1. Managing the people dimension of risk
Corporate Research Forum
Managing the people dimension of risk
Wednesday 8th September 2010

2. Agenda 09.30 Introduction 09.40 Initial discussion at tables
10.00 Overview of research
10.40 Tea & coffee break
11.00 Panel of HR and risk practitioners
11.40 Group discussion
12.30 Lunch
13.10 Feedback from groups and plenary discussion
14.00 Panel of Experts
14.50 Summing up
15.00 CLOSE

3. Report highlights Risk management – and HR’s ‘golden opportunity’
Core issues in managing ‘people risk’
Priorities for action

4. The context RM approach hitherto seen to have ‘failed’
“ERM has operated as a boundary preserving model of risk management subject to the ‘logic of the audit trail’, rather than a boundary challenging practice which confronts and addresses the complex realities of interconnectedness.” Professor Michael Power.
Reliance on financial modelling & quant. analysis
Corporate governance prescribing better people practices, especially at the top
Processes: reward, development, induction, performance review, feedback mechanisms
Increasing focus on ‘culture’, risk mindset

5. Correcting perspectives
Governance
Not just about board-level rules and regulations
How to exercise ‘control’ when organisations and operating environments are increasingly fluid
Risk management
More than mitigation and stopping ‘bad things’
‘Balance’ - taking worthwhile and avoiding poor risks
‘Operational’ risk
a catch-all for risks other than ‘market’ and ‘credit’
people risk included but undefined – can be fundamental, not just about ‘operations’

6. People and risk

7. HR’s opportunity – and challenge
Behaviour and culture – surely HR’s expert area?
‘Whole-system’ understanding required – i.e. OD
HR processes are culture shaping levers
But
Scepticism about HR’s pro-activity and clout
Influence at the top? And on mgt teams generally?
Knowledge of & interest in risk management?
Skills in evaluation, analysis, devising solutions?
Effectiveness in facilitating scenario planning?
Too weighed down with process and fire-fighting?
Relationship with Risk management function?
The ‘best’ drive the agenda – what about the rest?

8. Risk culture refracts messages

9. Risk culture + or - Positive Negative Misalignment
Serves as a barometer
Reinforces messages
Guide for judgement
Reduces error, permits learning
Promotes consistency and allows flexibility
Alert to ‘weak signals’
Allows reflection
Boosts performance, confidence, engagement
Negative
Misalignment
Blind spots
Incubation of crises
Recklessness
Suppressing feedback, sharing, learning
Suffocating initiative
Groupthink
Pressure & stress effects
Over-powerful leaders
Can be toxic to performance and reputation

10. 3 lines of defence? Front-line and middle management
Are they well briefed? Are they listened to?
Lots of ‘control functions’
More than ‘policing’ required; achieving ‘balance’?
How independent and holistic is the 3rd line?
HR as a control function
Risk-HR relationship – eg who leads on what?
Risk of the Risk Manager
What is HR doing re this?

11. People risk challenges at the top
Mistrust of unchecked top executives
Board attitude is key - need to:
be reflexive
engage with complexity
be willing to challenge and be challenged
avoid knee-jerk reactions – ‘pendulum effect’
Self-awareness and role-modelling good leadership
Face up to, and learn from, mistakes
Who holds up the mirror?
Risk, HR, all functions? Does that work?!
Ensure good oversight of people strategy and risk
HRD ‘clout’?
People insight and capabilities on the board?

12. Risk identification Should be part of business strategy process
including strategic people planning
Effectiveness of horizon-scanning and scenario planning
Really understanding the business
eg organisational reviews
robustness of risk register information
Stress-testing and learning loop
Highlight & challenge embedded assumptions, blind spots

13. Risk measurement Collective approach Keeping it fresh
legacy of different functions ‘counting’ in different ways, with different rigour
inhibits looking across the org, spotting poss. chain reaction
can undermine a risk register unless there is good ‘education’ about risk and healthy challenge/debate
understanding the people risk component in every area - avoid seeing this as an HR ‘silo’
Keeping it fresh
Seeing the wood for the trees, spotting weak signals, analysing near misses
Keeping people challenges in the spotlight at the top
HR metrics capabilities – QUAL AND QUANT NEEDED

14. HR processes - how rigorous
Some HRDs argue that implementing HR practices well addresses much people risk
True? Only up to a point
Not all people risk factors governed by ‘recognised’ people processes
How business-aligned are all HR processes?
How robust are the processes?
How much do line managers buy in, and display people skills?

15. What does ‘good’ look like?
Clear governance structure & behaviour, aligned with business aims
Robust people processes – supporting ‘balance’ and biz goals; line manager buy-in; adherence; re-freshed
Dynamic – challenge assumptions, think unthinkable, constant learning
Triangulation – use multiple perspectives, data sources
Transparency, honest debate, role-modelled at ‘top’
Consistent approach from individual to team to Org – yet variegated according to needs (flexibility)
HR helps to set the agenda and ‘educate’

16. 10 priorities for HR Expert partner in building risk culture, mindset
Embedding values/behaviours to influence decisions
Linking behaviour and organisation performance
Aligning reward and recognition
Mastery in providing people risk information
Guiding board oversight of people strategy
Assessing and developing leaders
Expertise in organisation design
Partnership with Risk
Developing HR’s risk capabilities, esp OD

17. Other priorities CEOs to address reputational issues, and
set clear and appropriate ‘risk tone’
act as role model re risk, inc team leadership
create environment that allows reflection and good judgement, and demonstrate ‘listening’
Boards – acquire good ‘people’ expertise to improve oversight of organisational behaviour
Risk – develop more rounded capabilities in depth, and partner with HR re people issues
Regulators – ensure any interventions re risk culture are fit-for-purpose and skilled

18. Panel discussion

19. Group discussion - process
45 minutes discussion at tables
8 questions shared out between tables
Choose a ‘rapporteur’ at each table
Record answers & contributions on sheets provided
Include - examples of good practice, things you’d do differently, what helps and hinders
50 minutes plenary 19

20. Issues to debate Risky behaviour at the top – HR’s role?
2 Scenario planning - what should you do?
3 Control vs empowerment
HR process rigour
Risk capability within HR – how to develop
Risk culture and mindset – HR’s role
Errors – what’s allowable or not? Learning?
8 HR’s part in risk management – what helps and hinders? 20

21. Discussion topic 1 Risky behaviour in management teams
– from overly bold strategy to poor ethics and personal behaviour
What can and should HR do?
Where’s the balance between fear of ‘put down’ or even job loss and your duty to stakeholders and ‘professional principles’?
What are the consequences of staying silent?
What should be done in the first place to avoid this scenario?

22. Discussion topic 2 Scenario planning
In today’s complex environment, what should – or do you – do to….
ensure that HR is helping the organisation prepare for the unexpected, and
as a result both spot opportunities and mitigate possible problems?

23. Discussion topic 3 Control vs empowerment
How do you ensure that you have clear operational control of risk at all levels, including external contractors,…
…while at the same time not stifling initiative and undermining engagement through restrictions and lack of trust?
How do you allow discretionary decisions, but ensure that risk is minimised?

24. Discussion topic 4 HR process rigour
What are you doing to ensure your existing people processes provide the means to manage risk effectively, and do so rigorously and reliably?
What more could HR do, directly or through line managers and organisational leaders?

25. Discussion topic 5 Risk capability
What are you doing (or should you do) to ensure that HR is authoritative in its contribution to the management of enterprise risk?
What capabilities need to be demonstrated by generalists and specialists?
What development processes should be used to facilitate this?

26. Discussion topic 6 Risk culture and mindset
What can and can’t HR do to enhance these?
Consider all levels in the organisation and, in indicating activities, how to avoid ‘traditional’ HR orientation towards standardised processes and rules.

27. Discussion topic 7 Error
‘Everyone makes mistakes’, but what can you and can’t you allow?
How do you minimise error and its negative effects?
How can risk management accommodate – and benefit from – human error?

28. Discussion topic 8 HR’s part in risk management
What helps and hinders HR playing a full part in risk management?
What helps and hinders the working relationship between HR and control functions like Risk?
What part should HR play in facilitating the effectiveness and development of such control functions?

29. Panel discussion

30. Summary

31. CRF’s forthcoming events
DATE
EVENT
13 & 14 Oct.
International Conference (Budapest)
Performance Through People – Capability & Context
23 Nov.
Research Briefing & Workshop (Trinity House)
Leadership Development – Where’s the Edge?