CFO’s should develop HR values - www.island.lk (Sri Lanka) - Devan Daniel, June 26, 2008

Chief Financial Officers
should change their attitudes and get more involved in an organisation’s
human resource development activities and operational activities in order
to create more value to stakeholders on a performance driven culture, said
Ronnie Peiris, Group Director and CFO, John Keells Holdings.

"It is
puzzling that many CFOs have a disinterest in human capital where their
involvement has been purely of a control nature. Companies spend a great
deal on employees, yet few finance executives understand any detail how
this investment creates value to the organisation," Peiris said addressing
the 3rd LBR-LBO Chief Financial Officer Forum recently.

Peiris pointed out to a recent study conducted in the US showed that
while companies spent more than 36 percent of their revenues on human
capital expenses only 16 percent of the CFOs understood the nature of the
returns these investments were making.

"JKH spends about 70 percent of its revenue on human capital in the
services sector while the manufacturing sector spends about 12 percent of
its revenue. As a group, JKH spends about 20 percent of revenue on
average. While companies continue to spend so much on human capital it is
puzzling how CFOs can be disinterested in this area."

The traditional role of the CFO had always been that of the caretaker
of an organisation’s "purse". A CFO is absorbed in the company’s accounts,
controlling finances that effect performance through a plethora of
targets, budgets, incentives and measures.

Peiris said that this setting created a bureaucratic organisation, one
that stifles creativity of employees and results in uninspired leaders and
frustrated managers who are not trusted to make decisions. Because of the
CFO’s narrow minded focus on bottom-line results, short term measures are
often adopted which result in higher costs and wrong behaviour.

"Very often CFO’s paid a lot of attention when purchasing a machine
which comes with a limited capacity, but are often stingy when investing
in employees. The human mind is limitless in capacity and CFOs
underestimate or do not know the potential of people," Peiris said.

He said that CFOs need to change the old-world mindset, steeped in
traditional accounting based on historically assessing physical assets, to
the new-world mindset that focuses on eking sustainable value from
physical assets, and most importantly intangible assets such as human
capital to improve organisational performance.

The dynamism of business is changing fast and survival, success and
failure will depend on people within organisations. This would mean that
CFOs will have to venture into areas hitherto dominated by psychologists,
behavioural experts.

Peiris strongly advocated performance based remunerations with fair
assessment mechanisms in place as it will not only link executive pay to
bottom-line results, easing tensions of shareholders, but encourage
employees to perform better.

"Not every employee is interested in money. To some it is personal
pride that motivates them, while for others it may be job satisfaction or
a personal desire to contribute," Peiris said, stressing the fact that
higher pay alone will not guarantee results.

The concept of performance based remuneration is "hard and
unemotional," Peiris pointed out but said the system could work if
organisations could minimise, if not eradicate, the causes of employee
disengagement to achieve optimum productivity.

Employee disengagement is where employees do the minimum that is
required of them in order to collect their pay check.

This is caused by a conflict of interest between individual goals with
that of the organisation further aggravated by the lack of training,
development, mentoring and unclear lines of communicating with the
hierarchy.

Non empowerment of employees leads to frustrations which also result in
disengagement because a bureaucratic setup may require rigmarole of
approvals and procedures for even mundane of transactions.

Disengagement is also caused by poor working conditions.

"Poor working conditions will include an inadequate system of
recognition and reward, inappropriate tools and insufficient resources and
an unsuitable work environment," Peiris said.

He said that when JKH adopted a performance based remuneration scheme
it had its trauma.

"But as mindsets began to change things began to improve."

While past relationships between HR and Finance functions had been on
an adverse footing, Peiris said that CFO’s will have to engage in closer
collaboration with HR, simplify processes, get involved in recruitment,
development and training processes of the organisation and learn to
understand Human capital in all its complexities, ambiguities and
paradoxes.

"CFOs need to ally themselves with the entire organisation. The first
step in creating a high performance based organisation will be the step
taken by the CFO in changing our own attitudes," the CFO of John Keells
Holdings concluded.