Workplace Issues

Up with People

Finance and human resources don’t always see eye-to-eye. So what happens when the CFO becomes the company’s top people person?
David McCannSeptember 23, 2014
Up with People

It’s a common way to develop future CFOs: rotate promising candidates through leadership roles in different disciplines, such as operations, supply chain, and human resources.

Human resources? OK, that’s not very common — but maybe it should be. Those who have held both CFO and chief human resources officer (CHRO) posts say that serving a stint on the people side can make for a well-rounded finance chief, as well as instill a greater measure of business rigor in HR.

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“I’m a better finance person for having done HR,” says Cathy Pulos, CFO of Wawa. Pulos moved from finance in 2007 to become chief people officer of the privately held convenience-store chain, a role she retained when she was named CFO this year. “Once you add the human dynamic, you think about every situation a bit differently,” she says.

The latest high-profile company to make news in this regard is Northern Trust, which favors the rotational approach to executive training. Before Biff Bowman was named CFO in July, he served two years as executive vice president of human resources for the banking giant. (Northern Trust did not make Bowman available for interviews during the first weeks of his new position.)

But there are risks associated with moving from finance to human resources. A person from finance might focus too much on cost control at the expense of prudent talent management, say, or lack the experience to optimize key activities like recruiting and training. “The promise of HR is that it will help the organization deliver value in the way it makes decisions and manages talent, and there’s deep technical expertise around things like staffing, succession and learning,” says John Boudreau, professor at the University of Southern California’s Marshall School of Business and Center for Effective Organizations.

Working with Generalists

Pulos had worked in Wawa finance for 10 years — 7 as internal audit director and 3 as controller — when she became chief people officer in 2010. She hadn’t sought the role, she says, but when then-CFO Chris Gheysens (now Wawa’s CEO) couldn’t find a satisfactory external candidate for the job, he asked Pulos to take it on. “He told me I was a people person in an accountant’s body,” she says. “I took that as a compliment.”

Her first big project addressed HR’s organizational structure. She didn’t like that “it was mainly a team of generalists,” she recalls. “Each of our eight operating regions [there are now nine] had its own little people team doing everything. It was a waste of resources. The first thing I did was sit back and learn from everybody, but it didn’t make sense to me from a process or cost perspective.”

14Sept_CHRO_p38Compounding the problem was that each HR team had its own way of doing things. For example, in the area of talent acquisition, Pulos says “there was no one group that said, ‘This is how Wawa recruits.’ There were inequities. And people were being trained differently.”

Plus, the setup didn’t leverage anyone’s individual strengths. “I wasn’t used to working with generalists,” Pulos says. “In finance, everybody has a specialty—payables, payroll, or whatever. I like everybody being an expert.”

Within about a year, Pulos launched an HR center of excellence at Wawa’s headquarters near Philadelphia. Now, for instance, there is a director of talent management who oversees all of the regions’ recruiting and training activities. “We did have technical expertise,” she says. “I just had to do some shuffling, and we sent people to school for more training. We definitely had growing pains the first year, 2011, but now it’s business as usual and working very well.”

Her HR experience, says Pulos, has given her the perspective to make more nuanced decisions on overall company strategy. For instance, when Wawa began operating in Florida in 2012, it dispatched 20 veteran general managers from its stores in the Middle Atlantic states to run the new Sunshine State stores. The goal was to instill the company’s culture in the new market, and Pulos was solidly behind the move.

“It was a decision by the entire management team, but in my old controller role I would have said to just send a few people from our core market and hire everybody else in Florida, because that would have been a lot cheaper,” she says. “But we put together a very expensive relocation plan because of our concern about transplanting the culture. Would I have had an appreciation for that four years ago? Absolutely not.”

Empathy vs. Objectivity

Unlike Pulos, Mohandas Pai asked to take over the HR function of his company in 2005, when he was CFO of Infosys, the India-based technology services and business process outsourcing firm. During his 12 years as finance chief, Infosys’s valuation grew from about $100 million to more than $25 billion. “I had achieved everything I set out to achieve as CFO,” says Pai. “I’d built a very good team and thought somebody from that team should be CFO. And I needed a change.”

14Sept_CHRO_p39It took him more than a year to persuade the company’s chairman to let him make the move to HR. He had no illusions that it was going to be an easy switch. “HR, which is often a very soft organization, naturally hates the CFO, who is always trying to bring in cost control,” Pai says. “The team met me for lunch on my first day. They said, ‘You’ve been a tough guy. Do you think you’ll make a good HR head?’ I said I would try.”

From that day, Pai says, he adopted a new attitude. “I started looking with empathy at every person who walked into my room,” he says. “Maybe that person needed comfort. And I needed to solve that person’s problems, because he represents the net present value of the future revenue stream he would bring to the firm.”

Not that Pai was suddenly a pushover. He brought a lot of finance’s brand of discipline to his new function, telling his team it was necessary to be dispassionate when looking at people-related data and analyzing employees’ productivity. “I brought in many measures to enhance productivity, and some of them were very unpopular,” he says. “People didn’t like a direct intervention in what they did. Many of them thought they could get along with what they were doing and keep getting more and more compensation every year.”

He acknowledges there was a clash between his vow of empathy and the objectivity he espoused. “There were some challenges in HR, because most of the HR people believed that saying ‘no’ was a no-no. They always said yes to people, which often led to wrong decisions and a lack of clarity.”

But when you ably communicate with people and explain the reason for the “no,” they generally understand, Pai says. “What people ultimately want is an honest answer, open policies, and no differential treatment for people. They want to know what they will get and not get. They want the right expectations to be set. Because unhappiness is the delta between expectations and reality.”

Pai, who is now chairman of Manipal Global Education Services, a Bangalore-based provider of higher-education services, spent a productive five years as Infosys’s chief human resources officer. He ramped up the department’s use of analytics; implemented a decision-support system; created new pay-for-performance compensation structures; instituted an appraisal system that was sharply focused on alignment with business goals; and installed new hiring and training methods to support the company’s growth. An especially notable initiative was a program in which internal candidates competed for open leadership roles. The program removed barriers between departments and enhanced mobility across the company in a very transparent manner, says Pai.

“I used all the skills I used as a CFO,” Pai says of his tenure as CHRO. “You think about the future, you make a detailed plan, and you do a lot of analysis. All of that came in.”

Pros and Cons

Boudreau of USC, one of the most respected experts on human resources today, sees both pros and cons of having a finance executive run human resources. CEOs, he says, move finance chiefs into the CHRO role for any of four reasons: they are impressed by the way the person runs the finance function; they believe a finance person will be able to explain what HR costs, and control or reduce the costs; they know the CFO well and feel he or she will be a trusted colleague; they believe the CFO understands how the organization works and creates value and will better connect HR to the business.

“All of these can be valid, but they also have dangers,” Boudreau says. “A focus on functional operations or costs is fine, but the HR and finance functions are very different. A leader can destroy a lot of value by trying to make HR like finance or to minimize its costs. It is fine to have a trusted colleague as CHRO, but that person still could be ill-equipped to create a value-adding HR function.”

Boudreau allows that it is indeed important that the HR function connect to business imperatives that drive financial performance. But, he says, “a good business sense without knowledge about how human capital works and adds value can lead to good directional focus but no practical execution.”

On the other hand, Boudreau says he loves the idea that a CFO could come to HR and pose such questions as, Why aren’t we thinking about our leadership succession more like an asset portfolio? Why aren’t we thinking about returns from our people the same way we think about returns to our monetary investments, with all the associated sophistication about risk?

“The HR profession could benefit from the sophistication that the finance person would bring when he or she sees HR through the lenses that they’re already good at,” says Boudreau.

Good HR Takes Time

Siow Vigman had been CFO for 10 years at Vin Di Bona Productions, producer of the television program America’s Funniest Home Videos, when she took her career in an entirely new direction in 2002 by moving into human resources at IndyMac Bank. Four months after her arrival, she was promoted to senior vice president of HR.

Her biggest challenge was fending off unrealistic expectations from senior management. At the time, PricewaterhouseCoopers had just implemented a five-year plan to become a “best places to work” company, recalls Vigman. At IndyMac, “they told me they wanted to do that in six to nine months.”

It was tough getting company leaders to understand that measuring HR programs takes longer than measuring financial programs, she says, noting that “it takes time for training to sink in and to collect enough data to measure results.”

Vigman spent two years in HR before leaving IndyMac for an operational role at another production company, after which she spent five years working for two Bain Capital portfolio companies in a variety of posts, including controller and interim CFO. She later was an interim divisional CFO at Guitar Center and currently is an executive vice president with Dr. Fresh, a maker of oral-care products.

Vigman doesn’t buy into the notion that finance people aren’t equipped to lead HR. “Every good manager is a good HR manager, and every leader that can inspire is an excellent HR manager,” she says. “I’ve always functioned in roles that oversaw teams, so regardless of whether I have an HR title, I feel I’m an HR person for my team.” —D.M.

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