, , , , , , , , , , , , ,

It is with deepest apologies to my friends in Human Resources (HR) that I admit to a long-standing bias: HR can exert a corrosive influence on a company’s ability to serve customers well and profit at it. I’m sure there are exceptions, but HR often pursues missions that are incompatible with the firm’s primary objectives. I’ve had my own difficulties with HR at employers for whom I’ve worked, and those have been of a mere bureaucratic variety. Today, the dysfunction goes much deeper. Many HR departments are engaged in a sort of Fabian gradualism, subverting free enterprise from within and promoting the doctrine of social justice.

Here are a few reasons for casting a skeptical eye on the contributions of HR:

  • It adds little value in screening applicants for certain kinds of jobs, helping to explain why so many job matches occur via professional networks and external recruiters.
  • I have witnessed HR scuttle simple plans to add interns, paid or unpaid, asserting that our department had no authority to institute such a program.
  • HR dreams up ridiculously ambiguous and complex performance assessment methods, which in the end make very little difference in the structure of rewards.
  • HR insists that “promoting diversity” is a key component of every job assessment, forcing staff to engage in written exercises of creative fluffery.
  • It creates incentives that distort hiring and firing decisions based on demographic characteristics rather than actual job qualifications and performance.
  • HR requires staff time for “diversity training”, an effort that is often resented as an insulting and patronizing intrusion on the time employees have to do their jobs.
  • HR emphasizes rewards to “stakeholders”, with little deference to the primacy of shareholders. It’s one thing for a company to maximize its value proposition to customers and prospects and to provide employees with handsome incentives. Those are fully consistent with maximizing the value of the firm. But “stakeholders” includes … just about everyone. Come and get it!
  • And HR relentlessly promotes the creed of “corporate social responsibility“, which ultimately involves a high order of virtue signaling on environmental and other social issues having little to do with the firm’s business.

It is true that HR is tasked with responsibilities that include minimizing a company’s exposure to various legal and regulatory risks. For example, one objective is to avoid any appearance of “disparate impact”. Even policies having a legitimate business purpose might be challenged if results have a statistical association with demographic characteristics. It’s an unfortunate fact that through efforts to manage that risk, HR serves as a spearhead of government intrusion into the affairs of private companies.

HR has thus become a tool through which collectivist ideals infiltrate business practices, to the detriment of the firm’s performance. These are exactly the kinds of things meant by Fast Company when they say HR isn’t working for you.  

Kyle Smith makes no bones about it: companies should simply fire their HR departments. And many can do just that by outsourcing HR functions. Smith’s arguments are couched in the most practical of terms:

They speak gibberish.” Yes they do. Nowhere is corporate-speak more pervasive than in HR, where they’ll tell you that the organization’s “core competences” must be “leveraged” via “best practices” by “empowered contributors” within “centers of excellence”.

They revel in red tape.” To paraphrase Smith, HR could rightfully be renamed “Compliance Resources”. These “paper pushing” functions are drivers of bloat and cost escalation, a manifestation of the familiar cost disease endemic to all bureaucracies.

They live in a bubble.” HR managers have an inflated view of their role in the organization. Smith quotes an HR executive: ”The organization reports to us. It must meet our demands for information, documents, numbers.” Sounds like a classic central planner. Unfortunately, many companies acquiesce to the tyranny of HR bureaucrats, much to their detriment. But Smith’s point here is that HR executives are often out of touch with the way employees truly feel about the company for whom they work, with an exaggerated view of employee enthusiasm. Yet those executives are given responsibilities for which they should know better.

They aren’t really in your business.” The skill emphasized as most important for success in HR is communications skills, according to Smith (“… what you and I call talking.“) Knowledge of finance, engineering or technology is noncritical. Fair enough, you might say: their role is different, but this goes a long way toward explaining why HR generally fails so miserably in evaluating job candidates. Can you really expect them to craft policies designed to optimize a business’ use of professional talent?

Jordan Peterson takes an extremely dim view of HR. I share his concern that HR, and HR policies, have a tendency to become heavily politicized. Ultimately, this cannot be of value to a competitive firm. As Glenn Reynolds likes to say, “Get woke, go broke“. Peterson’s perspective is societal, however, and he goes so far as to say HR departments are “dangerous”:

I see that the social justice etiology that’s destroyed a huge swath of academia is on the march in a major way through corporate America. …

… they’ve become ethics departments. And people who take to themselves the right to determine the propriety of ethical conduct end up with a lot more power — especially if you cede it to them — than you think. And that’s happening at a very rapid rate.

The doctrines that are driving hiring decisions, for example — any emphasis, for example, on equity, or equality of outcome — it’s unbelievably dangerous. You don’t just pull that in and signal to society that you’re now acting virtuously without bringing in the whole pathological ideology.”

The value extracted from firms in the service of achieving “social justice” is essentially stolen from its rightful owners. The penalties don’t end with shareholders; employees and suppliers lose a measure of security from a weakened firm, and customers may suffer a loss in the quality of the product. It is as if reparations must be made to parties who are completely external to, and completely unharmed by, the success of the business.

It’s little wonder that companies are outsourcing their HR functions. A classic case is the use of recruiting firms that specialize in identifying talent in particular professions. Another is the outsourcing of benefits management, and there are other functions that can be farmed out. Eliminating bureaucratic bloat is often a focus of firms seeking to rationalize HR. Ultimately, a leaner HR department improves cost control, and keeping it lean reduces its latitude to divert company resources toward endeavors that promote the philosophy of collectivism.