Health and safety rose to the top risks for 2024 in the eyes of corporate directors and officers ... [+]
Earlier this month, this space reported that health and safety rose to the top risks for 2024 in the eyes of corporate directors and officers around the world, up from the number five ranking last year. A number of leaders have asked “why” and what they can do to measure and mitigate associated risks.
For context, WTW’s 2024 Global Directors and Officers Survey Report identified health and safety as the top risk category as measured across more than 50 countries. In some regions, related topics were also listed as top risks, such as breaches of human rights in Africa and Asia or supplier business practices in Great Britain, Africa, and the Middle East. Civil litigation – often in relation to employment issues – is a top risk in the Americas.
This shift is correlated with increased pressure from multiple stakeholders (including investors, customers, and regulators) to track and address risks associated with people, the impact of which is now better understood and quantified in today’s environment. Effective boards and management teams are responding across several dimensions:
1. Oversight of human capital management – Intangible assets continue to rise in their proportion of corporate valuations, and the impact of people on both performance and risk rises in parallel. Effective boards and senior management teams create and preserve long-term value by acting as stewards of their enterprises, providing appropriate levels of wellbeing governance and oversight, knowing that healthy, engaged, financially secure employees perform more effectively and efficiently, resulting in better decisions and outcomes.
2. Connection of health and safety to other reported top risks – Effective boards and senior management teams understand that when employees do not feel well or safe, they are less focused and vigilant on routine work responsibilities as well as less routine threats – resulting in less resilient organizations. This can lead to greater incidence of other reported 2024 top risk areas, including cyber, data loss, bribery and corruption, regulatory breaches, human rights breaches, supplier business practices, and civil litigation.
3. Link between employee wellbeing and performance – WTW research demonstrates the impact of employee wellbeing on retention of key talent, employee productivity, and financial performance. For example, eight times as many employees are fully engaged in high wellbeing cultures compared to low wellbeing cultures. Effective boards and senior leaders measure and review wellbeing and performance data for their organizations.
4. Materiality of human capital and wellbeing – Leaders have increased access to data on everything that touches customers – new product innovation, production, sales, service delivery, resolving issues and more. Companies are under significant pressure to find or increase their competitive edge. Effective boards and senior leaders report materiality of human capital and wellbeing in multiple areas of financial and operational impact, such as supply chain impact, productivity cost, replacement cost, reputation impact, ESG impact, and value creation/erosion.
5. Prominence of reputational risk – WTW’s 2023 Reputational Risk Readiness Survey reports that 95% of companies allocated budgets for managing reputational damage, and 87% understood the cost of transferring reputation risk from their balance sheets (these numbers increased from 2021). Effective leaders take accountability and develop protocols for reputation risk management internally and externally, increase crisis management capabilities, understand the complexities of communication in a polarized media environment, and explore the financial implications of reputational crises, including the assessment of potential losses and the importance of strategic risk management.
6. Oversight of HR programs to reflect safety and wellbeing – Effective boards and senior management teams review and oversee programs that support safety and wellbeing, often recalled using the mnemonic, “CARE”: compensation and benefits, advancement, retirement and experience. Compensation and benefits includes base pay, annual incentives, long-term incentives and employee health care benefits. Advancement includes succession planning, management development, skill availability, preparing workforces for the future, retention and turnover. Retirement includes all wealth-creating defined benefit and defined contribution plans, as well as any other qualified and nonqualified plans, such as employee stock purchase or excess benefit plans. Experience includes actual conditions of the employee population such as work environment, work location, remote/hybrid arrangements, work content, relationships with colleagues, managerial effectiveness, inclusion, belonging and dignity.
7. Availability of employee wellbeing measures – Effective boards and senior management teams measure wellbeing across four key areas: Physical, Emotional, Financial, Social.
Physical wellbeing – measures include percentage of employees covered by health care, absenteeism, presenteeism, wellbeing program participation, total cost of ill-being, chronic care management, productivity, and employee health and safety.
Emotional wellbeing – measures include percentage of employees covered by behavioral health care, employee assistance program usage, behavioral health service access, use of paid time off, psychological health standards, stress barometers, resilience training and emotional health indices.
Financial wellbeing – measures include retirement readiness by age, ability to manage planned and unplanned financial events, financial literacy indices, retirement plan contribution levels, percentage of employees living below the poverty level and percentage of employees with second (or third) jobs.
Social wellbeing – measures include ISO psychological safety standards, inclusion and diversity metrics, percentage of employees working remotely, employee engagement, leadership trust and workplace dignity.
In today’s environment, effective leaders care deeply about employees’ health and safety and take action to support wellbeing, corporate governance, and performance.
