An Influential Seat at the Table
R. Kenneth Hutchinson, president of Hutchinson Consulting, and vice president emeritus for the University of Missouri System, served for 42 years in higher education administration. In his former role as vice president of human resources for the UM System, he served as primary contact for the system's governing board on human resource initiatives, policies, and programs. In this interview with Elizabeth A. Neumann, principal of Brill Neumann Associates, Hutchinson discusses the importance of a strong relationship between HR and finance and for HR to report directly to the president. He also offers his thoughts about how institutions should respond in light of the current economic recession. E-mail: HutchinsonR@umsystem.edu
How would you describe an optimal human resources–finance partnership in higher education?
First, while there are natural differences between how chief finance and chief human resource officers may view matters affecting an organization, to best serve the short- and long-term objectives of the organization, you really need a strong relationship and line of communication between these two positions. Relationships are critical whenever you are shaping institution programs, and typically the two functional areas with the greatest leverage serving the president and board are HR and finance.
As for an optimal relationship—and this is not exclusive to higher education—HR executives must truly understand the financial implications of the organization, and finance officers must understand the priorities behind HR decision making. Specifically, HR executives should know how to read a balance sheet and income statement and should be conversant about economic opportunities and stresses. You can't be effective in your analysis of labor costs or productivity, for instance, unless you have a strong appreciation of and ability to understand the quantitative side of human resources. Likewise, finance officers must be able to go beyond income and expenses in their understanding of the greatest cost center to the organization, its people costs. When both have an appreciation and respect for the others' responsibilities, it allows for substantive, meaningful conversations to take place between finance and HR.
And where does the provost fit in?
Obviously HR and finance must also work closely with academic leadership. Most often the provost or vice president for academic affairs are not schooled in either HR or finance, so that makes it all the more important to have a strong professional relationship between the vice presidents of finance, human resources, and academic affairs. Where this is the case, much better decisions are made on behalf of the institution. One important point to make is that as finance and HR work closely with the provost in assessing decisions, there should be a clear understanding that neither administrative function is trying to take over academic HR decision making.
What is the best starting point for these conversations?
I think the best place to start is to look at the cost-benefit of every decision. For example, cost-cutting may be your objective, but if the organization is hampered in its ability to recruit and retain productive faculty and staff, severe cost-cutting or cost shifting may be short-sighted. Other important matters of discussion might be establishing a compensation policy for the organization that includes executive pay and incentive pay and defining how these are tied to organizational performance.
Not all HR executives may be comfortable presiding over those conversations.
That's true, but this gets back to understanding the quantitative aspects of HR. There may be a case where an HR officer doesn't feel comfortable working with actuarial reports or the nuances of executive pay and benefits, for instance. To me, these are critical responsibilities for HR, and it ultimately is not good for the organization if those are abrogated. The influential plate of responsibilities in human resources—compensation, executive development, executive pay, performance management, recruitment and retention, benefits—all those are so critical to the organization and those should all fall under the auspices of HR.
You believe the chief HR officer should have direct access and direct reporting responsibilities to the president. How prevalent is that within higher education?
Organizationally, higher education is in trouble if it doesn't begin to view management differently. Thirty years ago, the HR component within industry, retail, health care, and education all would have reported to the chief operating officer, not the chair and CEO. While the first three sectors have changed by elevating HR to the officer level, by and large higher education still has not. And yet, students are expecting more return on their investment, governing boards are questioning why modern principles of effective management are not more fully utilized, and legislators are asking new and probing questions about organizational and program performance and accountability.
To be effective and make the kind of contribution HR can and should make to the organization, HR executives should have access to the president on matters critical to the board. For instance, HR should be part of the senior manager working group and involved in substantive discussions of operating performance and strategy choices. HR should be completely aware of and understand business issues facing your college or university, and intervene as appropriate. HR should develop or assist in developing measurements of success that are unambiguous and help identify serious or chronic shortfalls. And, HR should provide leadership in the development of the university's people systems that drive so much of an organization's effectiveness.
Perhaps more than any other organizational component, HR has the opportunity and the responsibility to assist the president in critical performance and cultural matters to help the university remain focused. In short, HR should be in the game—strategically, operationally, and also in terms of individual and organizational performance, effectiveness, and evaluation.
Why is it so important for HR to have direct reporting status?
The key word is access. To truly make a contribution and get to know the president and what his or her desires are so that you can effectively shape programs accordingly requires not having agendas filtered through someone else. Decisions will not be as good as they could be if you don't have the dynamic in place where issues are vetted directly with the president. Whenever a president decides to move in a different direction, the organization as a whole won't be as effective if HR is not included in the decision making.
For an institution where this is not the case—where the HR officer is not "in the game"—how can he or she intervene?
An institution's strategic plan is a good point of intervention for HR contribution. When I was involved in this process at the University of Missouri at the officer level, tremendous conversation took place about the people environment—faculty, staff, and students. These conversations became so significant that under the core values section of the plan, the first of three core values identified was "people," stating that "human resources is the university's primary resource and principal contribution to society."
Turning to a very specific and timely subject—the economy—how do you think higher education should be working through this current economic recession from a financial and human capital perspective?
There are roles that both HR and finance can and must play. If we go back to the cost-cutting example, let's assume the board and president tell the chief business officer and chief HR officer that they need to cut "X-amount" from the operating budget. A big part of the solution will revolve around those hard conversations about the cost-benefit issues of any of the potential decisions they may make. Because so much of an institution's strategy has to do with people, HR is in a critical role to articulate cost-benefit issues in financial and non-financial terms.
Now, some institutions are enacting across-the-board benefit cuts by cost shifting budget shortfalls to faculty and staff. These may have the desired effect for some institutions, especially if compensation is above average. Any cut requires taking a strategic look at how to balance organizational quality objectives with needed reductions. Unfortunately, in academia it is much more difficult, time-consuming, and politically charged to identify and carve out weak programs as opposed to making big cuts across the board. Again, the strategic process should fully evaluate the cost-benefit of the options under consideration. If recruitment and retention suffers and your total compensation package deteriorates, these are long-term implications and difficult to reestablish.
How can an institution keep from falling into this trap-especially if leaders find they must make some quick and perhaps drastic decisions?
Well, this again underscores the importance of having HR at the table and for decisions like these that are so critical to an institution to be considered on a long-term horizon—five years at an absolute minimum. Granted, something like an economic crisis requires going well beyond some of the routine decision making that must take place. But if you are in the habit of thoughtful planning processes and contingency planning, it is far less likely that you will make critical mistakes during a crisis. Foremost, no matter what situation an institution finds itself in right now, it is critical not to overreact. Before doing anything, consider what kind of long-term damage you may be inflicting with any short-term slashing of your budget or staffing.
What should a president and his or her cabinet be focused on at this time?
If I were a university president right now, I would concentrate on trying to recalibrate my institution. Take the opportunity to look at what you are doing and why. Any institution needs renewal occasionally, and I believe the current economic situation provides the opportunity for this. The timing is right to look at the organization, reestablish priorities or validate current ones, and determine where you want to invest or reallocate limited resources.
Elizabeth A. Neumann is a principal with Brill Neumann Associates, Inc., Boston, which specializes in conducting executive searches for higher education; e-mail: email@example.com