Companies are working to link human resource departments within the strategic risk management process to address talent and other human capital risks, but there's still a way to go toward connecting the two.

Human capital risks are often among an organization's most critical risks, which can include succession planning for key executives, hiring and retaining top talent, labor negotiations and an aging workforce, among others.

While human capital exposures are so much a concern that many companies list the risks in their disclosure filings to the U.S. Securities and Exchange Commission, risk practitioners and human resource departments often are disconnected, experts say.

“A few years ago, we saw very few companies thinking about human capital risk as they were thinking about all their other risks,” said Ellen S. Hexter, New York-based senior adviser of enterprise risk management at The Conference Board Inc.

While people and risks “are integrally linked,” the challenge of linking strategic risk management with human capital risks is that such risks traditionally have been folded into operational risk, she said.

“Every enterprise risk management project that I've done in the last 12-plus years, there's always at least one or more human capital risks that are absolutely strategic,” said Corey Gooch, Chicago-based account director at Towers Watson & Co. “There is the issue about breaking down the silos, because risk managers are typically not seen as the expert in HR.”

Human capital risk is difficult to quantify, “so it's not seen with the same importance or priority to other people as risks like supply chain disruptions,” Mr. Gooch said.

Angel Hoover, Chicago-based group leader for rewards, talent and communications at Towers Watson, said human resource departments are working to quantify human capital risks.

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“We still haven't cracked the code, certainly,” she said. “But we're getting better because business leaders are also getting more sophisticated about the questions they ask about HR and human capital outcomes.”

As a result, HR departments are beginning to use different methodologies, including partnering with risk management and actuarial departments to model human capital risks, she said.

Human capital risks also are broad, ranging from succession planning risks to reputational risks, and no two organizations are handling the risks the same way, said Eddie Barrett, a Chicago-based director in Deloitte Consulting L.L.P.'s human capital consulting practice. “Some take a very narrow view of human capital risk and what the HR function should and shouldn't do, and some take a very broad view,” he said.

Frank Fiorille, Rochester, N.Y.-based senior director of risk management for Paychex Inc., said to get a handle around talent risks, an organization can utilize the traditional risk management process.

“I think you can put that risk through the traditional risk management apparatus and treat it almost as any kind of risk, whether it's credit risk or operating risk” to “analyze that risk and see where there's exposure,” Mr. Fiorille said.

Today, the Conference Board's Ms. Hexter is “encouraged,” as human capital issues more often are part of that overall strategic risk process when it comes to enterprise risk management.

A few years back, “many companies (had) a senior management-level risk committee, but there were very few heads of HR who were part of that committee, which is a big gap for companies,” Ms. Hexter said. “More and more, the person who runs HR globally is on that senior risk committee.”

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Increasingly, companies look to appoint a chief human resource officer, which facilitates human capital risk discussions at the senior level, Mr. Barrett said.

Additionally, some organizations have appointed chief risk officers directly under the HR function to handle talent risks, a trend that may grow, Mr. Barrett said.

“We are seeing that a lot more CHRO's are appointing somebody as kind of their right-hand person for all things risk in the human capital space. Then that person is the HR interface to the risk function,” Mr. Barrett said.

HR involvement in an organization's global risk strategy is “critical” to linking strategic risk management and human capital risks, Ms. Hexter said. “It is true, although not universally accepted, that both HR and risk should be enabling functions,” she said.

A two-way relationship must be in place between human resource and risk management departments in order to successfully link talent risks within the strategic risk management process, Ms. Hoover of Towers Watson said.

Human resource departments need to leverage the strong analytical skills found within risk management, she said. “The risk management group needs to recognize that there is a (return on investment) and a value that can be derived from what is done in the HR space that is very tangible.”