By Rose Miller
As HR consultants with clients throughout the region and nationally, we see many organizational structures.
Surprisingly, when it comes to who HR reports to, there doesn’t seem to be a correlation between size and structure. Many companies, large, medium and small, have Human Resources reporting to the CFO. Conversely, we see some startups where the CEO believes HR should be their “number one”.
We see many companies that give insightful reasons why HR should report to the CEO or owners. Jack Welch’s famous golden triangle is composed of the CEO, CFO and HR tied together equally.
We can see why businesses tend to give HR to finance. As a business grows, it begins to add employees. The first type of HR activity is staffing, next comes payroll and benefits. So often, the first person assigned HR duties is also doing the payroll and bookkeeping. It’s a focus on function rather than people.
We believe that HR should always report to the CEO or the most senior person in the company. Data shows that most highly successful companies have HR reporting directly to the CEO. I have outlined the major reasons why we believe this, intertwined with reasons why HR should not report to finance.
If you believe that the right people are the drivers to your company’s success, then why would HR report to the person who controls the money and who will be measured by the bottom line? HR priorities are measured by the productivity and alignment of people to what product or services are being delivered to customers.
Many times these priorities are in opposition to increasing bottom line results. For example, a growing company strategically acknowledges lower margins as a trade-off to increased market share.
HR can only gain a strategic perspective when she/he has access to the CEO. HR reporting to any other executive can limit HR’s effectiveness. When HR has an extremely confidential or potentially risky situation involving a manager or a senior level executive, HR must be free to report the situation directly to the CEO.
We have seen, first hand, how an unethical executive achieves unchecked power by making sure HR reports into them. A good company will have many checks and balances in place. HR needs to be free to advocate for effective people and whistle blowers. If HR reports to finance, they are moved one step further from where organizational decision-making occurs.
The CEO is the person who shapes the company culture. A strong HR department is the “keeper of the culture.” HR becomes the culture’s best representative. HR supports the culture by hiring the right people, promoting and developing the people that resemble the culture.
Rarely, do we see this type of understanding coming from the Finance Department. When HR reports to Finance, policy decisions are likely to be primarily money-driven. They focus on costs and lack professional training in motivating and engaging employees and employee development.
The traits that make an excellent financial person are in opposition to what makes a good leader. A leader is a visionary with a talent to think out of the box. Finance is busy checking the box, trying to control and stay within the box.
When HR is considered a strategic partner, the role should be seated at the same level as other strategic partners such as finance, operations, research and Sales. Each of these partners possesses a particular expertise in their field. They are all assets to the organization and one department should not diminish the role of the other. These strategic partners have their own, valuable view of a problem.
There is a saying that most bad decisions are made due by inadequate information. When the CEOs can gain data from each expert, the decisions will have a greater chance of success.
Where is does your HR report to? Do you have an HR strategic partner by your side? I hope this article has given you some food for thought and perhaps you will make this change right away.