What are the most pronounced HR practices driving Enterprise Risk? Before we answer that question, let’s first understand Enterprise Risk Management.

Enterprise Risk Management incorporates and evaluates the relevant material risks to an enterprise, including financial risks (i.e., capital structure, pricing, and insurance) and operational risks (i.e., internal controls, technology, and human resources).

Enterprise Risk Management then considers strategies and constraints, whether driven by political, social, regulatory, or competitive factors, and the effect these strategies or constraints can have on the financial and operational efficiencies of the enterprise. And, risk by the way, is now defined as the chance of economic loss or the failure to exploit opportunities for competitive advantage. In the end, Enterprise Risk Management seeks the optimal relationship between operational risk and enterprise value.

The stewards of Enterprise Risk Management are known by a variety of names, with a risk management hierarchy that includes a Chief Risk Officer at the top of the chain of command. These CROs may be classically trained Accountants, Lawyers, Risk Managers or Human Resources Professionals. Regardless, these positions are responsible for considering all aspects of the operations and generally have many people reporting in to the top.

So, back to the question "What are the most pronounced HR practices driving Enterprise Risk?" The answer is the failure of the enterprise to engage its participants with regular and consistent communication, daily defining and reinforcing boundaries and preferred behaviors, and daily reinforcing competencies identified by the enterprise as the most beneficial for the achievement of the enterprise's collective goals and objectives.

Engagement is not a new concept. In fact, many studies, using real data, have revealed that employees, to support the goals and objectives of an enterprise, must be engaged. Engagement leads to substantial benefits, largely financial, for the enterprises that build systems and processes to support it. Research indicates that engaged employees are more loyal, more productive, more willing to give extra time, and more likely to support the goals and objectives of the enterprise.

Engagement, while not new, is complex, and involves a blending of the intellect (what an employee thinks), the emotional (what an employee feels), and the behavioral (how an employee acts). This ‘think, feel, act’ matrix evolves from a complex set of messages communicated by the enterprise, and it leads to a new challenge, and that is the challenge of Managing the Psychology of Choice.

Have you ever asked yourself:

• Why, regardless of management’s commitment to a culture of safety, do we see folks who simply disregard policy?
• Why, given definitive guidelines for performance, clearly within the abilities of an individual, do we see these disregarded too?

You can probably glean that risk management comes down to individual choices, that is, the action that each will take when faced with an opportunity to act or react. So, it is the choice of the individual, not the enterprise, that drives risk.

Who, when given the choice, will behave based on what they think and feel, which is, in part, something they are and became well before you knew them, but also, in part, something you can affect as long as you remind them everyday that you are engaged, you care, you will reward and you will punish.

Engagement through communication and discussions on the Psychology of Choice is a relatively new way of looking at risk management, and, clearly, may cause some executives to see this as "psycho babble" and one more reason to de-value the human resources process.

But, it is precisely the analysis of the Psychology of Choice and the recognition that, in its absence, Enterprise Risk Management can never fulfill its mission that explains why even the most committed enterprises can, and often do, fail to achieve their risk management objectives.

So, communication, verbal and non-verbal, if you’ve followed along, can make or break every enterprise initiative, whether strategic, operational or financial. And, from this follows that business cultures, everywhere, where everyone is accountable, each to each other and to themselves, and where all choose the behaviors that work best for the enterprise, are cultures that have the greatest opportunity to impact risk and effect financial success.

And so, from all this, human resources has evolved to provide a new and vital role to enterprises, far from the "make nice" kind of work that characterizes too much of what we do, to the participants in the risk management and stewards of:

• consistent and reliable communication throughout the enterprise;
• processes that reinforce preferred behaviors; and
• policies that set boundaries.

In sum, we’ve found, that each participant in the risk management process must be engaged in the process and agree to subscribe to the boundaries and preferred behaviors identified by the enterprise as the most beneficial to the enterprise.