Most corporate scandals have their roots in human governance failure. Our 5 minute video provides an introduction to how human governance drives cultural and human capital risk highlighting key issues as well as how we analyse it (see also Maturity Institute Orientation program here)
Despite the constant stream of material risk manifesting in companies, most identify and manage human governance risk through a very narrow lens – e.g. ‘talent’ attraction and retention, health & safety, or human rights. Equally, investors remain ill equipped to be able to ask the right questions or demand companies address underlying causes.
In reality, human governance risk arises out of organizational purpose and values to permeate all company systems: from decision-making, resourcing, reward, learning and performance management to quality assurance. Only by understanding risk in this context can we understand and predict the likelihood of corporate problems or failure.
Consequently, we adopt whole system human capital risk analysis to identify the nature and quantum of business risk that is inherent within an organization. This involves analysis of twelve core interrelated human capital risk factors that have causal connection to material business risk.
For example, one factor we examine is knowledge & learning failure, where we identify any failure to utilize existing, critical, internal knowledge which leaves a firm in a disadvantaged or precarious market position, or any inability to learn from mistakes or innovate for the future; causing material value damage. The symptoms of an organization carrying this risk include a lack of an internal learning system, no common discipline of problem solving throughout the organization, or no explicit feedback loops. We might also see training inputs used as a proxy for learning value and a much higher probability of whistle-blowing activity and information leakage, as “employee voice” is not systemically integrated or is considered unimportant.
If you would like to understand more about our work with both the investment community and company boards & excos, please contact Stuart Woollard.