In many smaller to mid-size corporations, the administrative and clerical tasks are seen as the most important value-add of the HR department. Tasks such as creating employee files, enrolling employees in various benefit programs, and ensuring compliance with state and federal governmental regulations are what a CEO expects of her HR Manager.
The HR department at this stage of the company’s lifecycle is viewed more as a sunk cost of doing business rather than a value-add. It exists to comply with the regulatory bureaucracy and to create a mini-bureaucracy within the company in order to help the company discharge its basic duties towards employees. Oftentimes at this stage, the HR Manager or Director reports into either the Controller, CFO, or even the General Counsel.
The links between Finance and HR at this time are indisputable. Tracking the number and costs of each employee and helping to project future costs is something for which both departments bear some responsibility. But having HR report into Finance as opposed to being seen as a peer to Finance ensures that its focus will be strictly on the regulatory and the transactional.
To have HR reporting into Finance misunderstands the lenses through which each organization views the world. Finance tends to view the business through a very black and white lens: you either made a profit or not; you have either “x “ amount of costs or “y” amount of costs. In this view, everything can be calculated and everything must add up to ensure compliance.
That is the right lens, of course, through which Finance should be viewing the business. It is not the right lens for HR, however.
While there are clearly things that are black and white in the regulatory rubric of HR (Is there an I-9 filled out for each employee? Has the employee opted for Dental coverage?, etc.), that is just a very small part of how HR can add value to an organization. The HR lens needs to be one that sees the entire spectrum of the shades of gray, with a few colors thrown in for good measure. While Finance expects definitive answers from numbers, HR expects more nuanced results from human beings.
To be most effective, HR needs to report into the CEO in order to be able to accomplish its mission. It is the CEO who creates the culture, not the CFO. It is the CEO who sets the company values and expected behaviors, not the CFO. It is the CEO who should be obsessed with ensuring the correct organizational design to optimize business success, not the CFO. And it is the CEO who should care most passionately that the right performance management structure is in place to both inspire and engage the employees, not the CFO.
In short, the core focus of the HR department is aligned with the core focus of a successful CEO. Only through a direct reporting relationship with the CEO will HR be able optimize this relationship.