TMRC Resources

First published in The Manager Newsletter. 

John Kasangaki, HR Practitioner, Guest Writer with the Manager Resource Centre.

I once worked in a Company where the Board was debating the reporting line of the Human Resources(HR) Function. The majority of them were insisting that HR is not a department and is a mere section that should report to the Chief Finance Officer (CFO). This mindset of the Board (governance level) regarding the people function has left me shocked to date.

In the VUCA corporate environment of 2026, a key structural debate continues to resurface: where should the Human Resources (HR) function sit within the corporate Organisational structure? In the past, some Organisations have placed HR under the Chief Financial Officer (CFO). The question is whether this placement has outlived its time! Modern workforce trends and the rapid acceleration of artificial intelligence (AI) suggest this reporting line is obsolete. To move from a functional expert to a strategic change partner, HR requires a direct reporting line to the CEO without a doubt.   Placing HR under the finance function shows a lack of understanding of the role, as people are reduced to mere line items on the books. The CFO's core is numbers, not minds.

The Conflict of Perspectives: Cost Centre vs. Strategic Investment.

The major argument against HR reporting to the CFO lies in the fundamental difference in professional perspective and core training. The finance function is inherently designed to focus on revenue, expenditure, and cost containment; consequently, when HR reports to the CFO, it is almost exclusively viewed as a cost Centre. We all know that cost centres have to be reduced to gain a bottom-line advantage. This mindset is dangerously reductive in an era where up to 80% of a firm’s market value is tied to intangibles, of which culture and capability are central components. When HR reporting is skewed toward finance, decisions are often driven by cost-based effects rather than the long-term investment people bring to the table; hence, a number of people programs are not valued.

The Value Disconnect and Turnover Realities.

A reporting line to the CFO often results in the value of people remaining unknown or underestimated by the broader organisation. Has your organisation calculated the cost of unwanted resignations? The CFO may actually celebrate turnover, yet the cost is typically three times the annual remuneration of the leave. HR must act as a "People Economist," making the financial case for human capital investment through rigorous data on turnover, disengagement, and the high cost of under-investment in development.

If HR remains administratively entangled within the finance department, this "People Economist" voice is frequently suppressed in favour of short-term budget discipline. Currently, only 24% of HR leaders believe their structure appropriately separates strategic work from transactional tasks. This lack of structural independence prevents HR from addressing the burnout dilemma.

 The Identity Crisis: From Administrator to Change Architect.

The transition of HR into a Strategic Change Partner is a question of professional identity and personal courage. When HR reports to the CFO, it often remains stuck in its administrative past, serving as a compliance guardian rather than a catalyst for transformation. In 2026, organisations need a "Chief Change Architect" to build change capability as a permanent organisational muscle.

We are all witnessing the changes in the workforce orchestrated by technology, with 70% of today’s skills projected to be obsolete by 2030; the strategic imperative for HR is to lead a massive reskilling and cultural transformation. This includes shifting from degree-first hiring to a skills-based model that taps into "STAR" candidates (Skilled Through Alternative Routes). A CFO-led HR function may struggle to support such a shift, as it requires moving away from the "paper ceiling" of traditional credentials and investing in alternative technical training and college partnerships that do not have an immediate, linear ROI on a spreadsheet.

Inefficiency in People-Centric Decision Making.

A unique challenge of the CFO-HR reporting line is that decisions are made around people, and the CFO is themselves part of the people governed by these policies. For an efficient flow of information and genuine accountability, reporting must reflect the reality that people strategy affects the entire C-suite. Direct reporting to the CEO allows the CHRO to act as a "Chief Humanity Officer," ensuring that as organisations adopt AI, the human experience of work remains rich and meaningful.

Sustaining the Employee Value Proposition (EVP).

Finally, an HR function reporting to the CFO often struggles to support a compelling Employee Value Proposition. In 2026, employees demand alignment between a company’s public image and its internal reality, prioritising organisations that mirror their personal values.

Key pillars of the modern EVP, such as greater flexibility, meaningful recognition, and sustainable workloads, are often the first targets of cost-cutting measures in a finance-heavy hierarchy. For example, the four-day work week (4DWW) is a powerful motivator for efficiency, yet unsuccessful trials often cite implementation costs as the reason for abandonment. A CFO may see the 4DWW as an 80% input for 100% pay risk, whereas a strategic CHRO sees it as a tool for a 57% decrease in staff turnover and a 600% rise in job applications.

Structural Independence for a Resilient Future.

The known forces reshaping the workplace, like AI, declining engagement, turnover, burnout, and mental illness, have placed people and culture at the absolute Centre of business strategy. HR’s administrative reality can no longer diverge from its strategic ambition. For HR to truly serve the organisation, it must be freed from the constraints of the finance department, where HR has to constantly justify anything and everything that the CFO will still not understand.

Structural independence allows the CHRO to lead with an amplifying mindset that focuses on potential and learning rather than a diminishing mindset that fixates on threats and failures. By reporting directly to the CEO, the HR function can ensure that "work-life rhythm" is a core business strategy rather than just a perk. In the age of AI, the organisations that will thrive are those that recognise people not as a cost to be managed, but as the true engine of resilience and competitive advantage.

The CHRO must report directly to the CEO, have a permanent seat on the Executive Committee, attend the Board HR Committee meetings and should have equal authority to the CFO with regard to all conversations relating to strategy. If your organisation does not have HR independence, don’t be surprised as to why you cannot win the talent war.