Regulation Vaults to Top of U.S. CEO Concerns

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U.S. CEOs say the regulatory climate “has intensified virtually everywhere they do business” to the point that government regulation is now their chief concern, a recent report found.

The 2012 edition of The Conference Board CEO Challenge, a global survey of business leaders, found that government regulation rose to the No. 1 challenge for U.S. CEOs from No. 19 in 2009. (See related article, “Innovation and Human Capital are Top of Mind for Global CEOs.”)

In the U.S., regulation worries trumped concerns about global political and economic risk, innovation, human capital and cost optimization. Government regulation ranked fourth overall globally; the issue ranked third in Europe and seventh in Asia, the report said.

“Regulations are always a contentious issue between industry and government, and a framework that allows stakeholders to work towards solutions is key,” report co-author Bart van Ark, executive vice president and chief economist for The Conference Board, told SHRM Online.

He added that regulations are worrying U.S. CEOs largely because of the “political stalemate,” which “has led to a breakdown in the usual channels through which government, business and civil groups interact.”

The ranking doesn’t surprise Michael P. Aitken, vice president of government affairs for the Society for Human Resource Management (SHRM).

“In the last four years, there has been a lot of emphasis put on the financial markets, the housing area and the like, with a lot of new guidance—the Dodd-Frank Act being one of them,” Aitken said. “At the same time, many employers are grappling with implementing the new health care reform law.

“When you’re trying to figure out how these things are going to play out, it causes a great deal of uncertainty and angst,” Aitken said. “Some organizations are saying that the onslaught of regulations is a bigger challenge than raising capital or finding skilled talent.”

U.S. CEOs said they planned to meet the government regulation challenge by increasing lobbying activities, engaging with competitors to influence the regulatory agenda, and strengthening their internal regulatory compliance processes. Other strategies include engaging with the public to influence the government, encouraging more industry self-regulation and engaging in public/private partnerships.

Costs and Complexity

According to the U.S. Small Business Administration, the cost to U.S. businesses to comply with federal regulations reached $1.75 trillion in 2008, or about $8,000 per employee. More than $5,000 of the per-employee cost stemmed from economic regulations, while more than $1,500 came from environmental rules, The Conference Board report said.

Some organizations face regulations from many angles, Aitken said. In manufacturing, in addition to employment rules, a company might face regulations governing environmental impact, employee safety—including ergonomic concerns—and international tax compliance, as well as a host of other regulations.

“There are probably eight or nine federal agencies that you, as an employer, would have to worry about, let alone state or global law issues,” Aitken noted.

While regulations can play an important role in providing employer and consumer safety and protection, Aitken said sometimes it reaches a “tipping point” where regulations become “counterproductive and stifle innovation and growth.”

Brin McCagg, co-founder, president and COO of OneWire, a New York City-based recruiting company, said he’s not surprised that regulations are keeping CEOs up at night.

“We're finding this to be especially true for the financial services industry, which is experiencing the obvious challenges but also an exodus of talent as a result of regulation and uncertainty,” McCagg said.

During a recent conversation with representatives from a large investment bank, McCagg said, he learned that the head of HR had just left and a senior managing director was about to leave because “top talent is less willing to deal with uncertainty and assume poorly defined risk, especially in today's atmosphere of arbitrary enforcement and unpredictable consequences.

“The loss of top talent is a serious concern,” McCagg said.

Strategies at Play

The Conference Board report said CEOs believe that it pays to have “their own house in order to pre-empt possible regulation.” Strategies chosen by CEOs in the financial services, when compared to those chosen by leaders in manufacturing and nonfinancial sectors, reflect concern around compliance—it was the only group to rank “encourage more industry self-regulation” among its top three strategies. McCagg said that “any good CEO” should think pre-emptively when it comes to regulation.

“Most industry leaders would prefer to lead with voluntarily responsible action, thereby avoiding the imposition of burdensome government regulations,” he said.

Like CEOs in the U.S., European and Asian business leaders cited “increase lobbying activities to promote a level playing field” as their top strategy. Lobbying has always been important, but over time, van Ark said, firms tend to become more creative in finding ways to work within the regulatory framework.

“To some extent lobbying can backfire, as we see for example in Dodd-Frank, where the debate is dragging on as industry has provided so much commentary to reduce the impact,” van Ark noted.

HR Professionals’ Challenges

SHRM’s Knowledge Center provides guidance to SHRM members on a variety of topics. Aitken said members ask questions most frequently about complying with the Family and Medical Leave Act, followed by the Fair Labor Standards Act—just  two of the many laws that HR professionals grapple with each day.  Here are some other challenges:

Uncertainty for health plans. The Supreme Court is expected to rule in June 2012 whether the health care reform law is constitutional. But parts of the Patient Protection and Affordable Care Act have already become effective—including coverage provisions—and employers have had to make changes to plans in order to implement those requirements. But what if the Supreme Court rules that all or parts of the law are unconstitutional?

“Are the insurance companies going to continue to write plans that way?” Aitken asked. “Are they going to honor their commitments even though they’re not required to under the new law?”

Enforcement issues. Organizations working to comply with regulations are often hit with audits and investigations, often not for willful violations but for general compliance errors, Aitken said. In the area of immigration, employers are required to fill out Form I-9, a paper-based form. Employers often get fined for “inadvertent paperwork violations.” SHRM members have faced six-figure fines from U.S. Immigration and Customs Enforcement “for not filling the form out correctly,” Aitken said.

Conflicts with other statutes. Many regulations overlap or conflict with each other. Case in point: In April 2012, the U.S. Equal Employment Opportunity Commission (EEOC) issued new guidance on the use of criminal background reports in the employment process. Many states have enacted statutes that require an employer to conduct a background check for certain positions and exclude from consideration individuals convicted of certain crimes.

For example, schools requiring a background check for a bus driver candidate might review drunk driving convictions. But, Aitken noted, the EEOC guidance “made clear that compliance with state and local laws will not shield employers from violations of Title VII of the Civil Rights Act because Title VII pre-empts state and local laws that are in conflict with it. This may very well place employers in a ‘no win’ position of deciding to comply with state law while risking violation of federal law.”   

Pamela Babcock is a freelance writer based in the New York City area.    To read  to  To              To read the original article, please click here.