In the era of corporate social responsibility, those three-letter acronyms that keep CFOs, CEOs, and HR directors up at night have a three-letter solution as well: HRO.
In the past few years, one of the most prevalent refrains in the world of corporate management is the concept of governance and compliance. In the wake of Enron, WorldCom, Adelphia, and other notable governance train wrecks, this is a very healthy trend. As a culture, we should be worried about the temptations of wealth, power, and the concomitant opportunity for the abuse of trust.
Most of our HRO practitioner readers and many of their suppliers operate in this newly enhanced environment of activist compliance. Ethical awareness and social responsibility are high on the agenda of many major companies, and the evidence is building that it affects the perception of customers, employees, and shareholders heavily.
The companies that buy HRO are primarily large public companies subject to the regulation of a stock exchange such as the NYSE or the NASDAQ. All of the U.S.-based firms are subject to the oversight of the Securities and Exchange Commission, and those held outside of the U.S. are subject to the oversight of something similar to the SEC. Many operate in multiple countries and need to be aware of laws such as the Foreign Corrupt Practices Act and the corporate liabilities that can be engendered by irresponsible or criminal acts of individuals in their employ.
For multi-national corporations navigating this dense minefield of interlocking laws and regulations for each economy or country in which they operate, it is daunting. You can expect their chief HR officer, chief financial officer and general counsel have some sleepless nights.
I recently attended a conference hosted by Corporate Responsibility Officer Magazine (www.theCRO.com). Attendees hold a variety of titles but who are all involved in ethics, compliance, and governance. I pointed out to more than a few people that HR is a compliance and governance function, but it also has overtones and “opportunities” for impact far beyond playing the role of organizational police squad for bad people policies. In the realm of social responsibility, HR has and continues to lead the fight for diversity and fairness.
Where things got more interesting was the reaction to outsourcing. The concept of outsourcing was met with a reaction ranging from curiosity to trepidation to gut-wrenching terror. Maybe I need to pause and describe how I see outsourcing and explain why I get confused by people who say the notion of outsourcing causes heart palpitations, night sweats, and uncontrollable muscle tremors.
Outsourcing is not a business strategy. Outsourcing is a departmental delivery strategy. It is an operational model. That’s it. That does not diminish its importance. That does not lessen its complexity. It is a strategy for organizational excellence. By logical extension, if the function were part of overall business strategy, it would be a “core” function and could NOT be outsourced.
So if outsourcing is an operational model, the executive committee should be thinking about outsourcing as a question of whether they trust an external provider to ensure compliance. If an executive cannot trust an external provider, there is a high likelihood he cannot trust internal people either.
Outsourcing should be reconsidered as a potential path to compliance and a way to achieve social responsibility agendas, and the leading HRO providers should highlight this in their messaging. HRO providers have technological infrastructures and internal control systems that are designed as one-to-many models. They operate in the regulatory environments of many countries. And the models offered by HRO providers can ensure compliance through detailed service level agreements that most firms have with external providers but rarely enforce against insourced departments..
Also, by using HRO as an operational model, a company frees up resources to focus on strategic programming around not only diversity initiative but also other aspects of its corporate social responsibility agenda. So the next time you are thinking about SOX, the SEC, or some other three-letter acronym, do not forget HRO.