Human Capital Risk

Human Capital Risk
The past few months have been filled with the opinions of journalists, politicians and quasi-elected officials speaking passionately about bad bankers, bad police, bad executives, bad politicians, bad food companies - it seems all corporates are inherently evil. There has been little new rhetoric about what is needed to transform corporates into a sector that can once again be trusted beyond - we need to fix the culture!
Solutions have included an increase in spend as well as increased attention being paid on compliance activity and officers, installing firmer risk procedures, imposing punitive (fear driven) fines and punishing the guilty publically. Punishment such as huge fines or long sentences does not always work. The media has focused on the premise of ‘good’ and ‘bad’ people and missed the point that we are all ‘human’ and thus fallible. The issue may sit with organisations to mitigate risk through attention to ‘soft’ aspects such as culture. At the moment, risk mitigation is all about the stick: bad people need disciplining and, if not, the wrath of a righteous society will make them pay for their sins. Is this really how we want our corporate sector to manage itself?
Human Capital Risk
From a risk perspective, we suggest that human beings can be viewed as providing the ‘first line of defence’ in terms of protecting the organisation. Like a car driver, it is your intrinsic wish to avoid harming fellow road users because of your wish to ensure your own self-protection - as well as your maturity - which lead you to drive responsibly. Legislation, such as the Highway Code and speed bumps are all irrelevant if you are not intrinsically and rationally motivated to be a risk-free driver. Your sense of responsibility is society’s first line of defines to keep us safe when you drive. How can corporates encourage staff to want to be safe drivers?
Strong Values Equal Good Value
Principles are what you consider important, what you “value.” Beacons that guide your actions, they are what you turn to when you face hard choices. Without principles, you react to circumstances without considering what you value most. This stops one from making the most of their life; it is even worse for groups of individuals (such as companies) because people randomly bump into each other - confused about what each other think is important.
Having a strong principle-driven culture is an essential component of a strong Human Capital Risk environment. You know what to expect from colleagues and management, and in turn what external customers, regulators and the public can expect and hold you accountable for.
Public opinion has changed over recent years. We are less likely to think that a company is great for its products, services and innovation compared to thinking of it as good citizens with good ethical governance.
Does this help me make money?
This approach has other commercial benefits. Management and employees focus on essential aspects of the company (Strategy, Brand, Values, Purpose) that in turn leads to congruence that promotes organisational efficiency and effectiveness.
Decisions happen faster as people are more aligned with the overall strategy and less bureaucracy is needed to check if people can be trusted to make the right decisions.
Trust has become a critical issue between the world of the corporate and the general public; in short, it has been, if not lost, then damaged. Good risk management is a responsibility for all corporations to be aware of - increasingly related to how they think about culture. It will restore the public’s belief in industry to self-regulate and to repair its tarnished reputation.
The Role of Human Resources
The HR response has often been to train senior executives in ethics, publish some values, threaten pay and make sure that ‘values’ form part of the new hire induction. This approach is not holistic, is short term and does not leverage all that we know about how to influence human behaviour.
Instead of this approach:
1. Build pride in the organisation
* Understand what behaviours made you great in the past
* Adopt a positive mind-set in talking to people about the culture - ask what we do best instead of focusing on problems
* Tell stories that indicate the sort of culture that you want to build
* Create a cadre of ambassadors who can champion how to role model the values of the organisation
2. Be clear and consistent in who you are and what you stand for
* Articulate short consistent statements that best describe your organisation at its best, that you are proud of and that you feel you should be held accountable to
* Ensure the senior team understands what this means in terms of its behaviour and the way that departments function
* Build a robust communications plan that tell stories about what you expect and who is doing great things to bring values to life
* Use values to make commercial decisions on big ‘go’ or ‘no go’ aspects and explain to everyone how they guided you as a senior team
* Ensure these principles are embedded in policies, processes and especially in the way that functions (HR, Finance, IT, etc) bring these to life among employees
3. Make this part of how you do everything
* Guide your PR strategy, Corporate Sustainability activity and consider re-articulating your company’s purpose
* Put the purpose of the organisation and the good things that you do into the Annual Report
* Get everyone involved, consider employee speak-up channels, and have an internal ombudsperson to listen to what people have to say
This approach can provide an organisation with a clearer picture of its magnetic ethical North - an organisation that is well prepared for surprises, unforeseen risks and can operate instinctively to do the right thing and trust its people.
Trust will make regulation irrelevant, reduce the traditional bureaucracy of compliance's responses and bring about greater agility.
EOD 13:55, 25 March 2013 (UTC)

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