Does HR report to the CEO in your company?

Does HR report to the CEO of your company?

I believe HR should report to the CEO. I had the good fortune to meet with a CEO who wanted to discuss the hiring of his company’s first HR person.  They are profitable, have a great culture, have 50 employees, and are scaling. I enjoyed the conversation. The CEO was open-minded and gracious about me challenging him with his ideas around HR and its impact on a company. It was a great exercise for me. It was more than just a way to validate HR but to take a proactive voice in why HR should have a seat at the table and the impact it can have.

Of course, I pointed him to two blog posts on the topic by individuals I really admire, Brad Feld and Seth Levine.  Their posts here:

Seth Levine, HR as a Core Competency

Brad Feld, Does your VP of HR report to the CEO?

Why does HR report to the CEO?

For the record, I do not believe that HR should report to the CEO for the sake of reporting to the CEO.  Our discussion focused on the benefits of HR reporting directly to the CEO. Specifically the benefits of hiring someone with the maturity and experience to have a “seat at the table”.

His initial thought was that HR should report to the COO or CFO. His specific question was about the level of person they should hire. I pushed back and asked what he thought about HR reporting to the CEO.

CEO response

• I don’t know enough about HR to give a review. I understand Product and Sales, but I don’t know much about benefits, hiring practices, etc.
• I don’t know if working with HR will give me the experience I need for my career to grow, compared to spending time on Products or Sales.
• I am out of town a lot, so I am not sure I would have a handle on the day-to-day HR process.
• Our COO has previously taken this role, so it seems like a logical place for this person to report to.

The above are all very logical reasons. Based on the growth of the company and the evolution of the hiring, it makes sense.

I appreciated his openness to my responses 

Take this opportunity to learn more about HR. The right person will give you high-level insight into HR. The exposure will help you make more informed decisions about scaling the company.

• Learning about HR WILL make you a better leader. Learning about Products or Sales helps you grow the company. Learning about how the “people” side of the org will not only make you a better leader. This knowledge will give you credibility with the folks that you are leading.
• A Sr. person won’t need to be looked after day-to-day. The rest of the exec team doesn’t need day-to-day hand-holding. A senior person will work as independently as the rest of the exec team.
• Any senior person will come in and learn the business just like the rest of the execs learn the business.
• HR is a cost center. There is a conflict of interest if a cost center reports to the person responsible for making budgets.  It is easier to control costs within your departments with a direct report than someone who reports outside your domain. Will a direct report push back as much on budget cuts????

Additional thoughts in no random order. All based on a person being Sr. enough to have a seat at the table:

I am not a people person.  I want to consider myself a businessperson first, emphasizing people.

My role in the company is to free the CEO of anything dealing with people/employee issues. Most HR folks can and will handle the day-to-day hiring, benefits, etc. Senior people are a resource to folks with fewer years of experience. They also have the confidence to step in with the C-Levels. C levels also have problems or issues or need a second opinion. You would be surprised how often a C-level person doesn’t hear “thank you.” They rarely hear, “We should think about this differently.” 

• If the CEO senses a situation developing with the CTO or COO, they want to be able to say to the HR person, “Handle it.” Better yet, a senior person will recognize a problem developing and start working on it before it becomes a problem.  If they are not involved in the strategy discussions, how are they supposed to recognize what is happening?  I don’t believe the CEO should worry about people problems or team dynamics.  I don’t want the CEO to take care of that. I want them focused on strategic company issues. 

Best in class for all functions

Every company wants to feel like its VP of Sales can sell ice to Eskimos or that it has the smartest VP of Engineering. It helps when the entire company is confident that it has a strong HR person. It is better to know that the CEO knows it has a strong HR person. The company knows that no one is off-limits regarding coaching if the Head of HR can handle themselves at this level.

I would estimate that for 90% of the larger companies that have been awarded “Best Places to Work,” HR reports directly to the CEO.

Think about what it costs to recruit someone via an outside recruiter (25% – 30% of the first-year salary) and turnover. A good HR person will have a network and can save you recruiting and retention costs.  (Just like your VP of Eng saves you money on technology, HR can save money on employee costs.)

Sr. leaders can save money

HR is a cost center. Employees are usually the largest cost to the company. How does a company say “employees are the company’s most important asset” when HR doesn’t sit at the table?  Successful HR people are wired to be thinking about how to be proactive with employees as they relate to the company.

Most companies rely on the CEO to set the company’s culture. The CEO sets the vision for the technology and product. The CTO and VP of Product ensure that the vision is executed. The VP of HR executes the company’s culture.

BizDev is strategic about deals as they relate to the company, and the CTO is strategic about the technology as it relates to the company.  This isn’t just about closing any and every deal. We aren’t here to try ANY new technology.  This isn’t JUST about taking care of employees by giving them massages, free lunches, and a pool table.

This is about strategically leveraging the employee force to help scale a specific business.  

The CEO hires a VP of Sales to close the largest clients, the General Counsel to take care of the largest cases, and the CFO to not just oversee the finances but also be strategic in handling revenue. I don’t believe the executives should be distracted by team dynamics. The executive team should be involved and informed, but if they are distracted, HR has failed.

See you at the after party,
HRNasty

nasty: an unreal maneuver of incredible technique, something that is ridiculously good, tricky, and manipulative but with a result that can’t help but be admired, a phrase used to describe someone good at something. “He has a nasty forkball”.

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