The talent strategy questions every board should ask.

• Author: Naerby, Nina
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

Too often, boards of directors neglect the impact of talent strategy on corporate health. Here is what the board should focus on to help ensure sufficient leadership competencies and smooth transitions.

Leadership capabilities are often only noticed in their absence, but by then it may be too late: strategies have faltered and opportunities are lost. A company's talent strategy is crucial to performance, and boards of directors must be confident that the company is promoting, recruiting, and retaining competent leaders. While many directors feel ineffective in guiding talent strategy, posing the right questions to the top leadership team can support more vigorous --and effective--talent management and help avoid shortfalls.

Heidrick & Struggles' reports on European corporate governance, for instance, have uncovered a significant gap between the importance of talent management and a board's ability to influence it. In our most recent report, 92% of the board members surveyed placed great importance on "a comprehensive review of top talent performance and engagement in succession planning." Yet only 55% said board performance was at least satisfactory on this aspect of governance. The gap was the largest exposed by the survey. (The 2014 report is the latest iteration of ongoing research. Data was gathered from 15 countries and the top 400 publicly listed companies in each country. For more, see "Towards Dynamic Governance 2014" on www.heidrick.com.)

While this survey was focused on Europe, the need for greater board oversight of talent strategy is global. For example, we've seen that a primary obstacle to board members questioning a company's talent strategy is a general lack of experience. Our analysis of board appointments to Fortune 500 companies showed that between 2009 and 2013 about two-thirds of the newly appointed directors were sitting or former CEOs and CFOs. While such board members are comfortable diving into the minutia of strategy and finance, without a human resources background they are often reluctant to delve into talent issues.

Conscientious board members, however, must overcome this reticence in order to satisfy themselves that the company has a human resource strategy that matches corporate objectives. Establishing and developing the right team is vital for all business success, and failure could put a company's overall strategy at risk. For instance, a company may lack the capabilities needed to meet corporate goals or successors might not be ready when they are called to fill key positions throughout the organization. When problems arise, the response might be crisis management rather than talent management.

As part of their corporate governance mandate, boards of directors should become more active in talent management. They must ask top executives key questions to discover whether there are any capability gaps, how any gaps are being addressed, and how the company can prevent gaps from developing in the future. In addition, they should ensure that a review of talent strategy is included routinely on the board's formal agenda and discussed at least once a year. Without explicit interest from the board, senior executives can also become complacent around these issues and a company's talent management and strategy can suffer.

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