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The description for the Diplomacy skills say it is useful for "Major Regime Stories"
1) What is a major regime story?
2) Which cabinet post should I assign someone with a high Diplomacy score too? I'm thinking Advisor. FAC and Interior stratagems usually need a variety of CHA skills.

The reason I am asking is because of a character in a new game who is CAP V with 60 points in diplomacy, and the rest in Improvisation, Survival, Endurance, and 6th sense. And nothing else.

Diplomacy skill is the main skill for the Foreign Affairs council. I have also noticed that Governors and the Director of the Supreme Command Council have Diplomacy skills that occasionally are used (have asterisk beside the skill in their detailed report).

The asterix does not necessarily mean that the job use that skill, it can be a skill tied to the background (historical, or of the past jobs assigned to him by the player) of the leader and experienced leaders will end up spending xp to level these.

SHQ does not to my knowledge use diplomacy, outside maybe of some story module (I mostly turn it off).

Diplomacy is mostly useless outside of foreign affairs and interior.

Interior doesn't need very high cha skills, somewhere around 40 CHA it will eventually be guaranteed to succeed its rolls once it becomes experienced enough. High CHA and diplomacy however is invaluable if trying to diplo annex.

The wording in a recent update made it clearer :

Changelist 1.26k2(#219)
-Major Fix with AI regimes not being set to a story mode (friends, blackmail, etc) and subsequent events not triggering. This has been fixed for new games and running games (retro-active fix will take a new round to go into effect) (Thanks Jean!)
[...]

So looks like the popup is indirectly referencing the Decisions you have to take when participating in these Stories the Majors are doing with you.

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Grog's Guide to Human Resources Administration

Arralen's Job / Skill use table