How chief human resource officers and chief risk officers are combining forces to manage workforce risk in disruptive times

This is a co-authored blog with my colleagues Mark Watson, Fiona Li-Weisser and Shefali Jethmalani.?

Workforce resilience shot up the agenda during COVID-19. We changed from simply worrying about employee safety to wellbeing and, as the pandemic endured, to resilience. In essence, it represents the ability of a company’s workforce to thrive in the face of disruption.

Some 1,800 banking leaders across HR and risk functions joined EY leaders in an April 2022 webcast discussion around workforce resilience and the management of workforce risk. Three important lessons surfaced in the webcast:

• The pandemic and other disruptive forces have shone a light on the need for a resilient workforce, which is emerging as an urgent topic on the executive agenda.
• Workforce resilience is not an HR problem to solve alone – insufficient levels of workforce resilience could expose a bank to detrimental risk, and chief risk officers (CROs) must pre-empt and participate in this discussion and partner on solutions.
• People risk management capabilities are new in many firms. Opportunities exist to mature these capabilities by integrating people risk in existing risk programs, extending people risk to include more than traditional definitions of employee safety, and investing in workforce data and the supporting infrastructure.

Why workforce resilience is now an executive priority

More than 90% of CROs indicated that workforce resilience had become a more important priority as a result of the pandemic, according to the latest EY/IIF (Institute of International Finance) Risk Management Survey. A range of factors may be driving this, such as the accelerating amount of change affecting the sector and its workforce through the climate crisis, the digital revolution, hybrid work and more.

As shown in the EY Work Reimagined Survey that was published in April 2022, 43% of the approximately 17,000 participating employees indicated that they are likely or very likely to leave their employer in the next 12 months, with the top three reasons for taking a new role cited as increases to total compensation, better career advancement opportunities and enhanced levels of flexibility.

When this is considered, it is not surprising that participants in the recent EY webcast discussion cited the following as major obstacles to building workforce resilience:

• More than 50% highlighted both attracting and retaining talent.
• One in five cited concerns about employee burnout.
• Almost one in five worried about wage inflation.

But what constitutes workforce resilience?

As banks continue down a path of pandemic recovery, there is a need for a robust workforce that can thrive in a disrupted and competitive market. This need, combined with the degree of talent liquidity seen across the sector, has intensified the focus on workforce resilience in banks.

There are four markers of workforce resilience:

• Elasticity: the way in which the workforce morphs with the business and dynamically resizes
• Adaptability: the ability of the workforce to quickly build new skills and embrace change
• Wellness: wellness in the workforce across mental, physical and financial dimensions?
• Inclusivity: the extent to which employees feel connected to each other ??

Leadership at banks must continuously strive to improve workforce performance across all four of these areas.

CRO and CHRO engagement is critical to addressing workforce resilience

Historically, workforce issues have been considered the responsibility of the chief HR officer (CHRO), with accountability for people management residing in the business. However, as the risks of having an insufficient workforce magnify, the CRO is paying more attention. In fact, more than 70% of participants in the EY webcast discussion indicated that the CHRO and CROs in their organizations were sometimes or often collaborating on topics of workforce resilience.

Yet, almost a quarter of webcast participants attributed a lack of collaboration around this topic between the CHRO and the CRO as the top barrier to building workforce resilience, indicating that there is work to do to combine these two important capabilities in managing an urgent talent agenda.

Maturing people risk capabilities in banks?

Many banks have human capital risk embedded within their operational risk taxonomy and track hiring and attrition patterns for risk reporting as a baseline measure. However, financial institutions are starting to question whether workforce risk warrants higher stature in the risk framework and taxonomy, and whether additional workforce metrics should be monitored as a basis for risk reporting, such as skills supply, culture, and wellbeing or inclusion measures.

To enhance the management of workforce risk, CROs should consider extending their definition beyond the traditional Basel framework definition, which is focused on employee compliance and safety. Given talent constraints across the sector, and the growing appreciation for talent and its criticality to a bank’s survival, a deeper definition that ventures into employee engagement, productivity and skill profile, may be appropriate. Additionally, CROs could benefit from past lessons in managing emerging risk categories like cyber or technology risk, and by embedding people elements into existing risk programs, such as risk and control self-assessments or conduct risk programs.

Final thoughts

In a disrupted financial services sector that poses new demands on the banking workforce, managing workforce risk and building workforce resilience is imperative. To effectively manage these issues, a combined strategy from CRO and CHRO is needed. As the CRO sits at the crow’s nest and looks for the icebergs ahead, it is a pivotal time to acknowledge workforce risk in a material way. A hand-in-hand response between the CRO, the CHRO and business leaders is required to attract, retain and engage skilled talent for not just today, but tomorrow and beyond. ?

The authors give thanks to the team supporting the EY webcast, “Why workforce resilience is now a critical focus for banks,” including Caroline Candido, Claire Parker, James Roach, Sarah Oberman, Sarah Colasanti and Nina Ginsberg.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.