People risks, such as the loss of a key person, talent attraction and retention are a top concern for directors, according to the fourth Directors’ Risk Survey Report.
The report, which was conducted by the Institute of Directors and insurance broking and risk management company Marsh, revealed that directors are ‘overwhelmingly’ concerned about their ability to replace a key person within their organisation.
Eighty three per cent (83%) of all respondents cited key person loss as the biggest internal risk to their company, with talent attraction and retention being rated as the fifth largest internal and second largest emerging risk.
Despite this, almost a third of directors had no plans in place to manage their talent attraction and retention risks.
According to country head for Marsh New Zealand Marcus Pearson, the risk perceptions are unsurprising given the tight labour competition among workplaces to attract and retain talent. New Zealand companies find it a huge challenge given the country’s remoteness and relatively small population - so the ability to retain talent is directly linked to a company’s success. However, he says the fact that 32% of directors did not have any plans in place to deal with the risk is more concerning, especially when it comes to SMEs that may be more vulnerable to the risks of key person loss.
“Key person insurance is not well understood at the moment,” says Pearson. “A lot of people don’t understand that you can even have that type of insurance. But key people can make or break an SME and the impact of people moving on is huge, so having a plan in place is vital to ensure that these instances are well managed. It is important that New Zealand directors continue to place risk management as an ongoing priority.”
According to Pearson, risks may get easier to manage as organisations become larger, more adaptable and more resilient, but major companies are still far from immune to the fallout. Having initiatives that create awareness around physical and mental health, and understanding the value of individual skillsets will go a long way in retaining talent.
“Negotiating this environment will require directors to have a long view and anticipate how rapid social changes will impact on their business, as well as remaining flexible and responsive to changes within their industry,” he explains.
“New Zealand is a little behind in this space. Overseas, it’s the accepted norm that businesses will have things like income protection and medical insurance, but it just doesn’t seem to be as high on the agenda in New Zealand. We need to do a lot more to raise awareness of the extent of products and solutions that are being utilised elsewhere in the world, that might also be of great benefit here.”