Why Risk and HR are the Axis of Sustainability | Sustainable ...

What?s the biggest risk to your business? That a competitor will come along out of nowhere and steal your market share? That your supplier will be exposed for employing child labour? The unchecked ego of your ship?s captain?

In 2007, the Economist Intelligence Unit (EIU) asked Risk Managers to rank risks - regulatory, reputational, IT, and market risks etc ? in order of business impact. Surprisingly, Human Capital Risk topped the list. The problem though was that when the same respondents were asked to rank how effectively their companies managed these risks, human capital almost fell off the chart. Only climate change and terrorism were managed less effectively. The EIU drew the obvious conclusion: there needs to be much closer integration between the risk function and the Human Resources function.

Five years on, as the Conference Board?s more recent but equally vital 2011 research, ?Managing Human Capital Risk, a Call for Partnership between Enterprise Risk Management and Human Resources? has shown, integration is still a way off.

Below are six reasons why, even in large firms where HR and ERM functions have a mutually mature take on the importance and centrality of Human Capital Risks to business success, a unified front is still not being presented:

1. Silo risks: Here the two functions are not operating or communicating together
2. Cultural risks: With different backgrounds, worldviews, and methods, here the two functions are drawn from too different occupational cultures
3. Language risks: Here the two functions are effectively speaking different ?risk? languages
4. Incentive risks: Here the two functions are not being incentivised or directed to work together
5. Priority risks: Here the two functions are interpreting and ranking key risks to the business based on very different and ingrained perceptions
6. Ego risks: Here one function (risk) is unwilling to share the CEO?s ear

How do you speed up and make the change to your business?

In the wake of the financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandated that U.S. financial services firms must have a Board-level risk management committee. I think most businesses would do well to have a Board committee or a panel of experts that regularly and systematically assess the company?s overall risk picture.

The panel will help:

• Provide a Human Capital Risk Framework setting the joint (HR and ERM) language, policies, and processes to think about risk in the context of your own organisation for the long term
• Review Human Capital Risk Audits to measure the costs/benefits of the aggregated risk picture
• Analyse the risks particularly as they apply to large or more frequent business transformations, including for example mergers and acquisitions
• Ensure the Human Capital Risk Strategy, as part of the wider HR Strategy, becomes a visible part of the wider Risk Strategy: and is not lost in translation in the overall Business Strategy too
• Ensure the aggregate risk picture engages business leaders by showing clearly all the current challenges, limitations and opportunities they face
• React quickly to deal with any unplanned-for risk scenarios (loss of the CEO for example)
• Both sides ? HR and risk professionals ? refine their working relationship and minimise the risks their relationship (or lack of) poses to the business
• Act as an education and communication base not just for raising board-level awareness of the business?s approach, activities and maturity in dealing with risks, but all the way down through the organisation (line managers and employees) and beyond (suppliers,
• customers, shareholders and investors)

Including business leaders, risk professionals, HR, line managers, as well as experts in relevant areas such as legal, finance and corporate social responsibility, it is suggested that a company-wide view is ascertained at least quarterly. If the business is new to this way of looking at itself, has a sharp imbalance between the competencies of risk and HR, has undertaken an audit and shown itself to be suffering widespread and entrenched risks (at shop floor and board-level), or needs to monitor human capital risks on a more regular basis (such as in financial institutions) then the frequency can be increased.

I also urge the panel to look externally to get the right information and support they need from professional bodies or business intelligence providers who can continually appraise the business on the latest thinking in this new and ever-changing field.

For more on Human Capital Risks, what they are, how they damage businesses, and more importantly how to make your business self-aware of their importance and impact, check out the free 2012 white paper ? Human Capital Risk: Rehumanising the Firm.

Or better still, ask me a question and I?ll do my best to give you a risk-free answer.

Source: http://sustainablebusinessforum.com/lyaeus/56512/why-risk-and-hr-are-axis-sustainability

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