Is risk management on your HR radar?
As managing risk increasingly becomes everyone’s business in many organizations, a recent survey showed that HR is only moderately involved in planning and executing enterprise risk-management strategies.
New research released by The Risk Institute at Ohio State University reports that HR is involved in the planning and execution of enterprise risk-management (ERM) activity for only about half of firms surveyed, with financial firms (54%) and public firms (59%) showing the highest participation rate.
When asked why HR is not more involved in ERM, 43% of respondents indicated that HR leaders have other priorities that prevent them from focusing on risk management, while 28% said that the risk-management team does not sufficiently reach out to HR.
“We’ve got this contrast between ‘I’m really involved in a lot of important things’ and … ‘No one reaches out to us,’ ” says Phil Renaud, executive director of The Risk Institute. “It’s this classic risk scenario that I’ve seen… in the business for 45 years. We find that, in certain instances, people work in isolation and they’re not effectively reaching out to other functional areas.”
Another finding was that 21% of respondents said that HR does not see the benefits of risk management. “I view that as a communication gap,” Renaud says, adding that 18% responded that they did not recognize the importance of risk management. “[Taken together,] 39% are either not seeing the benefit or not recognizing the importance of risk as a function with your organization. That is a lot.”
While 16% of respondents reported that HR professionals don’t feel they can have an impact on risk management, Renaud argues that this presents an opportunity to expand HR’s business partner role into risk management for their particular areas of focus, such as in training, filling key roles and enhancing the quality of work.
Now in its fifth year, the survey focuses on the state of ERM and also includes additional questions to understand a sub-section, which this year was HR—and how it is, or isn’t, integrated into the ERM process.
The elephant in the room, from an HR-related risk perspective, is the upcoming mass retirement of baby boomers. About 95% of firms reported that there would be some impact, with 60% saying it would have a high to moderate impact.
Renaud explains that, between the smaller populations of younger generations and the Great Recession—which froze most hiring until around 2013 or 2014—many companies won’t have enough younger workers with the experience to completely replace the retiring boomers, particularly in areas such as IT systems. That talent gap, in turn, can impact a company’s performance from an innovation and effectiveness standpoint, which is part of the risk-management focus.
Finally, HR can play a key role in helping the organization understand that “de-risking” by outsourcing can create a hidden risk for firms, especially for those that have compliance requirements due to their industry. “That could be a very valuable engagement by HR to contribute to the risk conversation,” he says.