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Building Strategies for Sustainable Growth as a Mid-Sized Organization
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Capability Overview
Tailored Solutions for Your Company
Middle market organizations are part of a sector experiencing significant growth — and with it, key inflection points in their regulatory and compliance approaches. Rapidly evolving regulation1 and rising risk across human capital, cyber, directors and officers (D&O), environmental social and governance (ESG) policies and beyond, push businesses from a proactive opportunity mindset to a compliance mindset. Organizations of all sizes are grappling with uncertainty, regulatory complexity and changing laws. But it's the larger organizations that tend to have dedicated teams to navigate change and manage compliance so leaders can focus on strategic business growth initiatives.
Middle market organizations, on the other hand, typically have fewer resources and much smaller teams. Therefore, remaining compliant — and keeping up with change — can be a challenge and take precedence over opportunities like Mergers and Acquisitions (M&A), strategic risk management, and health and wealth offerings for attracting and retaining top talent.
While risk and compliance add pressure on growth for middle market organizations, there are promising paths forward. Tapping into the right resources and talent to make better regulatory decisions today, can result in a better tomorrow.
Article
Building Strategies for Sustainable Growth as a Mid-Sized Organization
Capability Overview
Tailored Solutions for Your Company
Organizations today are wading through a morass of regulations, often attempting to keep up with a patchwork of U.S. federal and state regulations, in addition to regulatory concerns that come with expanding geographic footprints internationally. The SECURE 2.0 Act, the Health Insurance Portability and Accountability Act, Health Savings Account regulations, leave laws and beyond — particularly ESG regulation in Europe — are just some examples of increasing legislation.
Every middle market company needs a compliance strategy and framework to manage and mitigate risk. But this is not a growth or investment strategy. Directing resources and talent to compliance versus performance and growth initiatives can add stress to these organizations, slowing expansion and business plans — whether investing in new markets, products, services, and people or pursuing mergers and acquisitions.
There are several key areas where middle market organizations seek growth, but may face risk, regulatory and compliance burdens:
Talent strategies and associated compliance and risk - Middle market organizations want to provide premium talent offerings,2 which could include market competitive rewards, health and retirement benefits, and meaningful career opportunities. However, they often find themselves spending more time managing risk and regulations than exploring potential opportunities. Many large organizations have recognized the role HR plays in shaping and executing strategy and capitalized on it.
Research shows HR teams have shifted to spending 60 percent of their time on strategic initiatives, and the CHRO role continues to evolve at major organizations.3 But middle market organizations with smaller HR teams can easily fall behind these trends as they manage important administrative and operational needs versus larger strategic human capital initiatives.
Leave laws or pay transparency, for example, are a key legislative areas where middle market organizations need to assess their exposure, understand what’s applicable to their workforce, and make decisions about how to manage their business and talent accordingly.
When it comes to employee benefit plans, organizations must navigate laws that differ across cities, states, and countries. Many middle market organizations, which have fiduciary responsibilities, don’t have the in-house expertise or bandwidth to regularly review changing laws and proactively manage contract terms — opening them up to potentially overwhelming risk. For example, the litigation activity in the 401(k) market4 remains high‚ and employees who serve on fiduciary committees are personally liable. Participants are suing 401(k) sponsors for varied reasons, all of which put organizations of all sizes on edge — from not using the lowest share class for mutual funds, not satisfying their fiduciary duty to monitor providers, for excessive fees charged to participants, and beyond.
Keeping ahead of M&A compliance matters - Sixty percent of middle market organizations that participate in M&A say it is vital to their growth strategy.5 But it’s critical for these organizations to focus on compliance throughout the process — from reviewing the compliance history of the target company along with potential liabilities to the changing laws and regulations that influence dealmaking.
Since middle market organizations often have fewer compliance resources, preparing for M&A from a compliance and regulatory standpoint can be particularly daunting. Organizations that haven’t developed regulatory frameworks and controls — which most large, publicly traded organizations already have — may face barriers. And due diligence processes could uncover liabilities that, while they won’t ultimately halt the transaction, adversely affect the sale price for a middle market company. Using acquisition as a path for company growth requires understanding the associated regulatory and compliance shift.
Staying on top of growth risks - Unlike large organizations that have worked toward an enterprise risk management approach, middle market organizations may find they are managing a medley of high stakes risks that require extensive time and resources. There are material risks that come with human capital, and organizations of all sizes are increasingly paying attention.
In Aon’s Global Risk Management survey, failure to attract and retain talent was the fourth biggest risk organizations are facing, and respondents expect that to remain into 2026. At the same time, middle market organizations are managing risk capital and trying to ensure both compliance and strategic decision-making across all areas of risk. Cyber, ESG, E&O and D&O continue to rise to the top of the agenda.
No company is immune from rising cyber risk. Middle market organizations, in particular, may not have the IT teams and defenses that large organizations have. In one survey, 28 percent of middle market executives reported that their organizations experienced a data breach in the previous year;6 in another, nearly half of middle market firms reported that they didn’t have an incident response plan.7
Errors and omissions risk, along with directors and officers risk, are areas where middle market organizations need solid regulatory coverage, especially as they grow, bring on more talent and serve more clients. Additionally, climate and ESG — a constantly evolving set of regulations that vary across state and country borders — present new challenges, particularly as middle market organizations seek geographic expansion.
There are several paths middle market organizations can consider continuing on a strategic growth trajectory, while managing regulation and compliance more confidently today and in the future.
Establishing comprehensive risk mitigation strategies and coverage approaches is critical. Bundling policies and seeking counsel mitigation tools and strategies, including business continuity plans, for instance, can help position middle market organizations more favorably when seeking coverage.
Middle market organizations that align risk and HR teams with their overall business strategy, develop frameworks, identify innovative solutions and focus on broader business trends, can ultimately find the right balance between compliance and opportunity with confidence.
1 https://www.moodys.com/web/en/us/insights/insurance/emerging-regulations-are-reshaping-the-global-insurance-industry.html
2 https://www.amalgamatedbenefits.com/amalgamated-life/middle-market-businesses-and-employee-benefits-trends/
3 https://chief.com/articles/why-chros-are-the-new-c-suite-power-player
4 https://www.investmentnews.com/retirement/news/401k-settlements-went-way-up-in-2023-247954
5 https://www.middlemarketcenter.org/Media/Documents/key-findings-middle-market-merger-and-acqusition-best-practices-key-findings.pdf
6 https://rsmus.com/middle-market/cybersecurity-mmbi.html
7 https://www.insurancebusinessmag.com/us/news/cyber/how-well-is-the-middle-market-keeping-up-with-cyber-risk-461144.aspx
8 https://woodruffsawyer.com/insights/pooled-employer-plan
9 https://www.sec.gov/files/spotlight/iac/20230921-recommendation-regarding-hcm.pdf
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