Recent events in the financial, media and food industries are a stark reminder that people’s actions – what they do or fail to do – pose an organisational risk which can impact share prices, break laws and even catalyse industry reform. While many businesses are now waking up to the need for a broader understanding of the people they employ, most are at the very early stages of comprehending how people’s behaviour impacts reputation and company performance.
So, what do we mean by organisational risk? One definition is that it is categorised by inadequate or failed internal processes, people and systems which results in consequential damage to a business and overall industry.
So far, many businesses have focused on policies and procedures to try and mitigate risk, but are being left blind-sided by not assessing the 'people' who are creating all the risk. While these 'risky individuals' can never be entirely eliminated, risk has both an upside and a downside and organisations need to be aware of their own appetite for risk so it can be managed in a constructive way.
Our research, which crunched data from 200 countries and territories in search of the riskiest roles, found that on average one in eight people globally pose a high level of behavioural risk to their organisation. Interestingly, only one in 15 executives pose a high risk while further down the organisation, one in seven team leaders and individual contributors are the riskiest employees. These are the front-liners, dealing directly with customers and suppliers.
This means that middle managers have a critical role to play: they not only have to manage compliance and commitment from frontline staff, they must also communicate decisions from leaders in a relevant way so that those frontliners feel motivated.
Business leaders must ask themselves whether they have the right talent in place at the middle management level to deal with risk appropriately and deliver the board’s vision to the frontline. If they don’t, middle managers should be given training to improve communication, decision quality and teamwork to bring on board frontline staff and align them to the business’ values.
Secondly, there are areas where managers could improve their approach to risk. At an organisation-wide level, they need to understand how risky the culture is: if you're a currency trader, the risk will be inherently higher than if you're a sandwich shop - or at least it should be.
There should also be a clear path for enforcing ethical standards. This means having an effective channel by which those on the front line feel comfortable communicating infractions. This is crucial for boosting compliance and commitment. The sad truth is that often whistle-blowers are ignored, even demonised. But senior managers need to listen more to viewpoints across the business to pick up and act on vital clues that will help them manage risk more effectively.
A business’ approach to risk will vary greatly by sector and even departments. Operational policies may reduce risk but they can also restrict the organisation's ability to adapt to change. Clearly, a R&D department will need greater freedoms than the health and safety officer on a food production line. However, few organisations have begun to look at their talent management programmes as a significant contributor to their risk management strategies. This is a missed opportunity as a healthy appetite for risk can encourage innovation and create the new ideas on which the future success of the company lies.
If we are to learn from the ‘toxic company cultures’ reported on by the media, then organisations must better understand the psychology of their people. The board’s role is to set and communicate its ethical standards and decide on its level of resilience and appetite for risk.
A better balance must be struck between creating risk to seize on new opportunities whilst being sufficiently resilient to avert company crises. A basic rule of thumb is this: don't allow problems to be ignored, at any level, when they first arise - or they'll simply come back to bite you down the line.
Eugene Burke is chief science and analytics officer at talent management firm SHL