Who Rules the Roost — HR or Finance?

Updated: May 05, 2009

Introduction

HR and finance are two wholly different entities. Each department and the individuals who lead them have unique, yet equally valid, views of business goals and practices.

Although both departments strive for business efficiency and success, collaboration between HR and finance isn't exactly natural or commonplace. At many organizations, the working relationship between HR and finance staff members is strained, at best, and often degenerates into downright hostility. Such a situation is unfortunate for both HR and finance as well as the entire business.

So, if you're a CEO looking for advice on a critical business issue, to whom should you pay more attention: HR or finance? Let's examine both sides of the issue.

Analysis

Reasons Why HR Should Rule the Roost

HR's growing prominence: A growing number of CEOs now feel that human capital is the key driver of shareholder value. With most companies now viewing employees as stakeholders in their future success, rather than as disposable assets, HR's prominence has increased to the point where the HR chief has become the CEO's prime adviser.

HR's increasing scope: Many HR departments are now assuming a growing number of finance-oriented responsibilities, particularly in the areas such as benefits and employment taxes. These enhanced HR departments are now hiring finance-savvy experts who, in past years, would have become finance department employees. Additionally, as companies expand their HR departments' scope, many are now also moving selected mid-level finance employees to HR.

Shifting attitudes: A greater number of CEOs are now seeking input on critical decisions from a variety of department heads, moving away from their traditional reliance on the finance chief. Therefore, at many companies, neither finance nor HR rules the roost.

Growing distrust of finance: Like it or not, finance's reputation has taken a beating in the past several years. Collapsing revenues and profits have soured many CEOs on turning to finance for advice and support, encouraging HR chiefs to step forward and assume a more prominent leadership role.

Reasons Why Finance Should Rule the Roost

Money matters: Who knows more about money, including how it's spent and made, than finance? The department that has the technological tools and intellectual insight to supervise the business's financial operations should be the one that rules the roost. Case closed.

Insight edge: Finance can be a company profit center, whereas HR is almost always a cost center. In other words, finance can help businesses spot and exploit activities and trends that will make money and cut costs. Worker productivity aside, HR is primarily a financial drain.

Tradition: CFOs, vice presidents of finance and other finance leaders have been top advisers to CEOs for as long as anyone can remember. Since this approach has worked so well for so many years, why rock the boat?

Bottom Line

With solid arguments on both sides of the issue, the question remains: Will HR or finance rule the business roost in the years ahead? The answer, as you may have already determined, is neither.

Every business is unique, driven by different practices, needs and personalities. At money-oriented enterprises, including banks, investment firms and insurance companies, finance leaders will always be treated as individuals who are first among equals. At work force-driven businesses, such as software publishers and professional consulting firms, CEOs will always pay close attention to what HR has to say. Everywhere else, you can expect the Mars-Venus relationship between HR and finance to continue for many years to come.

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