Boards of directors and senior management teams are tasked with maximizing opportunities and managing risks for organizations. In sports terms, to me, maximizing opportunities is like playing offense and managing risks is like playing defense. For now, let’s focus on defense.
According to Wikipedia, Risk management is the identification, assessment, and prioritization of risks (defined as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events. Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals.
Sticking with definitions for the moment, Talent may have a wide range of meanings, but for our purposes, let’s define talent as the people who drive performance and value within an organization. So managing talent risk is aimed at minimizing bad outcomes related to the people who drive value in an organization.
What are the bad outcomes related to talent? Here are a few to consider:
- Sudden loss of key people – unplanned turnover.
- Lack of return on key people and leader investments – poor performance.
- Failure to attract, develop and retain talent.
With a little imagination, these bad outcomes can go from unfortunate to scary.
What should board directors and senior executives do to help address and mitigate these risks? In a report called The Talent Intelligent Board published by Deloitte, the authors call for increased talent management oversight and outline five steps for improving talent risk management. Here are some excerpts from that article:
Improving the oversight of talent risk begins with understanding those risks and management’s approach to addressing them.
Here are five key steps for boards to consider in their talent oversight role:
- Review talent-related risks: Many boards have adopted a twice-a-year talent review in which the chief human resources officer (CHRO) summarizes the external talent trends, and workforce and talent strategy for the business, including a comprehensive review of talent, HR risks and the associated mitigation strategies.
- Develop measurable outcomes: It is also wise to request a benchmark analysis that covers employee engagement, top performer and executive attrition, and other factors related to talent retention at the senior levels and for other critical positions. This can be accomplished by leveraging industry or HR data and/or using historical organizational data as comparisons.
- Assign the responsibility: More and more boards designate a director and/or members of the remuneration committee to address talent-related issues and risks (often a former or current CHRO), and ask for frequent “in camera” sessions with the board on talent-related risks. The head of HR could report to both the CEO and the board. For the board, this designated director can help raise awareness of talent issues; moreover, this individual has the appropriate background to question management and inform the board about talent-related risks and how management is addressing them.
- Monitor the talent pipeline: Talent supply and demand data should be reviewed as part of capital investments and business strategy reviews at least annually, and ideally more frequently. In addition, the need to develop new products, enter new markets, or combat new competitors will dictate the demand for specific experience and skills. The board should ascertain that management and the HR team have plans in place to meet that demand.
- Align the talent and business strategy: In reviews of strategy, the board should ask management how it aligns the talent strategy with the business strategy. Forward-looking talent strategies maintain this alignment while helping target investments in talent development for optimal efficiency and effectiveness. The board should also be aware of talent issues related to any initiative that comes up for its review or approval. For example, in merger and acquisition (M&A) situations, talent due diligence is often neglected and talent the organization intended to acquire on Day 1 may be lost. In a recent survey, only a quarter of respondents indicated that talent/HR metrics were used to determine the overall success of their transaction. Among the same respondents, those that rated their M&A as successful or highly successful were far more likely to have considered talent implications during the due diligence stage.
Talent identification, attraction, performance management and retention is already at the forefront of senior executive’s minds. Recognizing and managing talent risks will help organizations focus on maximizing opportunities through people. When it comes to talent, the best offense may start with a good defense.