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Why creating a culture of HR compliance could reduce risk


Owning and operating a business is inherently risky – financially, legally, personally. While you can never shield yourself from every negative outcome, creating a culture of HR compliance can protect you and your company from many common business risks.

Business owners in the United States today must abide by and stay compliant with more laws and regulations than at any other point in history. As your company grows in size and complexity, it becomes increasingly more difficult to control what employees do.

That’s where a culture of HR compliance comes in.

If you establish and ingrain your company’s values into the fabric of the culture, then your business is likely more risk averse.

“The reason is simple: a business whose culture encourages ethical behavior and a positive atmosphere is less likely to run afoul of the law,” wrote Paul Sarvadi, CEO of Insperity, in his book “Take Care of Your People: The Enlightened CEO’s Guide to Business Success.”

Being proactive in compliance, Sarvadi wrote, is the best approach. “Prevention is better than the cure.”

What are the common risks that businesses face and how do you go about creating and maintaining a culture at your company that mitigates those common liabilities?

What risks do business owners face?

Business owners face risks on three fronts: regulatory, civil and criminal.

Every business must comply with numerous laws governing every nuance of its operations. Non-compliance with these various federal, state or local laws could result in financial penalties or worse.

You’re at jeopardy of being sued by an employee for any number of grievances, like discrimination or harassment.

For more grave or gratuitous offenses, employers can also be jailed. These scenarios could include tax evasion or insider trading, among many others.

It’s easy to see how, as your company grows, so can your liability.

How can culture mitigate those risks?

When you define your company’s values, it sets the expectation for how all employees are expected to behave.

Without clearly set expectations, employees have no reference point to guide them through difficult situations. Instead, they will rely on their instincts and past experiences. In a perfect world, that might work well. However, people can carry around biases and bad habits. 

When challenged, an employee with poor decision-making skills (informed by negative past experiences) might make a decision that puts your company in legal jeopardy.

If there’s no existing culture, those bad decisions can permeate into a toxic workplace, which often yields toxic results.

Instead, a strong company culture can mitigate these risks by encouraging employees to hold themselves to an agreed upon standard.

The more you can help your people, the better off the company will be. Your culture must continually reinforce the positive behaviors you want to see in your employees.

How do you build a culture of HR compliance?

Culture is the bedrock of any organization. It determines everything and touches every part of the company.

The culture dictates the company’s beliefs, thoughts, procedures and actions. The employees then enact and reinforce those things. Both are crucial in helping the company achieve its goals.

The characteristics of a strong culture

The company’s overall culture should be one of ethics, morals and commitment to the greater good. Often, a company can have cultures within cultures, such as departmental cultures. Any subcultures that might exist should dovetail with the overall culture.

Morality, ethics and the ability to be truthful and transparent with your clients and employees are the most important aspects of any company culture. Financial commitment and social corporate responsibility are also very important.

The people underlying the culture

Achieving the proper culture starts with a plan but it depends on people.

It comes down to who you hire and how they fit within your company. Technical skills are often easier to find than an ideal personality fit for an organization’s specific culture.

A candidate may have all the technical competencies. They can do the job very well, but they may not be a cultural fit for the organization. This can be challenging to determine early on because people can mask certain parts of their personality in interviews.

The litmus test is how they treat co-workers and others. Do they have the emotional intelligence to work well on their team and within the organization? It’s important, albeit challenging, for managers to uncover this in the interview process.

There is no one-size-fits-all strategy for accomplishing this. Rely on your experience and that of your managers to understand the nuances of the position and the type of personality necessary.

Is culture a fool-proof guard against risk?

Even in the strongest of company cultures, humans make mistakes. There is no perfectly effective safeguard to human behavior. But having a strong culture can help you minimize the fallout from the inevitable mistakes.

When mistakes happen, companies with strong culture are prepared. If it’s an isolated incident it can be addressed individually. If the problem is widespread, you can schedule a larger meeting and call out the elephant in the room.

The key is honesty. Talk through the problem. Determine how it is being resolved. Use the incident as a learning opportunity to prevent it from reoccurring.

The goal is to maximize your strengths, take advantage of our opportunities and minimize weaknesses.

Determine if your culture was at the root of the issue. Did some aspect of your culture lead to this problem and was it always this way? If it wasn’t, when did the culture become corrupted? What led to the current situation and how do you step back from it?

A well-defined vision, mission and good value system are components of a cultural dynamic that can help see a company through setbacks.

Impact on creativity and diversity

Just because everyone in your company is on the same page culture-wise doesn’t mean creativity and diversity will be stifled.

Those are separate aspects and can still mesh with the overall theme of the company.

You still hire diverse talent, backgrounds and technical skills. A strong culture helps encapsulate; it does not stifle.

Stay the course

As Savardi writes, once the policies, guidelines and practices are in place, it is important to review them regularly. 

This will help ensure a strong culture that will grow and protect the company while make it an asset to the community.

Creating a culture of compliance is just the first step in being compliant with the law. Equally important is understanding the laws governing your business. If you’re concerned that you might be in violation of various local, state and federal laws, download and read our complimentary e-book: Employment law: Are you putting your business at risk?