Human resources professionals are quickly becoming more integral to the way businesses are run. While they have always been important to acquiring and building the talent that puts corporations on the map, it's becoming clearer than ever their roles should be more closely aligned with those in the C-suite. This begs the question: Should HR report to the CEO or the CFO?
Pros of pairing HR and the CEO
The Saratoga Business Journal discussed the role of HR as it applies to the CEO of a business. According to Rose Miller, an HR consultant, there is no clearer correlation between the objectives of the CEO and HR. The two are inextricably linked together in that both wish to drive the business forward. Since the CEO shapes company culture, and the HR department essentially ensures that culture is maintained throughout the office and in every new hire, it makes sense that HR would report directly to the CEO.
In addition, Inc. magazine discussed the notion that the CEO is the only individual in an organization who has direct contact with all people, teams, decisions and aspects of business operations. It figures CEOs would work with the department in the same situation. HR is active on just about every level, from hiring personnel to ensuring performance standards are up to par. Essentially, HR is a direct reflection of the CEO.
Cons of pairing HR and the CEO
However, as nearly anyone who has tried to schedule a call or meeting with a CEO knows, these executives are often spread incredibly thin across a huge variety of projects and obligations. If working with HR to convey expectations and provide solutions to company issues isn't within the CEO's schedule, it's likely these tasks will get pushed to the back burner.
Often, in an attempt to better manage HR, CEOs will outsource the department, Inc. stated. While this is sometimes beneficial, it could distance the human resources professionals from the people they are supposed to be managing, helping and providing information to on a regular basis. This type of CEO-HR relationship wouldn't be conducive to a successful business.
Pros of HR reporting to the CFO
The potential for a CEO-HR relationship to become strained is why there are advocates for HR reporting to the CFO instead. The roles of the CFO and the HR department both have undergone serious changes in terms of responsibilities, leadership and involvement in key decision-making in the past few decades. This puts them on a similar level in terms of understanding one another.
One reason why it would make sense for HR to report to the CFO is that both entities are focused on planning now for the future – investing in resources that will help grow the business down the line. The Deloitte University Press outlined this potential relationship, elaborating on the element of driving business results. CFOs and HR both consider the long term, making decisions today they know will affect the company years down the line. These investments may be more closely aligned than people think.
As of 2010, 85 percent of a company's assets were intangible, compared to only 40 percent in 1975, according to an infographic from Deloitte. This means CFOs and HR are able to determine a business's worth with greater ease than ever before.
In addition, as CFO magazine pointed out, financial managers can help ensure regulation compliance for HR, as there are exorbitant fees associated with failing to adhere to federal and state regulations. With finances in mind, CFOs would be able to better prioritize benefits package inspection and required financial paperwork to keep the business afloat.
Cons of HR reporting to the CFO
Unfortunately, a financial perspective is also a reason why HR may not want to report to the CFO. Fundamentally, CFOs are financially driven, and HR is people driven. As outlined by CFO magazine, the principles used to guide strategic financial decisions for a business are not the same principles that should influence decisions about people, benefits, employee engagement and talent management. Building a strong workforce and attracting top talent in an industry requires spending, and sometimes CFOs can't see beyond the figures on the page. Yet spending funds on recruiting and employee perks could lead to the onboarding of the next CEO.
When it comes down to it, HR professionals are concerned with office culture and taking care of each individual on the payroll. CFOs are much more concerned with the bottom line. HR leaders have a sixth sense for the type of person an organization needs; relying on a figure-driven party to determine whether this person is good or bad for a particular position may not be best.
When in doubt, it may behoove a business to place the CEO, CFO and head of HR at the forefront of an organization to lead as a team.