CFOs Should Step in as Strategic HR Leaders

Finance chiefs of growth companies need to direct human resources strategy, says a leading consultant.

Although it falls outside their traditional job description, CFOs of growth companies must often play the role of human resources strategist. The responsibilities related to HR — managing performance, designing the leadership team for the next stage of growth and creating clear objectives for all employees — are just as important as having sufficient liquidity.

Columnist Robert SherOften, small or early-stage companies don’t have a strategic HR leader. The controller or a low-level HR person handles day-to-day personnel and makes sure the firm stays compliant with the law. Many growth-company CEOs are either externally focused or haven’t worked in larger organizations with a strong HR director. As a result, their firms do not recognize and reward top performers, and they allow low performers to linger. As headcount grows, job duties and responsibilities become muddled, employees lack measurable objectives and firms lose momentum.

Many CFOs recognize this problem but don’t take ownership of it. They often make suggestions to the CEO or try to coach a lower-level HR person. Yet when things don’t improve, they sit back and wait. After all, few managers look forward to performance reviews (especially the hard ones). These unpopular processes are easy to ignore or neglect. However, failing to manage employee performance has an effect on the company and those who lead it — an effect even more unpleasant than having to tell an employee they are underperforming.

CFO Betty Kayton, who specializes in venture-backed growth firms, recalled one young firm in the software-as-a-service space that had a vice president of sales who could not close business. Despite Kayton’s counseling, the CEO would not replace the executive, who was his friend. The board of directors recognized the problem, brought in a search firm and chose a new sales head, stating they didn’t trust the CEO to pick a good candidate. Three months later, the board sent the CEO packing as well.

CFOs, in their HR capacity, must be make sure the right employees focus on the right things. For midsize companies, or even startups, the key is keeping the approach simple and consistent. Embrace these three activities:

  1. Tend to the range. The range is the gap between the best- and poorest-performing members of the team. When the range is small (like on a team of Olympic athletes), overall performance will be high. Narrowing the range requires annual or biannual performance reviews so everyone gets feedback on how they are doing, and so their manager is clear on who is performing well and who is not. Furthermore, the CFO must build processes for systematically rewarding and recognizing the top performers and for moving poor performers up or out. The firms that don’t do this and allow the range to remain wide get stuck in a low-performance plateau that is hard to overcome.
  2. Design the leadership team of tomorrow. Imagine your company in two or three years, with your planned level of growth. What would the ideal leadership team for that company look like? Draw out the organizational chart. The CFO’s job is to help the CEO make plans to find those leaders over the next year. The quality of the leadership team is what delivers growth. Waiting until you grow to hire the right leadership team is backwards planning, and the growth often fails to materialize. In most businesses, designing and building the future leadership team means replacing some leaders who will never be able to keep up in a larger organization and focusing on the development of other leaders.
  3. Set specific goals. Firms whose CEOs committed to management by objectives (MBOs) saw an average 56 percent gain in productivity in a 1991 Journal of Applied Psychology study covering 30 years’ research. CEOs with low commitment saw a meager six-percent gain. Being specific and writing down goals for each employee is powerful. A simple approach is a great start: three bullet points within the performance management process. Making the goal achievement (or lack thereof) visible to peers can add punch to the program.
    Kayton recalled another 20-person enterprise software firm in which the goals of the leaders were not aligned. She pulled the leadership team together, helped them align and prioritize goals and instituted weekly meetings to track progress. Within three months the board was stunned with the progress, commenting that the firm seemed like an entirely different company — one that had found the path toward growth.

While these three processes often won’t appear to be urgent, neglecting them can cause problems down the line. CFOs must prioritize them, creating a high-performance team that can drive continuous growth.

Robert Sher is the founding principal of CEO to CEO, a consulting firm of former chief executives who improve the skills of mid-market company CEOs and C-level executives who are navigating major shifts in their business or marketplace.

8 thoughts on “CFOs Should Step in as Strategic HR Leaders

  1. “… CFOs of growth companies must often play the role of human resources strategist..”

    Within every organization, decision making drives performance. Every employee comes to work every day and makes decisions that impact performance. These decisions, at every level of the organization, define the corporate culture and drive performance.

    In 2008, Harvard Business School Professor Robert S. Kaplan and his Palladium Group colleague David P. Norton wrote The Execution Premium: Linking Strategy to Operations for Competitive Advantage. Kaplan and Norton identify ten process (10) steps to strategy execution:

    Step 1: Visualize the strategy.
    Step 2: Communicate strategy.
    Step 3: Identify strategic projects.
    Step 4: Align projects with strategy.
    Step 5: Align individual roles and provide incentives.
    Step 6: Manage projects.
    Step 7: Make decisions aligned with strategy.
    Step 8: Measure the strategy.
    Step 9: Report progress.
    Step 10: Reward performance.

    “CFOs, in their HR capacity, must be make sure the right employees focus on the right things.”

    One of the critical roles the CFO must play in strategy execution is to acquire data on how well individual roles align with corporate goals and strategy, and design incentives that encourage and reward performance, while enforcing compliance will applicable laws, rules and regulations.

    With the right tools and the right data, the CFO can better understand the workforce to align the culture (decision making) with corporate goals and drive long-term performance.

  2. While I agree CFOs could be very strategic, I am definitely not an advocate for a CFO overseeing the HR function. I , as the HR head of a large firm, had to report into a CFO, as the Director in charge of a number of functions and went through the worst face of my HR career.
    Though we got along well as individuals, professionally it was chaos. Accts guys normally have a rigid, suspicious nature, essential in their job. They are rarely flexible, very rule bound and considers employees as that many more mouths to feed( pay salary).
    Without being flexible, proactive and compassionate, the HR function will never succeed at the hands of a CFO who comes from a pure accts or finance background. I do not recommend.
    Job Xavier

  3. To an extent I agree that CFO’s are more number driven. Pretty inflexible but there are definitely exceptions.
    All of us are tailor made for the professions we choose and CFO’s are made to think on numbers/budgeting, profit, margin, turn over etc.
    Having said that, this snippet emphasizes on conveying that CFO’s should become HR strategic leaders. There is a greater advantage on being one. Connecting human resources who generate revenue, what drives performance, what role does the leadership play in delivering the mission of an organization – all these acumen if a CFO can comprehend, nothing to beat it.
    There are CFO’s whom I have encountered who understands these concepts and who are diligent enough to connect dots of people, process, business and technology. Its not that we don’t know, what holds us back is that we think we don’t know or assume its not something that we should be doing.

  4. The CFOs Should Step in as Strategic HR Leaders: Finance chiefs of growth companies need to direct human resources strategy, says a leading consultant…..
    I find this interesting and appealing. Since CFOs lead a team of finance professionals, it would seem logical that they atleast need contribute to the HR strategy.

  5. Exposure on the subject under reference as explained by Mr. Robert Sher is good and self explanatory, and I uphold the view as well. I feel, though not a conjecture, such strategies are very valid for growth companies in the regime of mid-cap size. However, in large cap segments it is a matter of job feasibility and other constraints including time management and overlap into HR domain that may drawback to such initiative. But definitely CFOs may be brought in as a strategic role player in a core committee towards strategy implementation since this is directly linked to performance management and financial implications (finance being the hub of any organization).

  6. It is difficult to agree or disagree on the statement that CFOs should step in as Strategic HR Leaders, it depend on the individual characteristic of the CFO as well as of the size of the industries.
    If the CFO is sensitive about human feelings and psychology then he can step in to Strategic HR leaders, but if the person is more sensitive towards data/ figures/ P&L, then may not be the right person to have a due responsibilities.
    Similarly the size of the organization also matter most, in small or medium scale organization a CFO can take care of such responsibilities, but in large organization it is more appropriate to have a HR professional as Strategic HR Leader rather than a CFO. The logic is simple, for large workforce number of environmental/ cultural/ psychological/ gender related issues a organization should have a sensitive leader who keep on doing the balance act in between the human sentiments and organizational goals, for CFO it may be difficult to do the same act with three factors i.e. human sentiments, organizational goals and financial goals.

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