CFOs Extend Reach into HR

CFOs say they're increasingly extending their scope of responsibilities to include HR. Two principal reasons are the growing importance and cost of human capital. But does this increasing involvement mean that CFOs have more -- or less -- regard for leaders in the profession?

Friday, August 19, 2011
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Perhaps it's the nature of business in the wake of the recession: Financial professionals are extending their reach into plenty of other parts of the business -- examining everything with much more detail in an effort to cut costs and increase efficiency.

HR, it appears, is one of those business areas, according to a study by Robert Half Management Resources.

In the study, a group of 1,400 chief financial officers were asked: "Which of the following areas outside of traditional accounting and finance responsibilities, if any, has your role expanded into most over the past three years?"

The second most common area of expanded responsibility was HR, at 19 percent. (The top answer was operations, at 27 percent.) 

"CFOs are focused on cost expenses and maximizing the value of any expenditure," says Paul McDonald, senior executive director of Robert Half Management Resources in Menlo Park, Calif. "The costs of human capital have risen in importance in many organizations, as revenue has been harder to come by."

There are other factors as well, McDonald says.

"Before the recession, before the downturn, before healthcare regulation had risen to the forefront, I believe [that the percentage of CFOs expanding their reach into HR] would have rated in the low teens and been No. 3 or No. 4 on the list."

While it is fairly common for a company's chief human resource officer to report to the CFO, more progressive companies put HR leaders and CFOs in equal places at the executive table.

Dave Ulrich, professor of business at the Ross School of Business at the University of Michigan, says many CFOs believe administrative efficiencies can be achieved through combining HR with finance.

"This builds efficiency and saves money, but not large amounts," says Ulrich.

But, he says, such a consolidation could show a lack of regard for HR, especially if CFOs look at employees from a cost/benefit perspective.

"When CFOs or others think about human capital as costs, they make a mistake," says Ulrich. "They should be thinking about productivity, which is output/input. Short-term costs may lead to long-term productivity losses if analysts are not careful."

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He also cautions that financial professionals should not think they're qualified to run HR because it's a soft skill.

"A wise finance officer would not want to take responsibility for areas they are not competent to lead," says Ulrich. "The easy adage is, 'Anyone can do HR,' which is far from true."

Investors, he says, are not only interested in short-term savings that come from increasing efficiency, but also in the organization's culture, capabilities, talent and leadership.

"When investors have more confidence in organizations, this shows up in the stock price," says Ulrich.

McDonald, however, says that the tighter relationship between CFOs and HR points to the importance of human resources.

CFOs, he says, have many of the same goals as HR executives -- they want to find the appropriate headcount to meet business needs, examine training costs and figure out how healthcare reform will impact benefit expenses.

Even before CFOs started taking on more HR work, they saw the value of human capital.

"[CFOs] have viewed HR as an excellent business partner, the relationship has never been stronger," he says. "Perhaps this survey puts an exclamation point on it."

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