A recent Workforce article listed the five worst jobs in human resources. Sadly, one of those jobs listed was that of a safety officer. There is one glaring problem with that analysis. Why is a safety officer reporting to personnel? The safety function should report to the organization’s risk manager, who, if not a C-level employee, should be reporting to a C-level employee, not to a personnel director.
There has been a great deal of discussion among risk managers about where their function should report. Most risk managers argue that the risk management function should never be placed in personnel, nor should the management of workers’ compensation claims. Why? Because the monies expended on premiums and the exposures of workers’ compensation are liability exposures, not an employee benefit. Therefore, the risk management function and the safety roles within an organization are much too specialized to be tied to personnel functions.
Of course, there must be a great deal of communication and cooperation between the departments. A workplace injury and the need to get that employee back to work may involve human resources because of the need to apply the Family & Medical Leave Act or the American with Disabilities Act. But the reporting, investigation and management of workers’ compensation and other claims should reside with risk management.
In the past, risk and safety managers were often middle managers who had little authority to enact change. In today’s increasingly volatile legal environment and in light of Sarbanes-Oxley, it is time to elevate most risk managers to the C-level: Chief Risk Officer. In fact, many larger corporations have moved to this paradigm.
Risk management evolved as a profession because insurance purchasing requirements became complex as the insurance market evolved from the 1950s through the 1970s and the environmental movement. (For a brief history of risk management, read this article that was adapted from Risk Management Reports.) Here are a few of the functions where risk managers can make a crucial difference.
Protecting your company’s reputation. How valuable is your organization’s reputation? According to the Economist Educational Unit, fully 84 percent of senior risk managers surveyed listed protecting reputation risk as the most “important and difficult task” facing them. In today’s increasingly viral world where a damaging video can be viewed millions of times and the media can keep a subject in the spotlight, businesses must take great steps to protect their reputations and respond to complaints and allegations.
Controlling risk through the purchase of insurance, the transfer of risk via contract and the development of self-funding vehicles. Sounds boring, doesn’t it? That is why many risk managers fail to attain visibility in their organizations—they are thought of solely as insurance buyers. It is up to the risk manager to promote his or her value to the company. An April 2007 article by William J. Kelly in Risk Management Magazine says it best. “The most important individuals in a tribe are those who provide for and protect the group: the hunters and warriors. In a corporation, they are the leaders of business units that generate revenue and acquire additional resources.” If risk managers don’t quantify what they bring to their organization, there is little doubt management and the organization as a whole will marginalize the value of the risk management role.
The risk manager’s role is exciting, saves money, and is vital to the continuity of the business. Where else can you attend a trial one day where the monetary demand may be in the millions and the next day visit a job site to inspect a scaffold that, if it fails, may cost one of your workers his or her life?
Internal auditing and investigations. In light of Sarbanes-Oxley, the burden is growing to ensure that strategic and operational risk is addressed, and not just at audit time. Think the recent meltdown of Societe Generale’s internal accounting procedures after a low-level trader bungled over $7 billion in trades.
Preventing claims and managing claims investigations and settlement. Today’s organizations face a growing risk of litigation. One of the main functions facing today’s risk managers is to ensure that potential claims are averted, and if not, managed correctly. This may mean taking significant self-insured retentions to better manage which claims are settled and which claims are defended. No matter how complex the claims issues, larger organizations no longer afford to rely solely on their insurance carriers to determine which cases get settled and which go to trial.
Today’s marketplace allows little margin for operational error. A Chief Risk Officer can greatly mitigate an organization’s exposures and help businesses navigate today’s increasingly complex business environment.