Be a Global Risk Manager

Don’t just physically move employees. Weigh the threats they face worldwide.

By Eric Krell Mar 1, 2012
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March CoverEarly in 2011, officials in China announced that expatriates working in the country would be subject to a new tax, effective July 1. By December, guess how much guidance global mobility professionals had received from China regarding how to comply with the law?

Not much.

"We were just left waiting and wondering," reports United Technologies Corp.'s Director of Global Mobility Tom O'Connor, GPHR.

Welcome to the confusing and risk-laden era of organizational mobility.

"Mobility is much more challenging today," O'Connor explains. You have to "anticipate what might happen next and be prepared." For example, 10 years ago mobility professionals were not nearly as concerned about pandemics, evacuations from unstable regions, bankrupt economies, socioeconomic unrest, housing market collapses, organizational cost-cutting, natural disasters, complex tax and immigration legislation, and cross-generational family dynamics.

The more mobility professionals discuss the nature of their role, the more the mobility function sounds like an exercise in risk management across multiple realms, including compliance, employee relations, talent management and more.

To manage new and familiar risks, mobility professionals should recognize the nature of these challenges and address them with a strong network of external expertise, creative policies, careful tracking of expatriates and frequent business travelers, and an understanding of employees' changing personal and family issues.

Mobility managers must provide solutions by "acting as internal management consultants specializing in global mobility for line management, human resources and the C-suite," says Ed Hannibal, leader of Mercer's global mobility business for North America.

In crafting those solutions, mobility professionals must address risks in the following areas.

Security and Logistics

During the past five to 10 years, many organizations assigned employees to the emerging economies of Brazil, Russia, India and China.

Today, "U.S. companies are placing employees throughout Africa, the Middle East and Eastern Europe. In South America, it's not just Brazil or Argentina, but also Chile and Colombia," says Stewart McCardle, vice president of global financial services for Weichert Relocation Resources Inc. in Norwell, Mass.

Such locations present challenges. "In Africa and South America, you have new security risks," McCardle points out. "Many less developed economies come with logistical challenges. Household shipments, banking and almost everything else is more troublesome," he adds.

Laws and Regulations

The nature of tax and immigration issues has become more complex.

First, more companies of all sizes conduct business in, and send employees to, more countries. Hence, mobility managers need to learn the regulations for each new market or find outside experts familiar with country-specific laws.

Second, officials in developing countries are quickly adopting tax and immigration approaches, practices and rules that exist in higher-income economies. Many organizations do not have the policies, processes, systems and personnel to sufficiently manage and monitor frequent business travelers in compliance with such regulations.

Rich Zook, a partner with the international assignment services practice of Pricewaterhouse-Coopers U.S.,ticks off risks that corporate leaders court due to the above deficiencies. These include:

  • Visa and immigration violations.
  • Visits—individual or cumulative—to individual countries that trigger tax return filing obligations.
  • Visits that create corporate tax withholding obligations in some specific countries.
  • Indirect tax obligations for the company.
  • Taxation of corporate earnings based on the countries' permanent establishment rules.

Due to the global economic crisis, "Revenue-hungry taxing authorities from countries with enormous fiscal gaps are looking for income in every area," McCardle explains.

O'Connor notes that tax authorities are conducting more audits and even increasing scrutiny of expatriate tax issues at border checkpoints.

Results of Cost-Cutting

Widespread cost-reduction efforts following the global economic crisis continue to put pressure on mobility departments. In response, many mobility managers now rely on innovative, less expensive alternatives to traditional expatriate assignments. These alternatives include:

  • Extended business travel, typically lasting one to three months.
  • Tiered expatriate policies, which dole out more-generous perquisites and benefits to higher-ranking employees.
  • So-called "FlexPat" programs, which call for perks beyond core benefits to be added based on the length or purpose of the assignment. These perks may include housing allowances, more-frequent returns home or more-frequent family visits.

Each approach comes with its own set of issues.Tiered policies can foster perceptions of inequity among workers and can lead to employee relations problems. Extended business travel and FlexPat programs can exacerbate the already formidable challenge of tracking mobile employees for tax compliance purposes.

"The frequent business traveler has emerged over the past five years as one of the most challenging compliance and risk management issues facing international and global organizations," Zook asserts.

Mobility professionals can expect to manage even more frequent business travelers and employees on extended assignments in the future, thanks to ongoing cost-containment, the increasingly global nature of business and the ease of international travel.

"The pace of business is also faster today, requiring organizations to get the right personnel to the target location to close out business deals or perform services with little advance notice," Zook adds.

Family Dynamics

As businesses become more global, mobility professionals encounter family dynamics issues related to cultural norms. For example, some employees expect to take their parents or aunts and uncles with them on expatriate assignments.

Five to 10 years ago, an expatriate requesting to bring an au pair on an overseas assignment represented a common policy exception. Today, requests to bring parents in their 70s or 80s or unemployed children in their 20s occur more frequently than nanny requests, McCardle reports.

Some prime candidates for three- to five-year expatriate assignments—experienced, mid-40s, mid-career professionals—now are in the "sandwich generation" and are caring for school-aged children and aging parents. Add these pressures to the growth in dual-income households, concerns about living and working in geopolitical hot spots, and the expense of selling houses whose value plummeted during the U.S. real estate bust, and many mobility assignments become a hard sell.

"The challenge of trying to deploy some employees can be significant," O'Connor says. He notes that special requests can add costs to the assignment.

The War for Talent

Fewer mid-career professionals and highly talented professionals are interested in moving today than they were a decade ago, suggests Jeff Hocking, the San Francisco-based regional technology market leader in North America for Korn/Ferry International. One reason relates to family dynamics: a working spouse, children's education or a house mortgage. "The other bucket is, 'I am an A-plus employee. I don't need to move because there are plenty of other companies interested in me, and they are telling me I don't have to relocate,' " he explains.

In addition, "Technology and 'extreme commuting' are enabling more people to choose where they want to live." Hocking loosely defines extreme commuting as traveling to an office more than 90 minutes away or in another state. "More [top] employees are saying, 'Why should I relocate to Chicago and then travel 50 percent of the time? What's the difference? The move will cause stress on the family,' " Hocking adds.

Ways to Manage Risk

Clearly, the risks that accompany deployment of employees worldwide are redefining the role of mobility professionals. They must have "strong financial acumen, knowledge of tax and immigration risks, employee relations experience, and a flexible disposition to cope with the constantly changing business environment," Hannibal says.

The role requires a sound approach to risk management. While this approach varies by company and situation, mobility experts identify the following common steps:

Be safe. Senior Director of Global Mobility Eric Halverson produces a monthly report with eBay's emergency and security group. The report tracks every employee on temporary or permanent assignment. When eBay evacuated employees in Tunisia in early 2011 due to mass protests, team members knew "where all of our folks were," Halverson says.

Monitor constantly. Technology can help ensure employee safety as well as track compliance with tax and immigration laws. Ernst & Young last year launched a GPS-powered smart phone app called TRACer that can track the real-time location of expatriates and business travelers without transmitting personal information. When the tracked traveler's time in an individual country nears or surpasses a relevant tax or immigration milestone, an automated alert occurs so the proper action can be taken.

Act early. When it comes to family dynamics, O'Connor recommends identifying small issues before they metastasize into big problems. "Understand and manage family needs before an assignment begins," he advises. "Small problems at home become exacerbated overseas due to cultural and language differences."

Partner with experts. Mobility executives point to their networks of experts when explaining how they manage risks. Hire global experts who will "operate proactively in helping you," O'Connor says. That means more than having a Big Four firm or another mobility services partner send out e-mail updates on the latest developments. "A true partner regularly meets with you regarding the details of a particular piece of legislation," for instance, O'Connor says.

In United Technologies' case, experts began advising O'Connor and his team to start accruing taxes for expatriates working in China—even though the new tax rules have yet to be enforced.

If and when they are, O'Connor and his team will be prepared. In the brave new world of mobility risk, preparation and anticipation are vital components.

The author is a business writer based in Austin, Texas, who covers human resource, finance and social marketing issues.

Web Extras

SHRM article: Extreme HR (HR Magazine)

SHRM article: The Business of Relocation: Not Good (HR Magazine)

SHRM article: Taking Care of Business Abroad (HR Magazine)

SHRM article: Mobility Officers on the Move (HR Magazine)

SHRM research article: Global Talent for Competitive Advantage

SHRM toolkit: Managing International Assignments

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