Culture Is a Balance-Sheet Risk

The conversation I keep having: what is the relationship between HR and Finance?

It comes up in almost every senior HR or finance search I work on: where should HR sit? Most heads of HR report to the CEO, but not all. One employer survey found 61% report to the CEO, 13% to the CFO and 10% to the COO (AIHR, citing SHRM). In mid-sized Australian businesses I see the CFO line even more often, with HR, payroll and sometimes IT sitting under a broader corporate services remit.

The usual objection is that HR under finance turns people into a cost line. It's a fair concern. But for HR and finance leaders, the point worth noting is this: no matter who HR reports to, its relationship with the CFO is one of the most important in the business. People and culture decisions end up as financial outcomes in three ways.

1. Legal liability: the cost you can see

The rules have tightened. Employers now have a positive duty to prevent sexual harassment, and psychosocial hazards sit squarely within WHS obligations. Poor culture is no longer just an HR concern. It's a compliance exposure.

Pay is another risk. Since 1 January 2025, intentional wage underpayment has been a criminal offence, with fines of up to $7.825 million or three times the underpayment for companies, and up to 10 years in prison for individuals (Clayton Utz). Payroll usually sits between HR and finance, so both need to own it.

And that's just the start. From discrimination claims to unfair dismissals, there is so much legal risk sitting in how a business treats its people.

2. Turnover: the cost that hides in plain sight

Court cases make headlines. Turnover doesn't, but it's often the bigger bill. Losing a good person in a senior role typically means:

• Time to hire: two to three months to search, interview and offer.
• Notice periods: three months or more for senior candidates.
• Ramp-up: months before a new hire is fully productive.
• The ripple effect: the team covering the gap gets stretched, and stretched people start looking too.

That's six months or more of reduced capacity in a key seat. And if people left because of how they were treated, the problem is still there waiting for the next hire.

3. Employer brand: the cost you pay in the next search

Candidates do their homework. A UK survey of 1,000 employees this year found 19% had not applied for a role because of how they saw the employer, and 15% had turned down an offer for the same reason (Workplace Journal). In Australia, the first question a strong candidate asks me is often "what's the culture like?", not "what's the salary?"

The market makes this sharper. The RBA lifted the cash rate to 4.60% last week, a 15-year high, and vacancies have eased to around 325,000 (MacroBusiness). With mortgages dearer and house prices falling, good people are cautious about moving and will only take the risk for a business they trust. A poor reputation means smaller shortlists, higher salary premiums and more lost counter-offers.

So, should HR report to the CFO?

Not necessarily. There's a strong case for HR reporting to the CEO or COO. Culture is set from the top, and HR needs the authority to challenge senior leaders, including high performers bringing in revenue.

But whether it's a direct line or a dotted one, the relationship between HR and the CFO matters. Here's why:

• People are the biggest cost. Wages, super and on-costs are the largest line on most P&Ls, so every headcount and salary decision is a joint one.
• Culture risk lands on the balance sheet. The CFO needs to see penalties, payouts and turnover coming, and HR sees them first.
• Remuneration is a shared territory. Incentive design needs HR's view on behaviour and finance's view on cost and compliance.
• Workforce planning gets harder when money gets dearer. With rates at 4.60%, boards want every hire justified. Planning together keeps the business investing in the right people rather than freezing hiring.
• What gets measured gets funded. Finance turns engagement and retention into numbers the board takes seriously. HR brings the context behind them.

The best structures I see aren't about who reports to whom. They're about a CFO who sees culture as a financial asset, and a head of HR who speaks the language of the balance sheet.

The bottom line

Culture always shows up on the balance sheet eventually: in penalties, payouts, empty seats and candidates who never apply. Wherever HR sits on your org chart, make sure it has a seat next to the CFO.

"Wherever HR sits on your org chart, make sure it has a seat next to the CFO."