Humans are ‘risk-creating’ animals

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Every business has its own unique attitude to risk and there are pros and cons to both high and low risk approaches. But your organisation’s risk culture can have severe repercussions at the hiring level.

Human beings are ‘risk-creating’ animals. Other than earthquakes and floods, we are the biggest everyday risk each other faces. We have also become highly risk-adverse and in the process, are keen ‘risk-assessing’ animals.

Play it safe or throw caution to the wind?

Human risk is a big part of a company’s overall risk profile, which also includes market risk, credit risk, political risk etc. Recruitment and hiring are the critical points at which decision makers dial-up or dial-down the human risk component of their business. So, it’s critical that only well-aimed risks are taken when investing in new people.

Recruitment and hiring are poor words to describe what hiring really represents – it’s an investment, the value of which could go up or down quickly. Sloppy hiring decisions contribute to the risk of company underperformance, loss of market share or worse.

Furthermore, human beings are group living animals that operate in crowds and packs. Put too many risk-takers in charge of resources and an accepted risky culture begins to embed itself – much like the 2007 market for credit default swaps.

That Entrepreneurial Spirit

Entrepreneurs are bigger risk takers. If companies want an entrepreneurial culture, then they have to reconcile that with their risk appetite and the relevant controls. If companies go down this route, accurate, data-led hiring decisions should help control the risk/reward equation, not lose it altogether.

Organisations should consider assessing attitudes to risk in candidates if it is relevant to the role, otherwise it is unnecessary bureaucracy. I wouldn’t recommend doing it informally, however. We all have an attitude to risk and someone assessing a candidate’s attitude will be subject to their own biases. Scientifically-valid tools are always the best place to start. The best way would be to engage an assessment firm who is well-versed at doing this. As they do it regularly across many companies, they typically have a reasonably good idea of what benchmark looks like. As with most things though, you get what you pay for.

One of our financial services clients had an issue with a team of four analysts coming very close to an insider trading compliance issue. Only one of the analysts came forward to report it, the others were going to stay quiet – classic risk-acceptant crowd mentality. Prevention is better than reaction. We would advise investing heavily in the search and hiring process. Following that, invest in good leaders who don’t overburden capable people with processes, but instead provide freedom within an accepted framework of risk.

Remember: Hire slow, fire fast.