a paradigm shift in compliance mindset and attitude
Compliance with federal employment regulations provides two interrelated benefits to every business interested in maintaining a competitive edge. Firstly, a business which complies with federal regulations will avoid the negative financial penalties associated with noncompliance. Secondly, a business which complies with federal regulations will benefit from hiring a diverse and dynamic workforce.
The negative financial penalties associated with non-compliance are present during audits initiated by government agencies. A company which is found out of compliance will be forced to devote significant personnel resources to completing the audit. As such, companies decrease their productivity during these audits. Additionally, companies will be forced to devote substantial financial resources to ongoing legal fees. Even those companies with internal legal departments will incur related practice and consultation fees when dealing with violations of Affirmative Action and Equal Employment Opportunity regulations and laws.
Compliant companies, however, can minimize the hassles associated with OFCCP audits which range from 6 months to 2 years on average. A company in compliance, which can provide appropriate documentation and provide evidence of streamlined policies to remain in compliance, will be able to shorten OFCCP audits. This proactive compliance ensures that audits will minimally disrupt the productive potential of business firms because they will avoid the endless OFCCP requests for additional data, reports, and/or interviews.
Companies which do not engage in proactive compliance measures may receive citations. In addition to the costs of an extended audit, a citation may include a financial settlement for back-pay, training, and/or damages. The administrative costs of identifying, tracking, and providing back-pay to former applicants and employees can be extensive. Finally, companies found in violation of AA/EEO regulations may find themselves blacklisted from ever applying for future contracts. The company may also have existing contracts terminated or frozen.
Interestingly (but not shocking), violations affect the stock value of companies forced to pay large settlements. The expenditures associated with an extended audit and a settlement compromise the stock value of a company. The public relations problems associated with publicized violations in OFCCP press releases further devalue a company’s stock. The chart below includes 10 companies that had settlements included in recent press releases from the OFCCP. (These are real company figures, although we’ve omitted the company names.)
Furthermore, proactive compliance is competitive because it also organically generates a diverse and dynamic workforce. Studies conducted by Dr. Cedric Herring and others demonstrate that companies with a diverse workforce have increased profitability and a larger market share. Other studies demonstrate that a diverse workforce increases both productivity and retention rates of employees. Higher retention rates decrease the training expenditures, loss of productivity during the hiring period, and the costs associated with training new employees. Finally, it has been established that the 50 most diverse companies’ stock index significantly outperforms the S&P 500 and the Dow Jones Index.
Be on the lookout for our next installment, where we’ll look more closely at the “carrot and stick” of compliance’s effect on company value.
Proactive compliance requires that a company access the necessary resources to comply with regulations and also implement a system which monitors and integrates compliance solutions into core business strategies. Please send your questions or comments to