Human resources professionals often lament their ability to get a “seat at the table,” and, arguably, are not often touted for their strategic focus. There’s one key area, though, where the function can have a significant bottom-line impact on the organizations they serve: compliance.
Unfortunately, the manner in which compliance issues are often communicated by the HR department tends to come across more as scolding or rulemaking, rather than as strategic endeavors critical to the company’s success and reputation.
Compliance is important to HR — and should be important to senior leaders — but often there is a disconnect. Certainly it can be challenging to communicate the return on investment (ROI) of compliance. As Ben DiPietro points out in the Wall Street Journal blog post “The Morning Risk Report: Evaluating ROI of Compliance Can Be Tricky,” companies are spending a lot of money these days on compliance, but few are able to demonstrate that the time and effort is generating real ROI. “For now,” he says, “most companies’ focus on compliance has been more cultural in nature than driven by return on investment considerations.”
There’s opportunity, though, for HR professionals to get ahead of the curve by communicating more effectively the significant contributions their compliance efforts hold for the organizations they serve. But how?
One critical area of compliance for HR relates to health and retirement benefits. Consequences can include per-day financial penalties and legal fees that can rise into the millions. The ROI here is real says Kim Buckey, vice president of compliance communications with DirectPath, a Birmingham, Alabama-based strategic employee engagement and healthcare compliance company. She points to one customer, a large industrial company, that saw a 163 percent annual ROI on their compliance solution “by reducing administrative costs and using data more effectively,” she says.
There are, of course, a myriad of other areas where organizations must ensure compliance. For instance, much depends upon the specific location and industry in which they operate.
Peter Kurki is a yacht broker with Bennett Brothers Yachts in Wilmington, North Carolina. It’s an industry fraught with compliance-related risks, he says, from maritime-specific protocol, to OSHA standards, and more. Failure to adhere to these protocols, he says, can lead to risks related to safety and production — and can challenge the profitability of an organization. “HR sees the backside of protocol failure,” Kurki says, through “lost productivity, profit and incident.”
So how can HR make those risks real to leadership? Examples can help. One of the challenges for an effective HR function, of course, is that when their efforts are achieving compliance, the impacts and associated costs of not staying compliant are difficult to see. Sure, HR can communicate the standard penalties that are broadly published, like HIPAA-related privacy penalties that can be as much as $50,000 per violation, or DOL penalties of $110 per day per participant when a plan document isn’t provided within 30 days of a request, as Buckey notes. But how do you effectively quantify a cost that you haven’t paid?
That’s the conundrum that faces HR pros whose success is predicated not on communicating to senior leaders just how much these potential fines are, but by conveying some real bottom-line impacts of investing in compliance activities designed to not only avoid the fines — but also ensure the engagement, productivity and loyalty of employees.
Engagement in the business is critical to ensure that HR can tie regulations to reality. For instance, communicating about the number of OSHA-related incidents is one thing; engaging with the department leaders in areas where these incidents are occurring, putting processes, procedures and policies in place to drive the number of incidents down, and quantifying the ROI of these initiatives is quite another. These are the kind of real-world examples that drive home the bottom-line impact of compliance in ways that can resonate with senior leaders more than simply looking at numbers on a spreadsheet or talking about how much fines would be if various types of incidents occur.
As with other HR responsibilities, achieving success is really about positioning the HR department as a strategic member of the team on a mission to train and lead, not an administrative cost burden on the company.
Do you have a useful compliance tip? Let us know by leaving a comment below.