Enhancing Board Effectiveness: Insights from CHROs on Diversity, Leadership, and Governance

Boards serve as the backbone of corporate governance, guiding organisations in strategic decision-making while ensuring accountability and ethical conduct. Their composition is a reflection of the values and priorities of the organisation, influencing not only the direction of the business but also its ability to innovate and adapt in a competitive landscape.

With stakeholders increasingly calling for transparency and inclusivity, the demand for diverse and effective boards has gained significant traction. Modern boardrooms must include a range of perspectives, skills, and experiences to tackle complex challenges and capitalise on opportunities. This transformation is not merely a trend but a necessity for sustainability and growth of the organisation. 
Odgers got together eminent CHROs across diverse sectors in India to talk about Boards, Leadership & the evolving role of Human Resources as a business partner. 

Current Boards and Leadership

The role of boards is evolving, with a growing emphasis on diversity and the unique value that varied experiences bring. The compensation of executives is moving towards parity, which is crucial in attracting diverse talent. 

The traditional image of the board is evolving; today’s CEOs are expected to possess not only strategic insight but also emotional intelligence, technological savvy, and adaptability. These traits are now seen as key to effective leadership and are often found in CHROs, who excel at navigating organisational dynamics. 

CHROs & Board Governance

• Suitability for Board Roles
  CHROs are increasingly recognised as valuable board members. Their expertise in people management, culture, and organisational dynamics makes them uniquely positioned to influence strategic decisions. CHROs can make agile workforces a reality by spreading decision making across the organisation. A board should encompass a range of talents to foster a strong governance framework, with CHROs playing a pivotal role in enhancing this synergy.

• Transforming HR into a Strategic Business Partner 
  The recognition of HR as a business partner is gaining traction, particularly in new-age companies. However, challenges remain in fully integrating CHROs into board roles. There is a need for more CHROs on boards, as the value of the HR function to the business must be clearly highlighted. HR leaders need to earn credibility as critical support to operations, which requires a deeper understanding of business metrics and financial statements. 
  While some CHROs are successfully transitioning to board roles, the numbers in India remain limited. Additionally, there is a trend where CHROs often leave corporate roles for independent consulting.  

• The Role of Non-Executive Directors (NEDs)
  NEDs play a crucial role in governance but in some cases lack the engagement necessary to fulfil their potential. They are essential for providing independent oversight and ensuring that the interests of minority shareholders are protected. NEDs should not only challenge the views brought to the table but also take an active role in coaching and mentoring younger board members. 
  However, the talent pool for qualified NEDs in India is limited. The compensation for NEDs varies widely, with only larger, financially stable companies able to offer competitive remuneration. There is a strong case for increasing compensation for NEDs, as thorough preparation for board meetings is required to fulfil their responsibilities effectively.

• Pathways for Effective Boards
  To improve board effectiveness, several strategies must be considered, including the rotation of members, diversity, and professionalisation. Regular rotation of board members is important to infuse fresh perspectives and challenge traditionally entrenched views.

  • Diversity 

    Increasing diversity on boards is essential for sustainable business success. Research shows that gender-diverse executive teams are 25% more likely to experience above-average profitability compared to their peers. Similarly, age-diverse teams leverage the innovative insights of younger employees alongside the seasoned experience of older colleagues, fostering an environment where every individual's strengths contribute to robust decision-making. This diverse perspective not only enhances creativity and problem-solving but also drives overall business performance. Including a range of ages and genders is crucial for organisations to effectively navigate today's complex market landscape.

  • ESG and Cultural Competence

    Today’s boards must prioritise Environmental, Social, and Governance (ESG) factors alongside financial competence. According to EY’s Global Integrity Report, only half the companies are setting and publishing clear and measurable ESG performance targets. Employees should be periodically trained on the ESG reporting parameters such that they adopt it as a way of life and operate according to the same principles. Focusing on driving sustainability as a culture, and the norm within the organisation, is increasingly recognised as a key driver of success, and boards must be equipped to adapt to these needs. 

• • Professionalisation of Boards and Succession Planning

    Board member evaluation is critical for ensuring accountability and continuous improvement. The professionalisation of boards, especially in family-owned businesses, can enhance governance and strategic direction. Furthermore, establishing a robust succession plan is essential for maintaining continuity and effective leadership within the board.
    
    

According to PwC’s 2024 Annual Corporate Directors Survey, anticipating both planned and unplanned boardroom vacancies over a three-to-five-year horizon is essential for strategic planning. By understanding the roles, tenure, and projected departure dates of board members, organisations can better prepare for unexpected turnover, particularly in leadership positions. This proactive approach will help ensure board stability and maintain performance during transitions.

As organisations navigate an increasingly complex environment, the composition and effectiveness of their boards will play a pivotal role in their success. The future of governance lies in a willingness to embrace change and evolve alongside the core organisational value, the board serves.

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