Why Chief Human Resources Officers Make Great CEOs

FROM THE DECEMBER 2014 ISSUE

For decades the corporate HR department was seen as a back-office function, a cost center focused on mundane administrative tasks such as managing compensation and benefits plans. But over the past 15 years Ellie Filler has noticed a dramatic change. Filler, a senior client partner in the Swiss office of the executive recruiting firm Korn Ferry, specializes in placing chief human resources officers (CHROs) with global companies. For years many of the HR chiefs she recruited reported to the COO or the CFO and complained that they lacked real influence in the C-suite. Today, she says, they often report directly to the CEO, serve as the CEO’s key adviser, and make frequent presentations to the board. And when companies search for new CHROs, many now focus on higher-level leadership abilities and strategy implementation skills. “This role is gaining importance like never before,” Filler says. “It’s moved away from a support or administrative function to become much more of a game changer and the person who enables the business strategy.”

To investigate the CHRO role within the C-suite, Filler worked with Dave Ulrich, a University of Michigan professor and a leading consultant on organization and talent issues. In looking at several sets of data, they found surprising evidence of the increasing responsibility and potential of CHROs.

First, in order to understand the importance of the CHRO relative to other C-suite positions, including CEO, COO, CFO, CMO, and CIO, Filler and Ulrich looked at salaries. To identify the best performers, they found the top decile of earners in each role. Then they averaged the annual base compensation of each group. No surprise: CEOs and COOs are the highest-paid executives. But CHROs are next, with an average base pay of $574,000—33% more than CMOs, the lowest earners on the list. “Great CHROs are very highly paid because they’re very hard to find,” Ulrich says.

The researchers also studied proprietary assessments administered by Korn Ferry to C-suite candidates over more than a decade. They examined scores on 14 aspects of leadership, grouped into three categories: leadership style, or how executives behave and want to be perceived in group settings; thinking style, or how they approach situations in private; and emotional competency, or how they deal with such things as ambiguity, pressure, and risk taking. The researchers then assessed the prevalence of these traits among the different types of executives and compared the results.

Their conclusion: Except for the COO (whose role and responsibilities often overlap with the CEO’s), the executive whose traits were most similar to those of the CEO was the CHRO. “This finding is very counterintuitive—nobody would have predicted it,” Ulrich says.

The researchers analyzed 360-degree assessments of thousands of leaders in six C-suite functions—CEO, CFO, COO, CIO, CHRO, and CMO—in which each executive was ranked on 14 aspects of leadership on a scale from one to seven. The surprising result: The traits of CHROs matched up closely with those of CEOs.

The discovery led Filler and Ulrich to a provocative prescription: More companies should consider CHROs when looking to fill the CEO position. In the modern economy, they say, attracting the right talent, creating the right organizational structure, and building the right culture are essential for driving strategy—and experience as a CHRO makes a leader more likely to succeed at those tasks.

The advice comes with some caveats. First, Filler and Ulrich studied only the best performers, so they’re pointing to a small subset of CHROs as having corner-office potential. They don’t see a path to the top job among people who have spent their careers in HR; instead, they are touting the prospects of executives who have had broad managerial experience (and P&L responsibility) that includes a developmental stint running the HR department. They emphasize that any CHRO who aspires to become a CEO must demonstrate capabilities in a host of skills required of top leaders. “The challenge for CHROs is to…acquire sufficient technical and financial skills, in early education and in career steps along the way, if succession to CEO is a desired outcome,” they write in a white paper about their research. Indeed, some companies, including Zurich Insurance, Nestlé, Philip Morris, and Deutsche Bank, do put high-potential executives through a developmental rotation in a high-level HR job. (For one view on facilitating such developmental opportunities, see “It’s Time to Split HR,” by Ram Charan, HBR, July–August 2014.)

CHRISTIAN SCHNUR/KEYSTONE/REDUX

Bernard Fontana has served as CEO of the Swiss cement company Holcim since 2012—and earlier in his career he spent three years as the chief human resources officer at ArcelorMittal, a 320,000-employee global mining and steelmaking company. He spoke with HBR about why a stint as CHRO is great preparation for becoming CEO. Edited excerpts follow.

Did you always aspire to work in HR?

No. But when I was 30 I was working for a French company, and I traveled to Hong Kong with the CEO. During the trip he talked about how at one point in his career, he’d been asked to be the head of HR. “It’s not something to do all your life, but one day if you have this opportunity, I’d advise you to take it,” he said. “You’ll learn a lot, and it will be useful if you become a CEO.” He was right.

Why was serving as CHRO an important experience?

Leadership is about transforming an institution, and if you want to have a sustainable transformation, you need to develop leaders who will continue the journey after you. HR is an essential part of that kind of generative leadership. My predecessor as CEO had been here for 10 years, and the board was looking for an outsider with this characteristic—the ability to develop people and generate new leaders.

As more companies do mergers or reorganizations, are HR skills a bigger part of a CEO’s skill set?

Yes. Those transformations are times of opportunity for a company, but they’re also times of uncertainty for employees. That’s something you need to acknowledge and turn into a strength. With HR experience, you’re more aware of certain situations. You pay attention to the way you say things. During those times questions of company identity, values, and behavior matter a lot.

Do you put many of your up-and-coming stars into HR roles?

In HR you need a mix of experts who will spend their careers there and people who will go there for a short time for development and then return to running businesses. I do put executives into those jobs, but those development roles are the minority in any HR department.

Should more boards consider hiring CHROs as CEOs?

Yes. It’s still relatively rare, but it shouldn’t be. The ultimate responsibility of CEOs is to make sure that what they initiate will continue and that they develop the men and women who will carry on the work. So for me, it’s very logical to have former CHROs as CEOs, because they have experience developing people.

Filler and Ulrich highlight two examples of prominent CEOs who had developmental stints in HR earlier in their careers. Mary Barra, the CEO of General Motors, served as the carmaker’s vice president of HR for 18 months, and Anne Mulcahy, Xerox’s CEO from 2001 to 2009, ran that company’s HR operations for several years in the early 1990s. It’s no coincidence that both are women: According to the researchers’ data, 42% of high-performing CHROs are female—more than double the share in the CMO position, the next highest (16%). One implication: If more companies envisioned CHROs as potential CEOs, the number of female CEOs could dramatically increase.

In their white paper Ulrich and Filler also report on what CEOs and CHROs have to say about the changing nature of the top HR role. Several CEOs see the CHRO as C-suite consigliere. “It is almost impossible to achieve sustainable success without an outstanding CHRO,” says Thomas Ebeling, the CEO of the German media company ProSiebenSat.1 Media AG and a former CEO of Novartis. “[The CHRO] should be a key sparring partner for a CEO on topics like talent development, team composition, [and] managing culture.”

Peter Goerke, the London-based group director for HR at Prudential, agrees with Filler and Ulrich that although deep skills in marketing or finance might once have given CEO aspirants a significant competitive advantage, today a broader set of people-focused skills can be more useful. “Succession to a CEO role requires a balance of technical and people skills,” he says. “For all C-suite roles, and often at least one level down, there has been a gradual shift in requirements toward business acumen and ‘softer’ leadership skills. Technical skills are merely a starting point.”

In spite of the historic bias against the CHRO function, the rising status of HR leaders is not entirely surprising. Over the past 20 years Jim Collins and other management theorists have focused on talent strategy as the prime determinant of corporate success—an idea Collins popularized in phrases such as “Get the right people on the bus” and “First who, then what.” In her work recruiting CHROs, Filler has seen a growing recognition that those aphorisms hold true. “If you don’t have the right people in the right places—the right talent strategy, the right team dynamics, the right culture—and if you don’t proactively manage how an organization works from a culture and a people perspective, you’re on a serious path to disaster,” she says. Conversely, a top-notch CHRO can help a company plot a more successful future.

This article is about LEADERSHIP DEVELOPMENT

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Akihiko Kodaira 34 minutes ago

Every organization consists of only people, and every decision-making and execution including marketing, finance, R&D and production are done by people. In this context, the CHRO position is quite important for the success and growth of organizations. In most Japanese corporations, the career as HR managers or department heads is significant consideration when top managements single out promising CEOs.

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