchmarks?
• Does management have a plan to address risk associated with employee demographics, such as forecasted retirement rates ?

4. Is there a robust recruitment and retention program in place that enables the organization to compete in the labor market?
• Are internal training programs and budgets appropriate toward advancing current strategic goals?
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• Is management responding systemically to data from exit interviews, as well as employee and customer feedback surveys?

• Does business development activities include outreach and company branding to local schools and other sources of future employees?
• How is the organization’s culture distinguished from their competitions and if applicable, what improvement plans are in place to compete for talent?

5. How does management communicate risks associated with talent management to the board of directors?
• Is there an HR Committee?
• Is data reported to management and directors systemically during regular intervals of time and should it be?
• Could the board benefit from adding members with more expertise in talent management and human resources?

When responsibility for the oversight of talent management is delegated solely to managers, the board misses an opportunity to add value to the organization they serve.  Optimizing engagement in talent management is not the same as “micro-managing” the internal leadership, but rather, supporting them in their role as leaders.  As per a study of high-performing boards,  when directors are actively engaged they are building a better understanding of their companies and industries and subsequently allocating resources in such a way the better advances the strategic direction of the company.⁶  By using the aforementioned questions as a starting point,  the board of directors will enhance their governance role by assessing the extent to which there is alignment between the talent management programs and the strategic goals of the organization.

6. Manpower Group, 2016-2017 Talent Shortage Survey, http://manpowergroup.com/talent-shortage-2016.
7. Craig A Giffi, Bend Dollar, Bharath Gangula, and Michelle Drew Rodriquez, Help Wanted: American Manufacturing Competitiveness and the Looming Skills Gap, November 2016.
8. Craig A. Giffi, Aleada V.Roth, Michelle Drew Rodriguez, Bharath Gangula, High Performing Manufacturers: An In Depth Study of Manufacturing Competitiveness, Deloitte Insights, November 29, 2016.
9. Spencer Stuart and Women Corporate Directors Foundation, 2016 Global Board of Directors Survey, April 2016.
10. Deloitte Global Center for Corporate Governance and Human Capital Practice, The Talent-Intelligent Board, https://www2.deloitte.com/global/en/pages/human-capital/articles/talent-intelligent-board.html.
11. McKinsey & Company, McKinsey Global Survey of 772 Directors on Board Practices, April 2013.

Copyright Denise Scotti-Smith 2017.  All Rights Reserved.