Top-level executives take risk management very seriously. Survival is at stake. As CEO, it’s tough to point the finger at anyone else when shareholder value is eroded, a brand is damaged, or catastrophic loss occurs.
But the types of risks that we have to manage are ever-changing. In a 2013 study of 230 board members from a variety of organizations, 73% cite reputational risk among their highest concerns. This is second only to financial risk, and represents a 19% increase over the previous year that this survey was conducted.
The world around us is rapidly evolving, and we are faced with economic, social, cyber, and political risks like never before. Can a false tweet cause the market to crash 1,000 points in seconds? Can multiple people repetitively embezzle hundreds of thousands before it is discovered? Can one unsatisfied customer reduce sales via social media? The answers are yes, yes, and yes!
After working with hundreds of companies in risk management, we have found an interesting commonality. Most organizations are managing some of their risk via an insurance policy and risk retention. They are comfortable, although they are primarily in a reactive role when it comes to risk. These kinds of companies tend to miss the riskiest part of the equation: people risk.
What is people risk? People risk is having the wrong people in the right positions. People risk is the failure to understand brand. People risk is having a weak tone at the top that sets little precedent. People risk is a leadership failure that trickles down. People risk is the uncontrollable side of what people do. It is employee risk management.
We view people risk as a hidden, budget-busting risk. At HNI, we believe that people and culture eat strategy for breakfast. In other words, people and culture make — or break — your organization. This risk directly affects your culture, brand, operational efficiency, and ultimately your profitability. In our view, effective leaders of people risk squash organizational inconsistency by living the brand.
Effective practitioners of employee risk management have an uncanny ability to visualize the unknown, strategize, and move the right people into the forefront to lead. They partner with highly skilled professionals. They are accepting of risks, small and large, and thrive on solutions. They insist on identification of these risks, and they insist on transparency and lightning-fast action. Fear of change is a cornerstone of people risk. When your people fear change, the status quo remains — and the evolution of your organization stagnates. Standing still is no way to compete in the marketplace.
While people risk management may be a new concept to many, this is a vital function for everyone in any leadership function (formal or otherwise) in their organization. Future blog posts will explore the four types of people risk that “people risk managers” should focus on to mitigate risk to their organization.