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Family Business Advisory

A Call for Human-Centric Governance

To effectively fulfill their functions, family-owned boards must acknowledge the fundamental importance of people and remuneration issues in companies.

  • June 2023

Paul Polman's phrase sums it up: "Most boards and CEOs are ill-equipped to meet the challenges of today, not to mention those in the future."

As family-owned companies increasingly become public, corporate governance undergoes transformation. While these firms still have a reference shareholder guiding their operations, board oversight and committee structures play a vital role. Among these committees, the Finance and Risk Committee and the People and Remuneration Committee are commonly found, but the latter lacks the level of importance and influence that the former does.

Why is that? Delicate matters such as CEO and C-level compensation and talent pipeline discussions make executives hesitant to share their views openly, fearing discord with the board's perspective. Consequently, critical issues related to the HR agenda are often postponed or neglected. This avoidance perpetuates a culture of reluctance to address essential matters, hindering the committee's effectiveness.

In contrast, Human Resources executives are on the rise. The appointment of Leena Nair, the former Chief People Officer of Unilever, as the youngest and first female CEO of Chanel in 2021 serves as a global inspiration for HR leaders. Furthermore, data from the National Association of Corporate Directors indicates a nearly doubled representation of board members with HR backgrounds within three years—underscoring that this trend is just beginning.

How to Elevate the People and Remuneration Committee?

  • Break taboos. First and foremost, breaking taboos and recognizing the foundational role of the People topic in good governance is crucial. External committee members, such as experienced HR Directors, VPs, or compensation experts, should actively contribute to board discussions and encourage their peers to prioritize people-related issues. Ideally, these committee members can later ascend to the board, bringing even greater impact.

  • Hire a senior HR executive. Additionally, hiring an experienced HR Director or Vice President can be instrumental in influencing CEOs to prioritize people issues and structuring the committee's agenda. This individual will also facilitate productive and well-informed debates during People Committee meetings, enhancing the committee's overall effectiveness.

  • Foster diversity and inclusion. Lastly, board composition plays a vital role in effectiveness. Chairs have the responsibility of fostering an inclusive environment where experienced and complementary members actively contribute to discussions. This diversity of perspectives adds significant value to the board's strategic discourse and ensures crucial issues are addressed effectively.

Placing Humans at the Helm

Fortunately, human-centric conversations concerning benefits, compensation, diversity, equity, and inclusion (DE&I), and company values are gaining traction in boardrooms worldwide. The "S" and "G" aspects of environmental, social, and governance (ESG) considerations are receiving increased attention due to various talent-related challenges, such as societal movements, rising burnout rates, frequent job changes, and record-breaking layoffs that affect talent strategy.

Only by acknowledging the fundamental importance of people and remuneration issues in companies, with their direct impact on performance and shareholder value, can family-owned boards fulfill their functions holistically and effectively.

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