HR summit 2013 - Role of HR in Crisis Management & Organizational Sustainability

ARiMI – Asia Risk Management Ins0tute NOTES

By MARC RONEZ Chief Risk Strategist & Master Coach Asia Risk Management Institute

The Role of HR in Crisis Management & Organiza:onal Sustainability Preparedness

HR Summit 2013, MBS Singapore, 25 April 2013

Key points on the Agenda for this Session

þ  Defining what is a Crisis? þ  How effective are organizations in managing turbulences and

crises? þ  3 reasons why Human Resources should be involved in Crisis

Management It’s all about people stupid! þ  What are the typical behavioral patterns of people during crisis

situations from C-level down to front-line staff? The danger of neglecting the Human Factor!

þ  Defining the strategic role for HR in crisis preparedness and organizational sustainability.

þ  HR Crisis Management systems: Stop thinking like a Mechanic and start acting like a Gardener

þ  Changing the paradigm: Crisis situations as transformational growth opportunities for organizations and their people

HR & Crisis Management – Marc Ronez - Copyright @ ARiMI 2013 2

1 - Defining what is.. a Crisis and the Need for more effective Crisis Management


What is a Crisis?

A CRISIS is an event/situation/decision that results in a:

1.  total or partial disruption of key business and operational processes due to harm to people/ relationships or damage to property, equipment or the environment

2.  and/or influence stakeholders‘ perception negatively

which - as a consequence of the direct impact and of stakeholders’ responses - may dramatically impact an organization's profitability, reputation and hence ‘license’ to operate & long-term operational sustainability.


Pressure

Time Potential Emerging Current Recovering

Life-‐cycle from a Risk issue to a Crisis – 4 phases

Media Coverage & amplification

Signal

CRISIS

Incident OR Signal

Issues Signal


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Examples of Risks & Crises..

Terrorism Diseases

Earthquake

Pollution

Bank run

Subprime Explosion

NGO Attack Lawsuits

HR & Crisis Management – Marc Ronez - Copyright @ ARiMI 2013

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Need for beMer Risk & Crisis Management?

71% of Fortune 100 Companies in 1990 are GONE today!

The average lifespan of an organization is estimated to be between 35 to 45 years

71% Gone!

29% Still here!


Need for more effec:ve Risk & Crisis Management?

A continuous and constant stream of crises and corporate failures over the past 10-15 years have created a strong momentum for Risk, Crisis & Business continuity management concepts.

9/11

Fukushima


2 -‐ Reasons why.. Human Resources should be involved in Crisis Management


3 Reasons why Human Resources should be involved in Crisis Management

A Crisis and its Management has a lot to DO with PEOPLE! 1.  First, people are a source/factor of risk, e.g., people

making wrong decisions, people doing sloppy work, being complacent, etc.

2.  Second, people are victims of risk, e.g. injuries, deaths, psychological impact, etc.

3.  Third people are essential in managing risk, e.g., people using their knowledge, skills, experience and ingenuity to resolve expected and unexpected risk issues.


1 – People are a source/factor of risk: Incompetence, Lack of Ethics & Fraud of Leaders – Some examples

Ken Lay, Enron Chuck Prince, CEO Citi Group

TT Durai, NKF

Bernie Ebbers WorldCom

Dick Fuld, Lehman Bros

Alan Greenspan, Chairman FED

Madoff, Investment

Ramalinga Raju, Satyam


Root causes for many Organization's Problems

The examinations that followed many corporate collapses revealed a common theme behind the institutions‘ troubles i.e. The People’s Factor!:

 high-profile scandals involving unethical abuse of corporate power due to greed and conflict of Interests,

  In a number of cases, fraudulent/criminal activities by corporate officers.

 A lack of responsibility, accountability and oversight of corporate operations at every level of management;

 An inherent Blindness and human Complacency to Risk;  A people issue circumventing control systems in place

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Blindness to Risk -‐ Fraud

•  “

•  Madoff is amazing at understanding the US equity market”

•  Statement by Nicolas Harlick in 2007, a fund Manager who had $21 million invested with Madoff

Less than a year later Madoff giant Ponzi scheme exploded loosing a record $50 bn!


Blindness to Risk – Subprime Buble & Human Greed

“As long as the music is playing, we have to keep on dancing!” Statement by Chuck Prince in 2007, former CEO of Citibank Group


Blindness to Risk – Regulator Sleeping at the Switch

“Improvement in lending practices have enabled banks to reach out to Households with previously unrecognized borrowing capacities” Statement by Alan Greenspan, in October 2004

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Unrecognized borrowing capacities were actually the NINA households!


Blindness to Risk – Sichuan Earthquake 2008


The use of improper construction materials leads to many building collapse and dramatically increased to death toll. 68,000 people were confirmed dead.

Mismanagement of Risk: BP oil spill, Gulf of Mexico 2010

The catastrophe resulted in a loss of:  Direct Cost to BP: Over

$20 billion  Market capitalization loss.

i.e. cost to shareholders: $87 billion

 11 workers dead


BP platform explosion and oil spill could have been prevented with additional spending of $7 - $12 million on safety Controls. BUT the Investigation report noted that focus was on cost and time savings

BP Management ini:ally downplayed the Accident

Its CEO Tony Hayward called the amount of oil and dispersant "relatively tiny" in comparison with the "very big ocean.” Later, he drew an outpouring of criticism when trying to show concern to the victims of the pollution he said that the spill was a “dramatic disruption to the life of Gulf Coast residents”, however he then added, "You know, I understand I'd like my life back too."


CEO Tony Hayward Media Gaffes - Video


Impact on BP share price / market capitaliza:on

Gulf of Mexico Disaster

MTBE Contamination lawsuits

$243 Billions

$90 Billions

Enormous Shareholder Value Loss


2 -‐ people are vic:ms of risk: IMPACTS of any Crisis on Human Resources

1.  On the People  Get physically injured, have permanent disabilities and/or die  Be psychologically traumatized, change of personality & values 2.  On the Organization   Loss of key staff and intellectual knowledge  Absenteeism & high turnover  Underperforming staff due to trauma, low morale & demotivation   Increasing health benefits costs  HR-related legal concerns and costly litigations  Negative publicity for the organization and badly damaged

reputation


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Vulnerable HC  Death  Disability/Injuries  Traumas  Resignation

Ineffective HC  Failure to perform (panic

or paralysis)  Destructive Behavior

Major Risks about Human Capital during Crises


The EFFECT of a CRISIS situa:on on people


100% 20% 0

STRESS causes Mental NOISE during Crises

People who are under intense stress have difficulty hearing and processing information


Stress lead to Mental noise that interferes with a person’s ability to engage in rational discourse

The EFFECT of a CRISIS situa:on on people: Headless Chickens & Zombies

People is very vulnerable to extreme stress and hence are usually unable to deal effectively with Crise situations.. When confronted with a Crisis, most of the people will turn into either ..:


1 - Headless chickens 2 - Zombies

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The result is … Panic, poor decisions and/or paralysis in the face of disaster!


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3 -‐ People are the SOLUTIONS too!

Relationships

Behavior

Knowledge

Human Capital Skills

Command of a body of facts through Education

Facility, developed through practice, experience to carry out a technical or social task

observable ways of acting that contribute to accomplishing a task

Social ties within the firm and with key external parties

Relevant

Applicable

Aligned

Effective


The Human Factor in Crisis -‐ KEY to Success or Failure

NOKIA

Well-Handled Supply chain Disruption ensured effective

BUSINESS CONTINUITY


ERICSSON Badly-Handled Supply chain Disruption led to BUSINESS BREAKDOWN

How a small fire in a Philips Electronics Manufacturing Plant changed the mobile phone industry

≠

The Human Factor -‐ KEY to Mi:ga:ng Crisis Impact

2010 Haiti earthquake

Magnitude 7 About 220,000 fatalities


2011 Japan earthquake & Tsunami

Magnitude 9 About 19,000 fatalities

The Human Factor in Crisis -‐ Key to Saving Lives


About 600 people died in Tower 2. Loss of lives could have been minimized with more effective early recognition of the crisis situation.

In summary: The essen:al Importance of the HUMAN Factor in today’s business world

In today’s Information & Knowledge Economy, Organizations increasingly rely more on Human Capital (knowledge workers) to build competitive advantages and generate their profits, rather than just on equipment, technology and systems. But no matter their size, durability and successes, organizations are very VULNERABLE when something go wrong with their people. At the same time, people are the solution too!


3 -‐ What should be.. the Role of HR in Crisis Management Preparedness


Role of HR in Crisis Management Preparedness

Question: Should HR functions have a STRATEGIC role to play in risk management and crisis management in their organisations, or should they merely play a supporting operational role?

Clearly HR SHOULD have a STRATEGIC role and responsibility to : 1.  ensure their organizations are aware of the impact of

internal strengths & vulnerabilities on the human side to different types of crises and

2.  to ensure the crisis management plan covers all potential HR risks, concerns and needs.


Public Relations

Risk Management

Business Continuity

Operations dddddd

Legal eee

Human Resources

HEAD OFFICE CORE CM TEAM

Crisis Management Teams should include HR

Finance

Crisis Comm.

Operations Continuity

Emergency Responses

Human Support

SITE CRISIS CONTROL TEAM


Crisis Management Team, Systems, Procedures – Key Points about HR

1.  Necessity to coordinate and integrate with other key functions and plans i.e. Risk Management and Business Continuity Management

2.  Clarify who should be on your CMP team. Role of CEO, HR, PR, Lawyers & others.

3.  Clarify lines of responsibility, authority, and communication channels?

4.  STREAMLINE procedures and set up a specific structure and system applicable during a crisis, e.g. limit of authority & resources might be different from normal times

5.  Develop and maintain a comprehensive contact list for teams (24 hour contact information) and establish a notification system.

6.  Designate who will handle communications with the staff, media, public, government agencies and other key stakeholders.


For Organization to manage Risk & Crisis Effectively, they need to..

Stop THINKING like Mechanics…


Start ACTING like Gardeners.

Start ACTING like Gardeners.

¤ Do not waste your time trying to to predict everything,

But Instead build:

þ Organizational RESILIENCE against the potential Black Swans crises and

þ The CAPABILITY to ADAPT to exploit uncertainty & changes to create new opportunities for growth and profitability.



PREPAREDNESS is ESSENTIAL

For Effective Crisis Management

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Preparing Human Capital for Crises


Test and Improve with adequate & regular Scenario for simulations / table top exercises

þ Explosion þ Pollution þ  Fraud by employee þ Problem with JV Partner þ Web rumors & attack. Surviving a Crisis in Cyberspace þ NGO attack þ  Terrorist Attack þ Kidnap of Staff þ Sexual harassment complain þ Criminal indictment of executives þ Class action lawsuit


The Role of Training – Internalizing what to do…

þ Understanding individual roles and responsibilities þ  information about threats, hazards, and protective

actions þ notification, warning and communications procedures þ means for locating family members þ emergency response procedures þ evacuation, shelter, and accountability procedures þ  location and use of common emergency equipment þ emergency shutdown procedures þ Etc.


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Pressure

Time Potential Emerging Current Recovering

Road Map to Managing Risk & Crisis

Signal

CRISIS

Incident OR Signal

Issues Signal

Opportunity to influence Difficult to influence

Media Coverage & amplification


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If a company manage the crisis properly there actually may be beneficial outcomes that go far beyond survival and preservation of corporate value:

1.  Increased visibility and name recognition. 2.  An opportunity to show competency and leadership. 3.   Improved relations with important stakeholders’

groups, such as employees and customers. 4.   Lessons can be learned and changes made to prepare

for future crises. 5.   Building competitive advantage against less well

prepared competitors

Managing a Crisis well – Can bring lots of Benefits


Marc Ronez -‐ Chief Risk Strategist & Knowledge Leader at ARiMI -‐ Asia Risk Management Ins:tute

An ERM & Governance expert with 20 years of experience both as a practitioner, trainer & coach for large MNCs, Governments & Charities. Marc has an MBA from the University of Chicago GSB, an MSc in Insurance & a LLM from the University of La Sorbonne

What do I do? Help managers & leaders to use Risk Management to:

þ  Resolve difficult operational and business challenges þ  Take & manage risks effectively to build sustainable & profitable growth models


Marc’s specific areas of expertise include ERM, risk decision-making processes, corporate governance, Business Ethics, Social Responsibility, risk-aware culture, risk communication and crisis management, business model/Strategy Risk Management, corporate learning systems development.

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Risk Management is a con/nuous journey, not a des/na/on!


Marc Ronez is on Linked in & WordPress

You can find his profile & read his blogs at: P: sg.linkedin.com/pub/marc-ronez/1/3b6/465/ B: theriskmanagementparadox.com B: riskmanagementdemystified.com

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ARiMI – Asia Risk Management Ins:tute


ARiMI is an applied research and business studies ins0tute that was set up in 2003 (in partnership with NUS ext) and has established itself as the Ins0tute of Reference for Enterprise Risk Management studies in Singapore and in the region.

We FOCUS on programs:

1.   For Decision-‐Makers (Middle to Top Management): Developing PRACTICAL Knowledge & Skills in Risk & Crisis Management

2.   For Organiza:ons: Building CAPABILITIES for Sustainable and Profitable Growth by EMBEDDING Risk Aware & Crisis Readiness Culture

ARiMI, Asia Risk Management Ins:tute


ARiMI -‐ Focus and Exper:se

● Crisis management & Business Continuity

● Leadership risk decision-

making and Social Capital ● Reputational Risk &

stakeholders management ● Corporate governance &

business ethics ● Business Innovation &

Corporate Transformation

Research

● Professional Designation Programs

CERM (Certified Enterprise Risk Manager), CPRM (Certified Professional Risk Manager), ARM (Associate in Risk Management), FSRM (Fellow in Strategic Risk Management)

● Public Seminars and

Workshops ● Corporate Training &

learning Programs

Education

● Risks & Opportunities Assessment & Mapping

● Crisis & Business

Continuity Mgt ● Reputation Risk Mgt & CSR

● Business Ethics & Fraud

Risk Mgt ● Risk Appetite & Risk Aware

Culture Readiness ● Project risk management ● ERM Implementation Innovation & Change Mgt

Expertise


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For more information on ARiMI,

check our website at: www.arimi.org


Developing Effective Leaders & Decision-makers for complex & volatile times

Important Note: Please note that that this presentation and its contents, is the intellectual property of the Asia Risk Management Institute Pte Ltd. It has been prepared for this HR Summit 2013 session and it cannot be used for any other purposes without the specific written consent of the Asia Risk Management Institute.


HR summit 2013 - Role of HR in Crisis Management & Organizational Sustainability

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