The Tribune

The compliance landscape, and the needs of employees, are constantly evolving so it is no surprise that employers find cultivating an environment that meets the requirements of both extremely challenging. Though not exhaustive, the intersection of these factors equates to a human resources risk.

There are several risk frameworks that consider human resources risks. This writer has selected the Community of Sponsoring Organisation (COSO) Framework as the one to focus on here. In COSO’s view, human resource management (HRM) is an organisational governance technique. The objective of COSO is to increase the efficiency and effectiveness of business operations, the accuracy of financial reporting, and compliance with applicable laws and regulations. Therefore, HRM policies and practices, for example, should enable companies to achieve their organisational objectives and goals.

As an example of the importance of human resources risks, Gresa Mjaku and Abdylmenaf Bexheti, in their academic paper entitled ‘Environment control and risk assessment as COSO framework elements, and their impact on entity performance: a case study in the Republic of Kosovo’, demonstrated that the control environment, including culture, transparency, structure and management of human resources, had a 73 percent affect on a company’s performance.

This article, the first in a two-part series, will identify three critical human resources risks. These risks are in no way all-inclusive.

Employee health and well-being

Workplace health and safety (WHS) should be one of the most risk-based functions within human resources management. The basic elements of a health and safety function involve identifying ways to monitor and manage physical and psychological risks to employees. Quantifying this risk whenever possible is an important consideration. These measures include but are not limited to injury and illness rates, and severity and frequency of accidents and fatalities as lag indicators of safety performance. Lead indicators include employee safety control, co-worker safety response and safety culture.

Productivity

Research supports that productivity metrics are linked to the company’s human resources. For instance, productivity can be negatively impacted without effective project management practices, while project safety and health can be compromised. Moreover, companies must consider the issue of presenteeism (employees who come to work when they should be absent due to illness), and the potential risks this poses to themselves and their wider workforce. In addition, ineffective company changes can adversely affect employee productivity, turnover and health and wellbeing.

Turnover in the workplace

The turnover of labour is a critical human resources risk. It has been identified as a risk that can have an adverse impact on the stability and development of an enterprise. Similar to health and safety measures, both lag and lead indicators are associated with this risk - turnover versus intent to leave and company commitment. Companies must have their pulse on the work-life balance as it can be perceived as a work-life conflict to employees who feel overworked and under-appreciated by management.

Conclusion

In short, this writer’s research shows that human resource management professionals and researchers do discuss the risks and benefits of human resources practices - individual or multiple. Still, their primary focus remains on selling their value-adding capabilities. Unfortunately, human resources management rarely discusses risk management or how appropriate ways of hiring, managing and developing employees can enhance company outcomes and mitigate operational risks. In the second part of this series, this writer will address this under-explored environment.

NB: About Derek Smith Jr

Derek Smith Jr. has been a governance, risk and compliance professional for more than 20 years. He has held positions at a TerraLex member law firm, a Wolfsburg Group member bank and a ‘big four’ accounting firm. Mr Smith is a certified anti-money laundering specialist (CAMS), and the compliance officer and money laundering reporting officer (MLRO) for CG Atlantic’s family of companies (member of Coralisle Group) for The Bahamas and Turks & Caicos.