Why underinvestment in HR leadership is a false economy

Louise Beales, Consultant in our Charities Practice, highlights that investing in the workforce strategy and engagement skills of a Chief People Officer can lead to a significant reduction in costs through improved recruitment and retention, as well as boosting team development and individual performance.

Many charities do not have a Chief People Officer (CPO), by which I mean a strategic Human Resources leader reporting directly to the CEO who is part of the executive team. Almost invariably, such individuals will be CIPD-qualified.

Sometimes the lack of a CPO, or Chief Human Resources Officer, may be due to legacy structural reasons – for example, there may be a Director of Corporate Services into whom the HR team reports. However, the Director of Corporate Services, who may have a Finance background, is unlikely to possess the rich HR skillset of a senior People practitioner and will have demands on their time given they are responsible for an array of back-office functions, often to include IT and Technology.

In other cases, third sector organisations may believe they simply cannot stretch to paying for a CPO. With smaller charities, this is probably true. But for medium to large organisations perhaps the question they should be asking themselves is, can we afford not to invest in a CPO?

Of course, charities want to spend as much money as possible on service delivery and meeting their objectives. Most are good at this. Research has found that 86% of the sector’s expenditure is related to activities directly linked to a charity’s purpose.

But failure to put in place the right HR systems, business partnering expertise, training and development programmes, and line management skills can be tremendously damaging. Morale and performance may plummet, employee churn could skyrocket – bringing with it a steep rise in recruitment costs that far outweigh the investment in an interim or permanent CPO.

CIPD survey report “The importance of people management” finds clear links between line manager quality and employee health, especially mental health. Half (50%) of employees with “bottom-quartile managers” think work has a negative (or very negative) impact on their mental health, compared with just one-seventh (14%) of employees with top-quartile managers. There is also a strong association between line manager quality and job satisfaction. Employees with bottom-quartile managers are more likely to be dissatisfied than satisfied with their job, whereas the vast majority (88%) of employees with top-quartile managers are satisfied, or better, with their job. Moreover, only 5% of employees with bottom-quartile managers think their managers support career development, whereas the equivalent figure for top-quartile managers is 87%. A good people strategy and the knowledge to implement it effectively makes a world of difference.

In this context, it is no surprise that I have seen a rise in demand for interim CPO talent. For one recent Executive Director of People role, reporting directly to the CEO at a leading mental disability charity, I placed a candidate with the skills to develop a clear Target Operating Model and cement EDI and Allyship firmly across the whole organisation. While for a social care charity, which had been struggling with a challenging staff vacancy rate of 20%, I placed an HR heavyweight to turn things around. Previously this charity did not have a CPO on its executive team.

Yet many charities still rely on the existing structure where the People directorate reports into the Director of Corporate Resources, along with IT and sometimes Health & Safety, Estates & Facilities and Governance. In this case, a comparatively junior Head of HR (perhaps paid around the £50-70k mark) will be expected to look after all facets of employee satisfaction – People strategy, staff engagement, learning & development, pay & reward, EDI, internal comms, employee relations, recruitment & retention…it is a long list.

At this level of remuneration, it’s unlikely they will have the required experience. Thus, the role is reduced to being more transactional in nature, as opposed to a strategic one, working closely with the CEO on building out the People agenda in line with the overall business strategy.

Having the People function on the executive team means that engagement takes priority. Economically, a £90-140k Director of People & Culture will be worth their weight in gold in terms of healthy engagement, high morale, low attrition and keeping recruitment costs under control. Money well spent, in other words