Amidst all the uncertainties that surround us, businesses and economies have had to soldier on even as supply chains have broken down and hitherto valid assumptions have been rendered meaningless. It seems crazy that such a maelstrom of forces should be signified by a plain and simple word - Risk. Ultimately all our decisions have to factor that in because to assume things will continue as usual, is folly.
French philosopher Francois Ewald once said, “Nothing is a risk in itself; there is no risk in reality. But on the other hand, anything can be a risk; it all depends on how one analyses the danger or considers the event”.
Philosophers, of course, can afford to be ambivalent about risk. Not companies though, which is why in the corporate world, we have created a reality for risk – it is something we measure, we manage, we fear, we pre-empt and many a times pay the price for.
Yet there is one facet of risk in enterprises that hasn’t got the attention it deserves, despite the potentially disastrous consequences of being underprepared for it. This relates to the risks inherent in labour and employment laws which, if not addressed in time and with adequate focus, have the capacity to cause significant harm, ultimately resulting in a serious impact on a business’s reputation.
Imagine this - you are an MNC with a multi-million-dollar global business and you have just entered the Indian market. Your board of directors receives criminal summons for failure to issue employment orders in the required format to certain employees in India. This happened to a pharma major, not too many years ago. This is clearly risk gone bad. Where was the failing? It was simple mismanagement of a known compliance requirement which could have been easily prevented.
Similarly, in December 2021, a cell phone manufacturer. faced serious unrest at its plant near Bengaluru, with thousands of workers ransacking the office complaining that they were not getting their salaries. An investigation identified serious breaches of the labour laws caused partly by a lack of personnel with sound knowledge of labour laws. The unit was shut for several weeks following the rampage, and the vice-president who had been in-charge of the India business was removed.
It is apparent for these incidents that the repercussions of inadequately managing employment risk include far-reaching operational, legal, and financial penalties. As a result, it is vital that all levels of the company, including the Board, give employment-related concerns the attention they deserve. Indeed, if top management and the risk management functions work together and are in synch, a lot of employment risk issues can be pre-empted.
What then is the long game? The most fundamental change to ensure survival and ease in the long run is the right mindset. Preparedness must come as second nature. Risk evaluation must resonate in the DNA of the organisation and very importantly, compliance cannot be seen as a menace. These attributes must become a part of the ethos and culture of the organisation and its people.At BCP Associates, we manage risk for large organisations and have been doing so over the past couple of decades through employment law audits that are part of large enterprise audit or risk programs. Replete with process, methodology, technology and law. This type of well roundedness is an imperative.
Risk management is deeply driven by tech today and has been so for many years now. And going forward, it is only going to increase – Blockchain, AI, ML, NLP and the likes are going to be integral to risk management technology. But when we started such programs back then, there were very few takers. Over the last 20 years, we have seen adoption, elevation and had our clients recognise that we help them identify exposure and mitigate risk by taking timely action. Elevation of compliance through regular audits, has helped companies greatly eliminate or at least mitigate risk associated with the employment law regime. It has also ensured a great degree of preparedness and readiness when it comes to inspections or litigative process.
In these pandemic times, we have realised that human capital is the most valuable asset that we have. Employees are the differentiators. Pushed on by the “great resignation”, companies are going out on a limb to retain and hire talent. As a natural outcome of this haste and panic, compliance is likely to suffer. In the long run however, ensuring employee satisfaction can only happen with compliance. It can help mitigate the risk of attrition as well. There must therefore be sufficient impetus cast upon the need for a compliance culture within the organisation.
After statutory compliance, another area that is weak is employment contracts. Many a times, there is insufficient importance accorded to employment contracts and we see too many instances of companies being unable to terminate without notice, or there is too much notice, no probation, non-solicit violations and the likes. This is an easily addressable area that needs to be strengthened. Many cases of disparagement and deviations can be managed if employment contracts are structured and drafted the right way.
In Asian countries, if we look at Employment related non-compliances, the volume is compelling. For instance, removal from service (or illegal or non-standard dismissal) is one of the most regulated areas that comes with considerable penalty and significant enforcement, and yet it is the most commonly flouted provision despite the risk. This is true in many other geographies too including the US, UK & Europe. Solutioning on this front has to begin with a comprehensive and 360 degree assessment of the companies policies and contracts to ensure they are sound in language, intent and outcome.
So, to conclude, if you are in an environment where employment risks are not addressed the way it should be, a logical and immediate next step will be re-orienting from vulnerability to resilience. Strengthening the base through clear understanding and evaluation of the risk appetite, risk behaviour and safety climate in the organisation becomes essential. In risk management, there need to be both formal & informal structures. And these need to be in synch.
Formal through GRC frameworks where you keep Risk Management smart by creating the right risk data infrastructures and reporting mechanisms. And informal, which I think is more important, where the chatter and narratives going on throughout the organisation are brought into the fold of risk management through open channels of 2-way communication. This is because everything can look great on paper and in dashboards. But the reality on the ground could be very different.
Finally, it is all about establishing the right risk leadership, perhaps one that is dedicated to the area of employment but integrated with the organisation’s overall risk management strategy and philosophy. That, is the long game.
Follow LexTalk World for more news and updates from International Legal Industry.