HR and FDs at loggerheads over staff RoI

Relations between human resources and finance directors can be fractious, portrayed as they often are as a conflict between the warm, fluffy ‘people function’ and the hard, cold number crunchers. But at the annual meeting of the Chartered Institute for Personnel Development (CIPD) it evolved into a clash of measurement techniques.

Valerie Anderson, principal lecturer in HR management at Portsmouth Business School and a leading commentator on the issue, urged HR directors to resist being sucked into the numbers-speak language of FDs who want to see the return on investment (RoI) from staff, seemingly over the longer term value they bring to the business. While HR experts are vocal in deploring that department’s inability to speak the RoI language chief executives and FDs understand, the comments seemed to fly in the face of where many think HR needs to go. They had the effect of re-opening old stereotypes, pitching the functions at odds when many thought the two had made strides in recent times.

Does finance stand in HR’s way by demanding that it more closely measure RoI? Or should HR revise its views on how important it is to do so?

Strategic impact

“I was slightly misquoted,” says Anderson of her CIPD speech, who corrects herself by saying HR “should ruthlessly measure the strategic impact of its work”. But she adds: “While HR has a lot in common with FDs, HR professionals shouldn’t pretend they work in a finance department either.”

Anderson argues that only 20 percent of HR’s work should be spent proving RoI. She adds that qualities staff bring to an organisation that add value, like skills and culture, can’t be monetised and analysed in spreadsheets. “There’s nothing wrong with the need to show RoI, but it shouldn’t be the entirety of the function,” she says.

Kate Russell, author of How to Get Top Marks in… Manging Poor Work Performance, refutes that. She thinks comments like those by Anderson will not help HR’s reputation for being the weak link among a company’s leadership.

“Most FDs have moved in the direction of HR – they don’t run Victorian millhouses any more. But HR directors have yet to move much towards them,” she says. But she argues that the HR director/FD relationship must not be too cosy. “They can only hope to shine a light on issues by coming from a different agenda,” she adds. “The way the economy is now, HR directors need to be even more proficient in proving their value.”

Kathryn Hill, finance director at Crown Paints, agrees. “It’s just an excuse to say HR can’t measure metrics,” she says. “At the end of the day, a business operates to maximise shareholder value, which is measured through financial results. Human resources has a role in explaining how performance strategies affect this or how staff engagement impacts performance. It’s not about who moves closer to who, but that the two disciplines drive towards the same strategic function.”

One of the criticisms Anderson levels is a feeling HR has to “come round” to the FD way of thinking, and that it is somehow subordinate to it. And indeed, some 20 percent of HR departments currently report into finance. In Hill’s case, HR does not report to her and all the heads of different disciplines meet weekly. She sees the relationship as having matured. “Finance has made strides to make financial data easier for other departments to understand, and has given them the tools to report on how their part fits into the wider picture,” Hill tells Financial Director.

A common language

Give HR directors the language they need to talk about the financial contribution, and they can no longer hide, says Peter Flade, European managing partner at Gallup.

“Human resources sometimes gets away with spewing out great claims about its contribution without any financial data to back it up,” he says. “No other head of function could get away with this in quite the same way. That’s when a schism between HR and FDs opens. As soon as FDs hear HR directors claim that business success is all down to its people, that’s when they turn off. They know it is down to more than that and that HR has simply overplayed its contribution.” Flade says few FTSE companies have got HR departments that have worked hard enough to get “the FD squarely on board”. Anecdotally, he argues FDs are making the most effort.

Narin Ganesh, FD of Crown Worldwide, is a good example. He agreed to appear on Channel 4’s Undercover Boss in 2010, which thrust him onto the shop floor of his business. Crown’s HR department is just two people today, he reports, but agreeing to be on the programme he “really wanted to understand the people agenda more. Sometimes you can lose sight that you are a people business.”

But he is adamant that HR also has a responsibility to learn more about the finance department. Ganesh, a CIMA accountant, recalls that what he has learned about the people management element of the FD role has come primarily from on-the-job training or simply from making mistakes. “Finance directors can be criticised for not knowing enough about the people side of business,” he says. “But in areas such as business growth, recruitment, performance, these cannot be separated from profit and loss. Both functions have to move together – it takes two to tango.”

In the end, Anderson says she wants HR and finance to work together to form a common language. But FDs believe they already have a perfectly adequate language and that HR directors should simply learn this. David Smith, former HR director at Asda, couldn’t agree more.

“No FD will give you credibility if you can’t talk about payback,” he says. “In all my dealings with the FD, it was quite simple: talk facts. You can produce indices for morale, engagement and all manner of things. There’s no excuse not to be able to measure. Accountants shouldn’t have to move in the direction of HR. Rather, they must challenge HR to tell them what they need to know. It’s a two-way street.”

It’s a brave academic that seeks to challenge HR to stay firmly within their ‘people’ remit. “FDs do know the challenges around turning some staff data into what they need,” Anderson says. “I’m not in opposition with FDs. I just favour a mix of hard facts with some of the harder things to quantify.”

Peter Crush was deputy editor of Human Resources magazine and writes extensively on personnel and management issues