The equation seems to have changed. Among the direct reportees to the CEO, the CFO used to be the closest confidante. The reason being, apart from the CEO, the CFO was the only one aware of the happenings across functions and handled a very important portfolio – decision making pertaining to all financials, budgets and costs.
Now, the CEO and the CFO are teaming up with the CHRO to transform their company into a talent first organisation. Chief executive officers and leaders at talent driven companies are as focused on talent as they are on strategy and finance.
They make talent considerations an integral part of every major strategic decision.
The pandemic followed by the great resignation and talent shortage has taught organisations that people are their biggest asset, which is why the CHRO or his/her equivalent is now a part of this super team.
“The CEO can play a more pragmatic and gradual role in this trio. Only then the team of three will invest in lifting up the human capital, in talent and skill development, and create a superior culture in the organisation”
Shailesh Singh, chief people officer, Max Life Insurance
According to a research by SHRM, two-thirds of both CEOs and CHROs said the frequency and depth of the conversation around human capital have increased in light of the social events that occurred in 2020. Three out of four CEOs also said they look to their HR chiefs for views on business strategy and operational issues planning.
It was a different picture prior to the pandemic. According to a study by McKinsey and the Conference Board in 2015, CEOs worldwide considered human capital as a top challenge, and they ranked HR as only the eighth or ninth most important function in a company.
How does the trinity work?
The CEO, CFO and CHRO are now part of a strategic club, where the CEO’s role is to define and articulate the company strategy.
The chief financial officer (CFO) oversees the financial capital and resources to ensure that strategy can be funded profitably. And now, the CHRO is on board to translate the strategy to internal and external stakeholders through people and change management.
According to Norman Broadbent, a leadership acquisition and advisory services company, it’s time for HR to take the same leap that the finance function has taken in recent decades, and become a true partner to the CEO. Just as the CFO helps the CEO lead the business by raising and allocating financial resources, the CHRO should help the CEO by building and assigning talent, especially key people and future leaders.
“The relationship or bonding between the CFO and CHRO defines whether the company considers employees as a cost or an asset”
Sunil Singh, CHRO, Stellar Value Chain
“The CEO should create a triumvirate at the top of the corporation that includes both the CFO and the CHRO. Forming such a team is the single best way to link financial numbers with the people who produce them,” advises management guru Ram Charan.
Many CEOs want their CHROs to focus on the broader picture and not be too involved in the day-today activities. Now, even for that, the CEO needs to work closely with the CHRO and elevate the latter to a more strategic role.
Additionally, the CEO’s role is also to keep a balance between the CFO and the CHRO as both try to protect the organisation’s interests, but represent distinct stakeholders in the ecosystem.
This can create a tension between the two, and the CEO’s role is to ensure that this remains a creative tension and not a dysfunctional one.
Shailesh Singh, CHRO, Max Life Insurance, says, “I have seen many CEOs who prefer a myopic view of things. They want results here and now, and are ready to compromise on the talent and people agenda.
In the process, they incline other leaders to follow short-term goals and strategies.”
“Instead, the CEO can play a more pragmatic and gradual role in this trio. Only then the team of three will invest in lifting up the human capital, in talent and skill development, and create a superior culture in the organisation,” he adds.
Another important role of the CEO of a talent-first organisation is to help the board see talent as a value creator, and focus on two forms of TSR — not just total shareholder return, but also talent, strategy and risk.
“I and my CHRO keep reviewing the organisational structures to try and find various synergies between businesses. This helps reduce cost and enhance efficiency”
Sanjay Gupta, CFO, Mother Dairy
Why is CFO-CHRO bonding important?
It’s true that all functional leaders or CXO need to be in sync with each other to drive better value in the company. So, why the emphasis on CFOs being better partners to CHROs?
Just as how financial allocation is important to drive business results, talent allocation goes hand in hand.
A company where the CFO and CHRO are in sync, will not turn to personnel challenges after evaluating financial results or formulating business strategies. Chief financial officers guide and grow profits, while CHROs guide and grow teams — both are vital for strategic growth. For instance, when a company is planning to acquire a another company, the two will discuss whether they have the right set of leaders and people who can crack the deal.
Another example could be of a company, which is planning to open a new business or launch a new product. In this case, the CFO and CHRO will formuldate a strategy, discussing not only the capital allocation required to make it a successful project but also the hiring of new teams for the business.
“The relationship or bonding between the CFO and CHRO defines whether the company considers employees as a cost or an asset,” says Sunil Singh, CHRO, Stellar Value Chain.
What do CFOs think of this relationship?
Traditional CFOs tend to restrict themselves to budget, cost, financials and more of short-term thinking.
However, the pragmatic ones are different.
“They challenge HR in a certain way, to have certain goals. They are very open to spending more on hiring larger teams or creating new roles,” says Singh of Max Life Insurance.
Many CFOs also have deep understanding of the design of the HR programme. They achieve the end goal. “We ensure we have the right milestones and motivators to make it a long-run success,” says Hitesh Vaid, CFO, Cairn Oil and Gas.
“May HR initiatives are designed by the HR team. Initiating and designing a programme is one part, but conveying that idea into a ‘dollar’ figure is our job. Quite often, people may find it difficult to convert such ideas and make them commercially viable. This is where we partner with the CHRO and make it possible”
Hitesh Vaid, CFO, Cairn Oil & Gas
He believes that talent allocation and capital allocation have to go hand in hand in any sector.
“Many HR initiatives are designed by the HR team. Initiating and designing a programme is one part, but converting that idea into a ‘dollar’ figure is our job. Quite often, people may find it difficult to convert such ideas and make them commercially viable. This is where we partner with the CHRO and make it possible,” enunciates Vaid.
“In our industry, talent is the most important thing. Since we are in the Oil & Gas industry, our work is to first find oil, and then make it commercial. This means, we have people with different aptitudes, all requiring different rewards as well. That is why, I and our CHRO collectively design the performance metrics. It is very important to evaluate whether someone’s 5 per cent extra effort is more than someone else’s 15 per cent extra effort, and reward them accordingly,” explains Vaid.
The CHRO’s role is no longer restricted to designing employee programmes and initiatives. It also includes helping the CFO reduce costs.
As Sanjay Gupta, CFO, Mother Dairy, says, “We are a multi-business company. We have milk and dairy products, and also deal in oil and horticulture products. Though there are separate marketing and MIS teams for each business or vertical, we constantly keep reviewing to try and find synergies between various functions across these businesses, for instance, identifying whether one person can manage two or more verticals. We now have a centralised payment system, which means less manpower, reduced cost and more efficiency. All this wouldn’t have been possible, if we hadn’t teamed up with the CHRO.”
HR plays a role in deciding business partners. For instance, Cairn Oil & Gas works with many business partners to procure goods, and it prefers to work with companies that have the skin in the game and are aligned with them. That is why, the Company ensures that its partners also have the right set of people.
“The commercial team can do all the negotiation, but the HR ensures that the business partners have the right set of people, as they are the ones who will run our operations,” points out Vaid.
“Our industry is highly regulated and there are strict safety norms. Therefore, I and our CHRO engage with our partners together. We make site visits together too. This is done so that our partners also get the message and there is no misalignment,”shares Vaid.
Succession planning and internal mobility are other areas where the CFO and the CHRO work together. Again, this helps save costs. Insights from the CHRO can help retain the top talent and save on expensive replacements.
Gupta of Mother Dairy says, “Succession planning is mostly commercially viable. Usually, when we promote someone internally, it keeps the morale of the employees high and we also save money as external resources are always more expensive.” mentions Gupta.
“Together, we evaluate the number and decide whether we should hire someone from the market or promote someone internally,” he adds.
McGraw Hill, the American publishing and educational services company was getting punished by Wall Street as the reputation of its S&P ratings services business was tarnished during the financial crisis of 2010. The investors observed that there was no synergy between the S&P business and other assets of the Company. The then CEO, Terry MacGraw, relied on the CHRO and the CFO, namely John Berisford and Jack Callahan, both newly appointed, to evaluate the problems of the company as outsiders, and advise the CEO on how to unlock the untapped value of the Company. After evaluating and meeting constantly, Berisford and Callahan identified some paternalistic practices which fostered bureaucracy at the expense of innovation. Multiple deliberations later, they both suggested McGraw to separate the Company’s S&P business and education and media business into two companies. They also suggested selling off other assets that did not fit. In this case, while Callahan obtained the facts, Berisford figured the human equation, and together with McGraw they arrived at holistic solutions. In 2018, while the education company was privately held, the market cap of S&P was four times higher than the value of McGraw-Hill in 2010, after Berisford and Callahan joined.
What do CHROs want from this relationship?
People allocation is as important as financial allocation. Chief financial officers know how to manage budgets, but they may not have the experience of allocating HR resources beyond hiring.
Flexibility from CFOs is what CHROs wish for. Chief human resource officers need to be given a budget and should be able to implement change as needed to improve the organisation, without always securing permission beforehand.
“A CFO will have to have a talent first mindset, because generally, it is seen that whenever there is austerity, the CFO tries to cut the budget for training or the people agenda. This is like an egg and chicken story — as we bring talent, they bring business. The first thing they will do is stop campus engagement. If the CFOs understand the HR and have a broader outlook, they will not do that”
Pradyumna Pandey, CHRO, Mother Dairy
For instance, CHROs should be empowered to introduce free or low-cost benefits to employees without seeking permission every time. This will speed up the benefit approval and implementation time, allowing the CHROs to shape the employee benefits package better.
“Some CFOs are very rigid — especially when it comes to allocating budget. If a CHRO has decided to spend less on bucket A and put that extra amount in bucket B, many CFOs may not allow that to happen, which is not right,” says Singh of Max Life Insurance.
“A CFO will have to have a talent first mindset, because generally, it is seen that whenever there is austerity, the CFO tries to cut the budget for training or the people agenda. This is like an egg and chicken story — as we bring talent, they bring business. The first thing they will do is stop campus engagement. If the CFOs understand the HR and have a broader outlook, they will not do that,” says Pradyumna Pandey, CHRO, Mother Dairy.
Also seen as custodians of financial processes, CFOs drive the audit function. If they build processes with the mindset that everyone in the organisation is only there to make money rather than trusting their judgement, problems arise,” says Singh from Stellar Value Chain.
“On the other hand, if CFOs build processes which foster trust, and people feel valued and trusted, talent will prosper,” adds Singh.
According to him, in some places, CFOs consider the HR as a cost centre. That’s where progressive ideas are turned down. “I have also seen CFOs who are more like HR professionals and very much involved in making the organisation a talent first company,” admits Singh from Stellar Value Chain.
What do CHROs need to do?
The CHRO of a talent first organisation need to be a great business person, and not just great people’s person.
The CHRO should be able to diagnose and predict with the help of market intelligence gathered through head-hunters, external hires from other companies and suppliers that will add value to the business. For instance, he/she should be able to say which competitor is planning to hire which CXO, and that could have business impact.
The CHRO should also have the ability to diagnose any gaps in collaboration between different teams, and whether the teams are leading innovations and contributing to business.
However, it’s easier said than done. The relationship between the trio, especially between the counterparts — the CFO and the CHRO —will not develop overnight. There will be some bumpy patches along the way, but the benefits are clear.
The story first appeared in the HRKatha print magazine