A best practice approach for leadership risk

Human capital drives economic prosperity. People can account for half of the operating costs of a business and significantly influence results. Yet whilst companies analyse and mitigate against enterprise risk, they overlook human capital risk.  The role of the board includes responsibility for governance; therefore leadership risk management should receive the full attention of the board. In many companies, efforts are underdeveloped, miscommunicated or ignored.

We believe that market analysts and shareholders should reward directors who take a best practice approach to leadership risk that encompasses the senior management team as a collective, the make-up of that team, and their ability to execute strategy and deliver results. Effective leadership risk management improves business continuity, minimises disruption, and makes a business more agile and resilient.

Common practice

We find that organisations typically assess the top 100 roles internally. Driven by the HR Director and Group Head of Talent, the Board is often not involved in the process. A nine-box competency matrix maps internal talent (a narrow bandwidth in determining future stars). In some cases, high performers are actively moved group-wide to build experience and some organisations also use a static market mapping exercise to identify the names of leaders in their competitors. The process remains a static, annual review in the majority of businesses.