Is Your Company CRO-Ready?

Jay Whitehead

After writing about and managing companies in human resources (HR) and HR outsourcing (HRO) for nearly 12 years, one resounding theme has emerged: HR always aspires to be something that it rarely, if ever, has actually achieved.

This column is about another HR aspiration, though. Whether your organization will ever reach the heights described here is up to you. Suffice it to say, you have a hill to climb.

The hill is what many analysts call the “CRO,” or “Corporate Responsibility Officer.” This is not a new role—just a new acronym. The CRO is the person within corporations responsible for a basket of accountabilities to a company’s four major stakeholders: employees, customers, creditors and shareholders—as well as two other major behavior-influencers: government and the media. The accountabilities range from Sarbanes-Oxley (or SOX compliance) to Equal Employment Opportunity Commission to business ethics to financial transparency to customer and shareholder rights.

You’re may be thinking, “Here he goes again on one of his nasty rants about the shortcomings of HR.” But you know there is truth in the statement that HR needs to play in the CRO game, or HR will stop being as relevant as it is to today’s corporations.

If you doubt that this CRO phenomenon is real, just take a look around. SOX compliance cost American companies an extra $6 billion in 2005. In 2006, the bill may be nearly double that. Why? To date, the Fortune 1000 companies were the only ones complying with SOX. Now, mid-market firms are jumping on this bandwagon, because everyone now knows that financial transparency is good for business.

Today, at least 480 of the Fortune 500 companies have senior officers whose job functions are that of a CRO. Even before the convictions at Enron, Tyco and WorldCom hit the front pages, corporate leaders, investors and customers have known the value of a CRO. Thus, they have put their money where their mouths are and seriously invested in compliance and responsibility initiatives.

As happened in the early days of the HRO boom, America’s biggest companies are leading the way in CRO. The nation’s biggest employer, Wal-Mart, continues to grow by spending heavily on employee diversity and making everything transparent to investors, suppliers and customers. General Electric’s big growth initiative is “eco-magination”—measuring the value of its businesses by accountability to the environment. Starbucks is providing transparency up its coffee supply chain, so customers know that its supplies are coming from fairly paid sources. Diamond merchant DeBeers and jeweler Tiffany’s have joined with others to show customers that their gems come from suppliers that have responsible workforce practices and have avoided dealings with corrupt governments. These are just a few examples of the large companies who are polishing their brands with a new tool: hyper-accountability to stakeholders.

Where Outsourcing Fits in

Here is the great irony: One of a CRO’s biggest tools is outsourced services. The reason is simple. Outsourcing is a CRO enabler. Strong outsourcing partners have given thousands of corporate clients greater compliance and transparency than was ever possible from an in-house department, regardless of the corporate function. One reason for this is that outsourcing providers—particularly in HR—measure everything, and these metrics are measures of accountability. Accurate measures such as time-to-fill, cost-per-hire and employee productivity indices rarely were available prior to the HR outsourcing revolution. Now they are commonplace. These measures keep HR accountable to the organization and the organization accountable to its stakeholders.

Enabled by strong HRO tools, HR leaders can be their company’s CRO. These days, CFOs often are being tapped for the CRO role. But why not HR? HRO’s ability to empower HR leaders with the hard data puts these leaders in a very strong position. In earlier days, I have said that HRO is the key to HR relevance. Relevance comes from continuously demonstrating accountabilities to stakeholders. That is what the CRO role is all about. Hopefully, HR leaders will see this as their natural next step. If not, one thing is certain: CFOs, treasurers and general counsel will gladly fill the spot and leave HR in the dust.

Med-tech Companies, Take Note

It appears that CROs also will eventually make their way into the medical device industry as well. In fact, these responsibilities may end up falling under the stewardship of the chief compliance officer, who is overseeing many of the same tasks, anyway, but on a regulatory front. It wouldn’t be much of a stretch to add duties such as diversity, community outreach or even corporate public relations—all of which significantly impact corporate standing in the industry.

Ensuring robust governance policies are in place is no small task. Companies spend an inordinate amount of time and money each year to adhere to a code of conduct. And it’s not just the companies; AdvaMed, the medical device industry’s largest association, has spent many years developing and refining its guidelines on conduct. In an industry with a target on its back—if you haven’t heard, the Justice Department has set its sights on medical devices following a bunch of enforcement actions against the pharmaceutical sector—this is no time for device makers to get sloppy.

The question, however, is how will companies manage their various corporate responsibilities, and should they really care? Not complying with FDA or Medicare and Medicaid  rules will have repercussions, but so will failures to address other corporate responsibilities. Do you ever wonder why large medical device manufacturers spend millions on diversity training, environmental causes and other philanthropic projects? Last year, Johnson & Johnson plunked down nearly $600 million—that’s right, million—in dollars and products on these causes.

But the company’s corporate responsibilities don’t stop there. This year, J&J launched its Healthy Planet 2010 initiative aimed at reducing the company’s environmental impact. It touches a wide gamut of issues, including biodiversity, environmental literacy, regulatory compliance, product stewardship, carbon dioxide emissions, waste reduction, external manufacturing, paper and packaging and water use. This plan followed a previous program aimed at minimizing environmental impact.

The company is not alone. Nearly all of the top medical device makers have similar goals and initiatives, although not necessarily to the same degree. The point is that corporate responsibility isn’t taken lightly, but it is fragmented. Of 3,200 public companies, only 20 have designated a CRO. That’s because the main three buckets of a CRO’s duties are currently split among different groups of stakeholders. The three are:
    • Compliance and ethics
    • Corporate social responsibility
    • Sustainability and social responsibility
       investment (SRI)

You’ll most often see compliance and ethics fall under the duties of a legal department, while corporate social responsibilities belong to investor relations. The sustainability and SRI domain usually is managed by investment officers. While they each have to address the concerns of key internal and external stakeholders, they mostly don’t act in a coordinated effort..

That’s why the role of a CRO will become increasingly important in the future. Companies can ill afford to press their causes in a patchwork fashion. How a company hires, manufactures and treats workers plays into the image it builds. The clearest example of a mega-corporation failing to address this in an integrated approach is Wal-Mart. Have you seen the community opposition it faces these days? Activists and politicians alike are lining up to take a swipe at the world’s largest retailer, and its image is taking a bruising. From charges of worker abuse to causing detrimental environmental impact with its stores to sexual discrimination, the company faces myriad headaches.

As manufacturers of products that save and improve lives, you must ensure that the organization lives up to a high level of corporate responsibility. While compliance officers help guide those efforts to a certain extent, their roles today are narrowly defined. Only when the organization takes a coordinated approach by designating a CRO will it fully benefit from its compliance and philanthropic efforts.

Jay Whitehead is president of Outsourcing Today, a Roseland-NJ based publisher of HRO Today, FAO Today and HRO Europe magazines covering the HR and F&A outsourcing industries. He can be reached at [email protected].