How One Company is Paying the Price for a Lack of Solid HR Administration

One of the resounding themes of the “let’s get HR a seat at the table” discussion that seems to pop up every so often is the idea that HR administrative tasks should be outsourced or eliminated altogether from strategic HR departments. I bet Chipotle might have a different opinion after their recent dustup with federal authorities. From The Wall Street Journal:

Federal immigration agents questioned workers at about two dozen outlets of Chipotle Mexican Grill Inc. in several states Tuesday as part of an expanding probe of the company’s employment practices.

Robert Luskin, an outside counsel for Chipotle, confirmed that U.S. Immigration and Customs Enforcement officials visited “20 to 25 restaurants” as part of a criminal investigation of the company. Mr. Luskin, a partner at Patton Boggs LLP in Washington, D.C., said the government had notified the company that its agents would seek to interview workers.

When Federal ICE agents are haunting your company grounds and interviewing managers and employees, you think that might get a bit in the way of other strategic initiatives?

Fast growth and pressure

Chipotle started with just one restaurant in 1993 and grew to 16 in the Denver area by 1998. That year, McDonald’s invested heavily in the chain and from 1998 to 2006, the chain grew to 500 stores and a successful IPO. After McDonald’s sold their shares of Chipotle, the chain grew even larger, from 500 stores to over 1,000.

Now any HR professional knows that while managing growth can be tough, fast growth can be much tougher. And opening a new store every four to five days for more than a decade is beyond just tough — it takes sustained effort to keep systems up to date and on pace with a rapidly growing workplace.

While I’m guessing that the folks in the HR department at Chipotle were ernest in their desire, in a fast growing company, crossing the t’s and dotting the i’s often falls further and further down the list. And a problem might not be evident in a situation where HR is struggling with all of the other challenges it takes to grow at that pace.

HR administration challenges

Chipotle’s success is pretty unique in the fast food industry. They make a very good product at a comparatively low price and make very good money doing it. Adding layers of administration will eat into at least one of those things that make it so successful.

But there is another side of this coin that’s important to consider too: Being subject of a federal investigation because you can’t verify employment eligibility has a serious cost to your company. It costs:

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  • The time and money it takes to defend a case like this;
  • The opportunity cost that could be better spent elsewhere;
  • Your reputation both internally and externally as an organization; and,
  • Inflexibility in future business strategy.

In short, you’re paying a major price for some lackadaisical HR administration. And let’s be perfectly clear: that’s exactly what this was. When I hear about ICE raids that net hundreds of violations, you’ve got to wonder how something like that happens when you have otherwise talented people running these departments.

Work hard, play hard

The rule in my house is pretty simple: before we go on vacation, we clean up first. That means everything is back in its place and we can feel comfortable going on vacation knowing that when we come home, we won’t find a stink monster living in our refrigerator or no clothes for work the next day.

I tend to think of running an HR department the same way. Take care of all your housekeeping issues and then you have all the confidence in the world to do the best part of HR: talking and executing high level strategy. If there were lingering issues in my shop, I would want them taken care of before I could relax and focus on game changing business strategy.

For companies like Chipotle, it may have been extremely difficult to make that a priority with so many other important things on their plate. Now, they have no choice but to focus on it and resolve it under the limelight of the national press.

For Chipotle’s future, here’s a guess that HR administration will become a vital part of their considerations going forward.

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5 Comments on “How One Company is Paying the Price for a Lack of Solid HR Administration

  1. Great post Lance, but quick question. How do we know that it is shoddy HR instead of some institutional exercise in risk v. reward?

    1. Good question, Nick.

      I’m assuming HR had a hand in anything institutionalized that played fast and loose on legal employment requirements. Whether it was an intentional decision to roll the dice or whether it was shoddy work doesn’t change too much in practice. Legal docs is definitely not an area I would want to gamble with though.

      1. Agree wholeheartedly with your sentiments. I think I didn’t get my point across well enough here. The question is how do we know HR didn’t point this out as an area of concern and it was just ignored by management because they decided to roll the dice? I have no idea whose fault this is, but I’ve seen more than my fair share of advice from HR ignored.

        1. Ah, gotcha.

          Certainly a possibility though I wonder if that attitude would permeate throughout the business as a general rule. Like would their SEC filings also be impacted? Would their restaurants also similarly be not on point?

          I guess my point wasn’t to lambaste the HR department but more so the company for being lackadaisical about this issue. I-9’s are pre-HR 101. The role of HR administration being diminished is leading to a strategic disadvantage to their entire org.

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