I work for a company where the information technology department reports to the head of finance. He never has time to evaluate IT projects, so IT gets attention only when there is a burning issue. This is a problem, isn’t it?
It sure is. In fact, that sound you hear is the collective groan of hordes of people, just like you, who have watched this dysfunctional dynamic play out in their own organizations. And we’re not just talking about it getting buried or neglected until a crisis strikes, though that’s bad enough. The more onerous problem suggested by your letter is the far-toofrequent Rasputin-like dominance of the CFO.
O.K., maybe Rasputin is a bit extreme. But it’s not going too far to say that chief financial officers can, and very often do, wield too much influence within companies. And if it’s not the CFO, it’s the so-called chief administrative officer who has excessive power, overseeing finance itself, human resources, and any number of other staff departments. Whichever it is, this extra management layer generates bureaucracy at its worst. The person holding the CFO or chief administrative officer title inevitably becomes the company’s mandatory go-to guy—the bodyguard through whom every question and decision must pass before reaching the CEO. Their jobs become catch-all bins for projects, people, or whole departments that the “overburdened” CEO, with just too many direct reports, is said to be too busy to deal with. It’s just wrong.
So why does it happen?With it, the explanation is easy: It’s an historical hangover. Initially, it was mainly seen as good for lowering costs and increasing efficiency. In those days, decades ago, there was some logic to having it report to the CFO. Most good companies, however, took it out of finance when its broad strategic utility became obvious. Others, apparently yours included, did not.
As for HR reporting to a chief administrative officer, there can be no good explanation for such a situation. With its critical role in hiring, appraising, and developing people, HR is so central to success that it’s practically criminal if the department doesn’t report directly to the CEO. When it doesn’t, you can only assume the CEO doesn’t get the peoplehing, someone else is actually running the place, or both.
Which brings us to the consequences of this dismal situation. The first is that front-line it and HR managers, who usually have among the most relevant ideas and information,do not get heard high enough up in a timely way. Their insights often get filtered before making it to the CEO or the board by the cost-sensitive CFO, of all people!
And companies where the CFO or chief administrative officer reigns supreme have a much harder time attracting top people to HR and it jobs. The best and brightest will always choose to work where they have a seat at the table equal to the CFO. Why shouldn’t they? Smart companies recognize their value and reward them with pay and prestige.
So, absolutely, it shouldn’t be reporting to the CFO. No key function should report to a bureaucratic layer. Your painfully common problem makes clear why that is so.
This question and answer originally appeared in Business Week magazine on September 18, 2006.
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