Human Capital Management: How CFOs Manage Investments In Their Company's Biggest Asset

Finance can help companies invest in their workforce in a way that achieves strategic business objectives.

IF YOU CAN'T MEASURE IT, YOU CAN'T MANAGE IT. Until recently, that corporate finance axiom was rarely uttered in human resources departments. Today, however, it's increasingly familiar to HR executives, many of whom face growing pressure to manage the enterprise's largest asset with much greater financial rigor.

The finance and human resources functions typically view human capital management from different -- and often opposing -- perspectives. HR takes responsibility for investments that support recruiting; retention; and, to a certain degree, employee performance management. Finance scrutinizes overall costs.

"Finance tends to have a better handle on the true cost of human capital, while human resources tends to [focus on] related costs, such as the levels of compensation and benefits," explains Jim Kochanski, senior vice president of Sibson Consulting, the New York City-based human capital consulting pision of The Segal Co. "HR also influences some of the dynamics of human capital, such as turnover and rates of hiring."

At the same time, many finance executives and managers question whether HR can manage human capital in a financially disciplined manner. "Most human resources professionals lack the financial acumen to ensure that the company is receiving the best benefit for its investment in human capital," says Bert Hensley, chairman and CEO of Morgan Samuels Co., a Beverly Hills, Calif.-based management consulting firm that specializes in executive recruitment.

Finance must take part of the blame for that shortcoming because it has failed to provide HR with an adequate level of guidance and support. In Business Finance's annual executive career and compensation surveys, finance executives consistently rank "managing and developing people" in the middle of their pack of priorities.

In private conversations, however, many CFOs bemoan the fact that the more immediate demands of their job -- growing the business, boosting revenue and cutting costs, for example -- prevent them from giving workforce issues the attention they feel is warranted.

"Human resources and finance are finding out that we really need to merge our understanding of employees to develop a deeper understanding of the costs, benefits and risks associated with our people," says David Davis, director of finance and corporate controller for SAS Institute Inc. in Cary, N.C. "I know we can do a better job by blending our skills and strengths."

Kochanski agrees. "You need both parts of the picture to really manage human capital like an asset," he observes.

Hensley believes finance executives can help their organization's HR department by emphasizing overarching corporate goals and insisting that human capital management means much more than hiring people to fill positions. "CFOs should focus the organization on the company's strategy," he says, "and then emphasize the importance of analyzing the skill sets necessary to execute that strategy and finding the best talent to meet those needs."

Finance executives may need to offer their HR colleagues an introduction to basic financial principles and terminology (see Teaching Scorecard 101). But they can do much more than that. They can partner with HR executives to help them increase returns from pension, benefit and compensation investments; manage the impact of new regulations; and address a looming labor crunch.