Human Capital’s Soft Side
I’ve been a risk manager, chief risk officer, COO, and now a benefits leader for a national brokerage and consulting firm. In the process, I’ve lived all sides of the traditional risk management, human resources and business strategy equations.
What I have never understood is how the risk management community has largely overlooked and bypassed risks arising from people and culture. Sure, we manage workers’ compensation and safety, and worry about OHSA recordables.
But what about the risks around culture, organizational effectiveness, retention of key employees, long-term impact of unhealthy corporate cultures, loss of critical intellectual capital and organizational capabilities and the financial impact of increased turnover?
One good working definition of risk management is the “management process of reducing the variability of planned future business outcomes from the unexpected or preventable.”
Maybe, just maybe though, the softer side of human capital risk is another high ROI frontier for risk professionals to understand and focus on – for the betterment of all.
As risk professionals, we safeguard our employees with Personal Protective Equipment to protect against exposure to toxic chemicals in the workplace. But even greater threats to losing that same employee exist.
Those include the toxic clouds of poor or negative cultural environments, abusive bosses and poor pay or retention strategies that result in lost or diminished corporate capabilities. These are exposures that risk professionals don’t often consider, much less engage in managing.
I would argue that this “softer side” of human capital is one the most critical risks all companies face!
As business leaders, we talk about our employees being “our most important assets” and risk management is definitely a form of “asset” protection. However, risk management generally focuses on physical, financial, reputational, intellectual capital and operational assets. Why not human assets?
Benefits programs that companies provide to employees and their families should be considered a form of personal “human capital” protection against the risks of illness, disability and loss of income for the employee. They do little to protect the company from the loss of that employee to the business while they are out sick or disabled.
A counter argument against risk management engaging in these risks is that HR is responsible for managing these human capital risks, much like finance is responsible for managing the risks of noncompliant financial reporting.
True, but wouldn’t both the visibility into and the proactive responses to human asset risk be enhanced by HR and Risk leveraging each other’s skills, resources, insights and creativity, while working together? There is a big opportunity for the silos of Risk and HR to collaboratively work together to mitigate risks to human capital assets.
As an industry, we have made great strides in traditional risk management and ERM models, and our level of professionalism and effectiveness in physical, financial and reputational asset protection runs deep and strong.
Maybe, just maybe though, the softer side of human capital risk is another high ROI frontier for risk professionals to understand and focus on — for the betterment of all.