Questioning the Most Admired

2/3/12

When you think of good HR, what dimensions come to mind? Obviously, the most important criterion is that the systems and processes align to support and drive the business. However, those with deep HR expertise would also look at dimensions such as the nature of those systems (ease of use, leveraging of technology, acceptance of line managers, etc.), the quality of the professionals in HR, and the extent to which HR is influencing rather than just taking orders. I need not recite an exhaustive list but merely point to these as examples.

I recently came across the list of the "Most Admired Companies for HR," and found myself scratching my head. The number 1 company on the list, Apple, hasn't had a Chief HR Officer for a number of years, as many of the top CHROs in the profession said they wouldn't even consider interviewing for that job (I know because they told me they had declined to be considered and later that was confirmed to me by the executive recruiter in charge of the search). Don't get me wrong, the companies on the list are great and successful companies, and some of them have great HR functions. However, HR within some of the companies on the list is suspect, at best.

When I looked at the methodology, as Fortune was developing the "Most Admired Companies" list, they had their raters score companies on a number of dimensions. Four of those dimensions, "people management," "innovation," "management quality," and "product/service quality" were used to compute the score. The problem is that research has shown that all of the Fortune dimension ratings are largely determined (i.e., strongly correlated with) the financial performance. Thus, Apple, with strong financials and no CHRO comes in at #1 while GE, with disappointing financials (at least to me as a shareholder!) but great HR does not even make the top 50.

This is not to be interpreted as an assault on Apple, but rather leads to two points for Chief HR Officers. First, you need to recognize what I refer to as the "fundamental HR attribution error" which shows up when we attribute great HR to companies that have great financials. Every time a company emerges as a great financial performer, those in the HR profession often assume that they must have great HR. The truth is that a great business model can cover a multitude of HR sins, and great HR cannot make up for a flawed business model.

Second, if your company made the list, be proud, but certainly not haughty; if your company did not, do an honest evaluation of your function. If you are confident that you do good work and are on the right transformation track, then take the list with a grain of salt.