Human capital risk, or the gap between an organization’s goals and its workers’ skills, can arise from multiple sources. Many organizations have experienced an increase in human capital risks since the Spring of 2020, due to the COVID-19 pandemic, social justice movements, and economic factors. As such, organizational leaders are being called upon to identify and address various issues that increase employment, compliance, and operational gaps, such as diversity, culture, enablement, retention, and productivity. On December 2, 2021, the MBSA presented Human Capital Risks, a webinar addressing major trends shaping human capital risk and how they affect organizations, featuring Fred L. Hencke, Senior Vice President of Segal Management, HR Consultant, and M&A Solution Leader.

Hencke characterized human capital risk as the undesirable consequences and adverse impacts organizations experience due to their inability to effectively retain, engage, enable, equip, lead, or manage the workforce needed for future success. Human capital risk poses legal, operational, financial, and reputational challenges, like compliance, turnover, and ransomware. The past year and a half accelerated the need to pay close attention to more aspects of human capital, including labor shortages, employee wellbeing, remote and hybrid work situations, social justice, and changes to employment law and compliance requirements. It is anticipated that these aspects will extend into the next decade.

Hencke and his organization recently polled over 200 corporate board members of public companies and asked them to rank workforce risks from their vantage point. They found that skill gaps and talent shortages were identified as the most important issue for leadership to manage in the short term, followed by employee well-being, insider security threats, flexible work arrangements, COVID-19 mutations, and other community-based health matters, and communicating the company’s stance on environmental and social governance.

Hencke then addressed the concerns in order of importance, beginning with the complications of competing for talent in a tight labor market.  The U.S. labor market is experiencing  shortages not seen in decades, especially for blue-collar and manual service jobs. The working-age  population is slowing dramatically as Baby Boomers retire, and women are leaving the workforce at an alarming rate, with less than 80%  of women between 25 and 54 participating in the labor force—more than 10% fewer than in the 1990s. Compared to earlier decades, young men without a college degree are less likely to be in the labor force, and skilled trades,  nurses, software engineers, and cyber security specialists are in demand and hard to find or retain. Additionally, there is a recent demographic shift to rural and suburban communities as opposed to larger urban areas.

To address workforce issues, organizations need better talent acquisition and retention strategies, like assessing, hiring, and retaining skilled workers to fill open positions within the organization and keeping high-performing talent. Successful talent acquisition and retention leads to increased productivity and the completion of strategic goals. Law firms and their partners should avoid

• posting jobs with implied preferences;

• applying assessment methods that discriminate, are not job relevant, or potentially invade privacy;

• compliance missteps related to state-specific guidelines on background and reference checks; and

• including pay in the formal job offer that does not align with the skill and requirements of the job.

Hencke recommended reinventing talent acquisition strategies. Law firms should consider posting clear job descriptions, especially skill requirements, and wording them to eliminate bias. They should also provide workplace anti-harassment and discrimination training. Digital skills are in demand and currently are very challenging to attract and retain. As such, traditional employment agreements may no longer work. There is a digital literacy gap as well, as many supervisors have no or limited digital capabilities. Employee value propositions that better align with employee expectations, flexible work environments and schedules, broad candidate searches, ensuring safe workplaces, and enhancing employee referral programs can help mitigate workforce issues.

Hencke then addressed employee well-being. While well-being and wellness are used interchangeably, they are not the same thing. He defined well-being as the ability to cope with the mental, emotional, and financial issues that arise in life, while wellness is the ability to maintain a healthy quality of life by focusing on physical things like sleep and nutrition. They are interrelated, though, as issues with one can impact the other. They are important because 75% of medical costs are due to preventable conditions, and lost productivity due to medical issues costs employers a substantial amount of money each year. Employee burnout is becoming more common as well. Hencke explained that strong leadership, transparency, and a workforce of employees who are physically and emotionally well leads to a more agile organization, and organizations that are more agile outperform their peers in the market. Companies should focus on integrating employee well-being and providing enhanced financial and mental health support.

The webinar then addressed flexible work arrangements. Hencke explained that having remote and hybrid workforces means providing the technology and tools needed to support teams, collaboration, and operations seamlessly across multiple work locations. He noted that remote and hybrid work benefits employees by providing freedom to choose a location, the reduction in commute times, and flexible schedules. Law firms and other organizations moving to a remote or hybrid work environment will need to modify various policies, employee accommodations, hiring/onboarding processes, organization structures, and operational procedures. The benefits of providing employees with a gratifying and engaging work environment include increased productivity, engaged employees, a strong culture, and higher retention rates. It also allows employers to attract better talent.

Hencke noted that the pandemic required rapid responses to changing conditions. Necessary changes included removing hierarchical boundaries in order to accelerate decision making, quickly implementing digital solutions to respond to customer needs, protect  employees, and improve efficiency, and realigning the workforce. The pandemic has also revealed that many companies’ business continuity plans need to be updated to reduce risks and address what is appropriate in the long term. Companies will also need to update their compliance and diversity policies and effectively communicate them to their employees. Finally, in light of the significant increase in the volume of mergers and acquisitions, Hencke explained what measures organizations can take to ensure transactions going forward.

The entire presentation will be available in the MSBA’s CLE catalog.