by Sharon Florentine

Why your company needs a CHRO

Feb 16, 2018
IT LeadershipStaff Management

What’s the biggest HR mistake you can make? Not hiring a chief human resources officer. Here’s what to look for in filling this key workplace culture leadership role.

5 leadership
Credit: Thinkstock

Uber. Binary Capital. Google. SoFi. These are just four high-profile HR disasters that devastated victims of harassment and negatively impacted each company’s brand, morale, engagement, and ability to attract and retain talent.

While responsibility for the atrocious behavior behind these headlines lies with the perpetrators and those who enabled, facilitated and covered up these toxic incidents and hostile workplace cultures, a more strategic, better empowered HR department with C-suite representation could have helped. But according to research from HR software technology firm Namely, of 1,000 midsize organizations surveyed, only 7 percent have an HR executive in the C-suite.

The case for a CHRO

The importance of HR has increased dramatically in the past few years, as talent has become a No. 1 priority and one of a company’s most important assets, says Straz, Namely’s CEO.

“For decades, business leaders have considered HR an administrative or compliance function. Far too many people think that HR is simply ‘the complaint department,’” says Straz.

Many senior executives don’t value HR leadership as much as other C-level roles, or they see it as a need only when a company reaches a certain size or complexity, says Charlie Gray, CEO and founder of Gray Scalable, a custom HR technology solutions company. Or when HR disasters happen.

“Companies will instead have an HR director or VP that reports to their CFO, or COO, who would be responsible for driving people planning strategically, even though this complicates and often conflicts with their key responsibilities,” Gray says. “They often view HR responsibilities through a tactical lens — understanding that things like payroll, benefits, skills training and basic performance process are needed, but don’t always recognize the high-level strategic value of leadership development, people analytics, organizational planning and the other ways that the right HR leadership can provide game-changing contributions to a business.”

The CHRO role

A chief HR officer (CHRO) or a chief people officer (CPO) is a C-level leader who oversees human resources management, sets the agenda for workplace culture, provides an appropriate emphasis on employee experience, and allows organizations to approach HR from a more strategic, long-term perspective, Straz says.

“Between managing compliance, performance, benefits, and payroll, most HR teams don’t have the time or resources to focus on the bigger picture,” Straz says. While technology can play a role in saving HR administrators time in handling these tasks, a C-level HR leader gives the company someone truly accountable for the well-being, development and professional success of the company’s people, at all levels, says Gray, and that’s a critical element of almost any successful business. 

“It also gives a voice to the employee population in the C-suite, so that the company’s decisions can be weighed carefully against their likely impact on various teams or high-value talent,” Gray says. “It should also help to foster real communications within the organization so the company benefits from the collective wisdom of its people. The HR leaders will often need to interact as a true peer with the company’s CFO or revenue leadership, who may be primarily focused on cost or short-term benefits, while the CHRO/CPO can provide balance in considering real value versus cost as well as long-term success.”

The CHRO’s impact on process and policy

The tactical, day-to-day administrative work of HR matters greatly. HR develops, implements and enforces the company’s talent strategy based on the organization’s values, and sets policies and processes for hiring, mentoring, developing, rewarding and promoting talent that are fair, equitable and unbiased, says Radoslaw Nowak, assistant professor of HR management and labor relations at New York Institute of Technology.

“The objective of HR is to improve the quality of managerial decision-making at all organizational levels,” he says, and to do so objectively. “So, when managers make important decisions regarding employment, they hire, promote, mentor, develop, and reward the best qualified candidates or employees for each job. HR creates clear processes that will ‘control’ any potential for managerial prejudice and/or bias. For example, to promote any employee, the following set of criteria must be met; these criteria are A, B, C, D,” Nowak says. This structure can effectively limit the likelihood that a manager can discriminate, at least overtly, if candidates have met the established criteria, he says.

When processes start at the highest levels, they are perceived by employees as fair and inclusive, resulting in higher employee engagement, motivation, job satisfaction, retention and performance, says Nowak.

“Unfortunately, as human beings we are biased,” Nowak says. “While HR aims to create a system that will give everybody the same opportunity to succeed, in practice, there are many cultural and structural barriers in society that still favor majority candidates, thus lowering chances for women and minorities.”

With a CHRO on board, these issues find a seat at the board room table, with a C-level officer ultimately accountable for addressing equity in the workplace.

The CHRO’s diversity mandate

A CHRO or a CPO role goes hand-in-hand with the growing attention around issues such as diversity, pay equity and harassment, says Straz.

Gray agrees that an HR leader in the C-suite emphasizes a company’s commitment to diversity from a tactical as well as a strategic perspective. “They’re generally the most likely to escalate, build and manage diversity initiatives. Since they are responsible for hiring strategy and operations as well as employee development, they are also best situated to drive this forward,” he says.

Because these issues have a direct impact on workplace culture, which can make or break your business, it’s important that their prioritization comes from the top, Straz says, adding that it’s never too early to prioritize diversity and inclusion, regardless of how big or small a company is.

“I think teams are starting to prioritize diversity and inclusion earlier, even before hitting the thousand-employee mark. At less than half that size, Namely has a diversity team,” he says. “While that initiative is now led by volunteers across all departments, it was our chief people officer and internal HR team who sparked it.”

What to look for in a CHRO

When looking to hire a CHRO or a CPO, there are skills, knowledge and experience to look for, though each organization will have needs that are unique to their culture and workforce. A CHRO must have prior business experience, says Nowak, and formal HR training.

“For example, here at NYIT, our graduate HRM students learn about all key aspects of business, people management, and legal considerations,” he says. “This prepares our students to become business partners, to be able to identify key organizational problems, and offer solutions that will result in better firm performance.”

When Straz was looking to hire a CHRO at Namely, he and his fellow executives needed a seasoned veteran who’d served in a number of different roles, from business partner to senior director, Straz says.

“I think the best CHROs bring a broad range of skills and experiences to the table,” he says. “Keep in mind that while CHRO is a strategic role, practical matters like compliance and payroll processing still matter. It sounds counter-intuitive, but you need someone who understands foundational HR so you’re not held back from pursuing strategy and a more aspirational direction. It’s also essential that a modern CHRO is data-minded. A successful CHRO should understand how to effectively gather data, how to craft strategy based on that data, and then measure the success of initiatives. Data is a critical skill for every executive who has a seat at the table, and this is just as true for CHROs as it is for CFOs or CMOs.”

CHROs must be able to implement sometimes unpopular policies and drive organizational change, making strong leadership skills a must. In addition, openness to change, flexibility and strong communication skills are important, as CHROs must articulate and “sell” their vision of how the company should operate to other executives, Nowak says.  

But a good CHRO doesn’t have to be an expert at everything, says Gray. As with all executive functions, leadership, collaboration, communication and knowing how and when to delegate responsibility is key.

“There are many important responsibilities within a complete HR function, and you shouldn’t expect a leader to be expert at all of them,” he says.  “They will hire people who specialize in benefits administration, for example, or compensation, or recruiting. They should have a solid understanding of all other key areas, but not necessarily an extensive background.”

The critical criteria are communications, strategic planning, executive coaching and partnership, and a strong cultural fit for the organization, Gray says.

Who should a CHRO report to?

A CHRO or CPO should report directly to the CEO — or the COO, but under no circumstances should a CHRO report to the CFO; their organizational priorities are often in direct strategic conflict, says Gray.

“The best option is to report to the CEO, for tactical governance purposes, and to ensure they also have a responsibility directly to the Board of Directors for compensation and planning purposes, but also in case there are conflicts or legal issues with the CEO,” Gray says. “A CHRO should never report to the CFO; most senior HR people will not accept that scenario, as the two roles are often in strategic conflict, and HR becomes a non-strategic function if it reports to the head of finance.”

Very often, the “HR vision” of how a firm should operate requires greater financial investment, is longer-term and more strategic than the short-term, “We need to cut costs and show better financial results right now” focus on the CFO, he says, resulting in possible power struggles.

“CHROs’ access to the CEO is absolutely critical. Furthermore, their ability to ‘sell’ the HR vision to top executives by showing how investments into HR processes can pay off in the future is even more critical,” says Nowak.

Focusing an organization’s priorities on talent and making it a great place to work is always a sound investment, and by hiring a CHRO or a CPO, you’re signaling to your competitors and to your current and potential employees that you truly care about people, engagement, morale and culture.  

“Through my own career and in working with our thousand-plus partner companies, I realized HR wasn’t just another department. In a sense, it’s the heart and soul of the company. If you get HR right, you get culture right. It’s an extension of everything good that happens within the company,” Straz says.