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NOVEMBER 2024
In businesses today, with HR and finance performance intertwined as never before, the Chief Human Resources Officer (CHRO) and Chief Financial Officer (CFO) must put top priority on forging a strategic and reciprocal alliance.
The CHRO and CFO have become essential partners at the heart of every thriving organization. In 2024, as companies address demands of attracting talent, retaining key players, building business value, and balancing a budget, this partnership isn’t just a nice to have—it’s a competitive advantage.
Whether it’s in aligning talent investments with business goals or navigating economic uncertainty, it’s increasingly important for HR and Finance leaders to be able to build a strong working relationship.
Traditionally, the roles of the CHRO and CFO operated in silos. Finance focused on costs and HR focused on people.
As the role of the CHRO has gained influence in the c-suite, the importance of this partnership has grown.
Increasingly, CEOs are relying on the combined insights of their CHRO and CFO to drive organizational strategy, as these are the two other roles within the executive team most likely to take an enterprise view. Whereas marketing, IT, or legal functions can be self-contained, HR and finance leaders oversee people and budget processes that require cross-functional work and insights.
“I’ve had many CEOs tell me that their ‘three-legged stool’ of leadership consists of themselves, their CHRO and CFO,” Tom Wilson, Managing Director at Frederickson Partners, a Gallagher company recently remarked.
“It’s a good complementary team because you don’t want the organization to over-focus on either the finance or talent aspects of the business.”
This leadership triad allows businesses to integrate workforce planning with financial strategy, creating a more agile organization that can respond to both internal and external challenges.
CHROs now wield considerable influence over organizational strategy, a trend accelerated by the pandemic. LinkedIn finds the CHRO is one of the fastest-growing roles in the c-suite. Fortune reports that 13% of HR executives at S&P 1500. companies were among the top five highest-paid c-suite positions in 2022 (up from 0.5% in 1992).
A recent PwC survey shows 60% of CEOs citing their CHRO as a key strategic business partner in decision-making, second only to the CFO. This growing alignment reflects a greater awareness that managing talent is not only about people but also about ensuring the company’s future competitiveness and sustainability.
Talent is typically a company’s biggest investment, with workforce costs making up the #1 cost overall for business, at 70% of its total expenditures. These costs encompass not just salaries and benefits but also recruitment, training, and retention efforts. Given these figures, it’s clear that people-related expenses need to be managed just as strategically as other business investments.
When the CHRO and CFO align, they can effectively manage the organization’s largest asset while controlling its biggest expense.
The opportunity for HR and finance to partner begins with key organizational processes that overlap their areas of responsibility.
Hiring a CHRO often involves significant input from the CFO, especially when planning future workforce needs. Beth Ann Namey, Partner at Frederickson, notes that “The CFO is often involved at some point in the CHRO recruiting process, occasionally from the very beginning.” She adds that this is particularly important when recruiting a CHRO for a public company. “The CFO typically seeks a strategic business partner, rather than someone who merely administers the HR systems, processes, and records.”
Once a CHRO is on board:
Payroll is another area that demands close cooperation. While payroll may sit under finance’s purview in many organizations, HR has significant influence over the data that feeds into compensation models. Aligning these two functions helps the company remain competitive in attracting and retaining talent, without creating budget overruns.
We found a compelling example of a CHRO-CFO partnership in our work with a fast-growing startup. Here the CFO and HR leader, both tech-savvy, teamed up to build a workforce planning process that was closely linked to its financial forecasting. As this company is data-driven, it must anticipate future talent needs well in advance, to stay competitive in its industry.
The collaboration between the CFO and CHRO resulted in a workforce planning system that not only aligns with the company’s rapid growth goals but also is able to stay within the financial parameters set by leadership. The result? The company has maintained a competitive edge in talent acquisition–recruiting the top tech talent and leaders it needs–while keeping costs under control. This has provided clarity to the organization about where it should be adding or moving talent within the organization and avoids costly hiring campaigns that are not aligned with the business’s overall objectives.
When the CFO and CHRO aren’t on the same page, the organization can find significant operational challenges.
Human capital costs typically represent a company’s largest single expenditure, making the CHRO-CFO partnership critical for managing this substantial investment.
When financial and talent strategies aren’t aligned, companies miss opportunities for growth, cost savings, and improved productivity.
For example, entering new markets requires not only financial capital but also the right talent to succeed. Without a strategic workforce plan developed as a cross-functional effort, individual business units may end up wasting resources recruiting, hiring, and firing employees without aligning their efforts with the company’s long-term goals.
Today, the best CHROs are as HR performance- and business-minded as they are people-focused.
Similarly, CFOs must aim to develop a deeper understanding of how investments in talent can impact the bottom line.
The CHRO must understand financial metrics and how they tie into the company’s broader business strategy. Particularly with the growing importance and reliance on AI in HR, and HR tech and analytics, HR leaders must become more data-driven overall, and their knowledge in this area will benefit a partnership with the CFO.
Similarly, the CFO must appreciate how investing in talent can contribute to long-term financial health. They will advance more in their careers if they can nurture not just a “numbers” focus but insight into the human side of the business.
Workforce planning should be a strategic, iterative process where HR and finance constantly collaborate to prepare for both growth and contraction. This requires long-term thinking and decision-making backed by data.
If HR and finance are well-synced in planning ahead, the organization is prepared for growth, or if necessary for cutting back; changes are anticipated.
In fast-growing companies, such as startups, alignment between HR and finance becomes even more critical.
For instance, in one finance technology company, the Head of Total Rewards reports directly to the CFO, with a dotted line relationship to the CHRO. This reporting relationship reflects an acknowledgment that that labor costs, a major consideration in the company’s plans for expansion, are strategically managed.
The CHRO and CFO both stand to gain by forming a strategic partnership that aligns HR and finance strategies. This alliance has become essential to driving long-term success.
If your organization is seeking a CHRO or CFO, our executive search experts can help you to identify and recruit a leader who has a deep understanding of these dynamics, in addition to meeting your firm’s unique requirements. The collaboration between a well-matched CHRO-CFO team can propel your business forward by managing both its human and financial capital effectively.
Jim May , Principal in Executive Search at Frederickson Partners, a Gallagher Company, has established himself over the past decade as a trusted advisor and go-to resource for top-tier organizations seeking exceptional leadership talent. As an advocate for human resources and organizational success, Jim has expertise in HR, finance, go-to-market (GTM), operations and other key organizaitonal roles. He has also worked in numerous talent acquisition roles over his career. (See Jim's LinkedIn.)
Frederickson Partners, a Gallagher company is a market leader in retained executive search since 1995. As one of the top-rated HR executive search and C-suite recruiting firms, we have expertise in placing Chief People Officers, Chief Human Resources Officers, Chief Diversity Officers, Chief Financial Officers, Chief Legal Officers and many other senior leaders. We draw on a broad network of rising and established executives and leaders, and a 28-year reputation as a talent acquisition and HR Advisory provider.