Extracted from the SHRM report: Does Having HR Report to Finance Influence Investments in HR?
As it becomes increasingly important for HR professionals to develop proficiency in the business acumen and critical evaluation competencies, there is renewed debate as to where the HR function should reside.
Should finance, with its analytical expertise, focus on capital resources and access to financial results, be the department in which HR resides? If so, does reporting to finance influence the investments made in HR?
Several recent articles suggest that HR needs to reinvent itself to deliver the results required by top organizations. One recommendation posits that HR should be split into two functions, with compensation and benefits reporting to the chief financial officer (CFO) and the second function reporting to the chief executive officer (CEO). This other function would focus on improving the people capabilities of the organization and would be led by someone with line/operational experience, which is typically not gained in most HR careers.
There is some precedent for such a split, as CFOs are increasingly expanding their responsibilities into HR’s domain. In fact, 21 percent of CFOs report taking on increased HR responsibilities during the last three years. From another perspective, having HR professionals report to the CFO may cause organizations to make short-term decisions that yield long-term negative consequences.
A recent study indicates that friction between the CFO and the head of HR may exist because these two areas often clash professionally, hindering each other in the course of their work. For example, a CFO may believe cutting bonuses is the best way to solve a budget shortfall, whereas an HR leader might contend that eliminating or decreasing bonuses would cause top talent to leave, leading to high replacement costs.
With HR reporting to the president or CEO, the argument goes, HR can directly communicate long-term people strategies to someone who has a broader business perspective and is less strictly focused on the financial perspective. In this way, the top leader in the organization hears both the financial and the human resource points of view equally.
Where should HR reside in an organization, and how can this decision affect or influence the success of talent management and other functions?
Please join @shrmnextchat at 3 p.m. ET on July 20 for #Nextchat with special guest Manager of Training, SHRM HR Knowledge Center, John Dooney (@SHRManalytics).
Q1. Where does your HR department reside within your organization or to whom does it report to? (Finance/the CFO? The CEO?)
Q2. What has been your overall experience in HR when you/your department reported to finance/the CFO?
Q3. What are the benefits for HR when reporting to finance/the CFO?
Q4. What are the disadvantages for HR when reporting to finance/the CFO?
Q5. How were the expectations different for your HR department when you reported to the CFO compared to another C-suite member?
Q6. What additional knowledge or perspective did you gain as an HR pro reporting to finance/CFO?
Q7. Fill in the answer: As an HR professional reporting to finance, I wish my CFO would be more________.
Q8. What do you wish your CFO better understood about HR?