The rise of the chief human resources officer

The rise of the chief human resources officer
Image: Natasha Dzhola for Quartz
We may earn a commission from links on this page.

It turned out to be fortunate for Mike McGuire, the CEO of US accounting giant Grant Thornton LLP, that his predecessor had decided to streamline things a few years back.

Up until then, McGuire had followed a fairly traditional route for executives in his field. He majored in accounting as a university student, earned his CPA, rose to audit practice leader in his region for Arthur Andersen, and moved to Grant Thornton, where he rose to become chief operating officer.

Then a new CEO, the aforementioned predecessor, came in with an assignment for him. ”His predecessor had about 16 people on his leadership team, and he, being part of that, thought it was dysfunctional, there were too many direct reports to the CEO. So he had five,” McGuire recalls. “I had a high interest in talent and culture, so he said, ‘It really makes sense to have that report to you.'” And so for several years, while serving as COO, McGuire got exposure to a crucial function for any future leader of a firm with thousands of employees.

Along the way, he developed a close working relationship with the chief people and culture officer and gained a deeper appreciation for the role of human resources. ”You always have to have that compliance side of HR; it’s critical. But it’s beyond that,” McGuire says. “What I was able to glean from it is that it’s a strategic role.”

And that’s why, after McGuire got promoted to CEO in January 2015, he took the chain of command with him.

“We have what we call a people-first growth strategy,” McGuire notes. “And I said, ‘How could we be a people-first organization without the chief people and culture officer, the talent function, reporting directly to the me, the CEO?'”

Businesses around the world are reckoning with similar questions: What does it mean for leadership to put people first? And who are the right leaders to do it?

Catching up to the people trend

The sudden intensity with which companies are focusing on their people/talent/culture/HR issues is arguably a very delayed reaction to one of the most transformational economic trends in history.

The shift over the last century from manufacturing- to service-based economies in the developed world meant that people would become the most important raw material in a wide variety of industries. And yet HR at most big companies largely remained a box-ticking function responsible for labor-law compliance, benefits, and other administrative tasks. It was not a department where future business leaders would go to cut their teeth, nor a place that reigning business leaders would typically look to for help with strategy.

This didn’t change even as the makeup of the workforce changed drastically, as the percentage of women working outside the home in the US, for example, skyrocketed from nearly 34% in the 1950s to roughly 60% today. It didn’t change as compensation and benefits got far more complex, with the rise of employer-sponsored healthcare and perks like paid leave.

It’s hard to say exactly what triggered so many companies to decide to finally play catchup. But clearly the past 10 years—bookended by the cultural rot exposed in the 2008 financial crisis and in the #MeToo scandals that would come to light almost a decade later—have produced a wave of “people” considerations, from the increased attention on diversity to the work-life balance demands of millennials, necessitating corporate action.

“Who are the people who can execute this?”

It perhaps speaks poorly of the craft that companies are still routinely caught flat-footed on HR issues—but it also suggests that HR executives haven’t been given the agency needed for the job to be performed better. That’s beginning to change, though, with some big employers suddenly starting to think differently about what they want from their HR departments and their chief HR officers (CHROs).

In the same way the corporate world treated chief financial officers with new reverence in the wake of the corporate malfeasance scandals that dominated business headlines in the early aughts, and gave CFOs responsibilities they’d never had before—indeed, the regulatory response to the scandals literally required it—companies are beginning to redefine the role and expectations of their CHROs.

One hallmark of the new thinking about HR is that it should be led by someone whose experience more closely connects them to the strategy and operations of the overall business. Consider the findings of a 2017 analysis of CHROs in the Fortune 100, conducted by executive search firm Russell Reynolds Associates. It saw a marked difference in the kinds of experience that new CHROs were bringing to the role.

One of the more extreme examples of the trend is the 2014 appointment of Kathleen Hogan as chief people officer and executive vice president for HR at Microsoft. A former developer for Oracle and partner at McKinsey & Co., she oversaw Microsoft’s customer service and support and was corporate vice president for Microsoft Services before landing her current role; up until then, she had never even worked in HR.

The idea of a major employer going outside of HR for a chief people officer isn’t surprising Verity Creedy, Europe sales leader for the global HR consulting firm DDI. After the 2008 financial crisis, Creedy says, many companies adopted a “do more with less” approach to HR. There were simply too many other priorities competing for attention at a time when businesses were retrenching. But as the economy recovered and demands for more innovative HR departments intensified, “companies started to realize … they needed a smart, clear, well-informed alliance between their business strategy and their people strategy,” she says.

“CEOs and CFOs were starting to look at their people strategy and starting to challenge, ‘Where are the people who can execute this?’ And those people weren’t in HR.”

But over the past 18 months, Creedy says, “we’ve started to see a rise of questions” from business clients about investing more in HR departments, and in the people who staff them. “Consistently the things that come out are business acumen and entrepreneurship—we need to see more of those skills.”

Or as Grant Thornton’s McGuire puts it: “Talent is a strategic asset of the organization—so much so that the people leading the talent function have to be more strategic thinkers.” He describes his own chief people and culture officer, Brenda Wagner, an experienced HR executive who previously worked at IQVIA and IBM, as being “joined at the hip” with him. “She’s at all the meetings [and] really gets the strategy,” he says.

That’s essentially the thinking that Dominic Barton, managing partner emeritus of McKinsey & Co., sought to spread this year in Talent Wins (Harvard Review Business Press, 2018). The book, co-authored with executive coach Ram Charan and Korn Ferry vice chairman Dennis Carey, argues that recruitment and development must be central functions of companies, and that the CHRO should be on par with the CFO as the two most important lieutenants of the CEO.

A path to the CEO post?

Historically, for leaders, the HR function has been seen as a bit of a dead end—a department that a particularly talented employee might master but never transcend. But with the heightened attention to talent and culture, and the increasing interest in having those functions led by well-rounded executives, it isn’t difficult to imagine a day when the CHRO job becomes a natural pathway to the CEO role.

As of now, it’s a barrier rarely broken. But it has happened, as when Mary Barra was made CEO of General Motors. An engineer by training who ran an assembly plant and served as GM’s product chief, Barra spent two years running HR before her 2014 promotion to the company’s top job. As the Washington Post noted at the time, it was unusual for someone considered CEO material to have even been assigned a rotation in HR. “It’s not a typical career path to the CEO job,” John Wood, vice chairman of the executive search firm Heidrick & Struggles, told the paper. “It happens more by exception.”

But research from Wood’s own firm suggests this could change.

Heidrick & Struggles evaluates candidates for executive roles on 11 factors that it sees as driving acceleration in a leader’s performance. The factors include things like foresight (i.e. the ability to solve complex problems, develop creative solutions, and think with dexterity), adaptability, resilience, and putting customers first. In a recent review of its evaluations of 80 CEOs and 36 CHROs, Heidrick & Struggles found that CEOs score higher than CHROs on eight of the 11 factors. But on what the firm describes as “the two most important” factors that correlate with CEO performance—building talent and teams, and inspiring and influencing people—CHROs actually score higher than sitting CEOs.

Meanwhile, thanks to the developing interest in talent management in boardrooms around the world, CHROs with CEO-level ambitions have a better shot than ever before at landing board roles with other companies that want to benefit from their expertise. And though it may not be a requirement, board experience often is prized by the selection committees that choose CEOs.

McKinsey’s Barton and his Talent Wins co-authors suggest there is still much work left to do by companies that want to give HR functions, and HR leaders, their full due. But Barton’s own recent immersion in the subject—his previous books were about capitalism and China’s mobile economy—is emblematic of a broader shift in priorities that is pulling talent management to the fore.

“To be a good business leader, you need to understand HR,” Barton told Quartz’s Oliver Staley earlier this year. “I hope we’ll see more CEOs coming from the HR function, and we’ll see more line leaders spending time in HR. There has to be a transformation there.” It’s an observation that no doubt applies to both how HR is run and how it is viewed elsewhere in the company.

“It’s a trite thing to say, but I dedicated the book [Talent Wins] to the HR people I ignored for too long,” Barton said. “Those people are going to play really important roles.”