Something very interesting is happening in the post-recession C-suite: an increasing number of HR chiefs are now reporting directly to the CFO rather than the CEO. The rationale for this may be sound–aligning people processes with the company’s financial strategy is never a bad idea–but this move is meeting resistance from HR. It’s not some petty turf war, though I’m sure that’s part of it. More importantly, the idea of reporting to the stereotypical “cold-hearted number cruncher” who doesn’t understand HR is objectionable, if not intimidating, to many HR leaders.
I recently caught up with Nick Araco, co-founder and CEO of The CFO Alliance, after a breakout session at TLNT Transform to discuss this trend. What can HR leaders learn from the CFO? And how can CFOs–and the entire organization–benefit from coupling HR with Finance?
A View Through the CFO’s Lense
The impact of most strategic HR decisions can be difficult to quantify in financial terms, and in many cases it isn’t critical to do so. But as HR becomes a more strategic function, the financial impacts to the company become more significant and thus need more analysis and support than HR can typically deliver on its own. This presents an opportunity for the CFO to bolster the value and visibility of the HR function by partnering with them.
“The majority of CFOs see the greatest value in having someone seated next to, not under them.” — Nick Araco
For many CFOs, the goal isn’t to take the reigns from HR. Rather, it’s to help develop true strategic HR leaders.
The Five Things HR Can Learn from the CFO
Before HR chiefs can step up their game and become key players in business strategy and execution, there are things to learn (and unlearn). Here are the top five I identified after my conversation with Araco:
1. How HR decisions affect the top and bottom line. The majority of CFOs want one thing from HR leaders: perspective. They want you to reflect on the ramifications your decisions will have on the company’s overall business performance. For example: What return do I anticipate for the money invested in a new hire? Will the revenue generated by an extra hand on deck displace the cost of bringing him on board?
Simply citing a hiring need as a trigger for investment won’t cut it in a post-recession economy. You need to think bigger.
2. How people data can shape the business. In most companies, HR data either isn’t collected or used to its fullest potential. For the CFO, that’s blasphemous. Araco says, “There should be information flow that occurs on an ongoing basis. HR data should influence decisions on business goals and performance metrics.”
However, many HR professionals lack best practices and systems for collecting, tracking and reporting on people data. If you ask me, HR reporting to the CFO is the best opportunity we’ll get to overcome this obstacle–but success here will require the CFO to take an interest in what HR is doing with data and how they’re doing it.
3. How financial principles can support a more strategic HR. In order for HR to break away from the traditional cost center, administrative or compliance function, they must learn how to quantify and qualify more strategic investments in people process. First things first, though: leaders in finance and HR need to sit down and make sure their goals and strategies are aligned.
Then, the more that HR can learn from the CFO how best to apply financial principles to decision making, the greater opportunity for them to position HR as a strategic function.
4. How to bring the human element back into the equation. Financial perspective is a key component to presenting cases for critical business decisions. During the recession, the CFO was frequently the naysayer. His or her tough decisions kept the company alive. As we move into a period of recovery, Araco suggests that it’s up to HR to inject a human element into the CFO’s decision-making process. “I think it’s natural that these roles work together.”
To that end, Araco says soft skill development is key, and that HR is in a prime position to enhance the CFO’s ability to look beyond spreadsheets when weighing options.
5. How to combine HR expertise with business vision to build credibility. Your ability to contribute expertise in talent management should be invaluable to leadership when big decisions are being made on business goals and strategy. A forward-thinking CFO knows that. “Finance is better off giving HR a seat at the table,” says Araco, “and on making sure the right person is sitting in it.”
An HR leader who is able to tie opportunity to measurable performance metrics is going to work well as a member of senior leadership.
Challenges Are Temporary, Opportunity is Lasting
According to Araco, the majority of CFOs don’t want HR reporting to them in five years. They want to do more than manage the cost side of people process, as that alone won’t lend itself to long-term success. “I think there’s a new generation of CFOs whose aspirations and goals are better than simply crunching numbers,” says Araco. “They view the greatest value having someone seated next to not under.” And by grooming HR leadership, and training them on key principles that drive good and strategic decision-making, many finance leaders hope to do just that.
By elevating performance in both roles, there’s an opportunity to transform HR and Finance simultaneously. But that opportunity is only available to those leaders who can work together to that end. As Araco warns, “Those who fight this are going to be left in the dust.”
Thumbnail image created by Ken Teegardin.