At most organizations, Human Resources reports directly to the chief executive officer (CEO), but that’s not universally true. At many companies, HR may instead report to the chief financial officer, chief operating officer, some other senior-level director or manager, the general counsel, or someone else altogether.
Why HR Thrives When Reporting to the CEO
When HR reports directly to the CEO, it prioritizes the department's role in workforce management, eliminating unnecessary barriers and ensuring clear communication. This approach acknowledges the central importance of people in a company's success, allowing the CEO to work directly with HR to optimize the workforce and drive strategic decisions.
Where HR reports is an indicator of how the organization sees the HR function. For example, reporting to the general counsel likely indicates that HR is valued highly for its role in legal and regulatory compliance. Reporting to the CFO might indicate that the organization sees the human resources department primarily as a cost center, which in turn probably means HR is focused on transactional work like payroll. That’s important work, but it may also come at the cost of failing to see HR as a strategic partner.
In most cases, however, it’s ideal for the HR to report directly to the CEO. Below are 3 reasons explaining why.
1: It prioritizes HR
Placing the HR function directly beneath the CEO, as opposed to using an intermediary like a CFO or CEO, sends a signal to other organizational leaders, functions, and the workforce that this business takes HR seriously. Because HR’s work is so fundamental to workforce management, it makes sense for the department to have the credibility and position equal to that of other major functions. Anything else just undermines HR’s ability to be successful in its role.
2: It eliminates unnecessary friction
Your company’s goals and objectives should be clear to your HR staff. In turn, HR should also be able to influence related decisions and work towards achieving those goals. But the only way for HR to be sure it understands the enterprise’s business situation, planning, and goals is to report to the one person who has enterprise-wide authority. Putting an intermediary or middleman into the process impedes the flow of information and limits HR’s visibility into the ways it can contribute value to an organization.
It’s important to consider this from both views as well. HR must overcome the obstacle of reaching the CEO through an intermediary, which creates a barrier. This barrier prevents the CEO from receiving critical input.
It also prevents the CEO from having a real-time, accurate understanding of the company's workforce and labor situation. This information is vital for making top-level decisions within the company.
3: It puts people first
At the end of the day, people are the engine of any company’s productivity and output. If optimizing the workforce is not top of mind when designing corporate strategy, the organization is instantly undercutting its own ability to set and execute a strategy that will generate successful outcomes.
HR is the CEO’s instrument for preparing and maximizing the workforce’s potential for making the organization as successful as it can be. In other words, the CEO doesn’t go to the CFO or the general counsel or anyone else when it comes to workforce matters. He or she goes to HR; and, given the importance of people in making the company what it is, it only makes sense for HR and the CEO to have a direct relationship.
Key Takeaways
The HR function's reporting structure is essential within an organization. It's crucial for HR to report directly to the CEO. This arrangement highlights HR's strategic value and empowers it to drive the business's success. Three main reasons support this: focusing on HR, reducing friction, and putting people first.
Direct reporting fosters a people-centric culture and streamlines decision-making. It ensures HR's input reaches top leadership without any go-betweens. This structure can lead to improved performance, higher employee satisfaction, and long-term sustainability.
CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about CoAdvantage’s ability to create a strategic HR function in your business that drives business growth potential, contact us today.