What Senior Leaders Need to Know about Human Capital Risk Management
According to Deloitte CEO Survey 2022 (https://tinyurl.com/nhh2u2aw), the biggest challenges CEOs face are talent acquisition and labor issues — areas of human capital. This is significant, considering the bold Forbes assertion, and commonly held principle, that human capital is a business’ most important asset (https://tinyurl.com/2vyrk5sw) In the Deloitte survey, workforce motivation and retention are vital for building trust with both their staff and customers, indicating its importance not only for internal processes to run smoothly but also for client generation, satisfaction and retention. Indeed, CEOs are less concerned with market risks and the global economy and more concerned with the risks of human capital mismanagement.
But what is human capital risk? And how can it be addressed?
In a more recent article (https://tinyurl.com/mrbxrrv3), the Deloitte team notes:
Historically, organizations’ main workforce-related concerns often rested almost entirely on productivity and cost competitiveness. Today, workers can affect their employers in a variety of ways — from their behavior on social media and adherence to data security policies to their alignment with the company’s purpose and their willingness to upskill.
So the risks of decaying collaboration and low morale don’t only affect the bottom line in terms of productivity and cost competitiveness. Due to increased complexities with social media and online mass-information capbabilities, individuals who experience workplace harms can “go public” and inflict outsized corporate and individual reputational damage. No longer is it necessary to obtain an attorney and go through lengthy litigious process — an individual can compromise client trust and cause corporate harm by posting and sharing damaging information. Further, as both lawmakers and the media are highlighting the perils of discrimination and sexual harassment, the general workforce is demanding fair management practices and corporate and policy transparency. Should fair standards not be met, corporations run increased risk of high turnover and related costs.
The response to human capital risks has been anything but seemless and straightforward. Most organizations assume HR / People and Culture will be at the helm (https://tinyurl.com/5h4n6m7y), taking care of any and all human capital risks. However, HR / People & Culture offices focus primarily on payroll, following state or federal law mandates (including trainings), onboarding and exit interviews, and determining promotions and salary increases. Many are not skilled at mediation and handling sensitive conversations when trust has been compromised between and within teams. Moreover, as fellow employees, HR / People & Culture staff have their own reputations to uphold and career considerations, along with a mandate to protect the organization, so they cannot act as neutrals when someone is concerned or complaining about mismanagement. This often means that conflicts fester, because employees cannot always rely on HR / People & Culture to provide the kind of support and communication skills-development that their situation warrants. Conflicts that escalate, toxic dynamics left unaddressed, and bullying or harassment that are not reported or otherwise handled can pose enormous risks to an organization.
Thus, corporations who sincerely seek to manage human capital risks are best advised to establish an office or partner with an external service that exclusively and expertly handles sensitive and difficult situations and challenging team dynamics. Many employ an Organizational Ombuds service and some choose a conflict management consultancy who can provide trainings, mediation, and coaching. Regardless of the specific structure, the purpose of the role is twofold:
- To liaise regularly with senior leaders and ensure that they are aware of potential issues brewing and act as a thought-partner on how to address them.
- To train and coach on how to build trust and de-escalate conflict and to handle complaints as a neutral, confidential, informal, and independent resource.
The best system for handling human capital risks is one that is pro-active and establishes this office or service before conflicts fester and escalate. Good governance would mean being pro-active with a conflict management office or service, in order to address issues early-on and thereby avoid reputational harm, low morale and productivity, and high turnover.
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