Industry voices: The ROI of better compliance

With the current economic and political uncertainty, strategic agility — that is, the ability of a business to change quickly and effectively in order to gain a competitive advantage — is more important than ever before. Fluctuating markets and changing political climates are straining both margins and resources, creating a demand to shift resources, business strategies, or both, nimbly in new directions: new regions, new products, new buyers, new markets, new capacity for existing facilities, and more.  

At the same time, these forces are having a profound impact on global regulations, according to Mary Foley, Forbes Contributor and Expert Services Strategy Director at Enhesa. Fast-paced regulatory changes are compounding the potential compliance risks of business decisions. “The EHS and ESG regulatory landscape is one currently filled with turbulence, flux and inconsistency,” Foley said.  

From these twin challenges – changing markets and evolving regulations – comes the demand for better regulatory data to reduce potential risks. Foley emphasized the importance of knowing what’s required for compliance, and knowing where your compliance stands. And it’s not just an internal need: “We can see that the market realises that stakeholders are craving standardised, consistent and comparable, good quality data,” Foley said. Because, without it, she said, compliance risks will mount.  

Foley went on: “Businesses need a lighthouse to guide them through these stormy waters to help them to navigate questions such as where should my strategic focus shift to best benefit me?”  

And this compliance gap may be one “they weren’t even aware they had” before Enhesa, McCleary said. He went on. “When you speak to the teams themselves, they say that they become significantly more effective in their day-to-day roles.”  

15-20% improved effectiveness adds up to about one day per week per employee, or multiple days per month, McCleary noted. How? It’s about “having the information at their fingertips, which gives them the time saved, which they spend on actually actioning and executing changes, which is really what their role should be more about.”  

More strategic teams add up to more compliance improvements, he said.  

Anthony Wareham, former Health and Safety Executive with Phillips and Honeywell, has seen the same gains in percentage compliance across the organization in his experience.  

And while 6-7% gains don’t sound like a lot by themselves, in context with the overwhelming number of global regulations, “the gaps translated into about 10,000 missed laws worldwide,” Wareham said.  

More effective teams result in compliance gains – and reduced risks. 

Cost-savings through supplier consolidation – reducing compliance solutions and third-party providers to consolidate on a single source of truth for regulatory data – saves money: around 25-30%, research found.  

So how does a centralized, global, single source of truth for regulatory content and regulatory change monitoring help companies save money?   

According to McCleary, “There’s an enormous benefit to having a single and reliable source of the truth” that can be shared across companies who have different taxonomies, sources, and sites. “There’s such a large, intangible benefit from having this consistent version in one place,” McCleary said. This consolidation delivers immediate financial benefits, he said. 

McCleary continued: “We consistently see that the consolidation of providers delivers an immediate benefit financially.” This is because “lots of smaller providers, individual contractors, people on retainers, newsletters come out of the woodwork and, when you add these up, they actually get to significant costs,” McCleary said. 

In addition, maintaining “lots of different service providers globally has lots of costs, inherent costs in itself of just vendor management contracts and dealing with that overhead.”  

And how is this cost-savings realized in industry? Claus Rose, former EHS executive with GE and Siemens weighed in:  

Wareham had a similar experience: “I’ve had locations that run two systems. So they collect their primary data in their own program, which they paid for. And then they just took the outputs and manually transcribed it into the corporate data collection system. So they were paying twice.  

Wareham continued: “All the time you’re doing that data processing and manually, firstly there’s the opportunity for mistakes because you’re handling the data twice. And then you’ve got the opportunity costs for the people who could be doing other things while we’re doing all this spurious, unnecessary work. And as you keep on digging in, you just find more and more inefficiency, more opportunity to make mistakes, which will cost you in the in the long run.”  

Reducing cost overheads from “fines, penalties, breaches, and other intangible costs”, such as legal expenses, insurance, operational hindrances, and reputational impacts — all add up to about a 10% cost savings with Enhesa, Schwartz said.  

And the cost-savings add up. From BCG’s perspective, McCleary said, “fines and penalties are often the biggest risk and loss of the CFOs that we speak to.” For EHS teams, proving this return often means putting it into language the board understands. For McCleary, that means “being able to prove that you can reduce the likelihood of fines, the likelihood of incidents occurring as a material and direct benefit against that provision.” 

When it comes to improving worker safety, that’s a potential cost-benefit too, McCleary said. 

Reducing incidents, McCleary said, “clearly requires more than just having the intelligence at your fingertips. It is part of a more holistic approach across different sites in different regions. But the companies who we see that do this the most effectively have used Enhesa as part of the solution.”  

Having seen this play out in industry, Rose described “millions of dollars of potential lost revenue” saved by combining regulatory data with other organizational knowledge, resulting in closing noncompliance gaps that otherwise would have led to site shut-downs or regulator interventions.  

And Wareham described from experience the improved control over potential regulatory issues that foreknowledge brings. With knowledge of a breach, he said, EHS teams can see in advance the potential resulting fines and penalties, build a plan to address the issue, and negotiate with the regulator to address it before it’s found in inspections. In Wareham’s experience, this results in less time spent in shut-down, fixing the issue, and less cost in potential fines if the regulator finds the breach before the company itself does. 

According to research, 100% of senior stakeholders interviewed reported improved stakeholder trust from using Enhesa. Schwartz emphasized that confident data breeds stakeholder trust and credibility: “both internally, for EHS teams,” he said, “and externally, for partners, vendors, insurance companies, and customers of our customers.” 

He continued: “It makes corporate teams feel comfortable with what’s going on, feels like they know what’s going on across the globe at all sites, and having kind of an easy viewpoint, knowing that things are being tracked and monitored.” 

Providing trustworthy, reliable metrics to those stakeholders is important, McCleary emphasized. Citing senior management, he said, “having the set of data which they can trust in, that they can measure performance against, that they can make decisions against reliably, is imperative and becoming more so with increasing complexity.” 

The next set of critical stakeholders? Partners and customers. “For partnerships or customers, being able to point to the measures which you’re taking to be compliant is increasingly important,” McCleary said. “And we are observing increased scrutiny the whole way across the supply chain.” 

Finally, for investors, this scrutiny is not just an EHS issue – it’s a sustainability one as well, McCleary said, “where we know there’s lots of changing hurdles that are coming, especially in Europe, but globally as well.”  

For investors, this scrutiny is focused on industry norms, standards, and the comfort level investors need to be sure these issues are “being addressed appropriately,” McCleary continued. “That matters from a financial perspective fundamentally, and impacts the share price,” he emphasized. 

With regards to internal stakeholders, Wareham noted, this data can support ‘a culture of compliance’. “What does your corporate value and mission statement say,” he urged companies to ask. “Executives … see these glossy signs on the wall and they think everybody believes in them.”  

Wareham went on: “If they don’t, that means there’s a breakdown of trust, because they don’t believe what you’re telling them.” To remedy that, he said, “You need to demonstrate the values and you need to make sure that those values are visible on the shop floor.”  

Rose agreed. “Trust is never given. It’s something you have to earn.” If you can “communicate on a level that is understood, then there is a higher chance you’re going to be successful,” he said.  

Reliable metrics are needed “to create trust,” and “to understand how to link the message from the top to the message from the front line.”