How compliance and risk management software can mitigate key person risk.
The departure of key staff is considered one of the hardest risks for businesses to mitigate. On top of this, employee retention is now a bigger issue than ever. Not only do companies have to worry about losing key people due to sickness and death anymore, but with job-hopping now being a regular occurrence – by age 35 over 25% of workers have had at least five jobs – companies must prepare for how they will continue thriving after a key person loss.
While human resource and people management teams put a lot of time and effort into company culture, career progression and training programs, relying on talent retention and the cross-training of employees is no longer enough when it comes to holding on to your business-critical knowledge base. A vital strategy for businesses that want to stay competitive after a key person loss, is to focus on mitigating the impact of departing personnel. By using technology to capture information and processes, you can ensure seamless compliance and risk management regardless of changes to personnel.
So let’s take a look at the various methods traditionally used by organizations to reduce key person risk, and how software, particularly RegTech solutions, can be used to prevent companies being bought to a standstill by one person’s departure.
How far can the cross-training of staff and talent retention go?
Previously, companies across a range of sectors have attempted to soften the blow of unexpectedly losing workers with a highly specific skill-set through cross-training staff. This approach, encouraging a ‘three pair of eyes to every job’ mindset, is good on paper, but the reality is that many businesses (especially smaller companies) do not have the numbers, resources or time to educate an employee to the level that specialist training and many years of experience provided another.
It is true that the cross-training approach is suitable in some sectors. Examples of this are often found in the finance sector, where the customer is reassured in the fact that their funds are being managed by a few people rather than an individual.
In many industries however, and in roles within them, specialisation is a requirement. With the potential for very significant consequences of non-compliance arising (both fiscally from government imposed penalties and in terms of health and safety or environmental consequences), only a certain amount of basic cross-training can take place where a certain level of specialisation is needed. Businesses therefore want to ensure individuals are responsible and knowledgeable in their field so as to minimise risk.
Another method often used to mitigate the potential to lose skill sets has been to work hard on keeping the staff you have. There is no doubt that talent retention efforts should always form a critical part of a company’s business management plan, especially within industries where experience and a stable reputation is a compelling advantage.
Management teams can promote retention through smart hiring, ensuring employee values match those of the company, providing employee benefits, incentives for jobs well done, and valuing employee efforts and contributions. Remuneration levels and the opportunity for career progression also form part of the talent retention picture.
Employee retention is, however, only controllable to a certain degree. Beyond that, companies should ensure they have another coping mechanism for insuring against key person loss, because the downside of losing business critical knowledge, even temporarily while a new hire is made, is significant.
The impact of specialist skill loss
Marsh’s Directors’ Risk Survey Report found that 83% of respondents named key person loss as the biggest internal threat to their business. The Ponemon Institute, a global research firm, released a report stating that the average cost of non-compliance for a business was $14.8 million in 2018, an increase of 45% since 2011. In comparison, the cost of compliance had an average of $5.5 million. The risk of non-compliance increases significantly with the loss of a key person; it is essential for businesses to avoid the high costs of non-compliance through mitigating this risk in advance.
Losing an employee with seemingly irreplaceable knowledge and skills, crucial to a company’s success, can cripple business, especially when the skill set relates to regulation, legislation and compliance. Companies can be bought to a standstill if no-one else has the specific skill set or knowledge used by the key person in their job. We see this through a loss of morale, productivity and confidence within the company internally.
Externally, the consequences can be even worse, particularly given the importance of demonstrating pro-active and effective management of health and safety and environmental risks. The impacts of less experienced people attempting to fill empty shoes can result in errors and omissions and can damage the company’s image, lose trust with stakeholders and significantly impact on shareholder value.
Using a range of strategies aimed at maintaining a business’s knowledge base and its ability to manage its obligations, is the most effective way to make sure the impact of any employee turnover is reduced.
The role of RegTech software
In an economic environment where businesses face increasing regulation from governments and legislative bodies (and pressure from the public to put these in place), companies should be looking to regulatory technology as one of their underpinning strategies.
Compliance software is reasonably new to many industries. The potential is very real however for specialist software to help businesses operate successfully in the face of people change and dynamic regulatory frameworks. The people-based benefits from using RegTech solutions are twofold.
Firstly, specialist RegTech software provides team members responsible for an organisation’s with a highly effective tool. This helps them deal with increasingly complex requirements while focusing their time and skills on their core roles. This also allows people to work smarter, leading to an increased capacity.
Secondly, having such a tool in place goes a long way to mitigating the issues that can arise when key members of such teams leave. The software is highly shareable, trackable and responsive and brings together knowledge from across the business in a central platform.
Compliance and risk management software can help foresee, measure and manage risks effectively, all of which are especially critical after a key person loss. A company with software containing knowledge and information that the key person held will ensure that in the aftermath, fewer mistakes are made by whoever is now performing the key person’s role. This saves company reputation, trust with stakeholders, company morale and confidence in leadership, as well as helping prevent any unintentional non-compliance disasters. Furthermore, it reduces stress on the person tasked with taking over the role.
Larqis is a cloud-based software-as-a-service solution developed for organisations to manage compliance and risk in the context of their business operations. With in-built regulatory requirements, Larqis ensures everyone in the business knows what they need to do and has the tools to get it done.