With so many organizations intent on maximizing results, many are focused on reducing issues that affect employee productivity, efficiency and effectiveness, also known as "human capital risks." These risks are typically treated as a responsibility shared by HR, risk and compliance divisions or personnel, as well as senior business leaders.

Advanced analytics are helping to make risk management easier by giving leaders insight into restructuring systems or putting stronger prevention measures in place. “Managing risk begins with managing culture, and culture is inevitably shaped and shepherded by the men and women in executive leadership. Whether explicitly stated or implicitly signaled, the C-suite's orientation toward risk flows down into each department (human resources, finance, compliance, etc.),” says Natasha Bowman, JD, SPHR, owner of Performance ReNew.The HR team can have a significant impact on reducing such productivity and efficiency barriers by focusing on and identifying potential risks in three areas: negligent hiring and retention, employee turnover, and occupational fraud.

Negligent Hiring and Retention

Negligent hiring and retention are at the top of the risk stack when it comes to curtailing effects on a company. People are sources of risk, and any time a company makes an improper hiring decision, the company potentially opens itself up to negative consequences.

Carey O’Connor, chief legal officer of Flowserve Corporation advises that in order for companies to better shield themselves against lawsuits from former employees for negligent hiring, companies need to prevent actionable claims. A company’s best defense includes “careful screening during the hiring process, including background checks, reference checks and history verifications,” O'Connor says. In addition, she notes the importance of knowledge concerning federal and state equal employment opportunity laws, as well as employment-related laws such as the Fair Credit Reporting Act. Additionally, O’Connor advises that all background screening processes should be applied consistently to prevent claims of discrimination.

Company policies and procedures may also mitigate risk. Employee handbooks are an excellent tool for companies to explain expectations, inappropriate behavior and disciplinary procedures. HR departments and legal departments can work together to ensure the proper measures are in place to limit potential retaliation claims and preserve business resources in the long run.

Employee Turnover

HR also plays a key role in managing conflicts to improve work relationships and culture, possibly leading to greater retention. After training and professional development, companies stand to sustain significant losses in time, money and productivity when valued, experienced employees walk out the door. Attorney and chief people officer, Wendy Harkness, SPHR, advises that “understanding turnover can be an incredible diagnostic for a business” as it can “indicate specific pain points at each stage of the life cycle of employment.” In other words, the point at which you lose employees can give valuable clues about areas that need improvement, she says.

For example:

  • Within 10 days: Evaluate interviewing and onboarding processes
  • Within 30 days: Review new hire training practices
  • At approximately 90 days: Evaluate the employee's manager
  • After roughly one year: Compare compensation and benefits with market norms

 Occupational Fraud

Occupational fraud is risk to companies because of the potential misappropriation or corruption of company funds. “Certain detection devices can effectively help mitigate the risk by understanding the Fraud Triangle,” Harkness notes. Essentially, the Fraud Triangle is a theory developed by criminologist Donald R. Cressey. His hypothesis was that trustworthy people become trust violators when they feel they have a financial problem they can't share and that the problem can be secretly resolved if they violate the rules of their position and the financial trust that has been placed in them and are able to justify actions they take which violate that trust.

Cressey hypothesized that “trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-sharable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.”

In conjunction with Cressey’s theory, Harkness suggests a number of ways companies can limit occupational fraud. These include empowering HR teams to institute an anonymous reporting system that allows employees to report fraud without fear of retaliation and implementing automated audit systems on a randomly selected basis.

O’Connor also suggests that “the most powerful tool for a company is establishing a strong company compliance culture. Companies should have clear company policies against fraud and other inappropriate activity and ensure employees are not only aware of the policies but also of the consequences when the policies are violated. The company culture should encourage employees to report suspicious activity and ensure retaliation does not occur against anyone who submits a good faith report.” Ensuring your HR department is well-versed in how to foster this sort of compliance culture is critical.

As Bowman says, “The more that an organization has intolerance for conduct that is not reflective of their values and culture, the least likely an employee is to abuse its resources. Human resources can enforce a harder line against ill-behaved high achievers when they know they inhabit an organization that values workplace harmony over marketplace dominance.” The recent Inc./HRCI survey points out that 41 percent of respondents believe HR certification, such as those provided by HRCI, can help minimize a company’s exposure to corporate risk by improving the skills and knowledge of HR leaders and personnel. Forty percent of those surveyed further believe that certification demonstrates that an HR practitioner has the necessary skills to develop talent recruitment and retention strategies. Having top-caliber HR professionals at the pinnacle of the organization will trickle down the business hierarchy into a stronger workforce with stronger risk management policies and practices.