Return on Investment in Labor Law Compliance Programs – Part 2: Your ROI Defined

The Returns Beyond Risk Management

Every company adopts management practices and priorities to achieve its business goals to which processes, policies, budgets, etc., all follow suit.  When it comes to regulations, whether industry, financial or other legal requirements, the practice and priority is to invest just enough time and resources to achieve compliance. To that point, there are no companies claiming to be No. 1 in Sarbanes-Oxley compliance (other than consultancies trying to help companies to comply).

However, when it comes to items related to your people, the compliance program can generate returns beyond risk management when the practices and priorities move from reactive to proactive, and then predictive.  The more elements that reach proactive and predictive, the more the program will create a business asset that helps enable your culture, employees, and reputation.

Here, in the final part of our two-part ROI in compliance series, we will introduce an expanded definition of where the ROI of a compliance program may be experienced.

Using Figure 1 below,  Part 1 of this blog series outlined the investments of a labor law compliance program to create a shield of different, but equally important, parts that collectively create an effective program and the elements it can protect and enhance.

Figure 1.  Building a Labor Law Compliance Program

Providing a definition: Reactive.  Proactive.  Predictive.

To establish the context for each stage of labor law compliance– reactive, proactive and predictive – see Figure 2 below.  As a labor law compliance provider, we engage with a broad set of companies and their approach, or urgency, is a good indicator of their current stage of compliance.  Given this view of compliance, most firms tend to be in a reactive or proactive stage.

Figure 2.  The Stages of Labor Law Compliance Program

Our observations of the different stages:

• If the labor law compliance program is viewed primarily as risk management, the approach aligns with the presumed level of risk – the higher the risk, the higher the urgency (and vice versa). As mentioned in Part 1, the investment level tends to closely align to risk tolerance.
• The move toward predictive requires more dedicated ownership and allocation of resources to be sustainable, thus why the investment (or budget) for staffing, systems and support is an indicator if the strategy and tactics are aligned.
• The awareness of the program or its outcomes becomes greater – whether through communication or presence in day-to-day business – as a company moves toward predictive.
• Companies will invest heavily in certain areas of labor law compliance over others based on their business model. For example, businesses with a significant number of employees earning minimum wage may invest to be predictive – due to the high impact on their business.

Returns of Creating a Business Asset

In Figure 1, we identify what is being both protected and engaged – the “risk” element is well known (e.g., protection against costs of defense and response to legal actions either by regulator or employee), so we will focus on how a strong compliance program is a business asset for culture, people and image.

Culture

The position of the culture icon in Figure 1 is purposeful as the culture of a business will dictate its direction. In the Harvard Business Review’s “The Culture Factor,” it both defines a culture’s importance and enablement.  The article calls out how culture is pervasive across an organization, supported by specific actions and environments, and that people implicitly react to the culture – of which “caring” and “safety” are elements.

Compliance program impact:

Cultures are built upon a set of shared, not dictated, values. Employees need to accept these values as much as the company wants to promote them.  A visibly evident and effective compliance program gives employees confidence in sharing the company’s values. Cultures are also very enduring, so the return on building culture is long-term.  Budgets are a powerful tool for communicating importance – once peoples’ time and financial resources are put behind your compliance program, it sends a strong message about the company’s commitment to the culture and employees.

People

We all want engaged employees who have a strong connection and motivation to support the company – in short, these are people who can speak highly of the company (See “Developing and Sustaining Employee Engagement,” by SHRM).  The greater their engagement, the greater the focus on aligning their work to achieving company goals.  To paraphrase a former colleague’s favorite saying, “Engaged employees are the ones actively rowing the boat, not the ones just sitting in the boat holding a paddle and going along for the ride … Or worse, the ones hanging off the back of the boat slowing you down.”

Compliance program impact:

Employee engagement is highly linked to an employee’s day-to-day experiences – the emotional connection is high due to these experiences’ frequency and impact on their well-being. The sense of trust and open communication is critical to well-being. The compliance program is a positive reinforcement of the employee’s importance by committing to a protective and respective workplace.

Quick Sidebar: Investing through “Correction” (Figure 1)  

This Bloomberg article on harassment complaints shows the importance of policies/practices that align with shared values and investing all the way through ”correction” to build trust with employees. It shows that where there is misalignment, employees feel anything but engagement.  

Image

There are two facts today about every company’s image. First, it is highly discoverable online (perhaps for longer than desired). Second, the control of the online image and message is well outside the company (e.g., Glassdoor, LinkedIn, etc.) and these systems are not without their flaws.  Regardless of the market conditions, there is always competition for experienced talent, and the ability to evolve as a company is driven by bringing in necessary talent.  To that point, a 2017 survey by CareerBuilder showed that 71% of U.S. workers would not apply to a company experiencing negative publicity, and that publicity is both public press and review sites

Compliance program impact:

People who make comments either online or in person are motivated by their experiences – as noted above, a strong culture, trust, and communication will create an engaged employee who will speak highly of the company.  The impact of the compliance program is to create and sustain a positive image from employees.

An effective labor law compliance program is one of the items needed for corporate success, due primarily to its direct relationship with enhancing and supporting strong engagement with current and future employees – who will be developing, leading and executing your strategy to attract, retain and grow customer relationships.

Hopefully, through Parts 1 and 2 of this series we have introduced a broader set of concepts for you to consider and work with regarding your investment and return on a labor law compliance program.