Why HR Should Not Report to Finance

A finance team’s job is to contain costs and drive income and profit. So the crucial starter question is: Are your people a bottom line cost, a revenue stream, or something more than both of these? Can they be treated like any other machine in your business, run by managing the numbers.

Most CEOs and MDs like and trust their Financial Director, so it makes sense that when new problems arise without a simple solution, they enlist the FD. After all, the basics to run this ‘machine’ (paying people) is handled by finance.

If, however, your issues as a business leader are around how to develop strong leaders, build a successful culture or empower employees to take the initiative, it seems strange not to enlist the right expert at Board level.

Here are our five biggest concerns about the HR function reporting to Finance:

The barrier

A business function designed to make your people more effective is moved one step away from the senior level of the business. HR initiatives will only be heard if they can first persuade the numbers, rather than the CEO. And usually it is that same CEO who is under the most pressure, needing a well-structured senior leadership team to bring change and business growth.

The Skills Gap

HR’s main roles are to build leadership capability, support a strong culture and recruit, train and retain star performers. These skills are typically not top of the list in accountancy training.

The Focus

A good People Director focuses on delivering a People Plan that will enable a business to meet its goals. An FD has a different job and a different focus. After all, you probably wouldn’t ask your IT Director to run your Marketing function.

The ROI

Controlling the purse strings can mean an FD has a firm reputation for saying no! Developing people means spending money on training, which can be difficult to put a hard ROI against (although it is possible!). However, if you don’t do these things, employees won’t stay, won’t grow and can’t help the business to achieve more next year than it did this year. The costs add up quickly, and it has a long-term impact.

The Growth Plan

Cost control and focus on income can lead to an unbalanced emphasis on avoiding risk. Some FDs see HR’s job to avoid lawsuits. We call legal compliance a hygiene factor, but it doesn’t help the business to grow or develop. A good People Plan supports and delivers business growth.

As HR Directors, we understand David McCann’s comment that “HR is not strategically minded or in some cases even particularly business-oriented.” We firmly believe HR should have the “rigour and discipline” of any finance function. But this cannot be all it is.

Staff salaries are often one of the largest, if not the largest cost for a business. Recruitment, training new employees and termination pay offs are hefty and often unexpected expenses on the bottom line.

To ignore People Planning, and not have it represented at board level or as a key strategic goal within your business plan to help your staff become happy, satisfied, productive and effective, and run it all through the finance department does not make any financial sense at all.

HR must be equal to finance and must report to the main decision maker in the business. This is so it can deliver strategic direction and growth, rather than be controlled by the numbers.

Please contact us if you would like to discuss this further.