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Addressing HR Risk

February 12, 2009
Related Topics: Career Development, The HR Profession, Employee Career Development, Featured Article
Human resources risk ranks among the top three issues facing companies today, according to a recent survey conducted by Ernst & Young. The survey, which is based on responses from 155 CFOs, HR executives and chief risk officers at Fortune 1,000 companies, found that information technology risk and financial and legal/regulatory risk topped the list of concerns for these executives. Despite this, 41 percent of the executives say their boards of directors never formally review the company’s HR risk profiles. Bill Leisy, principal in Ernst & Young’s performance and reward practice, recently spoke to Workforce ManagementNew York bureau chief Jessica Marquez about this disconnect and why it’s essential for companies to address it.

Workforce Management: How do you define HR risks?
Bill Leisy:
We defined it as the challenges or business improvement opportunities dealing directly with the people or employees in an organization. The top risks within this category that we found were talent management and succession planning; ethics and tone at the top; regulatory compliance; pay and performance alignment; and employee training and development.

WM: Why aren’t boards addressing these risks?
I think it’s just about the need to get the awareness of the impact of HR risks out there. That’s incumbent on all of these titles—the chief financial officers, the chief risk officers and the chief HR officers. If they don’t address these risks, it could destroy the entire reputation of the organization and have a lot of ripple effects into all aspects of strategy and compliance.

WM: What can HR executives do to encourage their boards of directors to examine these risks systematically?
A big part of the HR risk is the financial aspect. So if the HR executive is talking about a medical plan or a pension plan, they need to elevate how the demographic or the aging population within the organization is going to have a direct increase on costs. So there is the direct connection in an area of HR risk.

WM: That’s a very clear-cut example where HR risks increase costs. But particularly in this economy, what can HR executives do to get the boards talking more about those strategic HR issues like talent management and tone from the top?
Leisy: Talent management is very relevant as it relates to the type of competencies—performance the organization needs in a down economy. Also, any kind of restructuring or strategy shift directly impacts talent management. Similarly, the ethics and tone is important to address in a down economy. Companies need to decide if they are going to be lean and mean. Are they going to exit certain businesses? Companies need to be aware of what the message is coming from the top of the organization and if that message is being executed.

WM: Along these lines, training and development are often the first thing to get cut in a bad economy. Are you seeing that?
Actually we are seeing that the trend in training and development is to actually do more in-house. We have found that 85 to 90 percent of learning and development is being conducted internally. I think you will see more on-the-job training.

Workforce Management, January 19, 2009, p. 8 -- Subscribe Now!

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