Risk management in the recruitment sector: The heat is on - but how hot is it?

Like every industry, the recruitment sector is continually managing change, most recently due to the rapidly changing economic conditions and market fluctuations. With constant change, it is important to step back and reflect. What are your priorities? What is important to your business? Where are the opportunities? How are you capitalising on these? What are the potential pitfalls? How will you avoid these? Where should you focus your attention?

To many, the phrase ‘risk management’ can act like anaesthetic, conjuring up images of high viz jackets, clip boards and endless checklists or that last agenda item, the risk register – a behemoth of a spreadsheet that will either be worked through line by line until all at the meeting are comatose or it is just recorded in the minutes as ‘contents noted’. And yet increasingly we are seeing business leaders who are now thinking more about how they can adopt a strategic approach to the management of risk, considering all of the above important questions.

At RSM, we are hearing business leaders use the phrase ‘risk management re-set’ to get a better understanding on where to focus their risk management energy. The management of strategic risk is a key component in the execution of business strategy. If you lose sight of and don’t manage these strategic risks correctly, things can go very wrong, leading to a material loss or lost opportunity. You will need to spend resources and efforts rectifying a problem, or even rebuild your reputation and it could end the business strategy you were pursuing.

What is a strategic risk?

What does strategic risk entail exactly? A strategic risk can be defined as, “a risk that if it were to materialise will have a fundamental impact on one, some or all of your business objectives. The risk will be material by nature; you will feel it and know about it should it occur; it will be either as a loss or lost opportunity. As a business leader you will recognise this as being important and that you talk about (or should be talking about) in your board room”.

What strategic risks?

Our risk advisory team work with a large range of businesses helping their leaders to understand their strategic risks, their appetite for these risks and how to best tackle them. Board room discussions can then help consolidate thinking, bring to the foreground risks that were previously not visible and give focus to future board room discussions, decisions, and plans.

Through our advisory work with a range of businesses from SMEs to PLCs, we have developed the RSM Strategic Risk Barometer.

As a result of strategic risk identification sessions we facilitate, we can identify which strategic risks are the most prevalent – quite literally ‘what’s hot?’ in the board room. Our method involves a short survey of business leaders, including board members. Responses are then analysed, leading to a board room check and challenge discussion to identify and agree a set of strategic risks, typically between 7 and 12 in number, that will become a key part of the board agenda going forwards. Supplementing this mechanism, we have also introduced our ‘Emerging Risk Radar’ which looks to identify those risk events that are still morphing, they may become strategic risks in their own right or they may play through into your current strategic risks profile and require risk mitigation plans to be revised.

The RSM Strategic Risk Barometer – What’s hot?

The RSM strategic risk barometer includes 17 strategic risks, ranked by order of prevalence in strategic risk registers. We would encourage all recruitment businesses to review these strategic risks and ask themselves the following questions:

• Is the business exposed to this type of risk?
• If the business is not exposed to this type of risk – then why not? (It is important to understand why not)
• If so, then how and in what way is the business exposed to this type of risk? What level of risk exposure is the business carrying?
• How is this risk currently being managed? is this sufficient? Should we and could we be doing more?

Highlighted below are the current top 5 risks (as of November 2022) on the RSM strategic risk barometer with some high-level commentary for consideration by recruitment businesses.

Strategic risk themes

1. Safety and well-being (including safeguarding) 

This always takes business leaders by surprise and, despite my tongue in cheek comment re high viz jackets earlier, this is the one area where a business leader could find themselves in a court of law or find the business facing a large fine, possible negligence claim, reputation damage – the list goes on.

Business leaders are recognising the need to ensure staff are looked after. There is a duty of care, ensuring that staff are fit and well and that they can perform their duties.

As a recruitment business, you should ensure this is taken seriously by the businesses where your candidates are placed, so that you are not as a result complicit in placing them in an un-safe environment.

Related is the issue of safeguarding; how far do you go to check that staff you are placing will not bring harm to others in their role?

2. Resilience and quality

Since the UK emerged from the global pandemic, ‘resilience’ has become a hot topic. It naturally links to quality of services provided, in that if your business is not resilient then the quality soon deteriorates or at worst you might struggle to even provide the services.

As a recruitment business, are your resilience and continuity plans effective? Can they accommodate what might be thrown at you in future – be this fire, flood, another pandemic - or a cyber-attack, likely rendering your systems and infrastructure un-useable?

With regards to quality of services to your clients, to what extent is this subject to measurement and review? How can this be improved? How can this be made more efficient, commercial and effective?

This is particularly important in the recruitment industry, where competition may move into your space in the market if your services are not resilient and not of a suitable quality.

3. Recruiting, developing and retaining staff

How can businesses maintain and develop the right levels of capacity and capability? The phrase ‘war on talent’ is now over-used but sums up well what is being experienced so far across all markets. In many instances, business leaders are looking to more innovative methods of managing this risk. After all, the cost of recruitment and potentially poor appointment is high.

Recruitment businesses are positioned at the heart of this issue, understanding their client needs and helping their clients achieve this goal and manage this risk while working collaboratively to find people resource solutions. They have to work hard to find the right candidates to meet client needs, as well as ensure that their own recruitment consultants are fit for future.

This area of risk is, however, likely to change, especially as we move into a predicted economic slowdown and the strategies being pursued need to be re-shaped. Recruitment businesses may experience a range of both positive and negative impacts and need to be looking ahead and scenario planning accordingly.

4. Financial sustainability

This comes as no surprise and is applicable to all businesses and is likely to come into sharper focus as the economic downturn takes hold. How will this affect the strategic risk theme relating to recruitment and retention, and in what way will this play through into business recruitment needs – how will they change?

Recruitment businesses can start to look at financial stress testing their business plans and models, like any business as a means of identifying what course of action may need to be followed.

The pandemic shifted the focus around the use of digital to the forefront. The economic downturn may be the driver of the next business to business revolution involving more innovative delivery and operating models, diversification, collaboration and strategic alliances. Recruitment businesses should be looking to explore these options and how they may provide for increased financial resilience.

5. Compliance and regulation

All businesses are subject to this in some form, from legal regulations to codes. The risk is non-adherence and the implications thereon. In some industries, this could lead to their licence to operate being revoked.

Businesses will need to ensure that their staff are familiar with policies and procedures, that training is up to date and that this can be demonstrated, and that the business is alert to the types of non-compliance risk it may face and to what level. This is non-negotiable. However, meeting minimum standards doesn’t mean quality of provision.

Recruitment businesses are no different and need to be alert to the level of compliance risk they may face and most importantly, that they are on top of their regulatory requirements. These types of risks when they materialise can be very distracting and damaging.

What should recruitment businesses do next?

Recruitment business leaders should take time to consider their own strategic business risk profile, to understand it and what it may mean for the business. Crucially ensuring the right level of focus and resources are committed to managing these risks to the level that is acceptable.

If the management of strategic risk is not suitably visible within your recruitment business, then now is the time to make it visible. Maybe a ‘risk management re-set’ is due?

If you wish to take a further look at the RSM Strategic Risk Barometer, RSM Emerging Risk Radar, discuss further how you might determine your strategic risk profile or RSM Insight4GRC Risk Management digital solution, please contact Matthew Humphrey.