The events of the last five years — the #MeToo movement, global pandemic, racial tension and the introduction of AI to the business environment — have exposed the vulnerabilities of companies that do not view human capital as a strategic asset. This shift underscores the board's evolving duty to recognize human capital as a driver of long-term value creation. In one of my board interviews, one sitting board member said, “People are central to the organization. They produce goods and services, maintain product quality and interact with customers. Boards must pay special attention to the people side.”
In 2019, Business Roundtable redefined the corporation’s purpose, committing to deliver value to shareholders and all stakeholders — customers, employees, suppliers, communities and shareholders. Jamie Dimon, chairman and CEO of JPMorgan Chase, remarked, “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.”
Since then, the board has faced growing pressure to address talent, culture and sustainability with the same rigor they apply to financial oversight. Recent social, economic and technological challenges force boards to reevaluate their human capital management and sustainability approach.
For boards seeking to be fit for the future, human capital sustainability is no longer optional — it is central to long-term value creation. Yet, many boards still lack robust practices around talent and culture. PwC's 2024 annual corporate directory survey indicates that 88% of directors agree human capital should be a board-level issue. However, less than half regularly review key talent metrics or receive input from their management team.
Boards must evolve and partner with management on human capital issues. As effective stewards of the organizations they lead, they must go beyond compliance-focused activities to become architects of human capital strategy.
From Fiduciary Duty to Duty of Leadership
Traditionally, board oversight was framed around the fiduciary duties of care and loyalty. However, a third imperative is emerging: the duty of leadership, as coined by Ram Charan, Dennis Carey and Michael Useem in their book Boards that Lead. This requires directors to actively shape how talent, culture and organizational capabilities align with the company's strategy and values by working closely with the management team.
Traditional boundaries between the board and management are blurring as the business environment becomes increasingly complex. However, as one director noted in a recent interview: “Boards operate on the principles of nose-in and hands-out. CEOs make decisions about people; the board’s role is to assist in making the right choice.” This means going beyond succession and compensation to engage in topics such as organizational culture, leadership development and talent risks related to achieving the company's strategy and building a resilient organization.
High-performing boards ensure management integrates human capital sustainability strategies into corporate objectives. This includes a wide range of criteria: employee engagement and well-being, diversity and inclusion, effectiveness of the talent pool, pay equity, training, benefits, succession, retention, turnover, leadership development, cost, productivity, fairness, organizational structure and management depth. These metrics and initiatives typically fall under the responsibility of the management team. However, a progressive and engaged board can significantly contribute and create value by showing interest in these human capital management programs and making them part of their board agenda.
Management is responsible for establishing and nurturing the company culture. However, transformative changes can occur when boards take responsibility for understanding, analyzing and monitoring the company culture. Many boards lack access to employees below the management level, making it difficult for them to grasp the culture. The board can influence the culture by setting the tone, asking the right questions and ensuring accountability. Boards should regularly ask:
- Is our culture aligned with our strategy?
- Do we understand what employees value?
- Are we measuring the right things to assess engagement and inclusion?
Total Shareholder Return (TSR) is an economic metric used to measure a company's performance. In the book Talent, Strategy, Risk: How Investors and Boards are Redefining TSR, Bill McNabb, Ram Charan and Dennis Carey reframe TSR to discuss the importance of talent and its connection to achieving the company's strategy and mitigating associated risks. This expanded lens recognizes how long-term value is created by building resilient, innovative and engaged organizations, rather than solely through financial engineering. Good stewardship by the board requires placing equal emphasis on people, just as it has historically been placed on physical assets, products and brands.
Best Practices from the Boardroom
In my interviews with directors and governance experts, several themes emerged around leading human capital management and sustainability.
Establish a talent and culture committee. Board governance practices should extend beyond merely focusing on CEO and executive team succession planning and compensation. Some companies are forming new committees with redefined charters, such as people and culture or talent and execution committees. These committees establish focused agendas around leadership development, redefined DEI, human capital strategy and investments, compensation, succession planning and workforce strategy.
Build a human capital scorecard. Boards that regularly track human capital metrics, such as internal promotion rates, succession depth, human economic value, engagement scores, cultural surveys and training investments, make better-informed decisions. One director emphasized the value of 360-degree feedback on the CEO and their direct reports as a coaching tool for leadership development.
Engage beyond the C-suite. Boards should engage with high-potential talent during site visits, host informal roundtables with rising leaders and participate in culture audits. Competent and confident CEOs make it a point to appropriately bridge the gap between the board and rank-and-file employees. As one director noted, “This avoids any potential information filter imposed by the executive team.”
Reframe the conversation around DEI and ESG. While DEI and ESG have become politicized, directors can still utilize their social pillar — human capital — to assess employee well-being, equity, engagement and innovation, even if the DEI and ESG label is downplayed.
The board must partner closely with the CEO and chief human resources officer to operationalize human capital sustainability. One board member advised, “Talent should be a standing agenda item, not an annual discussion.”
The National Association of Corporate Directors (NACD) human capital governance framework offers valuable guidance, urging boards to integrate human capital into strategic planning, risk oversight and board education. In short, the board must treat human capital with the same discipline as financial capital.
Leadership for the Long Game
If a company neglects its broader responsibilities to stakeholders, it risks eroding long-term shareholder value. Over time, stakeholder and shareholder interests converge increasingly. Shareholders provide companies with capital to invest and generate returns. The board and management are expected to invest this capital wisely, focusing on physical and human assets to achieve the company's stated goals.
The board does not operate the company; that responsibility lies with the CEO and the executive team. When it comes to operational matters, including human capital management, the board exercises active oversight, maintaining a delicate balance between strategic involvement and operational restraint.
Historically, board discussions about human capital have focused narrowly on CEO succession and executive compensation. Directors must proactively evaluate talent dynamics alongside capital investments, treating human capital as the company’s most vital asset. Progressive boards now recognize that effective oversight of talent strategy — covering talent acquisition, development, retention and engagement — is essential for delivering sustainable value.
In today's complex social, economic and political environment, boards and management teams are expected to navigate controversial issues, deploy capital effectively, manage risks and set strategies for long-term success. Human capital management and sustainability are not trends, but essential practices that high-performing boards do to create value.
Directors who embrace this expanded role will help shape organizations that are not only profitable, but also purposeful places where people thrive, innovation flourishes and long-term value is created for all stakeholders. The agenda in the boardroom is shifting. Those who lead with talent will lead the future.