Viewing HR from the CFO’s seat

Canadian HR Reporter’s David Brown discussed HR with Peter Currie, vice-chairman and chief financial officer of RBC Financial Group. Currie’s approach to people management recently earned him the title of Canada’s CFO of the Year by PricewaterhouseCoopers

HR often complains it’s hard to convince the CEO or CFO to invest in human capital because the return may not show up on the quarterly numbers. This goes for anything from wellness, to leadership development to training. Is that a fair criticism?

It is a fair observation, but I think it is organization specific. In areas like training and professional development, any organization that treats those as a discretionary expense, I want to compete against because they will end up having big-time difficulties downstream.

When you get to wellness and work-life balance and assistance programs it becomes a little bit more nebulous.

In the case of wellness, it is pretty clear to me that an organization that provides some assistance in terms of facilities for wellness — whether it is a fitness centre or access to that sort of thing — is doing a service to its employees. But it is up to the employees to be proactive as well.

So when people come to me and say, ‘Look, Peter, in division X we need a dedicated wellness centre, because that way our employees will relieve their stress and be healthier and more productive,’ well, guess what? Just providing it is not the answer. It is an attitude of mind. The real issue is giving people time to access it.

If you have a climate where employees are expected to work 60 hours a week, then you shouldn’t be surprised when you get a high incidence of mental breakdown, of substance abuse and family breakdown.

So start with the climate you are setting. Don’t spend time worrying about the cost of a wellness centre. Spend your time figuring out: Do you have the right environment for your organization? Are you staffed appropriately? Are you trying to do the work of 4,000 people with 3,000? And if you are, then you are in an unsustainable situation, wellness centre or not.

And if HR comes to you and says, ‘We need to hire 10 per cent more people so we can do this?’

Then you have to have that discussion. But what often happens is it devolves to a qualitative discussion: ‘Well, it is the right thing to do,’ or ‘Surely you want to be seen to be fair in the community.’

The thing that almost makes me ill is when someone comes in and says, ‘These other three companies that we compete with are doing this so we should do it.’ Did you ever think they might be wrong? Let’s deal with it, but lay it out and make a case for it.

If a proposal for a wellness or work-life balance initiative were brought to you, what would you want to see?

I am going to want to understand the implications. Do I need to see a profit and loss statement and cash flows? No, not necessarily. But if someone comes in and says, ‘We should move to a flexible work environment,’ I’ll ask, ‘What are the benefits of doing that?’ They can say, ‘Everyone else is doing it’ or ‘It sounds like a good idea.’ Wrong answer. Or they can say, ‘If we do that, we are going to be able to broaden our appeal to a larger pool of employees to draw upon. We are going to be able to lower the stress level of employees and give them more personal flexibility at no incremental cost to the company.’ Those are persuasive arguments. They are a little bit nebulous but you can sketch it out in broad-brush terms.

A lot of HR programs of that nature don’t really cost very much. You are not trying to overcome cost pressures. What you are trying to overcome is the built-in rigidity of management thinking in many cases. You get people saying cynical things like, ‘I don’t want flex time because Harry is just going to sit at home and not do any work. He is only going to work if I can supervise him.’ That was maybe useful when you were manufacturing widgets in 1962. That is not useful today. Progressive companies are frankly getting rid of managers like that.

But things like wellness are intangible to a certain degree.

It is not intangible. You can tell when you walk through an organization if you have got an alert and rested and well workforce or if they are strung out. And if they are strung out, their productivity is low. They may be working longer, but they are making more mistakes. And their rework rate is higher and their absenteeism rate is higher. But what you are dealing with here is a relatively small expenditure.

When these things are turned down, it is because of the inability of people promoting them to talk about the business case. They are not being coherent enough or promoting it effectively.

Where HR people don’t do themselves any favours is they have tended to portray themselves as employee advocates as opposed to business people, or looking in a balanced sense at the interest of the enterprise at large, which means you have to look at both sides of the equation.

HR needs to bring more numbers to the table?

Numbers are important but it is more contribution. I am not so fussy about numbers. Say you are in a high-growth business and need a number of workers over the next five or seven years and the HR professionals say, ‘We can go and work with these universities and colleges and develop a curriculum that generates qualified graduates with the skills we need.’ That is a great solution. Because you are working with the educational infrastructure to develop the folks that you need to grow your business.

Don’t you need to know there is going to be a return on investments?

There will be a hard and fast return because you can then talk about how you are going to make your recruitment process more efficient, how you are going to shorten the development cycle when they come into the organization. Now it requires the other executives, whether it is the IT executives, the CEO, the CFO or the operating people, to step back and say, ‘Okay I am not going to measure this to the fourth decimal spot. I have got to exercise my general management judgment and ask does this make sense for the enterprise in the long term.’ If you have got a CEO and CFO and their colleagues worrying about how they are going manage the company quarter to quarter, I can tell you sell the stock. Sell it now because that company will hit a wall.

The top team in a public company had better be focused five years in the future. The tendency is to devolve to the tactical because that is what we have all been trained to do. We have to keep asking ourselves, what do we want this company to look like in five years? Where do we want to be? Well, if we want to be there, we have to start taking these steps and recognize that it is like sailing and not driving a power boat.

And you are going to have to tack. You are going to meander a little bit here and there and you will make some mistakes. But that is what senior leadership is all about, and that is where HR people can have a huge impact because their discipline is by nature longer term. HR management is not about hiring and firing. It is about development and retention and skills enrichment within an organization.

What are your pressing HR issues?

We have looked at how we bring all of our benefit programs together. That sounds very tactical but it is long term. What you need in a large complex organization to be successful is harmonization of your various benefits programs.

If they’re not harmonized you have a heckuva time moving people from division to division. If you can’t move people you can’t develop them, and if you can’t develop them you end up with not a company but a series of silos — the old-fashioned conglomerate of the 1960s. That is not very synergistic. And HR, done well, can help bridge those differences and get to that harmonized state.

Organizations are going to be successful based on the flexibility of their workforce. You don’t really want people in a division who are absolutely subject matter experts in that division but have no capacity beyond that division. What you want is people who can be very good contributors in an environment and then can move to another environment, cross-fertilize ideas and learn in that environment.

Are you concerned about an aging workforce?

No, I am not. I am more concerned about the size of the generations coming into the workforce. A lot of older workers are able to retire virtually whenever they want once they hit age 50. So our challenge is to keep them engaged longer, otherwise we are going to have huge gaps in our organizations.

There is also a challenge (in that) the values of the baby boom generation are different than the values of the latest generation — my daughter’s generation. We have shaped an organization around our values, but they are inconsistent with my daughter’s generation. She looks at the organization and says, ‘I don’t want to do that. I don’t want to work in that environment. I don’t want to live to work, I want flexibility.’ We have to find a way to bridge those realities or the people in this generation will find other places to spend their time and leave the rest of us stranded here. And that is bad for the shareholders.

How do you keep the baby boomers engaged?

Baby boomers will stay engaged because it will be lucrative for them. And it will be a challenge finding ways to allow them to disengage gradually. That is going to require very flexible attitudes in companies. We’re going to have to say, ‘So and so is an executive vice-president and is now going to work three days a week, and we are going to pay what we paid before.’

And we are going to create overlaps and they are going to contribute in different ways, so it becomes practical for that individual to stay because they have wisdom the organization needs, and it allows that wisdom to be transferred efficiently to other generations in the organization.

Is outsourcing HR an option for Royal Bank?

Well everything is an option. I think it is one of the poorer ideas I have ever heard. I don’t like the idea of outsourcing. I think it is an adoption of this mentality that these activities are nothing more than sweatshop-scale operations and I think that is wrong, especially human resources. If you are going to outsource something like your recruiting, how silly is that? Your recruiting is probably one of the most important things you do as a company, and you outsource it to someone who is also recruiting for a widget manufacturer and a gizmo distributor. Give me a break.

What about areas like payroll and benefits administration?

To me that is not outsourcing. That is just deciding who can most effectively handle your administrative activities. I am amazed when you get some of the largest companies in North America outsourcing something like accounts payable. They have got the scale to be world-class on their own. People come to me and ask, ‘How about outsourcing accounts payable?’ We are 60,000 employees and we have revenues of tens of billions of dollars. If we can’t do accounts payable as effectively as anyone else in the world, shame on us.

That goes for HR administration, too?

HR administration is in the same boat. To outsource anything to do with intellectual property is a fallacy. It is short-termism at its worst.

What ends up happening often is you sit down with the consultant to talk about, let’s say payroll, and the consultant is saying, ‘It is currently costing you $12.21 a month per employee to process your payroll. And I guarantee I will do it on a three-year contract for $8.05.’ And you say, ‘$4.16 saving for three years, that is terrific.’ Then you go in and talk to your CFO and he gets all excited because they get all excited about this kind of stuff. And both of you are thinking to yourselves, ‘Three years? I am not going to be in this job in three years.’ So you go ahead and do it and guess what happens? After three years, when you don’t have the internal capacity anymore, your outsourcer says, ‘We have to invest in technology and we have this damn thing called inflation, so sorry your rate is going to $12.21.’ And you are right back where you were.

Your HR is pretty efficient?

I think HR is increasingly efficient within our company. I think it is well run. I am biased; I am not a fan of outsourcing. I have to really be convinced on outsourcing. I would never dream of outsourcing HR, would never dream of outsourcing IT, I would never dream of outsourcing internal audit and frankly I would never dream of outsourcing core accounting functions.

Currie also talked about his own personal management style, the difference between leading and supervising, and the importance of simplicity in performance management. For more on his HR views click on the related articles link below.

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