Why is Australia ignoring talent management and recruitment risks?

Why does employee attraction and retention matter? And what should we do?

In my previous article on people risks in the ASX 100, I stressed the point that people are one of the biggest risks that all companies need to consider. This means the attraction and retention of critical staff should be a key priority for all boards and executives.

Recap: Only 20% of the ASX 100 recognise that talent retention and attraction is a key business risk

In case you missed part 1, here’s the quick recap. Only 50% of ASX 100 companies declare any people related risks to investors in their annual report. This falls to just one in five companies declaring the importance of attracting and retaining top talent. You can see the quick summary on key people risks as declared by the ASX 100 below.

Chart of talent and share price


Today we’re looking at which industries (and companies) are best practice in understanding their talent attraction and retention risks

Chart of talent attraction and retention

You can see the breakdown by sector above. What we found really interesting here is how the healthcare and science sector makes no mention of attraction and retention. It’s common knowledge we don’t have enough science and technology graduates, so why do none of the top health and science companies declare attraction and retention as a risk? It seems that everyone is proclaiming a STEM shortage (apart from the companies who actually work in the industry).

And what about best practice at a company level?

Top 5 talent awarness companies
What are the best companies saying about talent risk and mitigation? We wanted to highlight some of the statements that we thought were best practice. So here’s five of the best:

  • ”People capability: Brambles is subject to the risk of not attracting, developing and retaining high-performing individuals. Furthermore, succession planning may not be managed effectively, so that talented individuals are able to be developed and promoted within the Group, rather than sourced externally. This could result in Brambles not having sufficient quality and quantity of people to meet its growth and business objectives.” – Brambles 2014 Annual Report
  • “Myer supports the development of all our team through regular performance feedback, goal setting and career development sessions. Further skill and capability development opportunities are offered through on the job training, instructor-led training and online learning modules.” – Myer 2013 Annual Report
  • “The attraction of high calibre employees, particularly for business critical roles is an ongoing challenge and despite a weakening resources sector, there continues to be a very competitive employment market for skilled professionals. Along with the focus on people-related productivity improvements, Monadelphous will continue to invest in the development and retention of its key talent to enable the Company to successfully achieve its vision and maintain its competitive advantage.” – Monadelphous 2013 Annual Report
  • “Through the enhanced Performance and Talent process we have identified critical talent, including critical female talent, and have adopted a targeted retention approach for these employees. Our focus on retaining female employees has been supported in specific development programs including Career Conversations for Top Talent female managers, ATP, and provided industry networking opportunities such as Glass Elevator luncheons.” – Coca-Cola Amatil 2013 Annual Report
  • “Retention – focus on retaining talent in APA –– Continue to offer flexible work arrangements through part time hours, job sharing, flexible start and finish times and purchase of additional annual leave. Over 90% of all flexible work arrangement requests have been approved during the Reporting Period. This includes a job share arrangement approved for two senior women in leadership roles. APA will continue to support such requests, where possible and appropriate.” – APA 2013 Annual report

Talent risk is only set to increase: So what should boards and executives do?

As I’ve written about previously, we’re going to have more positions than people very soon.  Companies of all sizes need to be thinking about how to attract and retain top performers now, before the talent crunch hits. As our economy continues to grow faster than our population, we’ll have more jobs than we have people to fill them.

And as we touched on recently in our investigation into average employee value, companies have more invested in each individual employee than ever before. As that research showed, the future of work is likely to feature increasingly smaller companies with larger valuations. In this future, each individual employee is worth more to their organization than ever before. And as we all know, the smaller the organization, the larger the talent risk.

We know that the talent crunch is going to make quality employees harder to find and more expensive. For the majority of companies, there’s simply no excuse for not being upfront about the attraction and retention risk that they are facing. Here’s my two key recommendations for Australian boards and executives:

Recommendation 1: The risks around retention and attraction need to extend to more employees than executives and board members.

Most of the mentions of attraction and retention risks we found pertain to board members and executives. There’s no doubt that these people are key single point sensitivities. And they should be recognized as such in the annual report.

But there’s almost certainly other roles that are just as hard to recruit for (and are just as sensitive in terms of performance of the organization. There are sections in every annual report on the bonuses paid to board members as retention incentives.  But there’s almost no mention of how to attract and retain top employees in any other part of the company. The recent underperformance of 2dayFM in Sydney following Kyle Sanderlands departure provides a very practical example of why key roles don’t always have to sit in the c-suite.

You need to have strategies in place to retain all your top performers regardless of what they do. Of course you want the best board members and executives, but talent risks and seniority aren’t always one and the same. Investors care about the risks to company performance, not the risks to the most senior staff. There’s a big difference here that is missed in just about all annual reports.

Recommendation 2: Organisations need a retention and attraction strategy (not just awareness)

A lot of annual reports mentioned the importance of attracting and retaining top talent, without explaining how. You can talk retention all you want, but it’s critical to have a strategy to back it up. In the same way, an annual report wouldn’t say the organization was planning to double business output without explaining how. Clear disclosure about the attraction and retention strategy is key information for investors in understanding how likely a business is to succeed in the near future.

In the examples above, Coke and APA do the best job of not just setting out the importance of talent to the business, but also clearly stating key strategies for retention and attraction. With Coca Cola, it’s about targeted networking and career conversations. At APA, it’s all about flexibility. It’s very easy to understand that they were written by a manager at the front line with actual experience in retaining staff. Whilst I love Brambles statement on the importance of their staff and talent – it’s very hard to understand what that actually means in terms of actions that managers are expected to take day-to-day.

Have you got another board level talent recommendation you’d like to see implemented across Australia’s largest companies?

If so, I’d love you to join me on Twitter @Cognology and let me know your thoughts. I’ll publish and retweet any great suggestions over the coming week.

50% of Australia’s largest companies ignore people as a key business risk: New Cognology research

Through my work at Cognology I spend most of my life thinking about talent management and employee risk. But I wanted to understand how much time other Australian CEOs and CFOs spend thinking about their key employee and people risks. So with my team of helpers here at Cognology HQ we’ve spent the past few weeks investigating how the largest companies in Australia recognise people risks.

To do this, we compiled the most recent annual reports for each of the ASX 100 (the largest 100 companies in Australia). We were looking at the section where each of these companies declare key business and investment risks. Broadly, this section is meant to describe all the critical risks that investors need to think about when choosing whether to invest money into the company or not.

We wanted to see which companies recognised people as a key business risk – and which didn’t. I suspected we’d get some variance, and that we’d find some outliers who ignored their people all together. But the truth was more astounding. It’s worth remembering here that we’re dealing with the 100 largest, most sophisticated companies in Australia. And when documenting their key business risks, just half declare ANY key business risk that’s related to their employees.

Just 50% of ASX Top 100 listed companies mention ANY employee related risk in the key business risks section of their latest annual report.

Remember that companies are required to disclose all key business risks to investors. And we’re talking about Australia’s largest and most sophisticated organisations. Yet people risks receive no mention at all for half of these companies.

Graph of people related risks in Australia's largest companies annual report

I’d argue that for just about all of these companies, people are the most complex and unpredictable single part of the business. Which is exactly why I believe that people are the most valuable resource, and the biggest risk, to any organization. We’ll get back to my talent rant in a minute – but first some more context around the data.

The key employee risks that we were looking for

In working through these 100 or so annual reports, we classified employee and people risk into 5 common categories:

  • Employee injury or safety. Here’s a good example from Dulux’s 2013 Report ”A death or major injury in the workplace would be devastating for employees and families and could jeopardise the group’s reputation as a first-choice employer.” 
  • Industrial relations risks. Risks like this one from Asciano’s 2013 report: ”[The risk of] Industrial relations activity that impacts the Company’s ability to meet its contractual and customer expectations”
  • Retention and attraction of key personnel. For example from Brambles 2014 Annual Report: ”Brambles is subject to the risk of not attracting, developing and retaining high-performing individuals. Furthermore, succession planning may not be managed effectively, so that talented individuals are able to be developed and promoted within the Group, rather than sourced externally. This could result in Brambles not having sufficient quality and quantity of people to meet its growth and business objectives.”
  • Inability to execute strategy or innovate. Here’s an example from Worley Parsons 2013 Annual Report: ”The risk of failing to develop and implement an effective business strategy. Failure to do so may over time lead to a loss of market share, damage to our reputation and negatively impact our financial performance.”
  • Non-compliance with regulation or unethical practice. For example from Woolworths 2013 Annual Report: “There is a risk of non-compliance with, or additional obligations relating to, legal and regulatory obligations and expectations which may have a negative impact on Woolworths’ performance”.

Of these risks, employee injury was the most commonly cited

Just under a third of the largest companies in Australia mention employee safety and injury as a key business risk. It’s quite incredible just how many companies (especially in the resources sector) open up the annual report by stating: “safety is our #1 priority”, but then completely ignore safety in the key investment/business risks.

Chart of employee injury

Of the other people risks, “non-compliance” was the second most common, followed by “retention and attraction of key personnel” and “Inability to execute strategy or innovate”. “Industrial relations risks” were least commonly cited, with just over 1 in 10 companies describing this risk in their annual report.

Only one in five companies makes the connection between talent and the share price!

I was shocked that “retention and attraction of key personnel” is cited by just one in five companies. I simply can’t believe this – based on the HR departments I’m talking to, this is a key concern for nearly 100% of large Australian companies. As these CHRO’s know, there’s a real war for top talent (whether that means building it or buying it).

But clearly the CFO is struggling to make the connection to the impact on the share price. So maybe the alternative way we should present this stat is: “only one in five Australian CFOs recognizes the risk of poor talent management on the future share price”.

Chart of talent and share price

People are the most valuable resource (and the biggest risk) to any company.

I’m still astounded by these results. Based on the large number of Australian companies who ignore people risk, I’m left wondering if some of these companies are secretly run by robots?
That said, I can understand how this happens. The CFO and the lawyers sit around in a room brainstorming investment risks. And they probably copy and paste from last year’s report most of the time.
But, why I’m so concerned is failure to recognize a risk is failure to plan for the risk. Because for most of these companies – talent and people are by far the biggest risk to the future share price. And perpetuating the illusion to shareholders that people are “all under control” is a massive mistake.
Personally, I’m looking forward to the day when the ASX makes it mandatory to report on your talent management strategy. I think it will be a great win for investors, and force CFOs to confront the talent challenge from a dollars and cents perspective. And I have no doubt that over the next 15 years we’ll see it happen. But we’ve got a long way to go yet. And getting more than one in five of the largest, most sophisticated companies in Australia to recognize the direct connection between attracting and retaining key people and the future share price is the first step.
When I look through the ASX 100 annual reports next year I hope to see more declarations of people risks. I’m also looking forward to monitoring the 50% of companies that don’t declare people risks. You can bet they’ll struggle in the coming years if the perspective in the c-suite doesn’t change.

And finally, make sure you stay tuned to the Cognology blog – we’ll release more detail from this research including an industry-by-industry breakdown over the coming weeks. Any guesses on how your industry shapes up?

About the data

This data uses the latest annual report publically available on the company website as at late September 2014.