As we move on from the peak of the pandemic, environmental, social, and governance issues (ESG) gain traction and businesses face new supply chain and talent threats. It is more critical than ever to manage people risks as part of a broader approach to enterprise risk management (ERM). HR, risk managers and the C-suite should work closely together to ensure that threats are identified, evaluated and mitigated appropriately.
The consequences of getting this wrong are significant, as evidenced by our People Risk Report 2022. We found that the greatest risks facing firms are cybersecurity and privacy, administration and fiduciary, and catastrophic personal life events.
Firms need to ask themselves: “Can we give people more security, flexibility and better health while also facing up to the business challenges of lowering costs, navigating operational disruption and increasing liquidity?”
The answer is yes, but only for those organizations that get the basics right and ensure they have strong ERM practices in place.
Building trust among employees and wider stakeholders, including customers, is an important part of the puzzle. Our wider research shows that employer responses during the pandemic impacted staff sentiment. In an era of heightened awareness of ESG issues, companies must work harder to earn the trust of employees, customers, investors and regulators.
Five key global findings from the People Risk Report 2022
The top people risk that faces businesses today is cybersecurity and data privacy. This is not surprising given the geopolitical landscape and data breaches at major organizations that occurred over the past year.
The number two risk globally is administration and fiduciary. The inability to administer benefit and compensation plans accurately, fairly and in accordance with promises made quite rightly has companies concerned. Errors and unmet obligations can lead to damaged reputation, along with regulatory action and penalties.
Catastrophic personal life events are the third-ranked global risk, while the fourth is pandemics and other communicable health conditions. This highlights the need for employee support and other proactive strategies to navigate future crises, including those that stem from climate change, inflation/rising interest rates, pandemics, recession or violent conflict.
Closing out the top five risks was the changing nature of work. The degree to which flexible working has evolved over the last two years merits examination and a resetting of practices. With the Great Resignation, firms must tackle this emerging issue now to attract, retain and engage employees in the future.
- Pandemics & other communicable health conditions
- Employee health & well-being
- Mental health
- Workforce exhaustion
- Work-related illness or injury
- Administration and fiduciary
- Increasing cost of health, risk protection and well-being benefits
- Benefit, policy and reward decision making & accountability
- Legal, compliance and financial practices
- Pension financial exposure
- Cybersecurity and data privacy
- Impacts of automation and AI
- HR technology obsolescence
- Misalignment of HR and business strategy
- Skills obsolescence
- Changing nature of work
- Talent attraction, retention and engagement
- Succession and key person risk
- Conduct and culture
- Travel and mobility
- Catastrophic personal life events
- Working conditions and labour relations
- Diversity, equity and inclusion
- Leadership issues
What firms can do
Organizational complexity is a high barrier for every pillar of people risk. As businesses continue to grow and threats are present across traditionally siloed work areas, organizations are struggling to define who is responsible for owning a particular mitigation effort, thus leading to gaps in adequately addressing looming risks.
HR and risk managers must therefore work together. Fortunately, the People Risk Report 2022 research shows a strong alignment between these groups when it comes to the top issues facing businesses. Now, organizations should capitalize on this alignment and continue to break down siloes to further enhance collaboration on risk identification and mitigation.
Difficulties that change personal behaviours are also identified as a key barrier. For this reason, it is critical to develop an ERM culture. Risk culture is built on a foundation of shared organizational values, attitudes and behaviours, with visible and accountable leadership backed up by shared responsibilities and actions by all members of staff. Risks present both threats and opportunities, so a multi-disciplinary, deliberate and well-coordinated approach is needed to help develop effective measures that mitigate threats and take opportunities.
Our “Age of Adaptability” report indicates that 88% of HR teams have seen more involvement in benefits from the C-suite. Risk managers and HR teams therefore must take their disciplines to the next level.
This means developing more deliberate approaches to listening to employees, a tighter connection between benefits and business goals, and judicious cost management focused on value and multi-year benefit strategies. Some are tweaking values and cultures to promote human-centric leadership, justice and purpose. With ESG on the rise, many organizations are looking to build a sustainable people culture, including delivering on total well-being. In this scenario, it will be more challenging to make cuts to benefits as many have done in the past to keep benefit budgets affordable. Hence, cost management instead of cost shifting to employees is needed; for example, steering employees through plan design to higher-quality points of care to reduce complications, or using virtual care when appropriate.
Important questions to ask
How are employee, customer, investor and regulator expectations around ESG impacting the business?
Is diversity, equity and inclusion a blind spot for us? Are the needs of the diverse workforce reflected in the employee benefit programs?
Could mental health be more proactively managed, and what impact could this have on insurance needs in areas such as director and officer coverage or key person risk?
How is the difficulty in attracting, retaining and engaging talent impacting business operations, the customer experience and profitability?
Are there opportunities to further strengthen the culture to aid employee retention and improve risk management practices?