One of the many questions that business owners ask is what they can do to mitigate risks and decrease potential liabilities within their companies. Most organizations want to ensure that their relationships with their employees, as well as their clients are based on a foundation of sound business practice, ethical conduct and legally defensible conditions. Important factors include understanding current laws and regulations, creating and managing sound employment procedures, and documenting expectations. All these elements are included in a process we call risk management.
The concept of risk management had its birth as a method of assessing the physical environment in which employees work. The primary focus reflected on how safe or hazardous the environment was as it related to the Health and Safety at Work Act 1974. This legislation related directly to the type of work employees were engaged in, and whether the environment within which they perform that work was safe from harm or injury. It required businesses to assess their environment and make reasonable modifications to avoid unsafe conditions. However, throughout the years the concept has evolved into a broader assessment of not only health and safety issues, but now also includes employment and client relationships, terms and conditions. Companies now look at the entire scope of business relationships under the lens of risk management.
Human resources risk management issues
One of the most important risk management issues in this evolution, especially for small businesses, is human resources risk management. The primary focus of human resources risk management is to protect the company, its employees and its clients from attitudes, practices and actions which may be viewed as discriminatory or inequitable. Failure to engage in risk management will ultimately result in physical, emotional, or financial liabilities. Some examples of potential high risk activities include, but are not limited to, inequities in pay or discriminatory hiring practices.
Also, one area of primary concern relating to human resources risk management includes creating or accepting a highly charged sexual environment (i.e. off color remarks, jokes, or stories; common cursing; pornography or nudity; and inappropriate or provocative attire).
Discriminatory practices and sexual harassment claims are two areas of risk management which are extremely costly, time consuming, and can quite literally put small businesses out of business. Even if you are fortunate enough to win a claim, the potential harm financially can be devastating – not to mention damage to your reputation, bad press, and decreasing employee morale.
How organizations put themselves at risk
Obviously, companies do not create practices which knowingly place themselves or their employees in harm’s way. However, in reality, organizations place themselves into precarious situations through poor planning or execution. An example of this would be creating a policy or procedure to ensure safety, but not holding managers or employees accountable through enforcement of that policy. Another aspect of not managing risk includes creating policies which declare Equal Opportunity Employment while discriminating against certain applicants or employees in hiring, promotion or termination practices.
One of the most common ways businesses place themselves at risk is by holding themselves accountable either through regulatory compliance or internal policy while not providing adequate management or employee training. By creating or committing to a standard of conduct, organizations must understand that they are also committing their managers/supervisors, in particular, to being held to the same standard. By not educating management on the clear expectation of the standard or training them on how to implement it, businesses open themselves to regulatory and financial liability.
Managing risk
There are three critical elements that every business should be aware of and implement while considering risk management. By engaging in these actions organizations will ensure that they are protecting themselves and minimizing potential liabilities:
- Implement a risk management assessment. Consider risk management as a crucial element of operating a successful business. Take the time on the front end and assess your work environment. Be candid in your assessment of the organization. Ask yourself if the proper regulations and policies exist to ensure the health and safety of your employees. Look at your organization’s demographics. Do you have all men in management? Do women earn less than men? Do you lack ethnic diversity within the organization? Are some employees treated differently? If the answer to any of these questions is Yes, your business may have some risk or potential liabilities. Reflect on not only what you policies are but whether they are actually being followed, encouraged and enforced. You may want to engage the services of an objective outside resource to conduct that assessment. Companies like Back Office Support Solutions (BOSS) can assist in developing the assessment and recommending solutions. They will not only know what to look for but how to rectify the issue or issues.
- Develop a written Risk Management Plan. Take risk management seriously. Especially as a small business, since small businesses cannot afford to incur legal or financial liabilities. After developing the plan, revisit the objectives and measure the results on at least a semi-annual basis.
- Train managers and employees. Ensure that all management and staff are aware of the conditions under which they work. Reinforce the importance of the plan and hold appropriate staff accountable for its implementation. In fact, charge a senior manager with the designated responsibility to make the plan a success.
Risk management should be as much an element of running a profitable business as marketing, advertising, staff development or any other business consideration. Utilize sound business practices, plan based on risk management objectives, and constantly measure results. When considering risk management issues, prevention is far more cost effective then damage control.
Contact us today for a free, no-obligation consultation on all your human resources, accounting & bookkeeping, tax prep, and back office needs. We provide highly skilled HR professionals who focus on providing the right products and services to help you grow and succeed. Back Office Support Solutions (BOSS) is a leading Human Resource Outsourcing company. “Let us do the work… so you don’t have to.”
Call BOSS at 619-363-3009 or visit us at: backofficesupportsolutions.com
This article was written by: Ricardo H. Correia, Human Resource Manager for Back Office Support Solutions.
