Why HR is Failing Your Business—And How to Fix It Before It’s Too Late

In 2008, a top Silicon Valley firm brought in a new Chief Human Resources Officer (CHRO) to address rising employee dissatisfaction. The CHRO’s solution? More policies, more oversight, and a bloated HR department. Within two years, top talent fled, innovation slowed, and the company’s stock price plummeted. The CEO later admitted, “We turned HR into a bureaucracy instead of a business driver.”

Sound familiar? HR has become a corporate anchor—slowing down decisions, prioritizing compliance over competition, and protecting itself rather than propelling leadership forward. And the worst part? Most companies don’t even realize it’s happening until they’re bleeding talent, missing revenue targets, and losing their competitive edge.

If HR is broken, it’s because of how companies hire, structure, and incentivize it. But the solution isn’t another DEI initiative or a feel-good culture program. It’s a radical rethinking of HR’s role: from rule enforcers to leadership architects, from policy makers to profit drivers.

HR’s Fatal Flaw: The Wrong People in the Wrong RolesLook at how most companies hire HR professionals. They prioritize compliance-minded, risk-averse individuals who have never carried a revenue target, led a competitive team, or made high-stakes decisions that impact the bottom line. The result? HR departments that serve as corporate babysitters instead of business enablers.

Case Study: The HR Executive Who Killed a Turnaround

A mid-sized manufacturing company struggling with retention and leadership effectiveness brought in a new VP of HR. Instead of focusing on performance and leadership development, she doubled down on compliance training and expanded HR oversight. Employees became frustrated with unnecessary bureaucracy, and leadership teams found themselves buried in process-heavy initiatives. Within a year, turnover increased by 30%, and the company’s planned turnaround stalled.

The real issue? HR had no skin in the game. There was no direct accountability to business performance—just a checklist of policies to enforce.

How to Fix It: Rethinking HR from the Ground Up1. Stop Hiring HR Generalists, Start Hiring Business StrategistsHR should be filled with leaders who understand business execution, not just policy enforcement. Companies need to seek out individuals with backgrounds in operations, finance, or even sales—people who have built teams, driven results, and understand the realities of competition.

Example: A Fortune 500 company transformed its HR leadership by hiring a CHRO with a background in operations, not HR. Within three years, leadership effectiveness scores increased by 40%, turnover among high-performers dropped by 25%, and productivity soared. Why? Because HR was now aligned with business strategy, not compliance checklists.

2. Prioritize a P&L Mindset in HRIf an HR executive has never been responsible for a revenue target, they don’t understand the urgency and stakes of business. The best HR leaders have experience making strategic decisions that impact profitability—not just implementing policies that avoid lawsuits.

The Fix: Tie HR compensation to key business metrics. HR leaders should be evaluated on leadership effectiveness, retention of high-performers, and direct contributions to the bottom line. If they can’t move the needle on business outcomes, they shouldn’t be leading HR.

3. Make Leadership Experience a RequirementA major reason HR struggles to gain respect from executives is because too many HR professionals have never led high-performance teams themselves. Leadership isn’t something you learn from a handbook—it’s something you experience.

Case in Point: A tech company overhauled its HR department by requiring all senior HR hires to have at least five years of leadership experience outside of HR. The result? A cultural shift that focused on execution, ownership, and business impact instead of red tape and bureaucracy.

4. Tie HR Compensation to Business PerformanceIn most companies, HR operates in a vacuum—completely detached from profitability, revenue growth, and competitive positioning. That’s a mistake. If HR isn’t directly contributing to the company’s success, it’s a dead weight.

Solution: HR leaders should have variable compensation linked to business outcomes—just like sales executives. This forces HR to think like a business unit, not a compliance office. If leadership effectiveness improves, turnover among top talent decreases, and performance rises, HR should be rewarded. If they fail, they shouldn’t be shielded from accountability.

5. Eliminate the Safe-Haven CultureHR has become a safe landing spot for people who prefer policies over action, process over execution. This mindset creates a culture of passivity that drags organizations down.

Fix: Companies need to stop hiring HR professionals who see their role as policing the workforce. Instead, they should prioritize those who can coach leaders, drive performance, and eliminate barriers to execution. The best HR leaders challenge outdated norms, not reinforce them.

What CEOs Must Do to Fix HRCEOs can no longer afford to treat HR as a back-office function. If HR isn't helping drive leadership effectiveness, execution, and business results, it's a liability. Here's how CEOs can take control:

Challenge Your CHRO: Ask them how HR directly contributes to business outcomes. If they can’t answer with hard numbers, that’s a red flag.

Audit HR’s Impact: Measure HR’s effectiveness based on leadership development, retention of top performers, and execution speed—not just employee satisfaction scores.

Break Down the Silos: HR should be embedded in strategy meetings, not operating in isolation. Make HR a proactive driver of business success, not a reactive policy center.

Hold HR Accountable: Set performance benchmarks tied to business success. If HR isn’t delivering, change leadership.

Final Thought: HR Can Be a Competitive Advantage—If You Let ItHR doesn’t have to be a bureaucratic black hole. Done right, it can be a company’s secret weapon—driving leadership effectiveness, execution, and profitability. But that only happens when HR stops acting like an internal compliance department and starts operating like a high-performance business unit.

The companies that embrace this shift will win. The ones that don’t will continue to bleed talent, miss their targets, and wonder why they can’t compete.

The choice is clear: evolve or be left behind.

Jim Woods is a globally recognized thought leader in leadership and execution. As the President of Seattle Consulting Group, he helps CHROs and CEOs build insurgent leadership cultures that drive performance and competitive advantage. Connect with Jim for executive leadership training that transforms organizations.