The Importance of People Risks on the Risk Register; It’s Not Just Business Risks
Human resource, both internal and external, can be both your most important asset, and also your biggest risk. So many companies don’t include them and their impacts on their risk register, which results in failing to understand and action the fact that risk and talent are two sides of the same coin. Find out why people risks must be at the core of your SME risk strategy, and not just assigned to your HR department.
The Top 5 People Risks that Must Be on Your Risk Register
HR and people-related risks regularly rank among the top-five key risk concerns for business according to an annual study of risk management trends, conducted by insurance broker Aon. Read on to find out how to add measurable value to your business with a more focused approach to people management and a better understanding of people risks.
#1 Internal Attrition Risk
Losing key people is inevitable in business. They may take a new job, accept an external promotion, retire, suffer a long-term illness, or sadly die unexpectedly. At a time when the world is reeling from the impact of a global pandemic, employees may be getting laid off, or making the decision to vote with their feet when it comes to pay-cuts or organisational change during the stress test of the Covid-19 crisis.
Employees with skills and knowledge that are valuable to a company’s success, either through experience or unique knowhow, are worth their weight in gold, but what happens when they leave, and what knowledge will leave with them?
It’s essential to identify the critical components of key roles with a plan to seamlessly cover them from a business continuity perspective, as well as having a strong succession and leadership pipeline in place. Individuals come and go, but positions and business needs stay with the organisation. Yet the complexity comes in how to extract and manage the information while not leaving the employee feeling at danger of being replaced.
#2 External Attrition Risk
The stakeholders in your organization are broad, and sometimes the movement of personnel will include people moving on within a client, partner, or supplier company. The concern regarding the scope of influence when dealing with a new contact adds to the sudden unexpected risk, especially for your frontline employees: ‘What if you and the new person don’t gel, what if they already work with a preferred company, or decide to change strategy and cancel projects?’
Your team may now feel powerless, when previously things were good. Does your employee manage change well, and will they be able to adapt appropriately? There’s a lot you can do to minimize the risk of lost business or difficult debt collection before, during and after the transition, by analysing your supply chain for vulnerability and continuity. For example, make sure that you have relationships with multiple people in the partner or client company, and not just the lead contact.
#3 Conduct Risk
In their book ‘People Risk Management’, Keith Blacker and Patrick McConnell define people risk as ‘the risk that people do not follow the organization's procedures, practices and/or rules, thus deviating from expected behaviour in a way that could damage the business's performance and reputation’.
From fraud to bad business decisions or illegal activity to lax corporate governance, your team’s behaviour has a direct impact on your bottom line on a daily basis.
Attracting, retaining and nurturing the right talent that is right for your business culture isn’t a simple, mechanical exercise that just “happens.” From a clear vision and values statement to well-defined company and job descriptions, supported by documented conduct codes, policies, and contracts, transparency is key for two-way trust, and reducing risk in the long-run.
# 4 Poor Governance Risk
A lack of effective governance at the executive and management level can lead to poor business decisions with far reaching impact, which can lower the overall value of the company and make it more difficult to meet its financial obligations. Inadequate governance at the operational level can lead to financial errors, legal and safety issues.
Frontline attitudes and behaviours are your company’s first line of defence against risk. All too often, risk management is treated as purely a compliance issue, to be solved by drawing up some rules, and telling staff to stick to them. At THG Advisory, we work with clients to ensure that your teams are engaged every step of the way, setting up a ‘risk culture’ so that every employee is invested and contributing to the company’s performance.
# 5 Health & Safety Risk
In 2019, the government report in Great Britain showed that 38 days of productive time each year was lost through ill-health related absence and presenteeism (employees who are not fully functioning in the workplace because of an illness, anxiety, injury, or other condition).
Every company has a responsibility to put the safety and health of their workforce and clients first and foremost, whether this is day-to-day safety, dealing with hazards to health, or minimising the potential for major accident events affecting society. Never has this been more front of mind than in recent months, and ensuring compliance to HSE legislations, creating a mentally safe environment, and having a deeper understanding of the ‘social’ impact on your business internally, are all just the start.
Making sure that workplace policies with regard to compensation, development, health, and safety of employees are in place is also key to retaining talent, at a time when many companies have fallen short and failed the COVID-19 stress test.
It’s no coincidence that many governments implemented a policy of regular, if not daily, briefings during the pandemic. Clear and transparent communication on people issues and risk management leads us through the toughest of times.
Make sure that your people are at the heart of your company, leveraging the latest thinking in corporate governance, behavioural economics, human resources, and operational risk.